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A theory of capitalism describes the essential features of capitalism and how it functions. The history of various such theories is the subject of this article.
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| Capitalism |
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A theory of capitalism describes the essential features of capitalism and how it functions. The history of various such theories is the subject of this article.
Conceptions of what constitutes capitalism have changed significantly over time, as well as being dependent on the political perspective and analytical approach adopted by the observer in question. Adam Smith focused on the role of enlightened self-interest (the "invisible hand") and the role of specialization in promoting the efficiency of capital accumulation. Ayn Rand defined capitalism as a social system based on the recognition of individual rights, including property rights, in which all property is privately owned, and called it the unknown ideal. [1] Robert LeFevre, an American libertarian and primary theorist of autarchism, defined capitalism as savings and capital—in essence—as savings made by men, which are then invested in the tools of production. [2] Some proponents of capitalism (like Milton Friedman) emphasize the role of free markets, which, they claim, promote freedom and democracy. For many (like Immanuel Wallerstein), capitalism hinges on the extension into a global dimension of an economic system in which goods and services are traded in markets and capital goods belong to non-state entities. For others (like Karl Marx), it is defined by the creation of a labor market in which most people must sell their labor power in order to make a living. Marx, along with others like Hilaire Belloc, also argued that capitalism differs from other market economies that feature private ownership because it features the concentration of the means of production in the hands of a few.
Adam Smith is considered the first theorist of what we commonly refer to as capitalism. His 1776 work, An Inquiry into the Nature and Causes of the Wealth of Nations , theorized that within a given stable system of commerce and evaluation, individuals would respond to the incentive of earning more by specializing their production. These individuals would naturally, without specific state intervention, "direct ... that industry in such a manner as its produce may be of the greatest value." This would enable the whole economy to become more productive, and it would therefore be wealthier. Smith argued that protecting particular producers would lead to inefficient production, and that a national hoarding of specie (i.e. cash in the form of coinage) would only increase prices, in an argument similar to that advanced by David Hume. His systematic treatment of how the exchange of goods, or a market, would create incentives to act in the general interest, became the basis of what was then called political economy and later economics. It was also the basis for a theory of law and government that gradually superseded the mercantilist regime then prevalent.
Smith asserts that when individuals make a trade they value what they are purchasing more than they value what they are giving in exchange for a commodity. If this were not the case, then they would not make the trade but retain ownership of the more valuable commodity. This notion underlies the concept of mutually-beneficial trade where it is held that both sides tend to benefit by an exchange.
Adam Smith is often described as the "father of capitalism" (and the "father of economics"). He described his own preferred economic system as "the system of natural liberty." Smith defined "capital" as stock, and "profit" as the just expectation of retaining the revenue from improvements made to that stock. Smith also viewed capital improvement as being the proper central aim of the economic and political system.
A critique of the results of capitalism was formulated by Karl Marx. According to Marx, the treatment of labor as a commodity led to people valuing things more in terms of their price rather than their usefulness (see commodity fetishism), and hence to an expansion of the system of commodities. 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 through the process of exchange rather than their use. For example, not only pins are commodities; shares in the ownership of a factory that manufactures pins become commodities; then options on the stock issued in the company that operates the factory become commodities; then portions of the interest rate attached to bonds issued by the company become commodities, and so on. Speculation in these abstract commodities then drives the allocation of materials and labor.
Marx believed that the extension of the labor theory of value indicated that owners of productive means would exploit workers by depriving them of the full value that workers themselves create. According to Marx, surplus value is the difference between the value that the worker has created and the wage that the worker receives from his/her employer. Many economists have since used marginalism to dispute the Labour theory of Value.
