• Ubi

Capitalism

• a combination of economic practices that became institutionalized in Europe between the 16th and 19th centuries, especially involving the centrality of wage labor and the formation and trade in ownership of corporations (see corporate personhood and companies) for buying and selling goods, especially capital goods (including land and labor power), in a relatively free (meaning, free from state control) market

• competing (and contentious) theories that developed in the 19th century, in the context of the industrial revolution, and 20th century, in the context of the Cold War, meant to justify the private ownership of capital, to explain the operation of such markets, and to guide the application or elimination of government regulation of property and markets

• and beliefs about the advantages of such practices.

Table of contents

1 Etymology 2 History of capitalism 3 Capitalism as an economic system 4 Characteristics of Capitalist Economies 4.1 Economic Growth 4.2 Distribution of Wealth 4.3 Evolving Network Structure 4.4 Unknown/Unapproved Direction of Capitalist Economies 4.5 Unemployment/Employment 5 Criticisms of Capitalism 6 Capitalism and Imperialism 7 Capitalism as an ideology 7.6 Capitalism and political ideologies 8 Arguments for and against capitalism 9 Why does no one agree what capitalism is? 10 In whose interest is capitalism? 11 What is capitalism good for? 12 See also 13 external links

Etymology

The lexical roots of the word capital reveal roots in the trade and ownership of animals. The Latin root of the word capital is capitalis, from the proto-Indo-European kaput, which means "head", this being how wealth was measured. The more heads of cattle, the better. The terms chattel (meaning goods, animals, or slaves) and even cattle itself also derive from this same origin.

The lexical connections between animal trade and economics can also be seen in the names of many currencies and words about money: fee (faihu), rupee (rupya), buck (a deerskin), pecuniary (pecu), stock (livestock), and peso (pecu or pashu) all derive from animal-trade origins.

The word "Capitalism" was in fact not used by Karl Marx, who only spoke about capital; although it is not completely clear who used the word in its current, systemic context first, it was coined and introduced into the economic discourse by Werner Sombart in his 1906 classic, Modern Capitalism.

History of capitalism

The development of capitalism as a belief system would not have been possible without many different factors.

Of special note should be the work of Adam Smith, thought of as the father of modern economics, whose book The Wealth of Nations can be said to have created the field of economics and developed it into an autonomous systematic discipline. Smith wrote the book in part as a rebuke of imperial mercantilism which was popular at the time. It made possible the further study of economics, elevated it into its own separate field of science and thus lead to the creation of capitalism.

Smith himself never used the term. He described his own views as "the system of natural liberty."

Capitalism as an economic system

There is much debate over how to define capitalism. Some proponents of capitalism (like Milton Friedman) tend to emphasize the role of (presumably efficient) free markets, which, they claim, promote freedom and democracy. For many (like Wallerstein), capitalism hinges on the elaboration of an economic system in which goods and services are traded in markets, and capital goods belong to non-state entities, onto a global scale. For others (like Marx), it is defined by the creation of a labor market. As Marx observed (see also Hilaire Belloc) capitalism is also distinguished from other market economies with private ownership by the concentration of the means of production in the hands of a few.

According to Karl Marx, the treatment of labor as a commodity led to people valuing things more according to their price rather than their usefulness (see commodity fetishism) and to an expansion of the system of commodities. Marx observed that some people bought commodities in order to use them, while others bought them in order to sell elsewhere at a profit. Much of the history of late capitalism involves what David Harvey called the "system of flexible accumulation" in which more and more things become commodities, the value of which is determined by their exchange rather than by their use. Thus not only are pins commodities; shares of ownership in a factory that makes pins become commodities; then options on shares become commodities; then portions of interest rates on bonds become commodities, and so on. The predominance of commodity speculation in modern capitalism very much shapes its results.

