CapitalismFrom Wikipedia, the free encyclopedia

Capitalism is an economic system in which trade, industry and the means of production are controlled by private

owners with the goal of making profits in a market economy.[1][2] Central characteristics of capitalism include

capital accumulation, competitive markets and wage labor.[3] In a capitalist economy, the parties to a transaction

typically determine the prices at which assets, goods, and services are exchanged.[4]

The degree of competition, role of intervention and regulation, and scope of public ownership varies across different

models of capitalism.[5] Economists, political economists, and historians have taken different perspectives in theiranalysis of capitalism and recognized various forms of it in practice. These include laissez-faire capitalism, welfarecapitalism and state capitalism; each highlighting varying degrees of dependency on markets, public ownership, andinclusion of social policies. The extent to which different markets are free, as well as the rules defining privateproperty, is a matter of politics and policy. Many states have what are termed capitalist mixed economies, referring

to a mix between planned and market-driven elements.[6] A pejorative characterization, crony capitalism, refers toa state of affairs in which insider corruption, nepotism and cartels dominate the system. This is considered to be thenormal state of mature capitalism in Marxian economics.

Capitalism has existed under many forms of government, in many different times, places, and cultures.[7] Followingthe demise of feudalism, capitalism became the dominant economic system in the Western world. Later, in the 20thcentury, capitalism overcame a challenge by centrally-planned economies and is now the dominant system

worldwide,[8][9] with the mixed economy being its dominant form in the industrialized Western world.

Different economic perspectives emphasize specific elements of capitalism in their preferred definition. Laissez-faire and liberal economists emphasize the degree to which government does not have control over markets and

the importance of property rights.[10][11] Neoclassical and Keynesian macro-economists emphasize the need for

government regulation to prevent monopolies and to soften the effects of the boom and bust cycle.[12] Marxianeconomists emphasize the role of capital accumulation, exploitation and wage labour. Most political economistsemphasize private property as well, in addition to power relations, wage labour, class, and the uniqueness of

capitalism as a historical formation.[6]

Proponents of capitalism argue that it creates more prosperity than any other economic system, and that its benefits

are mainly to the ordinary person.[13] Critics of capitalism variously associate it with economic instability[14] and an

inability to provide for the well-being of all people.[15] In contrast to both perspectives, socialists maintain thatcapitalism is superior to all previously existing economic systems (such as feudalism or slavery) but that a new form

of economic organization, superior to capitalism, is possible or likely to emerge in the near future.[16]

The term capitalism, in its modern sense, is often attributed to Karl Marx.[7][17] In his magnum opus Capital,Marx wrote of the "capitalist mode of production" and revealed its laws of functioning using a method ofunderstanding today known as Marxism. However, Marx rarely used the term "capitalism", although it was usedtwice in the more political interpretations of his work, which were primarily authored by his collaborator FriedrichEngels. In the 20th century defenders of the capitalist system often replaced the term capitalism with phrases suchas free enterprise and private enterprise and replaced capitalist with rentier and investor in reaction to the

negative connotations associated with capitalism.[18]

Contents

1 Economic elements

1.1 Money, capital, and accumulation

1.2 Capital and financial markets

1.3 Wage labor and class structure

1.4 Macroeconomics

2 Types of capitalism2.1 Mercantilism

2.2 Free-market capitalism

2.3 Social-market economy

2.4 State capitalism

2.5 Corporate capitalism

2.6 Mixed economy

2.7 Other

3 Etymology and early usage

4 History4.1 Mercantilism

4.2 Industrialism4.3 Keynesianism and neoliberalism

4.4 Welfare economics4.5 Globalization

5 Perspectives5.1 Classical political economy5.2 Marxist political economy

5.3 Weberian political sociology5.4 Institutional economics

5.5 German Historical School and Austrian School5.6 Keynesian economics

5.7 Neoclassical economics and the Chicago School6 Neoclassical economic theory

6.1 The market6.2 Role of government

7 Democracy, the state, and legal frameworks7.1 Private property7.2 Institutions

7.3 Democracy8 Advocacy for capitalism

8.1 Economic growth8.2 Political freedom

8.3 Self-organization9 Criticism

10 See also11 Notes

12 References

13 Further reading14 External links

Economic elements

There are a number of different elements in the capitalist socio-economic system.

Capitalism is defined as a social and economic system that in which capital assets are mainly owned and controlledby private persons, labor is purchased for money wages, capital gains accrue to private owners, and the pricemechanism is utilized to allocate capital goods between uses. The extent to which the price mechanism is used, the

degree of competitiveness, and government intervention in markets distinguish exact forms of capitalism.[5]

There are different variations of capitalism which have different relationships to markets and the state. In free-market and laissez-faire forms of capitalism, markets are utilized most extensively with minimal or no regulationover the pricing mechanism. In interventionist and mixed economies, markets continue to play a dominant role butare regulated to some extent by government in order to correct market failures, promote social welfare, conservenatural resources, and fund defense and public safety. In state capitalist systems, markets are relied upon the least,with the state relying heavily on state-owned enterprises or indirect economic planning to accumulate capital.

Capitalism and capitalist economics is generally considered to be the opposite of socialism, which contrasts with allforms of capitalism in the following ways: social ownership of the means of production, where returns on the meansof production accrue to society at large, and goods and services are produced directly for their utility (as opposedto being produced by profit-seeking businesses).

Money, capital, and accumulation

Money is primarily a standardized medium of exchange, and final means of payment, that serves to measure thevalue of all goods and commodities in a standard of value. It is an abstraction of economic value and medium ofexchange that eliminates the cumbersome system of barter by separating the transactions involved in the exchangeof 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 moneythrough ownership, exchange, interest and various other financial instruments.

The accumulation of capital refers to the process of "making money", or growing an initial sum of money throughinvestment in production. Capitalism is based around the accumulation of capital, whereby financial capital isinvested in order to realize a profit and then reinvested into further production in a continuous process ofaccumulation. In Marxian economic theory, this dynamic is called the law of value.

Capital and financial markets

The defining feature of capitalist markets, in contrast to markets and exchange in pre-capitalist societies likefeudalism, is the existence of a market for capital goods (the means of production), meaning exchange-relations(business relationships) exist within the production process. Additionally, capitalism features a market for labor.

This distinguishes the capitalist market from pre-capitalist societies which generally only contained market exchangefor final goods and secondary goods. The "market" in capitalism refers to capital markets and financial markets.Thus, there are three main markets in a typical capitalistic economy: labor, goods and services, and financial.

Wage labor and class structure

Wage labor refers to the class-structure of capitalism, whereby workers receive either a wage or a salary, andowners receive the profits generated by the factors of production employed in the production of economic value.Individuals who possess and supply financial capital to productive ventures become owners, either jointly (asshareholders) or individually. In Marxian economics these owners of the means of production and suppliers ofcapital are generally called capitalists. The description of the role of the capitalist has shifted, first referring to auseless intermediary between producers to an employer of producers, and eventually came to refer to owners of

the means of production.[18] The term capitalist is not generally used by supporters of mainstream economics.

"Workers" includes those who expend both manual and mental (or creative) labor in production, where productiondoes not simply mean physical production but refers to the production of both tangible and intangible economicvalue. "Capitalists" are individuals who derive income from investments.

