Capitalism

Introduction:
Capitalism is an economic system dedicated to production for
profit and to the accumulation of value by private business
firms. In the fully developed form of industrial capitalism,
firms advance money to hire wage laborers and to buy means
of production such as machinery and raw materials. If the firm
can sell its products for a greater sum of value than that
originally advanced, the firm grows and can advance more
money for a new round of accumulation. Historically, the
emergence of industrial capitalism depends upon the creation
of three prerequisites for accumulation: initial sums of money
(or credit), wage labor and means of production available for
purchase, and markets in which products can be sold.

Definition:
Capitalism is generally considered to be an economic system
that is based on private ownership of the means of production
and the creation of goods or services for profit or income by
individuals or corporations. Some have also used the term as a
synonym for competitive markets, voluntary exchange, wage
labor, capital accumulation, or personal finance. Capitalism is

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variously defined by sources and there is no general
consensus among scholars on the definition nor which
economies can historically be properly considered capitalist.
The designation is applied to a variety of historical cases,
varying in time, geography, politics, and culture. There is,
however, general agreement that capitalism became dominant
in the Western world following the demise of feudalism.

“In such a system, individuals and firms have the right to own
and use wealth to earn income and to sell and purchase labor
for wages with little or no government control. The function of
regulating the economy is then achieved mainly through the
operation of market forces where prices and profit dictate
where and how resources are used and allocated. The U.S. is
a capitalistic system‖ -Investopedia

"Making capitalism out of socialism is like making eggs out of

an omelet." –VadimBakatin

"Fact is Our Lord knew all about the power of money: He

gave capitalism a tiny niche in His scheme of things, He gave
it a chance, He even provided a first installment of funds. Can
you beat that? It's so magnificent. God despises nothing. After
all, if the deal had come off, Judas would probably have
endowed sanatoriums, hospitals, public libraries or
laboratories."- GeorgesBernanos

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"Capitalism without bankruptcy is like Christianity without
hell." - FrankBorman

"The most eloquent eulogy of capitalism was made by its

greatest enemy. Marx is only anti-capitalist in so far as
capitalism is out of date." - AlbertCamus

"Predatory capitalism created a complex industrial system

and an advanced technology; it permitted a considerable
extension of democratic practice and fostered certain liberal
values, but within limits that are now being pressed and must
be overcome. It is not a fit system for the mid-twentieth
century." - NoamChomsky

"The inherent vice of capitalism is the unequal sharing of

blessings; the inherent vice of socialism is the equal sharing
of miseries." - Winston Churchill

Origin:
Economic trade for profit has existed since the second
millennium BC. However, capitalism in its modern form is
usually traced to the Mercantilism of the 16th-18th Centuries.
The origins of Capitalism are-

 Mercantilism
 Industrial Revolution
 Keynesianism
 Neoliberalism
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Mercantilism:

The period between the sixteenth and eighteenth centuries is

commonly described as mercantilism. This period, the Age of
Discovery, was associated with geographic exploration 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.

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. 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.

Industrial Revolution:
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A new group of economic theorists, led by David Humeand
Adam Smith, in the mid of 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
affected 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 routine of work
tasks; and finally established the global domination of the
capitalist mode of production.
In the 19th century, Richard Cobden and John Bright, who
based their beliefs on the Manchester School, initiated a
movement to lower tariffs. In the 1840s, Britain adopted a less
protectionist policy, with the repeal of the Corn Laws and the
Navigation Acts. Britain reduced tariffs and quotas, in line
with Adam Smith and David Ricardo's.

Keynesianism:

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
After World War II, 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-

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industrial society and the welfare state.[35] 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.[49]
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

Neoliberalism:
Nonetarism, 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‖.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 planned economy.

Every economics systems have some positive and negative

aspects. Capitalism has also following positive and negative
aspects.

Positive Aspects:
Economic growth:

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World's GDP per capita shows exponential growth since the
beginning of the Industrial Revolution.

In years 1000–1820 world economy grew six fold, 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. 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.
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. 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.

Political freedom:

Milton Friedman stated that the economic freedom of

capitalism is a requisite of political freedom which has been
continuously echoed by others such as Andrew Brennan and
Ronald Reagan. Friedman stated that centralized operations of
economic activity are 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 diminishes power to coerce. Friedman's view was
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also shared by Friedrich Hayek and John Maynard Keynes,
both of whom believed that capitalism is vital for freedom to
survive and thrive.

Self-organization:

Austrian School economists have argued that capitalism can

organize itself into a complex system without an external
guidance or central planning mechanism. Friedrich Hayek
considered the phenomenon of self-organization as
underpinning capitalism. Prices serve as a signal as to the
urgent and unfilled wants of people and 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 owninterest, are coordinated.

