Capitalism

Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the market rather than by central planning by the government; profit is distributed to owners who invest in businesses, and wages are paid to workers employed by businesses and companies.
There is no consensus on the precise definition of capitalism, nor how the term should be used as an analytical category.[1] There is, however, little controversy that private ownership of the means of production, creation of goods or services for profit in a market, and prices and wages are elements of capitalism.[2] There are a variety of historical cases to which the designation is applied, varying in time, geography, politics and culture.[3] Some define capitalism as where all the means of production are privately owned, and some define it more loosely where merely "most" are in private hands —while others refer to the latter as a mixed economy biased toward capitalism. More fundamentally, others define capitalism as a system where production is carried out to generate profit, or exchange-value, regardless of legal ownership titles. Private ownership in capitalism implies the right to control property, including determining how it is used, who uses it, whether to sell or rent it, and the right to the revenue generated by the property.[4]
Economists, political economists and historians have taken different perspectives on the analysis of capitalism. Economists usually emphasize the degree that government does not have control over markets (laissez faire), and on property rights.[5][6] Most political economists emphasize private property, power relations, wage labor and class.[7] There is general agreement that capitalism encourages economic growth[8]. The extent to which different markets are free, as well as the rules defining private property, is a matter of politics and policy, and many states have what are termed mixed economies.[7]
Capitalism as a deliberate system of a mixed economy developed incrementally from the 16th century in Europe,[9] although proto-capitalist organizations existed in the ancient world, and early aspects of merchant capitalism flourished during the Late Middle Ages.[10][11][12] Capitalism became dominant in the Western world following the demise of feudalism.[12] Capitalism gradually spread throughout Europe, and in the 19th and 20th centuries, it provided the main means of industrialization throughout much of the world.[3] Today capitalist system is the world's most dominant form of economic model.
Contents [hide]
1 Etymology and early usage
2 Economic elements
3 Types of capitalism
3.1 Anarcho-capitalism
3.2 Mercantilism
3.3 Free-market capitalism
3.4 Social market economy
3.5 State capitalism
3.6 Corporate capitalism
3.7 Mixed economy
3.8 Other
4 History
4.1 Mercantilism
4.2 Industrialism
4.3 Keynesianism and neoliberalism
4.4 Globalization
5 Neoclassical economic theory
5.1 The market
5.2 Role of government
6 Democracy, the state, and legal frameworks
6.1 Private property
6.2 Institutions
6.3 Democracy
7 Political benefits
7.1 Economic growth
7.2 Political freedom
7.3 Self-organization
7.4 Moral imperative
8 Criticism
9 See also
10 Notes
11 References
12 Further reading
13 External links
[edit]Etymology and early usage
Other terms sometimes used for capitalism:
Capitalist mode of production
Economic liberalism[13]
Free-enterprise economy[12][14]
Free market[14][15]
Laissez-faire economy[16]
Market economy[17]
Market liberalism[18][19]
Self-regulating market[14]
Capital evolved from Capitale, a late Latin word based on proto-Indo-European caput, meaning "head"—also the origin of chattel and cattle in the sense of movable property (only much later to refer only to livestock). Capitale emerged in the 12th to 13th centuries in the sense of funds, stock of merchandise, sum of money, or money carrying interest.[10][20][21] By 1283 it was used in the sense of the capital assets of a trading firm. It was frequently interchanged with a number of other words—wealth, money, funds, goods, assets, property and so on.[10]
The term capitalist refers to an owner of capital rather than an economic system, but shows earlier recorded use than the term capitalism, dating back to the mid-seventeenth century. The Hollandische Mercurius uses it in 1633 and 1654 to refer to owners of capital.[10] Arthur Young used the term capitalist in his work Travels in France (1792).[21][22] David Ricardo, in his Principles of Political Economy and Taxation (1817), referred to "the capitalist" many times.[23]
Samuel Taylor Coleridge, an English poet, used capitalist in his work Table Talk (1823).[24] Pierre-Joseph Proudhon used the term capitalist in his first work, What is Property? (1840) to refer to the owners of capital. Benjamin Disraeli used the term capitalist in his 1845 work Sybil.[21] Karl Marx and Friedrich Engels used the term capitalist (Kapitalist) in The Communist Manifesto (1848) to refer to a private owner of capital.