Labor 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 goods or services by applying

labor power.[19][20]

Macroeconomics

Macroeconomics keeps its eyes on things such as inflation: a general increase in prices and fall in the purchasingvalue of money; growth: how much money a government has and how quickly it accrues money; unemployment,and rates of trade between other countries. Whereas microeconomics deals with individual firms, people, and otherinstitutions that work within a set frame work of rules to balance prices and the workings of a singular government.

Both micro and macroeconomics work together to form a single set of evolving rules and regulations. Governments(the macroeconomic side) set both national and international regulations that keep track of prices and corporations'(microeconomics) growth rates, set prices, and trade, while the corporations influence what federal laws are

set.[21][22][23]

Types of capitalism

There are many variants of capitalism in existence that differ according to country and region. They vary in theirinstitutional makeup and by their economic policies. The common features among all the different forms ofcapitalism is that they are based on the production of goods and services for profit, predominately market-basedallocation of resources, and they are structured upon the accumulation of capital. The major forms of capitalism arelisted below:

Mercantilism

Main articles: Mercantilism and Protectionism

Mercantilism is a nationalist form of early capitalism that came into existence approximately in the late 16th century.It is characterized by the intertwining of national business interests to state-interest and imperialism, andconsequently, the state apparatus is utilized to advance national business interests abroad. An example of this iscolonists living in America who were only allowed to trade with and purchase goods from their respective mothercountries (Britain, France, etc.). Mercantilism holds that the wealth of a nation is increased through a positivebalance of trade with other nations, and corresponds to the phase of capitalist development called the Primitiveaccumulation of capital.

Free-market capitalism

See also: Free market and Laissez-faire

Free-market capitalism refers to an economic system where prices for goods and services are set freely by theforces of supply and demand and are allowed to reach their point of equilibrium without intervention by governmentpolicy. It typically entails support for highly competitive markets, private ownership of productive enterprises.Laissez-faire is a more extensive form of free-market capitalism where the role of the state is limited to protectingproperty rights.

Social-market economy

Main articles: Social market and Nordic model

A social-market economy is a nominally free-market system where government intervention in price formation iskept to a minimum but the state provides significant services in the area of social security, unemployment benefitsand recognition of labor rights through national collective bargaining arrangements. This model is prominent inWestern and Northern European countries, and Japan, albeit in slightly different configurations. The vast majority ofenterprises are privately owned in this economic model.

Rhine capitalism refers to the contemporary model of capitalism and adaptation of the social market model thatexists in continental Western Europe today.

State capitalism

Main article: State capitalism

State capitalism consists of state ownership of the means of production within a state, and the organization of stateenterprises as commercial, profit-seeking businesses. The debate between proponents of private versus statecapitalism is centered around questions of managerial efficacy, productive efficiency, and fair distribution of wealth.

According to Aldo Musacchio, a professor at Harvard Business School, it is a system in which governments,whether democratic or autocratic, exercise a widespread influence on the economy, through either direct ownershipor various subsidies. Musacchio also emphasizes the difference between today's state capitalism and itspredecessors. Gone are the days when governments appointed bureaucrats to run companies. The world's largest

state-owned enterprises are traded on the public markets and kept in good health by large institutional investors.[24]

Corporate capitalism

Main article: Corporate capitalism

Other terms sometimes usedfor capitalism:

Capitalist mode of

production

Economic liberalism [25]

Free-enterprise

economy [8][26]

Free market[26][27]

Laissez-faire economy[28]

Market economy [29]

See also: State monopoly capitalism and Crony capitalism

Corporate capitalism is a free or mixed-market economy characterized by the dominance of hierarchical,bureaucratic corporations. State-monopoly capitalism was originally a Marxist concept referring to a form ofcorporate capitalism in which state policy is utilized to benefit and promote the interests of dominant or established

corporations by shielding them from competitive pressures or by providing them with subsidies.[citation needed]

Mixed economy

Main article: Mixed economy

See also: Economic interventionism

A mixed economy is a largely market-based economy consisting of both private and public ownership of the meansof production and economic interventionism through macroeconomic policies intended to correct market failures,reduce unemployment and keep inflation low. The degree of intervention in markets varies among differentcountries. Some mixed economies, such as France under dirigisme, also featured a degree of indirect economicplanning over a largely capitalist-based economy.

Most capitalist economies are defined as "mixed economies" to some degree.[citation needed]

Other

Other variants of capitalism include:

Anarcho-capitalism

Crony capitalism

Finance capitalism

Financial capitalism

Late capitalism

Neo-capitalism

Post-capitalism

Technocapitalism

Welfare capitalism

Etymology and early usage

The term capitalist as referring to an owner of capital (rather than its meaningof someone adherent to the economic system) shows earlier recorded usethan the term capitalism, dating back to the mid-17th century. Capitalist isderived from capital, which evolved from capitale, a late Latin word basedon caput, meaning "head" also the origin of chattel and cattle in the senseof movable property (only much later to refer only to livestock). Capitaleemerged in the 12th to 13th centuries in the sense of referring to funds, stock

of merchandise, sum of money, or money carrying interest.[33][34][35] By 1283it was used in the sense of the capital assets of a trading firm. It was frequentlyinterchanged with a number of other words wealth, money, funds, goods,

assets, property, and so on.[33]

The Hollandische Mercurius uses capitalists in 1633 and 1654 to refer to

owners of capital.[33] In French, tienne Clavier referred to capitalistes in

1788,[36] six years before its first recorded English usage by Arthur Young in

Market liberalism [30][31]

Self-regulating market[26]

Profits system[32]

his work Travels in France (1792).[35][37] David Ricardo, in his Principlesof Political Economy and Taxation (1817), referred to "the capitalist" many

times.[38] Samuel Taylor Coleridge, an English poet, used capitalist in his

work Table Talk (1823).[39] Pierre-Joseph Proudhon used the termcapitalist in his first work, What is Property? (1840) to refer to the ownersof capital. Benjamin Disraeli used the term capitalist in his 1845 work

Sybil.[35] Karl Marx and Friedrich Engels used the term capitalist (Kapitalist) in The Communist Manifesto(1848) to refer to a private owner of capital.

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".[35] Alsoaccording to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the term privatecapitalism 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.[40] Karl Marx and Friedrich Engels referred to the capitalistic system (kapitalistisches

System)[41][42] and to the capitalist mode of production (kapitalistische Produktionsform) in Das Kapital

(1867).[43] The use of the word "capitalism" in reference to an economic system appears twice in Volume I of DasKapital, p. 124 (German edition), and in Theories of Surplus Value, tome II, p. 493 (German edition). Marx didnot extensively use the form capitalism, but instead those of capitalist and capitalist mode of production, whichappear 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 themeans of production in a mainly market economy, with a legal framework on commerce and a physicalinfrastructure provided by the state. He believed that no legal framework was available to protect the laborers, and

so exploitation by the companies was rife.[44] Engels made more frequent use of the term capitalism; volumes IIand III of Das Kapital, both edited by Engels after Marx's death, contain the word "capitalism" four and threetimes, respectively. The three combined volumes of Das Kapital (1867, 1885, 1894) contain the word capitalistmore 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.[35] A later use of the term capitalism to describe the production system was by the Germaneconomist Werner Sombart, in his 1902 book The Jews and Modern Capitalism (Die Juden und dasWirtschaftsleben). Sombart's close friend and colleague, Max Weber, also used capitalism in his 1904 book TheProtestant Ethic and the Spirit of Capitalism (Die protestantische Ethik und der Geist des Kapitalismus).