During the course of the eighteenth and nineteenth centuries, there was a gradual movement in Europe and in the states that Europeans had founded, for the reduction of trade barriers, in particular restrictions on production and labor, the use of non-standard weights and measures, restrictions on the formation of new businesses, and royal prerogatives that interfered with the conduct of commerce. Two parallel doctrines emerged to describe and justify this process. One was the legal doctrine that the rightful owner of land or exerciser of a property right was the one that could make the best economic use of it, and that this principle must be reflected in the property laws of each nation. The other was the political doctrine of laissez-faire economics, namely that all coercive government regulation of the market represents unjustified interference, and that economies would perform best with government only playing a defensive role in order to ensure the operation of free markets.
The next major revision of the theoretical basis of capitalism began in the late 19th century with the expansion of corporations and finance, the globalization of production and markets, and the increasing desire to tap the productive capacity of the capital sectors of economies in order to secure the markets and resources required to continue economic growth. Many, particularly the wealthy, came to view the state as a vehicle for improving business conditions, securing markets, and gaining access to scarce materials—even when such objectives could only be achieved through military force. In the 1920s this philosophy found its most publicly prominent voice in President Calvin Coolidge's assertion that "the business of America is business". Critics of this period label it "corporatism", while its adherents generally regard it as a logical extension of the " laissez-faire " principles of natural liberty.
J. A. Hobson, a British liberal writing at the time of the fierce debate concerning imperialism during the Second Boer War, observed the spectacle of the "Scramble for Africa" and emphasized changes in European social structures and attitudes as well as capital flow, though his emphasis on the latter seems to have been the most influential and provocative. His so-called accumulation theory, very influential in its day, suggested that capitalism suffered from under-consumption due to the rise of monopoly capitalism and the resultant concentration of wealth in fewer hands, which he argued gave rise to a misdistribution of purchasing power. His thesis called attention to Europe's huge, impoverished industrial working class, which was typically far too poor to consume goods produced by an industrialized economy. His analysis of capital flight and the rise of mammoth cartels later influenced Vladimir Lenin in his book Imperialism: The Highest Stage of Capitalism , which has become a basis for the Marxist analysis of imperialism.
Contemporary World-Systems theorist Immanuel Wallerstein perhaps addresses better Hobson's counter-arguments without degrading Hobson's underlying inferences. Accordingly, Wallerstein's conception of imperialism as a part of a general and gradual extension of capital investment from the center of the industrial countries to an overseas periphery coincides with Hobson's. According to Wallerstein, Mercantilism became the major tool of semi-peripheral, newly industrialized countries such as Germany, France, Italy, and Belgium. Wallerstein thus perceives formal empire as performing a function that was analogous to that of the mercantilist drives of the late seventeenth and eighteenth centuries in England and France; consequently, the expansion of the Industrial Revolution contributed to the emergence of an era of aggressive national rivalry, leading to the late nineteenth-century scramble for Africa and the acquisition of formal empires.
The relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. Hernando de Soto is a contemporary economist who has argued that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded. [3] According to de Soto, this is the process by which physical assets transform into capital, which in turn is used in many more ways and much more efficiently in the market economy. A number of Marxian economists have argued that the Enclosure Acts in England, and similar legislation elsewhere, were an integral part of capitalist primitive accumulation and that specific legal frameworks of private land ownership have been integral to the development of capitalism. [4] [5]
New institutional economics, a field pioneered by Douglass North, stresses the need of a legal framework in order for capitalism to function optimally, and focuses on the relationship between the historical development of capitalism and the creation and maintenance of political and economic institutions. [6] In new institutional economics and other fields focusing on public policy, economists seek to judge when and whether governmental intervention (such as taxes, welfare, and government regulation) can result in potential gains in efficiency. According to Gregory Mankiw, a New Keynesian economist, governmental intervention can improve on market outcomes under conditions of "market failure," or situations in which the market on its own does not allocate resources efficiently. [7] Market failure occurs when an externality is present and a market either underproduces a product with a positive externality, or overproduces a product that generates a negative externality. Air pollution, for instance, is a negative externality that cannot be incorporated into markets as the world's air is not owned and then sold for use to polluters. So, too much pollution could be emitted and people not involved in the production pay the cost of the pollution instead of the firm that initially emitted the air pollution. Critics of market failure theory, like Ronald Coase, Harold Demsetz, and James M. Buchanan argue that government programs and policies also fall short of absolute perfection. In this view, market failures are often small, and government failures are sometimes large. It is therefore the case that imperfect markets are often better than imperfect governmental alternatives. While all nations currently have some kind of market regulations, the desirable degree of regulation is disputed.