The term capitalism appeared in 1753 in the Encyclopédie, with the peculiar meaning of "The state of one who is rich".[10] However, according to the Oxford English Dictionary (OED), the term capitalism was first used by novelist William Makepeace Thackeray in 1854 in The Newcomes, where he meant "having ownership of capital".[21] Also according to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the term private capitalism in 1863.
The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850 and Pierre-Joseph Proudhon in 1861.[25] Marx and Engels referred to the capitalistic system (kapitalistisches System)[26][27] and to the capitalist mode of production (kapitalistische Produktionsform) in Das Kapital (1867).[28] The use of the word "capitalism" in reference to an economic system appears twice in Volume I of Das Kapital, p. 124 (German edition), and in Theories of Surplus Value, tome II, p. 493 (German edition). Marx did not extensively use the form capitalism, but instead those of capitalist and capitalist mode of production, which appear more than 2600 times in the trilogy Das Kapital.
Marx's notion of the capitalist mode of production is characterised as a system of primarily private ownership of the means of production in a mainly market economy, with a legal framework on commerce and a physical infrastructure provided by the state.[29][page needed] Engels made more frequent use of the term capitalism; volumes II and III of Das Kapital, both edited by Engels after Marx's death, contain the word "capitalism" four and three times, respectively. The three combined volumes of Das Kapital (1867, 1885, 1894) contain the word capitalist more than 2,600 times.
An 1877 work entitled Better Times by Hugh Gabutt and an 1884 article in the Pall Mall Gazette also used the term capitalism.[21] A later use of the term capitalism to describe the production system was by the German economist Werner Sombart, in his 1902 book The Jews and Modern Capitalism (Die Juden und das Wirtschaftsleben). Sombart's close friend and colleague, Max Weber, also used capitalism in his 1904 book The Protestant Ethic and the Spirit of Capitalism (Die protestantische Ethik und der Geist des Kapitalismus).
[edit]Economic elements
This section needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (May 2010)
Capitalist economics developed out of the interactions of the following elements.
A product is any good produced for exchange on a market. "Commodities" refers to standard products, especially raw materials such as grains and metals, that are not associated with particular producers or brands and trade on organized exchanges.
There are two types of products: capital goods and consumer goods. Capital goods (i.e., raw materials, tools, industrial machines, vehicles and factories) are used to produce consumer goods (e.g., televisions, cars, computers, houses) to be sold to others. The three inputs required for production are labor, land (i.e., natural resources, which exist prior to human beings) and capital goods. Capitalism entails the private ownership of the latter two—natural resources and capital goods—by a class of owners called capitalists, either individually, collectively or through a state apparatus that operates for a profit or serves the interests of capital owners.
Money was primarily a standardized medium of exchange, and final means of payment, that serves to measure the value all goods and commodities in a standard of value. It eliminates the cumbersome system of barter by separating the transactions involved in the exchange of products, thus greatly facilitating specialization and trade through encouraging the exchange of commodities. Capitalism involves the further abstraction of money into other exchangeable assets and the accumulation of money through ownership, exchange, interest and various other financial instruments. However, besides serving as a medium of exchange for labour, goods and services, money is also a store of value, similar to precious metals.
Labour includes all physical and mental human resources, including entrepreneurial capacity and management skills, which are needed to produce products and services. Production is the act of making products or services by applying labour power to the means of production.[30][31]
[edit]Types of capitalism
Economics
  Economies by region [show]
General categories
Microeconomics · Macroeconomics
History of economic thought
Methodology · Heterodox approaches
Techniques
Mathematical · Econometrics
Experimental · National accounting
Fields and subfields
Behavioral · Cultural · Evolutionary
Growth · Development · History
International · Economic systems
Monetary and Financial economics
Public and Welfare economics
Health · Education · Welfare
Population · Labour · Managerial
Business · Information · Game theory
Industrial organization · Law
Agricultural · Natural resource
Environmental · Ecological
Urban · Rural · Regional · Geography
Lists
Journals · Publications
Categories · Topics · Economists
Economic ideologies [show]
The economy: concept and history
Business and Economics Portal
This box: view • talk • edit
There are many variants of capitalism in existence. All these forms of capitalism are based on production for profit, at least a moderate degree of market allocation and capital accumulation. The dominant forms of capitalism are listed here.