History

Main article: History of capitalism

Economic trade for profit has existed since at least the second millennium BC.[45] However, historians often tracecapitalism in its modern form to the mercantilism of the 16th to the 18th Centuries.

Mercantilism

Main article: Mercantilism

A painting of a French seaport from

1638 at the height of mercantilism.

The European economy between the sixteenth and eighteenth centuries is

commonly labelled as mercantilism.[46] This period, the Age ofDiscovery, saw geographic exploration being exploited by merchantoverseas traders, especially from Russia, France, Spain, Portugal,England and the Low Countries; the European colonization of theAmericas; and the rapid growth in overseas trade. Mercantilism involvedtrade for profit, although commodities were still largely produced by non-

capitalist production methods.[7]

While some scholars see mercantilism as the earliest stage of capitalism,others argue that capitalism did not emerge until later. For example, KarlPolanyi, noted that "mercantilism, with all its tendency towardcommercialization, never attacked the safeguards which protected [the]two basic elements of productionlabor and landfrom becoming the elements of commerce"; thus mercantilistattitudes towards economic regulation were closer to feudalist attitudes, "they disagreed only on the methods ofregulation".

Moreover, Polanyi saw the hallmark of capitalism as the establishment of generalized markets for what he referredto as the "fictitious commodities": land, labor, and money. Accordingly, "not until 1834 was a competitive labormarket established in England, hence industrial capitalism as a social system cannot be said to have existed before

that date."[47]

Evidence of long-distance merchant-driven trade motivated by profit exists from as early as the second millennium

BCE, with the Old Assyrian merchants.[45] The earliest forms of mercantilism date back to the Roman Empire andAncient China. When the Roman Empire expanded, the mercantilist economy expanded throughout Europe. Afterthe collapse of the Roman Empire, local feudal powers came to control most of the European economy, andmercantilism collapsed there; however, mercantilism persisted in Arabia, the silk-road trade-routes continued, andmercantilism cycled following dynasty rise and collapse in East Asia. Due to their proximity to neighboringcountries, the Arabs established trade routes to Egypt, Persia, and Byzantium. As Islam spread in the 7th century,mercantilism spread rapidly to Spain, Portugal, Northern Africa, and Asia. Mercantilism revived in Greater Europe

in the 14th century, as mercantilism spread from Portugal and Spain.[48]

The doctrine of bullionism, a major tenet of mercantilist theory, stressed the importance of accumulating preciousmetals. Mercantilists argued that a state should export more goods than it imported so that foreigners would have topay the difference in precious metals. Mercantilists argued that only raw materials that could not be extracted athome should be imported; and promoted government subsidies (such as the granting of monopolies and protectivetariffs) which mercantilists regarded as necessary to encourage home production of manufactured goods.

European merchants, backed by state controls, subsidies, and monopolies, made most of their profits from thebuying and selling of goods. In the words of Francis Bacon, mercantilism aimed at "the opening and well-balancingof 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 ..."[49]

Similar practices of economic regimentation had begun earlier in medieval European towns. However, undermercantilism, given the contemporaneous rise of political absolutism, the state superseded the system of local guildsas 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.[50]

Robert Clive after the Battle of

Plassey. The battle began East India

Company rule in India.

A Watt steam engine. The steam

engine, fuelled primarily by coal,

propelled the Industrial Revolution in

Great Britain.[55]

From the 18th century, the commercial stage of capitalism originatedfrom the start of the British East India Company (founded in 1600) and

the Dutch East India Company (founded in 1602).[51][52] Thesecompanies profited from the colonial and expansionary powers given to

them by nation-states.[51] During this era, merchants, who had tradedunder the previous stage of mercantilism, invested capital in the East IndiaCompanies and other colonies, seeking a return on investment.

Joseph Schumpeter predicted that nations would move away from acapitalist model, and embrace lots of socialist ideologies similar to what isseen in many European countries. He considered it to be the result of acompromise or truce between capitalism and communism, but in realitythis topic is actually hotly debated and many people and nations disagree

on both sides of the political spectrum.[53] In his History of Economic

Analysis, Schumpeter reduced mercantilist propositions to three main concerns:[54]

1. exchange controls

2. export monopolism

3. balance of trade

Industrialism

See also: Industrial Revolution

A new group of economic theorists, led by David Hume[56] and AdamSmith, in the mid-18th century, challenged fundamental mercantilistdoctrines as the belief that the amount of the world's wealth remainedconstant and that a state could only increase its wealth at the expense ofanother state.

During the Industrial Revolution, the industrialist replaced the merchant asa dominant actor in the capitalist system and affected the decline of thetraditional handicraft skills of artisans, guilds, and journeymen. Alsoduring this period, the surplus generated by the rise of commercialagriculture encouraged increased mechanization of agriculture. Industrialcapitalism marked the development of the factory system ofmanufacturing, characterized by a complex division of labor between andwithin work process and the routine of work tasks; and finally established

the global domination of the capitalist mode of production.[46]

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.[57] In the

1840s, Britain adopted a less protectionist policy, with the repeal of the Corn Laws and the Navigation Acts.[46]

Britain reduced tariffs and quotas, in line with Adam Smith and David Ricardo's advocacy for free trade.

The New York stock exchange

traders' floor (1963)

Karl Polanyi argued that capitalism did not emerge until the progressive commodification of land, money, and laborculminating in the establishment of a generalized labor market in Britain in the 1830s. For Polanyi, "the extension ofthe 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."[58] Other sources argued that mercantilism fell after the repeal of the

Navigation Acts in 1849.[57][59][60]

Keynesianism and neoliberalism

Main articles: Keynesianism and Neoliberalism

In the period following the global depression of the 1930s, the stateplayed an increasingly prominent role in the capitalistic system throughoutmuch of the world.

After World War II, a broad array of new analytical tools in the socialsciences were developed to explain the social and economic trends of theperiod, including the concepts of post-industrial society and the welfare

state.[46] This era was greatly influenced by Keynesian economicstabilization policies. The postwar boom ended in the late 1960s and

early 1970s, and the situation was worsened by the rise of stagflation.[61]

In particular, monetarism, a theoretical alternative to Keynesianism that ismore compatible with laissez-faire, gained increasing prominence in the capitalist world, especially under theleadership of Ronald Reagan in the US and Margaret Thatcher in the UK in the 1980s. Public and political interestbegan shifting away from the so-called collectivist concerns of Keynes's managed capitalism to a focus on individual

choice, called "remarketized capitalism." [62] In the eyes of many economic and political commentators, the collapseof the Soviet Union brought further evidence of the superiority of market capitalism over planned economy.

Welfare economics

Modern welfare economics has produced a number of detailed defenses of the mixed capitalist economy based onpublic ownership of infrastructure and defense of positive human rights such as housing or education. Amartya Senin particular, in Development as Freedom, his Nobel Prize winning work, argued that the optimal economic

system is a democratic mixed economy with a welfare state.[63].