The relationship between democracy and capitalism is a contentious area in theory and popular political movements. The extension of universal adult male suffrage in 19th century Britain occurred along with the development of industrial capitalism, and democracy became widespread at the same time as capitalism. Research on the democratic peace theory further indicates that capitalist democracies rarely make war with one another and have little internal violence. [8] [9] However critics of the democratic peace theory note that democratic capitalist states may fight infrequently or never with other democratic capitalist states because of political similarity or political stability rather than because they are democratic (or capitalist).
Authoritarian regimes have been able to manage economic growth without making concessions to greater political freedom. [10] [11]
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, voluntary exchange, and wage labor. In a market economy, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in capital and financial markets—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
The labor theory of value (LTV) is a theory of value that argues that the exchange value of a good or service is determined by the total amount of "socially necessary labor" required to produce it. The contrasting system is typically known as the subjective theory of value.
Anti-capitalism is a political ideology and movement encompassing a variety of attitudes and ideas that oppose capitalism. In this sense, anti-capitalists are those who wish to replace capitalism with another type of economic system, such as socialism or communism.
In Marxian economics, economic reproduction refers to recurrent processes. Michel Aglietta views economic reproduction as the process whereby the initial conditions necessary for economic activity to occur are constantly re-created. Marx viewed reproduction as the process by which society re-created itself, both materially and socially.
The law of the value of commodities, known simply as the law of value, is a central concept in Karl Marx's critique of political economy first expounded in his polemic The Poverty of Philosophy (1847) against Pierre-Joseph Proudhon with reference to David Ricardo's economics. Most generally, it refers to a regulative principle of the economic exchange of the products of human work, namely that the relative exchange-values of those products in trade, usually expressed by money-prices, are proportional to the average amounts of human labor-time which are currently socially necessary to produce them within the capitalist mode of production.
Some economic historians use the term merchant capitalism, a term coined by the German sociologist and economist Werner Sombart in his "The Genesis of Modern Capitalism" in 1902, to refer to the earliest phase in the development of capitalism as an economic and social system. However, others argue that mercantilism, which has flourished widely in the world without the emergence of systems like modern capitalism, is not actually capitalist as such.
Criticism of capitalism is a critique of political economy that involves the rejection of, or dissatisfaction with the economic system of capitalism and its outcomes. Criticisms typically range from expressing disagreement with particular aspects or outcomes of capitalism to rejecting the principles of the capitalist system in its entirety.
Unequal exchange is used primarily in Marxist economics, but also in ecological economics, to denote forms of exploitation hidden in or underwriting trade. Unequal exchange is usually calculated by assuming that any trade between a country with a high price level and a country with a low price level, is exploitation. Originating, in the wake of the debate on the Singer–Prebisch thesis, as an explanation of the falling terms of trade for underdeveloped countries, the concept was coined in 1962 by the Greco-French economist Arghiri Emmanuel to denote an exchange taking place where the rate of profit has been internationally equalised, but wage-levels have not. It has since acquired a variety of meanings, often linked to other or older traditions which perhaps then raise claims to priority.
In economics, economic value is a measure of the benefit provided by a good or service to an economic agent, and value for money represents an assessment of whether financial or other resources are being used effectively in order to secure such benefit. Economic value is generally measured through units of currency, and the interpretation is therefore "what is the maximum amount of money a person is willing and able to pay for a good or service?” Value for money is often expressed in comparative terms, such as "better", or "best value for money", but may also be expressed in absolute terms, such as where a deal does, or does not, offer value for money.