[edit]Anarcho-capitalism
Main article: Anarcho-capitalism
See also: Free-market anarchism
Anarcho-capitalism is a libertarian and individualist anarchist political philosophy that advocates the elimination of the state and the elevation of the sovereign individual in a free market. In an anarcho-capitalist society, law enforcement, courts, and all other security services would be provided by voluntarily-funded competitors such as dispute resolution organisations and private defense agencies rather than through taxation, and money would be privately and competitively provided in an open market.
[edit]Mercantilism
Main article: Mercantilism
See also: Protectionism
A nationalist-oriented form of early capitalism that uses the state to advance national business interests abroad, and holds that the wealth of a nation is increased through a positive balance of trade with other nations.
[edit]Free-market capitalism
Main article: Free-market
See also: Laissez-faire
Free market capitalism consists of a free-price system where supply and demand are allowed to reach their point of equilibrium without intervention by the government. Productive enterprises are privately-owned, and the role of the state is limited to enforcing property rights.
[edit]Social market economy
Main article: Social market
A social market economy is a nominally free-market system where government intervention in price formation is kept to a minimum, but the state provides for moderate to extensive provision of social security, unemployment benefits and recognition of labor rights through national collective bargaining schemes. The social market is based on private ownership of businesses.
[edit]State capitalism
Main article: State capitalism
State capitalism consists of state-ownership of profit-seeking enterprises that operate in a capitalist manner in a market economy; examples of this include corporatized government agencies or partial ownership of shares in publicly-listed firms by the state. State capitalism is also used to refer to an economy consisting of mainly private enterprises that are subjected to comprehensive national economic planning by the government, where the state intervenes in the economy to protect specific capitalist businesses.
[edit]Corporate capitalism
Main article: Corporate capitalism
See also: State monopoly capitalism
Corporate capitalism is a free or mixed market characterized by the dominance of hierarchical, bureaucratic corporations, which are legally required to pursue profit. State monopoly capitalism refers to a form of corporate capitalism where the state is used to benefit, protect from competition and promote the interests of dominant or established corporations.
[edit]Mixed economy
Main article: Mixed economy
A largely market-based economy consisting of both public ownership and private ownership of the means of production. In practice, a mixed economy will be heavily slanted toward one extreme; most capitalist economies are defined as "mixed economies" to some degree and are characterized by the dominance of private ownership.
[edit]Other
Other variants of capitalism include: anarcho-capitalism, corporate capitalism, crony capitalism, free-market economy, finance capitalism, laissez-faire capitalism, late capitalism, neo-capitalism, post-capitalism, state capitalism, state monopoly capitalism and technocapitalism.
[edit]History
Main article: History of capitalism
[edit]Mercantilism
Main article: Mercantilism
A painting of a French seaport from 1638 at the height of mercantilism.
The period between the sixteenth and eighteenth centuries is commonly described as mercantilism.[32] This period was associated with geographic exploration of the Age of Discovery being exploited by merchant overseas traders, especially from England and the Low Countries; the European colonization of the Americas; and the rapid growth in overseas trade. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods.[3]
While some scholars see mercantilism as the earliest stage of capitalism, others argue that capitalism did not emerge until later. For example, Karl Polanyi, noted that "mercantilism, with all its tendency toward commercialization, never attacked the safeguards which protected [the] two basic elements of production—labor and land—from becoming the elements of commerce"; thus mercantilist attitudes towards economic regulation were closer to feudalist attitudes, "they disagreed only on the methods of regulation."
Moreover Polanyi argued that the hallmark of capitalism is the establishment of generalized markets for what he referred to as the "fictitious commodities": land, labor, and money. Accordingly, "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date."[33]
Evidence of long-distance merchant-driven trade motivated by profit has been found as early as the second millennium BC, with the Old Assyrian merchants.[34] The earliest forms of mercantilism date back to the Roman Empire. When the Roman Empire expanded, the mercantilist economy expanded throughout Europe. After the collapse of the Roman Empire, most of the European economy became controlled by local feudal powers, and mercantilism collapsed there. However, mercantilism persisted in Arabia. Due to its proximity to neighboring countries, the Arabs established trade routes to Egypt, Persia, and Byzantium. As Islam spread in the seventh century, mercantilism spread rapidly to Spain, Portugal, Northern Africa, and Asia. Mercantilism finally revived in Europe in the fourteenth century, as mercantilism spread from Spain and Portugal.[35]
Among the major tenets of mercantilist theory was bullionism, a doctrine stressing the importance of accumulating precious metals. Mercantilists argued that a state should export more goods than it imported so that foreigners would have to pay the difference in precious metals. Mercantilists asserted that only raw materials that could not be extracted at home should be imported; and promoted government subsidies, such as the granting of monopolies and protective tariffs, were necessary to encourage home production of manufactured goods.