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 ofpeople and capital since the last quarter of the 20th century, combining to circumscribe the room to maneuver ofstates 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.[46] However, other thinkers argue that globalization, even

in its quantitative degree, is no greater now than during earlier periods of capitalist trade.[64]

Adam Smith

Perspectives

Classical political economy

Main articles: Classical economics and Classical liberalism

The classical school of economic thought emerged in Britain in the late18th century. The classical political economists Adam Smith, DavidRicardo, Jean-Baptiste Say, and John Stuart Mill published analyses ofthe production, distribution and exchange of goods in a market that havesince formed the basis of study for most contemporary economists.

In France, 'Physiocrats' like Franois Quesnay promoted free tradebased on a conception that wealth originated from land. Quesnay'sTableau conomique (1759), described the economy analytically andlaid the foundation of the Physiocrats' economic theory, followed byAnne Robert Jacques Turgot who opposed tariffs and customs dutiesand advocated free trade. Richard Cantillon defined long-run equilibriumas the balance of flows of income, and argued that the supply anddemand mechanism around land influenced short-term prices.

Smith's attack on mercantilism and his reasoning for "the system ofnatural liberty" in The Wealth of Nations (1776) are usually taken as the beginning of classical political economy.Smith devised a set of concepts that remain strongly associated with capitalism today. His theories regarding the"invisible hand" are commonly interpreted to mean individual pursuit of self-interest unintentionally producingcollective good for society. It was necessary for Smith to be so forceful in his argument in favor of free markets

because he had to overcome the popular mercantilist sentiment of the time period.[65]

He criticized monopolies, tariffs, duties, and other state enforced restrictions of his time and believed that themarket is the most fair and efficient arbitrator of resources. This view was shared by David Ricardo, second most

important of the classical political economists and one of the most influential economists of modern times.[66]

In On the Principles of Political Economy and Taxation (1817), he developed the law of comparativeadvantage, which explains why it is profitable for two parties to trade, even if one of the trading partners is moreefficient in every type of economic production. This principle supports the economic case for free trade. Ricardowas a supporter of Say's Law and held the view that full employment is the normal equilibrium for a competitive

economy.[67] He also argued that inflation is closely related to changes in quantity of money and credit and was aproponent of the law of diminishing returns, which states that each additional unit of input yields less and less

additional output.[68]

The values of classical political economy are strongly associated with the classical liberal doctrine of minimalgovernment intervention in the economy, though it does not necessarily oppose the state's provision of a few basic

public goods.[69] Classical liberal thought has generally assumed a clear division between the economy and other

realms of social activity, such as the state.[70]

Karl Marx

While economic liberalism favors markets unfettered by the government, it maintains that the state has a legitimate

role in providing public goods.[71] For instance, Adam Smith argued that the state has a role in providing roads,canals, schools and bridges that cannot be efficiently implemented by private entities. However, he preferred thatthese goods should be paid proportionally to their consumption (e.g. putting a toll). In addition, he advocated

retaliatory tariffs to bring about free trade, and copyrights and patents to encourage innovation.[71]

Marxist political economy

Main article: Marxian economics

Karl Marx considered capitalism to be a historically specific mode of production (the way in which the productiveproperty is owned and controlled, combined with the corresponding social relations between individuals based ontheir connection with the process of production) in which capitalism has become the dominant mode of

production.[46]

The capitalist stage of development or "bourgeois society," for Marx, represented the most advanced form of socialorganization to date, but he also thought that the working classes would come to power in a worldwide socialist orcommunist transformation of human society as the end of the series of first aristocratic, then capitalist, and finally

working class rule was reached.[72][73]

Following Adam Smith, Marx distinguished the use value of commodities fromtheir exchange value in the market. Capital, according to Marx, is created withthe purchase of commodities for the purpose of creating new commodities withan exchange value higher than the sum of the original purchases. For Marx, theuse of labor power had itself become a commodity under capitalism; theexchange value of labor power, as reflected in the wage, is less than the value itproduces for the capitalist.

This difference in values, he argues, constitutes surplus value, which the capitalistsextract and accumulate. In his book Capital, Marx argues that the capitalistmode of production is distinguished by how the owners of capital extract thissurplus from workersall prior class societies had extracted surplus labor, but

capitalism was new in doing so via the sale-value of produced commodities.[74]

He argues that a core requirement of a capitalist society is that a large portion of the population must not possesssources of self-sustenance that would allow them to be independent, and must instead be compelled, to survive, to

sell their labor for a living wage.[75][76][77]

In conjunction with his criticism of capitalism was Marx's belief that the working class, due to its relationship to themeans of production and numerical superiority under capitalism, would be the driving force behind the socialist

revolution.[78] This argument is intertwined with Marx's version of the labor theory of value arguing that labor is thesource of all value, and thus of profit.

Vladimir Lenin, in Imperialism, the Highest Stage of Capitalism (1916), further developed Marxist theory andargued that capitalism necessarily led to monopoly capitalism and the export of capitalwhich he also called

"imperialism"to find new markets and resources, representing the last and highest stage of capitalism.[79] Some20th-century Marxian economists consider capitalism to be a social formation where capitalist class processes

dominate, but are not exclusive.[80]

Max Weber

Capitalist class processes, to these thinkers, are simply those in which surplus labor takes the form of surplus value,usable as capital; other tendencies for utilization of labor nonetheless exist simultaneously in existing societies wherecapitalist processes are predominant. However, other late Marxian thinkers argue that a social formation as a wholemay be classed as capitalist if capitalism is the mode by which a surplus is extracted, even if this surplus is notproduced by capitalist activity, as when an absolute majority of the population is engaged in non-capitalist

economic activity.[81]

In Limits to Capital (1982), David Harvey outlines an overdetermined, "spatially restless" capitalism coupled withthe spatiality of crisis formation and resolution. Harvey used Marx's theory of crisis to aid his argument thatcapitalism must have its "fixes" but that we cannot predetermine what fixes will be implemented, nor in what formthey will be. His work on contractions of capital accumulation and international movements of capitalist modes of

production and money flows has been influential.[82] According to Harvey, capitalism creates the conditions for

volatile and geographically uneven development [83]

Weberian political sociology

In social science, the understanding of the defining characteristics ofcapitalism has been strongly influenced by the German sociologist, MaxWeber. Weber considered market exchange, a voluntary supply of laborand a planned division of labor within the enterprises as defining featuresof capitalism. Capitalist enterprises, in contrast to their counterparts inprior modes of economic activity, were directed toward therationalization of production, maximizing efficiency and productivity atendency embedded in a sociological process of envelopingrationalization that formed modern legal bureaucracies in both public and

private spheres.[84] According to Weber, workers in pre-capitalisteconomies understood work in terms of a personal relationship between master and journeyman in a guild, or

between lord and peasant in a manor.[85]

For these developments of capitalism to emerge, Weber argued, it was necessary the development of a "capitalistspirit"; that is, ideas and habits that favor a rational pursuit of economic gain. These ideas, in order to propagate acertain manner of life and come to dominate others, "had to originate somewhere ... as a way of life common to

whole groups of men".[84] In his book The Protestant Ethic and the Spirit of Capitalism (19041905), Webersought to trace how a particular form of religious spirit, infused into traditional modes of economic activity, was acondition of possibility of modern western capitalism. For Weber, the 'spirit of capitalism' was, in general, that ofascetic Protestantism; this ideology was able to motivate extreme rationalization of daily life, a propensity toaccumulate capital by a religious ethic to advance economically through hard and diligent work, and thus also thepropensity to reinvest capital. This was sufficient, then, to create "self-mediating capital" as conceived by Marx.