Free market:

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 protecting the rights to life, liberty, and
property.

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
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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.[35] However, other thinkers argue that
globalization, even in its quantitative degree, is no greater
now than during earlier periods of capitalist trade.

Negative Aspects:
Critics of capitalism associate with the followings-
 Social inequality and unfair distribution of wealth and
power
 A tendency toward market monopoly or oligopoly (and
government by oligarchy)
 Imperialism, counter-revolutionary wars and various
forms of economic and cultural exploitation
 Repression of workers and trade unionists
 Social alienation
 Economic inequality
 Unemployment and economic instability.
 Individual property rights have also been associated with
the tragedy of the anti-commons.

Notable negative aspects of capitalism have included:

socialists, anarchists, communists, national socialists, social
democrats, technocrats, some types of conservatives,
Luddites, Narodniks, Shakers and some types of nationalists.
Many aspects of capitalism have come under attack from the
anti-globalization movement, which is primarily opposed to
corporate capitalism. Environmentalists have argued that

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capitalism requires continual economic growth, and that it
will inevitably deplete the finite natural resources of the Earth.
Many religions have criticized or opposed specific elements
of capitalism. Traditional Judaism, Christianity, and Islam
forbid lending money at interest, although alternative methods
of banking have been developed. Some Christians have
criticized capitalism for its materialist aspects and its inability
to account for the wellbeing of all people.

Role of government:

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.

Killing democracy:

Democracy means much more than the process of free and

fair elections. It is a system for accomplishing what can only
be achieved by citizens joining together to further the
common good. But though free markets have brought
unprecedented prosperity to many, they have been
accompanied by widening inequalities of income and wealth,
heightened job insecurity, and environmental hazards such as
global warming. Democracy is designed to allow citizens to
address these very issues in constructive ways. And yet a
sense of political powerlessness is on the rise among citizens
in Europe, Japan, and the United States, even as consumers
and investors feel more empowered. In short, no democratic
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nation is effectively coping with capitalism's negative side
effects.

Pollution:

Pollution is not an inevitable byproduct of modern industry.

Methods exist or can readily be developed to safely neutralize,
recycle or contain most industrial wastes. Less polluting
forms of transportation and energy can be built. Adequate
supplies of food can be grown without deadly pesticides. The
problem is that, under capitalism, the majority of people have
no power to make these kinds of decisions about production.
Under the capitalist system, production decisions are made by
the small, wealthy minority that owns and controls the
industries and services—the capitalist class. And the
capitalists who make up that class make their decisions to
serve, first and foremost, one goal—that of maximizing profit
for them. That is where the environmental crisis begins.

GlobalWarming:

Carbon dioxide, water vapor and other atmospheric gases trap

the sun’s heat and warm the Earth. Without this ―greenhouse
effect,‖ life on Earth would be impossible. But the greenhouse
effect is being intensified by modern capitalist society. The
buildup of carbon dioxide is primarily the result of burning
oil, gas, coal, wood and other fuels to provide energy for
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capitalist industry. The profit-motivated destruction of forests
the world over has also played a role because trees, like other
green plants, consume carbon dioxide.

Computerization/Innovative Technology:

The factor that contributed to the already growing inequality

in the 20th century was computerization and growth in
technology with electricity replacing manpower. With this
growing change in technology, the United States experienced
increasing demand for skilled workers to use computers and
operate the electrical inventions. This resulted in a rightward
shift in the Demand for Skilled Labor Supply, and this created
an increase in the relative wages of the skilled compared to
the wages of the unskilled workers. Such a change in wages
added to the inequality that was already present.

Economic inequality:

Economic inequality (also known as the gap between rich and

poor, income inequality, wealth disparity, or wealth and
income differences) comprises disparities in the distribution
of economicassets (wealth) and income within or between
populations or individuals. The term typically refers to
inequality among individuals and groups within a society, but
can also refer to inequality among countries. The issue of
economic inequality is related to the ideas of equity, equality
of outcome, and equality of opportunity.
Economic inequality varies between societies and historical
periods; between economic structures or systems (for
example, capitalism or socialism), ongoing or past wars, and

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differences in individuals' abilities to create wealth are all
involved in the creation of economic inequality.

Reference:
Bacher, Christian (2007) Capitalism, Ethics and the
Paradoxon of Self-exploitation GRIN Verlag. p. 2
De George, Richard T. (1986) Business ethics p. 104
Lash, Scott and Urry, John (2000). Capitalism. In Nicholas
Abercrombie, S. Hill & BS Turner (Eds.), The Penguin
dictionary of sociology (4th ed.) (pp. 36–40).
Obrinsky, Mark (1983). Profit Theory and Capitalism.
University of Pennsylvania Press. pp. 1.
Wolf, Eric (1982) Europe and the People Without History

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