Robert Clive after the Battle of Plassey. The battle began East India Company rule in India.
European merchants, backed by state controls, subsidies, and monopolies, made most of their profits from the buying and selling of goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices…"[36]
Similar practices of economic regimentation had begun earlier in the medieval towns. However, under mercantilism, given the contemporaneous rise of absolutism, the state superseded the local guilds as the regulator of the economy. During that time the guilds essentially functioned like cartels that monopolized the quantity of craftsmen to earn above-market wages.[37]
At the period from the eighteenth century, the commercial stage of capitalism originated from the start of the British East India Company and the Dutch East India Company.[11][38] These companies were characterized by their colonial and expansionary powers given to them by nation-states.[11] During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a return on investment. In his "History of Economic Analysis," Austrian economist Joseph Schumpeter reduced mercantilist propositions to three main concerns: exchange controls, export monopolism and balance of trade.[39]
[edit]Industrialism
See also: Industrial Revolution
A Watt steam engine. The steam engine fuelled primarily by coal propelled the Industrial Revolution in Great Britain.[40]
A new group of economic theorists, led by David Hume[41] and Adam Smith, in the mid 18th century, challenged fundamental mercantilist doctrines as the belief that the amount of the world’s wealth remained constant and that a state could only increase its wealth at the expense of another state.
During the Industrial Revolution, the industrialist replaced the merchant as a dominant actor in the capitalist system and effected the decline of the traditional handicraft skills of artisans, guilds, and journeymen. Also during this period, the surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture. Industrial capitalism marked the development of the factory system of manufacturing, characterized by a complex division of labor between and within work process and the routinization of work tasks; and finally established the global domination of the capitalist mode of production.[32]
Britain also abandoned its protectionist policy, as embraced by mercantilism. In the 19th century, Richard Cobden and John Bright, who based their beliefs on the Manchester School, initiated a movement to lower tariffs.[42] In the 1840s, Britain adopted a less protectionist policy, with the repeal of the Corn Laws and the Navigation Acts.[32] Britain reduced tariffs and quotas, in line with Adam Smith and David Ricardo's advocacy for free trade.
Karl Polanyi argued that capitalism did not emerge until the progressive commodification of land, money, and labor culminating in the establishment of a generalized labor market in Britain in the 1830s. For Polanyi, "the extension of the market to the elements of industry - land, labor and money - was the inevitable consequence of the introduction of the factory system in a commercial society."[43] Other sources argued that mercantilism fell after the repeal of the Navigation Acts in 1849.[42][44][45]
[edit]Keynesianism and neoliberalism
Main articles: Keynesianism and Neoliberalism
In the period following the global depression of the 1930s, the state played an increasingly prominent role in the capitalistic system throughout much of the world.
The New York stock exchange traders' floor (1963)
After World War I, a broad array of new analytical tools in the social sciences were developed to explain the social and economic trends of the period, including the concepts of post-industrial society and the welfare state.[32] This era was greatly influenced by Keynesian economic stabilization policies. The postwar boom ended in the late 1960s and early 1970s, and the situation was worsened by the rise of stagflation.[46]
Exceptionally high inflation combined with slow output growth, rising unemployment, and eventually recession to cause a loss of credibility in the Keynesian welfare-statist mode of regulation. Under the influence of Friedrich Hayek and Milton Friedman, Western states embraced policy prescriptions inspired by laissez-faire capitalism and classical liberalism.
In particular, monetarism, a theoretical alternative to Keynesianism that is more compatible with laissez-faire, gained increasing prominence in the capitalist world, especially under the leadership of Ronald Reagan in the US and Margaret Thatcher in the UK in the 1980s. Public and political interest began shifting away from the so-called collectivist concerns of Keynes's managed capitalism to a focus on individual choice, called "remarketized capitalism." [47] In the eyes of many economic and political commentators, the collapse of the Soviet Union brought further evidence of the superiority of market capitalism over communism.