This is pictured in the Protestant understanding of beruf [86] whose meaning encompass at the same timeprofession, vocation, and calling as exemplified in Proverbs 22:29, "Seest thou a man diligent in his calling? Heshall stand before kings". In the Protestant Ethic, Weber describes the developments of this idea of calling from itsreligious roots, through the understanding of someone's economic success as a sign of his salvation, until theconception that moneymaking is, within the modern economic order, the result and the expression of diligence inone's calling.

Thorstein Veblen

Finally, as the social mores critical for its development became no longer necessary for its maintenance, modernwestern capitalism came to represent the order "now bound to the technical and economic conditions of machineproduction which today determine the lives of all the individuals who are born into this mechanism, not only thosedirectly concerned with economic acquisition, with irresistible force. Perhaps it will so determine them until the last

ton of fossilized coal is burnt" (p. 123).[87] This is further seen in his criticism of "specialists without spirit, hedonistswithout a heart" that were developing, in his opinion, with the fading of the original Puritan "spirit" associated withcapitalism.

Institutional economics

Main article: Institutional economics

Institutional economics, once the main school of economic thought in theUnited States, holds that capitalism cannot be separated from the politicaland social system within which it is embedded. It emphasizes the legalfoundations of capitalism (see John R. Commons) and the evolutionary,habituated, and volitional processes by which institutions are erected andthen changed.

One key figure in institutional economics was Thorstein Veblen who in hisbook, The Theory of the Leisure Class (1899), analyzed the motivationsof wealthy people in capitalism who conspicuously consumed their richesas a way of demonstrating success. The concept of conspicuousconsumption was in direct contradiction to the neoclassical view thatcapitalism was efficient.

In The Theory of Business Enterprise (1904) Veblen distinguished themotivations of industrial production for people to use things from businessmotivations that used, or misused, industrial infrastructure for profit,arguing that the former often is hindered because businesses pursue thelatter. Output and technological advance are restricted by business practices and the creation of monopolies.Businesses protect their existing capital investments and employ excessive credit, leading to depressions andincreasing military expenditure and war through business control of political power.

German Historical School and Austrian School

Main articles: Historical school of economics and Austrian School

From the perspective of the German Historical School, capitalism is primarily identified in terms of the organizationof production for markets. Although this perspective shares similar theoretical roots with that of Weber, its

emphasis on markets and money lends it different focus.[46] For followers of the German Historical School, the keyshift from traditional modes of economic activity to capitalism involved the shift from medieval restrictions on creditand money to the modern monetary economy combined with an emphasis on the profit motive.

In the late 19th century, the German Historical School of economics diverged, with the emerging Austrian School ofeconomics, led at the time by Carl Menger. Later generations of followers of the Austrian School continued to beinfluential in Western economic thought in the early part of the 20th century.

Ludwig von Mises

John Maynard Keynes

Austrian-born economist Joseph Schumpeter, sometimes associated with the School,[88] emphasized the "creativedestruction" of capitalismthe fact that market economies undergo constant change. Schumpeter argued that atany moment in time there are rising industries and declining industries. Schumpeter, and many contemporary

economists influenced by his work, argue that resources should flow fromthe declining to the expanding industries for an economy to grow, butthey recognized that sometimes resources are slow to withdraw from thedeclining industries because of various forms of institutional resistance tochange.

The Austrian economists Ludwig von Mises and Friedrich Hayek wereamong the leading defenders of market economy against 20th centuryproponents of socialist planned economies. Mises and Hayek argued thatonly market capitalism could manage a complex, modern economy.

Since a modern economy produces such a large array of distinct goodsand services, and consists of such a large array of consumers andenterprises, argued Mises and Hayek, the information problems facingany other form of economic organization other than market capitalismwould exceed its capacity to handle information. Thinkers within Supply-side economics built on the work of the Austrian School, and particularlyemphasize Say's Law: "supply creates its own demand." Capitalism, tothis school, is defined by lack of state restraint on the decisions ofproducers.

Keynesian economics

Main article: Keynesian economics

In his 1937 The General Theory of Employment, Interest and Money,the British economist John Maynard Keynes argued that capitalismsuffered a basic problem in its ability to recover from periods ofslowdowns in investment. Keynes argued that a capitalist economy couldremain in an indefinite equilibrium despite high unemployment.

Essentially rejecting Say's law, he argued that some people may have aliquidity preference that would see them rather hold money than buy newgoods or services, which therefore raised the prospect that the GreatDepression would not end without what he termed in the GeneralTheory "a somewhat comprehensive socialization of investment."

Keynesian economics challenged the notion that laissez-faire capitalisteconomics could operate well on their own, without state interventionused to promote aggregate demand, fighting high unemployment anddeflation of the sort seen during the 1930s. He and his followersrecommended "pump-priming" the economy to avoid recession: cuttingtaxes, increasing government borrowing, and spending during an economic down-turn. This was to be accompaniedby trying to control wages nationally partly through the use of inflation to cut real wages and to deter people from

holding money.[89]

Milton Friedman

John Maynard Keynes tried to provide solutions to many of Marx's problems without completely abandoning theclassical understanding of capitalism. His work attempted to show that regulation can be effective, and thateconomic stabilizers can rein in the aggressive expansions and recessions that Marx disliked. These changes soughtto create more stability in the business cycle, and reduce the abuses of laborers. Keynesian economists argue thatKeynesian policies were one of the primary reasons capitalism was able to recover following the Great

Depression.[90] The premises of Keynes's work have, however, since been challenged by neoclassical and supply-side economics and the Austrian School.

Another challenge to Keynesian thinking came from his colleague Piero Sraffa, and subsequently from the Neo-Ricardian school that followed Sraffa. In Sraffa's highly technical analysis, capitalism is defined by an entire systemof social relations among both producers and consumers, but with a primary emphasis on the demands ofproduction. According to Sraffa, the tendency of capital to seek its highest rate of profit causes a dynamic instabilityin social and economic relations.

Neoclassical economics and the Chicago School

Main article: Neoclassical economics

Today, the majority of academic research on capitalism in the English-speaking world draws on neoclassicaleconomic thought. It favors extensive market coordination and relatively neutral patterns of governmental marketregulation aimed at maintaining property rights; deregulated labor markets; corporate governance dominated byfinancial owners of firms; and financial systems depending chiefly on capital market-based financing rather than statefinancing.

Milton Friedman took many of the basic principles set forth by AdamSmith and the classical economists and gave them a new twist. Oneexample of this is his article in the September 1970 issue of The NewYork Times Magazine, where he argues that the social responsibility ofbusiness is "to use its resources and engage in activities designed toincrease its profits ... (through) open and free competition withoutdeception or fraud." This is similar to Smith's argument that self-interest in

turn benefits the whole of society.[91] Work like this helped lay thefoundations for the coming marketization (or privatization) of stateenterprises and the supply-side economics of Ronald Reagan andMargaret Thatcher.