The following example introduces many of the ideas involved in capitalism. When starting a business, the initial owners typically provide some money (the Capital) which is used by the business to buy or rent some means of production. For example, the enterprise may buy or rent a piece of land and a building; it may buy machinery and hire workers (Labour). The commodities produced by the workers are sold by the capitalist, who pays the workers a portion for their labor, pays other overhead costs, and keeps the rest as profit. If more money is needed than the initial owners are willing to provide, the business may to borrow a limited amount of extra money with a promise to pay it back with interest - in effect it may rent more capital. The business is granted a degree of legal authority, and control, over a set of factors of production (as economists call them). The business can register as a corporate entity, meaning that it can act as a type of virtual person in many matters before the law (see Companies for listing of such entities). The owners can pay themselves some of the income derived from the business (Dividends), sell shares in the company, or they can sell all of the equipment, land, and other assets, and split the proceeds between them.

Traditionally capitalist economies have had corporations working along the lines of the above example existing in parallel with other types of organisation such as governments, sole traders, partnerships and sometimes cooperatives, credit unions, and other entities. Observers do not always agree which of these organisations, or which features of them are part of capitalism, although most often companies, or many features of their operation, are included as part of the definition.

Additionally, many of the characteristics and techniques of business workings in the above example existed before capitalism, and many have continued to be added. So this leaves much room for debate. However, many people agree that it was around the time when share-trading in corporate bodies became common and widely understood that capitalism can be said to have begun, even though there is often disagreement that it was the share-trading itself that defined capitalism. Such share trading first took place widely in Europe during the 17th century and continued to develop and spread thereafter, although the word "Capitalism" itself did not come into use until the 19th century.

One can view shares as converting company ownership into a commodity - the ownership rights are divided into units (the shares) for ease of trading in them. In a similar way, one can view bonds as a commoditisation of debt. Other financial instruments have come into being since the early years of capitalism that have commoditised fluctuations in markets, future prices, classes of items, and many other things. Increases in communications technologies have helped facilitate an increase in the number and availability of financial instruments, and the ease of trading.

Under the bulk of capitalist economies, a predominant proportion of productive capacity has belonged to corporate bodies such as companies. Therefore, to a large degree, authority over productive capacity has resided with the owners of companies. Within legal limits and the financial means available to them, the owners of each company can decide how it will operate. This normally includes deciding the following things (among many others):

• which land production will take place on,
• how many people to employ,
• what activities employees will do,
• which machines and tools to use for production.

Importantly, the owners receive any profits or proceeds generated by the productive capacity that they own - sometimes in the form of dividends, other times in the form of profits being re-invested in the capacity that is owned. The price at which ownership of productive capacity sells is generally in rough proportion to the profits currently being generated and/or expected to be generated by that productive capacity in the future. There is therefore a financial incentive for owners to exercise their authority in ways that increase the productive capacity of what they own. Various owners are motivated to various degrees by this incentive - some give away a proportion of what they own, others seem very driven to increase their holdings. Nevertheless the incentive is always there, and it is credited by many as being a key aspect behind the growth exhibited by capitalist economies. Meanwhile, some critics of capitalism claim that the incentive for the owners is exaggerated and that it results in the owners receiving money that rightfully belongs to the workers, while others point to the fact that the incentive only motivates owners to make a profit - something which may not necessarely result in a positive impact on society.

Characteristics of Capitalist Economies

Economic Growth

Capitalist economies have shown an erratic but sustained tendency towards economic growth, when measured as an increase in GDP. They have on occasion been through nearly disastrous periods (such as the Great depression), and some have argued that it has only been government intervention that has prevented capitalist economies from collapsing, while others maintain that it was government intervention that caused such disasters. The former argue that it is only government intervention that has enabled capitalist economies to ever grow at all, or even that economic growth in capitalist economies is not due to capitalism itself, but exists despite capitalism - perhaps due to some other reason such as increased scientific knowledge, or some form of 'imperialism'. Others have argued that the natural tendency of capitalism is to continuous growth and that government intervention in the form of subsidies and taxes is the cause of depressions. Yet others argue that growth, or often growth without enough freedom, is a bad thing. Still others argue that modern capitalism has been a disaster because of its other effects besides the growth of GDP. Further discussion on these points might be found in following sections. Nevertheless, good or bad, because of or despite capitalism, it can be seen from history that there has been a sustained tendency for capitalist economies to grow over time.