[edit]Globalization
Main article: Globalization
Although international trade has been associated with the development of capitalism for over five hundred years, some thinkers argue that a number of trends associated with globalization have acted to increase the mobility of people and capital since the last quarter of the 20th century, combining to circumscribe the room to maneuver of states in choosing non-capitalist models of development. Today, these trends have bolstered the argument that capitalism should now be viewed as a truly world system.[32] However, other thinkers argue that globalization, even in its quantitative degree, is no greater now than during earlier periods of capitalist trade.[48]
[edit]Neoclassical economic theory link
This section needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (June 2010)
Neoclassical economics explain capitalism as made up of individuals, enterprises, markets and government. According to their theories, individuals engage in a capitalist economy as consumers, labourers, and investors. As labourers, individuals may decide which jobs to prepare for, and in which markets to look for work. As investors they decide how much of their income to save and how to invest their savings. These savings, which become investments, provide much of the money that businesses need to grow.
Business firms decide what to produce and where this production should occur. They also purchase inputs (materials, labour, and capital). Businesses try to influence consumer purchase decisions through marketing and advertisement, as well as the creation of new and improved products. Driving the capitalist economy is the search for profits (revenues minus expenses). This is known as the profit motive, and it helps ensure that companies produce the goods and services that consumers desire and are able to buy. To be profitable, firms must sell a quantity of their product at a certain price to yield a profit. A business may lose money if sales fall too low or if its costs become too high. The profit motive encourages firms to operate more efficiently. By using less materials, labour or capital, a firm can cut its production costs, which can lead to increased profits.
An economy grows when the total value of goods and services produced rises. This growth requires investment in infrastructure, capital and other resources necessary in production. In a capitalist system, businesses decide when and how much they want to invest.
Income in a capitalist economy depends primarily on what skills are in demand and what skills are being supplied. Skills that are in scarce supply are worth more in the market and can attract higher incomes. Competition among workers for jobs — and among employers for skilled workers — help determine wage rates. Firms need to pay high enough wages to attract the appropriate workers; when jobs are scarce, workers may accept lower wages than they would when jobs are plentiful. Trade union and governments influence wages in capitalist systems. Unions act to represent their members in negotiations with employers over such things as wage rates and acceptable working conditions.
[edit]The market
The price (P) of a product is determined by a balance between production at each price (supply, S) and the desires of those with purchasing power at each price (demand, D). This results in a market equilibrium, with a given quantity (Q) sold of the product. A rise in demand from D1 to D2 would result in an increase in price from P1 to P2 and an increase in output from Q1 to Q2.
In a capitalist economy, the prices of goods and services are controlled mainly through supply and demand and competition. Supply is the amount of a good or service produced by a firm and which is available for sale. Demand is the amount that people are willing to buy at a specific price. Prices tend to rise when demand exceeds supply, and fall when supply exceeds demand. In theory, the market is able to coordinate itself when a new equilibrium price and quantity is reached.
Competition arises when more than one producer is trying to sell the same or similar products to the same buyers. In capitalist theory, competition leads to innovation and more affordable prices. Without competition, a monopoly or cartel may develop. A monopoly occurs when a firm supplies the total output in the market; the firm can therefore limit output and raise prices because it has no fear of competition. A cartel is a group of firms that act together in a monopolistic manner to control output and raise prices.
[edit]Role of government
Further information: Competition regulator, Consumer protection, and Competition law
In a capitalist system, the government does not prohibit private property or prevent individuals from working where they please. The government does not prevent firms from determining what wages they will pay and what prices they will charge for their products. Many countries, however, have minimum wage laws and minimum safety standards.
Under some versions of capitalism, the government carries out a number of economic functions, such as issuing money, supervising public utilities and enforcing private contracts. Many countries have competition laws that prohibit monopolies and cartels from forming. Despite anti-monopoly laws, large corporations can form near-monopolies in some industries. Such firms can temporarily drop prices and accept losses to prevent competition from entering the market, and then raise them again once the threat of entry is reduced. In many countries, public utilities (e.g. electricity, heating fuel, communications) are able to operate as a monopoly under government regulation, due to high economies of scale.