The Chicago School of economics is best known for its free marketadvocacy and monetarist ideas. According to Friedman and othermonetarists, market economies are inherently stable if left to themselves

and depressions result only from government intervention.[92]

Friedman, for example, argued that the Great Depression was result of acontraction of the money supply, controlled by the Federal Reserve, and not by the lack of investment as JohnMaynard Keynes had argued. Ben Bernanke, current Chairman of the Federal Reserve, is among the economists

today generally accepting Friedman's analysis of the causes of the Great Depression.[93]

Neoclassical economists, who by 1998 constituted a majority of academic economists,[94] subscribe to a subjective

Neoclassical economists, who by 1998 constituted a majority of academic economists,[94] subscribe to a subjectivetheory of value, according to which the value derived from consumption of a good, rather than being objective andstatic, varies widely from person to person and for the same person at different times. Adherence to a subjectivetheory of value compels Neoclassical thinkers to reject the labor theory of value , upheld by Adam Smith and otherclassical liberal thinkers, which was grounded upon a conception of objective value.

Neoclassical models typically adopt the assumptions of Marginalism, according to which economic value resultsfrom marginal utility and marginal cost (the marginal concepts). Marginalist theory implies that capitalists earn profitsnot by exploiting workers, but by forgoing current consumption, taking risks, and organizing production.

Neoclassical economic theory

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, laborers, and investors. Aslaborers, individuals may decide which jobs to prepare for, and in which markets to look for work. As investorsthey decide how much of their income to save and how to invest their savings. These savings, which becomeinvestments, 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, labor, and capital). Businesses try to influence consumer purchase decisions through marketing andadvertisement, as well as the creation of new and improved products. Driving the capitalist economy is the searchfor profits (revenues minus expenses). This is known as the profit motive, and it helps ensure that companiesproduce the goods and services that consumers desire and are able to buy. To be profitable, firms must sell aquantity of their product at a certain price to yield a profit. A business may lose money if sales fall too low or if itscosts become too high. The profit motive encourages firms to operate more efficiently. By using less materials, laboror 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 ininfrastructure, capital and other resources necessary in production. In a capitalist system, businesses decide whenand 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 amongworkers for jobs and among employers for skilled workers help determine wage rates. Firms need to payhigh enough wages to attract the appropriate workers; when jobs are scarce, workers may accept lower wagesthan they would when jobs are plentiful. Trade union and governments influence wages in capitalist systems. Unionsact to represent their members in negotiations with employers over such things as wage rates and acceptableworking conditions.

The market

Supply is the amount of a good or service produced by a firm and which is available for sale. Demand is the amountthat people are willing to buy at a specific price. Prices tend to rise when demand exceeds supply, and fall whensupply exceeds demand. In theory, the market is able to coordinate itself when a new equilibrium price and quantityis reached.

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

would result in an increase in price and

an increase in output.

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 monopolyor cartel may develop. A monopoly occurs when a firm supplies the total output in the market; the firm cantherefore limit output and raise prices because it has no fear of competition. A cartel is a group of firms that acttogether in a monopolistic manner to control output and raise prices.

Role of government

Further information: Competition regulator, Consumerprotection, and Competition law

In a capitalist system, the government does not prohibit privateproperty or prevent individuals from working where they please. Thegovernment does not prevent firms from determining what wages theywill pay and what prices they will charge for their products. Manycountries, however, have minimum wage laws and minimum safetystandards.

Under some versions of capitalism, the government carries out anumber of economic functions, such as issuing money, supervisingpublic utilities and enforcing private contracts. Many countries havecompetition 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 pricesand accept losses to prevent competition from entering the market,and then raise them again once the threat of entry is reduced. In manycountries, public utilities (e.g. electricity, heating fuel, communications)are able to operate as a monopoly under government regulation, dueto high economies of scale.

Government agencies regulate the standards of service in manyindustries, such as airlines and broadcasting, as well as financing a wide range of programs. In addition, thegovernment regulates the flow of capital and uses financial tools such as the interest rate to control factors such as

inflation and unemployment.[95]

Democracy, the state, and legal frameworks

Main article: History of capitalist theory

Private property

The relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fieldsof social and political theory, with active discussion since the 19th century. Hernando de Soto is a contemporaryeconomist 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.[96]

According to de Soto, this is the process by which physical assets are transformed into capital, which in turn maybe used in many more ways and much more efficiently in the market economy. A number of Marxian economistshave argued that the Enclosure Acts in England, and similar legislation elsewhere, were an integral part of capitalistprimitive accumulation and that specific legal frameworks of private land ownership have been integral to the

development of capitalism.[97][98]

Institutions

New institutional economics, a field pioneered by Douglass North, stresses the need of a legal framework in orderfor 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.[99] In new institutional economics and otherfields focusing on public policy, economists seek to judge when and whether governmental intervention (such astaxes, 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.[100]

Market failure occurs when an externality is present and a market will either under-produce a product with apositive externalization or overproduce a product that generates a negative externalization. Air pollution, forinstance, is a negative externalization that cannot be incorporated into markets as the world's air is not owned andthen sold for use to polluters. So, too much pollution could be emitted and people not involved in the productionpay 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 alsofall short of absolute perfection. Market failures are often small, and government failures are sometimes large. It istherefore the case that imperfect markets are often better than imperfect governmental alternatives. While all nationscurrently have some kind of market regulations, the desirable degree of regulation is disputed.

Democracy

The relationship between democracy and capitalism is a contentious area in theory and popular politicalmovements. The extension of universal adult male suffrage in 19th century Britain occurred along with thedevelopment of industrial capitalism, and democracy became widespread at the same time as capitalism, leadingmany theorists to posit a causal relationship between them, or that each affects the other. However, in the 20thcentury, according to some authors, capitalism also accompanied a variety of political formations quite distinct from

liberal democracies, including fascist regimes, absolute monarchies, and single-party states.[46]

While some thinkers argue that capitalist development more-or-less inevitably eventually leads to the emergence ofdemocracy, others dispute this claim. Research on the democratic peace theory indicates that capitalist

democracies rarely make war with one another[101] and have little internal violence. However, critics of thedemocratic peace theory note that democratic capitalist states may fight infrequently and or never with otherdemocratic capitalist states because of political similarity or stability rather than because they are democratic orcapitalist.

Some commentators argue that though economic growth under capitalism has led to democratization in the past, itmay not do so in the future, as authoritarian regimes have been able to manage economic growth without making

concessions to greater political freedom.[102][103] States that have highly capitalistic economic systems have thrivedunder authoritarian or oppressive political systems. Singapore, which maintains a highly open market economy andattracts lots of foreign investment, does not protect civil liberties such as freedom of speech and expression. The

World's GDP per capita shows

exponential growth since the

beginning of the Industrial

Revolution.[104]

Capitalism and the economy of the

People's Republic of China

private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception,despite having an authoritarian government. Augusto Pinochet's rule in Chile led to economic growth by usingauthoritarian 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 supportedby empirical research. Indices of Economic Freedom show a correlation between nations with more economicfreedom (as defined by the indices) and higher scores on variables such as income and life expectancy, including thepoor, in these nations.