It should be noted, however, that many economic systems that have existed for significant periods of time have also exibited economic growth. Thus, although such growth is an aspect of capitalism, it is by no means unique to capitalist economies.

Distribution of Wealth

Capitalist economies have shown an uneven distribution of wealth. Typically between 0.5% and 1% of people own more than half of productive capacity, if not half of all wealth. Various studies have shown distributions with the peak in the distribution at or near zero with fewer people owning progressively higher wealth. Common mathematical models of such distributions include power-law distributions, exponential distributions, and mixtures of the two. In these distributions some people own hundreds of thousands, or sometimes millions of times more than average.

The distribution of wealth in capitalist economies is one of its most contentious issues. To properly visualise the shape of these distributions it is useful to imagine what it would be like if some other commonly known characteristic of people were to be distributed this way. If height were distributed in the same way as wealth with the same average height as now, most people would be under 1 meter (3 feet) tall, but you would still see people 100 kilometers (60 miles) tall, if you could see up that far, and the wealthiest would rise well into space.

This seems to strike many people as being unfair and/or dysfunctional, while others don't see it as a problem.

Arguments directed against unfairness or disfunctionality have a tendency to go roughly as follows. Most characteristics of people, such as height or weight, and it might be surmised people's ability to be productive, are distributed according to a bell shaped curve with a peak at the average and few people far on either side. For example, there are very few people who are twice as high, as average, or who can run twice as fast or have twice as high an IQ. The fact that capitalism doesn't distribute wealth in a similar fashion must mean either that people do not exhibit their full productivity under capitalism, or that those with greater wealth inherently use the capitalist system as a way of enforcing the "exploitation" of those with less economic power by not fully rewarding employee productivity or by stealing the creative ideas of others, in the form of modern copyright laws which favor the legal copyright holder and not the actual creator. Thus they accumulate more wealth for themselves in a cyclical fashion (as the old statement goes "the rich get richer").

Arguments of people who don't see uneven wealth distribution as a problem tend to argue that it is associated with, or a byproduct of, the overall increase in total of wealth, and often that it is more important that a high proportion of people have enough wealth to live above a minimum standard, rather than that everyone have a similar amount. Free market theories are often used in which voluntary economic exchange is seen as leaving both parties better off as both would not be trading unless the outcome of the trade was an improvement for both. According to this view, even if the resulting distribution is not even, at least it is better than if there were no trading.

Another outlook that downplays the blame of capitalism for disparities in wealth distribution is that economic systems are not even the main culprit. The economist Thomas Sowell has attributed factors such as geography, climate, culture, and natural resources as primary reasons for inequity. Alternatively, the claim is made that capitalist economics is not a zero-sum game and that wealth is not "distributed", but actually "created" through innovation, and risk-taking. The writer P.J. O'Rourke has explained this view by comparing the alternative perspective to a pizza where people taking too many slices leaves somebody with just the box. By this way of thinking, the "pizza" (or zero-sum) model of wealth is a drastic oversimplification. In response, critics of capitalism have argued that even if these arguments could justify some economic inequity, they cannot explain the extreme inequality that capitalism brings with it.

Other points of view on capitalism's wealth distribution include:

• Collection of wealth in relatively few hands serves a function that in the end benefits all. (see philanthropist)
• Capitalist economies allocate wealth to the rich because they deserve it (see wealth).
• Society requires that they have it as an incentive, or for any number of reasons (see motivation).
• Wealth is not beneficial to anyone - not even the wealthy.
• The cause is not enough capitalism.
• Perhaps government interference in markets protects the wealthy.
• Capitalism hasn't been properly implemented yet.
• Uneven distribution of wealth shows capitalism to be faulty, or immoral.
• Present wealth distribution is the only possible outcome of capitalism.
• Many people have little wealth left over after living expenses, so they can't make it grow quickly.
• Wealth is defined and judged incorrectly, in many different ways.
• Financial markets and banks where most wealth is stored act as a means of redistribution of wealth ( see banking and stock market). Some say that this causes the simple dollar amounts assigned to a persons "net worth" to be completely misleading and inflated.