Government agencies regulate the standards of service in many industries, such as airlines and broadcasting, as well as financing a wide range of programs. In addition, the government regulates the flow of capital and uses financial tools such as the interest rate to control factors such as inflation and unemployment.[49]
[edit]Democracy, the state, and legal frameworks
Main article: History of capitalist theory
[edit]Private property
The relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. Hernando de Soto is a contemporary economist who has argued that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded.[50]
According to de Soto, this is the process by which physical assets are transformed into capital, which in turn may be used in many more ways and much more efficiently in the market economy. A number of Marxian economists have argued that the Enclosure Acts in England, and similar legislation elsewhere, were an integral part of capitalist primitive accumulation and that specific legal frameworks of private land ownership have been integral to the development of capitalism.[51][52]
[edit]Institutions
New institutional economics, a field pioneered by Douglass North, stresses the need of a legal framework in order for capitalism to function optimally, and focuses on the relationship between the historical development of capitalism and the creation and maintenance of political and economic institutions.[53] In new institutional economics and other fields focusing on public policy, economists seek to judge when and whether governmental intervention (such as taxes, welfare, and government regulation) can result in potential gains in efficiency. According to Gregory Mankiw, a New Keynesian economist, governmental intervention can improve on market outcomes under conditions of "market failure", or situations in which the market on its own does not allocate resources efficiently.[54]
Market failure occurs when an externality is present and a market will either underproduce a product with a positive externality or overproduce a product that generates a negative externality. Air pollution, for instance, is a negative externality that cannot be incorporated into markets as the world’s air is not owned and then sold for use to polluters. So, too much pollution could be emitted and people not involved in the production pay the cost of the pollution instead of the firm that initially emitted the air pollution. Critics of market failure theory, like Ronald Coase, Harold Demsetz, and James M. Buchanan argue that government programs and policies also fall short of absolute perfection. Market failures are often small, and government failures are sometimes large. It is therefore the case that imperfect markets are often better than imperfect governmental alternatives. While all nations currently have some kind of market regulations, the desirable degree of regulation is disputed.
[edit]Democracy
The relationship between democracy and capitalism is a contentious area in theory and popular political movements. The extension of universal adult male suffrage in 19th century Britain occurred along with the development of industrial capitalism, and democracy became widespread at the same time as capitalism, leading many theorists to posit a causal relationship between them, or that each affects the other. However, in the 20th century, according to some authors, capitalism also accompanied a variety of political formations quite distinct from liberal democracies, including fascist regimes, monarchies, and single-party states,[32] while some democratic societies such as the Bolivarian Republic of Venezuela and Anarchist Catalonia have been expressly anti-capitalist.[55]
While some thinkers argue that capitalist development more-or-less inevitably eventually leads to the emergence of democracy, others dispute this claim. Research on the democratic peace theory indicates that capitalist democracies rarely make war with one another[56] and have little internal violence. However critics of the democratic peace theory note that democratic capitalist states may fight infrequently and or never with other democratic capitalist states because of political similarity or stability rather than because they are democratic or capitalist.
Some commentators argue that though economic growth under capitalism has led to democratization in the past, it may not do so in the future, as authoritarian regimes have been able to manage economic growth without making concessions to greater political freedom.[57][58] States that have highly capitalistic economic systems have thrived under authoritarian or oppressive political systems. Singapore, which maintains a highly open market economy and attracts lots of foreign investment, does not protect civil liberties such as freedom of speech and expression. The private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception, despite having an authoritarian government. Private investment in Fascist states, such as Nazi Germany, greatly increased[citation needed], and Augusto Pinochet's rule in Chile led to economic growth by using authoritarian means to create a safe environment for investment and capitalism.
In response to criticism of the system, some proponents of capitalism have argued that its advantages are supported by empirical research. For example, advocates of different Indices of Economic Freedom point to a statistical correlation between nations with more economic freedom (as defined by the indices) and higher scores on variables such as income and life expectancy, including the poor, in these nations.