Advocacy for capitalism

Economic growth

Many theorists and policymakers in predominantly capitalist nations haveemphasized capitalism's ability to promote economic growth, asmeasured by Gross Domestic Product (GDP), capacity utilization orstandard of living. This argument was central, for example, to AdamSmith's advocacy of letting a free market control production and price,and allocate resources. Many theorists have noted that this increase inglobal GDP over time coincides with the emergence of the modern world

capitalist system.[105][106]

Between 1000 and 1820, the world economy grew sixfold, a faster ratethan the population growth, so each individual enjoyed, on the average, a50% increase in wealth. Between 1820 and 1998, world economy grew50-fold, a much faster rate than the population growth, so each individual

enjoyed, on the average, a 9-fold increase in wealth.[107] In mostcapitalist economic regions such as Europe, the United States, Canada,Australia and New Zealand, the economy grew 19-fold per person, eventhough these countries already had a higher starting level, and in Japan,which was poor in 1820, the increase per person was 31-fold. In the

third world there was an increase, but only 5-fold per person.[107]

Proponents argue that increasing GDP (per capita) is empirically shownto bring about improved standards of living, such as better availability of

food, housing, clothing, and health care.[108] The decrease in the numberof hours worked per week and the decreased participation of children

and the elderly in the workforce have been attributed to capitalism.[109][110]

Proponents also believe that a capitalist economy offers far more opportunities for individuals to raise their incomethrough new professions or business ventures than do other economic forms. To their thinking, this potential is muchgreater than in either traditional feudal or tribal societies or in socialist societies.

Political freedom

In his book The Road to Serfdom, Freidrich Hayek asserts that the economic freedom of capitalism is a requisiteof political freedom. He argues that the market mechanism is the only way of deciding what to produce and how todistribute the items without using coercion. Milton Friedman, Andrew Brennan and Ronald Reagan also promotedthis view. Friedman claimed that centralized economic operations are always accompanied by political repression.In his view, transactions in a market economy are voluntary, and that the wide diversity that voluntary activitypermits is a fundamental threat to repressive political leaders and greatly diminish their power to coerce. Some ofFriedman's views were shared by John Maynard Keynes, who believed that capitalism is vital for freedom to

survive and thrive.[111][112]

However the dire predictions in The Road to Serfdom have not come to pass, even though some measure ofgovernment intervention in the economy is universal. According to neoconservative thinker Adam Wolfson, "...mostmodern democracies have lived with more extensive welfare states and highly socialized economics than the UnitedStates, without somehow reaching a 'tipping point' whereupon they tumble into totalitarianism. There is in fact no

road to serfdom through the welfare state."[113]

The novelist Ayn Rand attempted a positive moral defense of laissez-faire capitalism, most notably in her 1957novel Atlas Shrugged. She insisted that capitalism should be supported on moral grounds, not just on the basis of

practical benefits.[114][115] Her views have been ignored or rejected by mainstream academia, but she hassignificantly influenced conservative and libertarian defenders of capitalism, especially in the American Tea Party

movement.[116]

Self-organization

Austrian School economists have argued that capitalism can organize itself into a complex system without anexternal guidance or central planning mechanism. Friedrich Hayek considered the phenomenon of self-organizationas underpinning capitalism. Prices serve as a signal as to the urgent and unfilled wants of people, and theopportunity to earn profits if successful, or absorb losses if resources are used poorly or left idle, givesentrepreneurs 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.[117]

Criticism

Main article: Criticism of capitalism

Critics of capitalism associate it with social inequality and unfair distribution of wealth and power; a tendencytoward market monopoly or oligopoly (and government by oligarchy); imperialism, counter-revolutionary wars andvarious forms of economic and cultural exploitation; materialism; repression of workers and trade unionists; socialalienation; economic inequality; unemployment; and economic instability. Individual property rights have also beenassociated with the tragedy of the anticommons.

Notable critics of capitalism have included: socialists, anarchists, communists, national socialists, social democrats,technocrats, some types of conservatives, Luddites, Narodniks, Shakers, and some types of nationalists.

Marxists have advocated a revolutionary overthrow of capitalism that would lead to socialism, before eventuallytransforming into communism. Many socialists consider capitalism to be irrational, in that production and the

direction of the economy are unplanned, creating many inconsistencies and internal contradictions.[118] Laborhistorians and scholars such as Immanuel Wallerstein have argued that unfree labor by slaves, indentured

An Industrial Workers of the World

poster (1911)

servants, prisoners, and other coerced persons is compatible with capitalist relations.[119]

Many aspects of capitalism have come under attack from the anti-globalization movement, which is primarilyopposed to corporate capitalism. Environmentalists have argued that capitalism requires continual economic

growth, and that it will inevitably deplete the finite natural resources of the Earth.[120]

Many religions have criticized or opposed specific elements of capitalism. Traditional Judaism, Christianity, and

Islam forbid lending money at interest,[121][122] although alternative methods of banking have been developed.

Some Christians have criticized capitalism for its materialist aspects[123] and its inability to account for the wellbeingof all people. Many of Jesus's parables deal with clearly economic concerns: farming, shepherding, being in debt,doing hard labor, being excluded from banquets and the houses of the rich, and have implications for wealth and

power distribution.[124][125]

In his 84-page apostolic exhortation Evangelii Gaudium, Pope Francisdescribed unfettered capitalism as "a new tyranny" and called upon world

leaders to fight rising poverty and inequality.[126] In it he says:

Some people continue to defend trickle-down theorieswhich assume that economic growth, encouraged by a

free market, will inevitably succeed in bringing aboutgreater justice and inclusiveness in the world. This

opinion, which has never been confirmed by the facts,expresses a crude and naive trust in the goodness of

those wielding economic power and in the sacralizedworkings of the prevailing economic system. Meanwhile,the excluded are still waiting.[127]

Following the banking crisis of 2007, even those who strongly held theview that capitalism can organize itself were forced to reconsider. AlanGreenspan told the United States Congress on October 23, 2008, "Thewhole intellectual edifice collapsed. I made a mistake in presuming thatthe self-interests of organizations, specifically banks and others, were such that they were best capable of protecting

their own shareholders. ... I was shocked."[128]

See also

Anti-capitalismCommunism

CorporatocracyCriticisms of capitalism

EconomicsMarket economyMarket socialism

Perspectives on capitalismRhine capitalism

Socialism

Varieties of Capitalism

Notes

1. ^ "Capitalism" (http://oxforddictionaries.com/definition/english/capitalism) Oxford Dictionaries. "capitalism. aneconomic and political system in which a countrys trade and industry are controlled by private owners for profit,rather than by the state." Retrieved 4 January 2013.

2. ^ Chris Jenks. Core Sociological Dichotomies. "Capitalism, as a mode of production, is an economic system ofmanufacture and exchange which is geared toward the production and sale of commodities within a market forprofit, where the manufacture of commodities consists of the use of the formally free labour of workers inexchange for a wage to create commodities in which the manufacturer extracts surplus value from the labour ofthe workers in terms of the difference between the wages paid to the worker and the value of the commodityproduced by him/her to generate that profit." London, England, UK; Thousand Oaks, California, USA; New Delhi,India: SAGE. p. 383.

3. ^ Heilbroner, Robert L. "capitalism." (http://www.dictionaryofeconomics.com/article?id=pde2008_C000053)Durlauf, Steven N.and Lawrence E. Blume, eds., The New Palgrave Dictionary of Economics. 2nd ed. (PalgraveMacmillan, 2008) doi:10.1057/9780230226203.0198 (http://dx.doi.org/10.1057%2F9780230226203.0198)

4. ^ http://www.merriam-webster.com/dictionary/capitalism "an economic system characterized by private orcorporate ownership of capital goods, by investments that are determined by private decision, and by prices,production, and the distribution of goods that are determined mainly by competition in a free market"

5. ^a b Macmillan Dictionary of Modern Economics, 3rd Ed., 1986, p. 54.