Evolving Network Structure

Capitalist economies have large numbers of companies and people free to enter into many types of arrangements with each other. The economy reacts to various changes in technologies, discoveries, and other situations, by means of companies and individuals re-assessing their arrangements with each other. Therefore, the control mechanisms of the economy, and the way that information flows through it, evolve over time, and are subject to a kind of "survival of the fittest" form of selection not unlike biological entities. Analysis of the networks of connections and arrangements in the economy has shown a degree of similarity to other networks such as the phone system or the Internet. [1] has examples of networks of company board members. Networks of customer links, and monetary flows exhibit similar structures.

Some see the evolution of capitalist economies as a positive adaptation and tendency towards improvement. Others see it as pointless random and chaotic fluctuations. If economic practices can be mapped to a fitness landscape in which optimization of the distribution of wealth is evolved then both viewpoints are valid, since random and chaotic fluctuations could be viewed as mutations. It is possible that capitialism is a local optima or maxima, but this is dependent on the valuation of the goals for the distribution of wealth, such as the goodness of equal distribution or the reduction of waste.

Unknown/Unapproved Direction of Capitalist Economies

While there is a great deal of planning within companies and other organisations in capitalist economies, there is no economy-wide direction, or even any reliable prediction or knowledge of how the economy will behave or perform more than a year into the future. While nearly all transactions may be approved of and planned by the people taking part, many society-wide phenomena emerging from the transactions or markets are often not planned, predicted, or approved or authorised by anyone.

Unemployment/Employment

Since individuals typically earn income through finding a company for which to work, it is possible that not all individuals will be able to find a company that will want their labor at a given time. This would not be such a big problem in an economy in which individuals had access to the resources to provide for themselves, but when ownership of the bulk of productive resources is collected in relatively few hands, most individuals are made dependent on employment for their well being. It is normal that all real capitalist economies have fluctuating unemployment rates typically between 3 and 15%. Some economists have used the term the "natural rate of unenployment" to describe this situation. Occasionally employment rates have reached levels of 30%, and occasionally they have fallen to 2 or 1%, but rarely is there enough employment for all. Some economists consider a certain level of unemployment to be necessary for capitalist economies to function. Some political figures have claimed that the "natural rate of unemployment" shows the inefficencies of a capitalist economy, since not all resources, human labor in this case, are efficiently allocated.

Criticisms of Capitalism

Marxists and others criticize capitalism for enriching capitalists (owners of capital) at the expense of workers without necessarily working themselves ("the rich get richer, and the poor get poorer"), and for the degree of control over the lives of workers enjoyed by owners. Supporters of capitalism counter this criticism by claiming that ownership of productive capacity provides motivation to owners to increase productive capacity and so generally increase the average material wealth ("we all get richer"). Opponents of capitalism counter this by pointing out that the average inflation-adjusted hourly wage in the United States is below what it was 35 years ago.

Marxists believe that the capitalism allows capitalists - the owners of capital - to exploit workers. The existence of private property is seen as a restriction on freedom. Marxists also argue that capitalism has inherent contradictions that will inevitably lead to its collapse. Capitalism is seen as just one stage in the evolution of the economy of a society.

Marxists also often argue that the structure of capitalism necessarily leads to unjust exploitation of workers, regardless of whether or not the political system is one of an elected democracy or not. For this reason Marxists typically emphasise the capitalist economic system of western countries rather than the democratic political system. A capitalist system is an economic system - although often associated with democratic political systems, they are independent from each other. Capitalist systems have often functioned under unelected governments, some examples being Hong Kong, Singapore, and Chile under the rule of General Pinochet Source | Copyright