[edit]Political benefits
[edit]Economic growth
World's GDP per capita shows exponential growth since the beginning of the Industrial Revolution.[59]
In years 1000 - 1820 world economy grew sixfold, 50 % per person. After capitalism had started to spread more widely, in years 1820 - 1998 world economy grew 50-fold, i.e., 9-fold per person.[60] In most capitalist economic regions such as Europe, the United States, Canada, Australia and New Zealand, the economy grew 19-fold per person even though these countries already had a higher starting level, and in Japan, which was poor in 1820, to 31-fold, whereas in the rest of the world the growth was only 5-fold per person.[60]
Many theorists and policymakers in predominantly capitalist nations have emphasized capitalism's ability to promote economic growth, as measured by Gross Domestic Product (GDP), capacity utilization or standard of living. This argument was central, for example, to Adam Smith's advocacy of letting a free market control production and price, and allocate resources. Many theorists have noted that this increase in global GDP over time coincides with the emergence of the modern world capitalist system.[61][62]
Proponents argue that increasing GDP (per capita) is empirically shown to bring about improved standards of living, such as better availability of food, housing, clothing, and health care.[63] The decrease in the number of hours worked per week and the decreased participation of children and the elderly in the workforce have been attributed to capitalism.[64][65][66][67]
Proponents also believe that a capitalist economy offers far more opportunities for individuals to raise their income through new professions or business ventures than do other economic forms. To their thinking, this potential is much greater than in either traditional feudal or tribal societies or in socialist societies.
[edit]Political freedom
Milton Friedman argued that the economic freedom of competitive capitalism is a requisite of political freedom. Friedman argued that centralized control of economic activity is always accompanied by political repression. In his view, transactions in a market economy are voluntary, and the wide diversity that voluntary activity permits is a fundamental threat to repressive political leaders and greatly diminish power to coerce. Friedman's view was also shared by Friedrich Hayek and John Maynard Keynes, both of whom believed that capitalism is vital for freedom to survive and thrive.[68][69]
[edit]Self-organization
Austrian School economists have argued that capitalism can organize itself into a complex system without an external guidance or planning mechanism. Friedrich Hayek coined the term "catallaxy" to describe what he considered the phenomenon of self-organization underpinning capitalism. From this perspective, in process of self-organization, the profit motive has an important role. From transactions between buyers and sellers price systems emerge, and prices serve as a signal as to the urgent and unfilled wants of people. The promise of profits gives entrepreneurs incentive to use their knowledge and resources to satisfy those wants. Thus the activities of millions of people, each seeking his own interest, are coordinated.[70]
This decentralized system of coordination is viewed by some supporters of capitalism as one of its greatest strengths. They argue that it permits many solutions to be tried, and that real-world competition generally finds a good solution to emerging challenges. In contrast, they argue, central planning often selects inappropriate solutions as a result of faulty forecasting. However, in all existing modern economies, the state conducts some degree of centralized economic planning (using such tools as allowing the country's central bank to set base interest rates), ostensibly as an attempt to improve efficiency, attenuate cyclical volatility, and further particular social goals. Proponents who follow the Austrian School argue that even this limited control creates inefficiencies because we cannot predict the long-term activity of the economy. Milton Friedman, for example, has argued that the Great Depression was caused by the erroneous policy of the Federal Reserve.[71]
[edit]Moral imperative
Ayn Rand was a notable advocate of laissez-faire capitalism, and her best-selling novel Atlas Shrugged has been an influential publication on business.[72] Rand was the first person to endow capitalism with a new code of morality--rational egoism.[73] She argued that capitalism is the only morally valid socio-political system because it allows people to be free to act in their rational self-interest.[74][75] Rand wrote: "Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned."[76]
[edit]Criticism
Main articles: Criticism of capitalism, Anti-capitalism, and Capitalist mode of production
An Industrial Workers of the World poster (1911)
Notable critics of capitalism have included: socialists, anarchists, communists, technocrats, some types of conservatives, Luddites, Narodniks, Shakers and some types of nationalists. Marxists advocated a revolutionary overthrow of capitalism that would lead to socialism, before eventually transforming into communism. Marxism influenced social democratic and labour parties, as well as some moderate democratic socialists. Many aspects of capitalism have come under attack from the anti-globalization movement, which is primarily opposed to corporate capitalism.
Many religions have criticized or opposed specific elements of capitalism. Traditional Judaism, Christianity, and Islam forbid lending money at interest, although methods of banking have been developed in all three cases, and adherents to Judaism, Christianity are allowed to lend to those outside of their religion. Christianity has been a source of praise for capitalism, as well as criticism of it, particularly for its materialist aspects.[77] Indian philosopher P.R. Sarkar, founder of the Ananda Marga movement, developed the Law of Social Cycle to identify the problems of capitalism.[78][79]
Category:Ideology