6. ^a b Stilwell, Frank. "Political Economy: the Contest of Economic Ideas." First Edition. Oxford University Press.Melbourne, Australia. 2002.

7. ^a b c Scott, John (2005). Industrialism: A Dictionary of Sociology. Oxford University Press.

8. ^a b Capitalism. Encyclopdia Britannica. 2006.

9. ^ James Fulcher, Capitalism, A Very Short Introduction, "In one respect there can, however, be little doubt thatcapitalism has gone global and that is in the elimination of alternative systems." p. 99, Oxford University Press,2004, ISBN 978-0-19-280218-7.

10. ^ Tucker, Irvin B. (1997). Macroeconomics for Today. p. 553.

11. ^ Case, Karl E. (2004). Principles of Macroeconomics. Prentice Hall.

12. ^ Fulcher, James (2004). Capitalism A Very Short Introduction. Oxford University Press. p. 41.

13. ^ Friedman, Milton. Capitalism and Freedom. [Chicago]: University of Chicago, 1962.

14. ^ Krugman, Paul, Wells, Robin, Economics, Worth Publishers, New York, (2006)

15. ^ Caritas in veritate paragraph 36 (http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html)

16. ^ The Rise of Capitalism, 2011. Socialist Standard, no. 1284, August 2011.

17. ^ ""capitalism, n.2". OED Online" (http://www.oed.com/view/Entry/27454?rskey=ZVI1hr&result=2&isAdvanced=false).

18. ^a b Williams, Raymond (1983). "Capitalism". Keywords: A vocabulary of culture and society, revised edition.Oxford University Press. p. 51. ISBN 0-19-520469-7.

19. ^ Ragan, Christopher T.S., and Richard G. Lipsey. Microeconomics. Twelfth Canadian Edition ed. Toronto:Pearson Education Canada, 2008. Print.

20. ^ Robbins, Richard H. Global problems and the culture of capitalism. Boston: Allyn & Bacon, 2007. Print.

21. ^ Taylor, Timothy (2011). Principles of Economics: Economics and the Economy(http://www.texbookmedia.com). USA: Textbook Media. p. 744. ISBN 1-930789-13-0.

22. ^ Reisman, George. "Economics and capitalism"(http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm). CAPITALISM: A TREATISE ONECONOMICS. The Jefferson School of Philosophy, Economics, and Psychology. Retrieved 18 February 2012.

23. ^ Scott, Bruce R. "The Political Economy of Capitalism Bruce R." (http://www.hbs.edu/research/pdf/07-037.pdf).Harvard Business School. Retrieved 20 February 2012.

24. ^ Musacchio, Aldo. "Economist Debates: State capitalism: Statements"

24. ^ Musacchio, Aldo. "Economist Debates: State capitalism: Statements"(http://www.economist.com/debate/days/view/802).

25. ^ Werhane, P.H. (1994). "Adam Smith and His Legacy for Modern Capitalism". The Review of Metaphysics

(Philosophy Education Society, Inc.) 47 (3).

26. ^a b c "free enterprise." Roget's 21st Century Thesaurus, Third Edition. Philip Lief Group 2008.

27. ^ Mutualist.org (http://www.mutualist.org/). "... based on voluntary cooperation, free exchange, or mutual aid."

28. ^ Barrons Dictionary of Finance and Investment Terms. 1995. p. 74

29. ^ "Market economy" (http://unabridged.merriam-webster.com/cgi-bin/unabridged?va=market%20economy),Merriam-Webster Unabridged Dictionary

30. ^ "About Cato" (http://www.cato.org/about.php). Cato.org. Retrieved 6 November 2008.

31. ^ "The Achievements of Nineteenth-Century Classical Liberalism"(http://www.cato.org/university/module10.html).

Although the term "liberalism" retains its original meaning in most of the world, it has unfortunatelycome to have a very different meaning in late twentieth-century America. Hence terms such as"market liberalism," "classical liberalism," or "libertarianism" are often used in its place in America.

32. ^ Shutt, Harry (2010). Beyond the Profits System: Possibilities for the Post-Capitalist Era. Zed Books. ISBN 1-84813-417-7.

33. ^a b c Braudel p. 232

34. ^ Harper, Douglas. "cattle" (http://www.etymonline.com/index.php?term=cattle). Online Etymology Dictionary.

35. ^a b c d e James Augustus Henry Murray. "Capital". A New English Dictionary on Historical Principles(http://www.archive.org/details/oedvol02). Oxford English Press. Vol 2. p. 93.

36. ^ e.g., "L'Angleterre a-t-elle l'heureux privilge de n'avoir ni Agioteurs, ni Banquiers, ni Faiseurs de services, niCapitalistes?" in [Etienne Clavier] (1788) De la foi publique envers les cranciers de l'tat: lettres M. Linguet surle n CXVI de ses annales p. 19 (http://books.google.com/books?id=ESMVAAAAQAAJ&pg=PA19)

37. ^ Arthur Young. Travels in France (http://books.google.com/books?id=l10JAAAAQAAJ&printsec=titlepage#PPA529,M1)

38. ^ Ricardo, David. Principles of Political Economy and Taxation. 1821. John Murray Publisher, 3rd edition.

39. ^ Samuel Taylor Coleridge. Tabel The Complete Works of Samuel Taylor Coleridge(http://books.google.com/books?id=ma-4W-XiGkIC&printsec=titlepage). p. 267.

40. ^ Braudel, Fernand. The Wheels of Commerce: Civilization and Capitalism 15th18th Century, Harper and Row,1979, p. 237

41. ^ Karl Marx. Chapter 16: "Absolute and Relative Surplus-Value". Das Kapital.

Die Verlngrung des Arbeitstags ber den Punkt hinaus, wo der Arbeiter nur ein quivalent fr denWert seiner Arbeitskraft produziert htte, und die Aneignung dieser Mehrarbeit durch das Kapital das ist die Produktion des absoluten Mehrwerts. Sie bildet die allgemeine Grundlage deskapitalistischen Systems und den Ausgangspunkt der Produktion des relativen Mehrwerts.

The prolongation of the working-day beyond the point at which the laborer would have producedjust an equivalent for the value of his labor-power, and the appropriation of that surplus-labor bycapital, this is production of absolute surplus-value. It forms the general groundwork of thecapitalist system, and the starting-point for the production of relative surplus-value.

42. ^ Karl Marx. Chapter Twenty-Five: "The General Law of Capitalist Accumulation". Das Kapital.Die Erhhung des Arbeitspreises bleibt also eingebannt in Grenzen, die die Grundlagen des kapitalistischenSystems nicht nur unangetastet lassen, sondern auch seine Reproduktion auf wachsender Stufenleitersichern.Die allgemeinen Grundlagen des kapitalistischen Systems einmal gegeben, tritt im Verlauf derAkkumulation jedesmal ein Punkt ein, wo die Entwicklung der Produktivitt der gesellschaftlichen Arbeitder mchtigste Hebel der Akkumulation wird.Wir sahen im vierten Abschnitt bei Analyse der Produktion des relativen Mehrwerts: innerhalb deskapitalistischen Systems vollziehn sich alle Methoden zur Steigerung der gesellschaftlichen Produktivkraft

kapitalistischen Systems vollziehn sich alle Methoden zur Steigerung der gesellschaftlichen Produktivkraftder Arbeit auf Kosten des individuellen Arbeiters;

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