The Accumulation of Capital is the principal book-length work of Rosa Luxemburg, first published in 1913, and the only work Luxemburg published on economics during her lifetime.
Throughout modern history, a variety of perspectives on capitalism have evolved based on different schools of thought.
An Essay on Marxian Economics is an analytical essay written by in 1942 by economist Joan Robinson. The essay deals with the orthodox teachings of capital accumulation, the essential demand crisis and real wages by comparing it to Karl Marx's Das Kapital. It is a wide-ranging critique on Marx and Orthodox economics while also arguing for a long-term economic view that builds on the problems that Marx first identified in the exploitative nature of capitalism.
In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.
In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. The concept originated in Ricardian socialism, with the term "surplus value" itself being coined by William Thompson in 1824; however, it was not consistently distinguished from the related concepts of surplus labor and surplus product. The concept was subsequently developed and popularized by Karl Marx. Marx's formulation is the standard sense and the primary basis for further developments, though how much of Marx's concept is original and distinct from the Ricardian concept is disputed. Marx's term is the German word "Mehrwert", which simply means value added, and is cognate to English "more worth".
Capital: A Critique of Political Economy, also known as Capital, is a foundational theoretical text in materialist philosophy and critique of political economy written by Karl Marx, published as three volumes in 1867, 1885, and 1894. The culmination of his life's work, the text contains Marx's analysis of capitalism, to which he sought to apply his theory of historical materialism "to lay bare the economic law of motion of modern society", following from classical political economists such as Adam Smith and David Ricardo. The text's second and third volumes were completed from Marx's notes after his death and published by his colleague Friedrich Engels. Das Kapital is the most cited book in the social sciences published before 1950.
Social ownership is a type of property where an asset is recognized to be in the possession of society as a whole rather than individual members or groups within it. Social ownership of the means of production is the defining characteristic of a socialist economy, and can take the form of community ownership, state ownership, common ownership, employee ownership, cooperative ownership, and citizen ownership of equity. Within the context of socialist economics it refers particularly to the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society at large or the workers themselves. Traditionally, social ownership implied that capital and factor markets would cease to exist under the assumption that market exchanges within the production process would be made redundant if capital goods were owned and integrated by a single entity or network of entities representing society. However, the articulation of models of market socialism where factor markets are utilized for allocating capital goods between socially owned enterprises broadened the definition to include autonomous entities within a market economy.
Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian economists tend to accept the concept of the economy prima facie. Marxian economics comprises several different theories and includes multiple schools of thought, which are sometimes opposed to each other; in many cases Marxian analysis is used to complement, or to supplement, other economic approaches. Because one does not necessarily have to be politically Marxist to be economically Marxian, the two adjectives coexist in usage, rather than being synonymous: They share a semantic field, while also allowing both connotative and denotative differences.
Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may take the form of autonomous cooperatives or direct public ownership wherein production is carried out directly for use rather than for profit. Socialist systems that utilize markets for allocating capital goods and factors of production among economic units are designated market socialism. When planning is utilized, the economic system is designated as a socialist planned economy. Non-market forms of socialism usually include a system of accounting based on calculation-in-kind to value resources and goods.
Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is associated with Marxian critique of political economy, and was further popularised through Marxist economics.
The theory of imperialism refers to a range of theoretical approaches to understanding the expansion of capitalism into new areas, the unequal development of different countries, and economic systems that may lead to the dominance of some countries over others. These theories are considered distinct from other uses of the word imperialism which refer to the general tendency for empires throughout history to seek power and territorial expansion. The theory of imperialism is often associated with Marxist economics, but many theories were developed by non-Marxists. Most theories of imperialism, with the notable exception of ultra-imperialism, hold that imperialist exploitation leads to warfare, colonization, and international inequality.