Capitalism is an economic system based on the private ownership of the means of production and its use for the purpose of obtaining profit. This socioeconomic system has developed historically in several stages and is defined by a number of constituent elements: private property, profit motive, capital accumulation, competitive markets, commodification, wage labor, and an emphasis on innovation and economic growth. Capitalist economies tend to experience business cycles of economic expansion followed by recessions.A. F. Burns and W. C. Mitchell, Measuring business cycles, New York, National Bureau of Economic Research, 1946.
Economists, historians, political economists, and sociologists have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include laissez-faire capitalism, free-market capitalism, state capitalism, and welfare capitalism. Different forms of capitalism feature varying degrees of free markets, public ownership, barriers to free competition, and state-sanctioned social policies. The degree of competition in markets, the role of intervention and regulation, and the scope of state ownership vary across different models of capitalism. The extent to which markets are free and the rules defining private property are matters of politics and policy. Most of the existing economies in the world today are mixed economies that combine elements of free markets with state intervention and, in some cases, economic planning.
Capitalism in its modern form emerged from agrarianism in England, as well as from mercantilist practices in European countries between the 16th and 18th centuries. The Industrial Revolution of the 18th century established capitalism as a dominant mode of production characterized by factory work and a complex division of labor. Through globalization, capitalism spread across the world in the 19th and 20th centuries, especially before World War I and again after the end of the Cold War. During the 19th century, capitalism was largely unregulated by the state but became more regulated in the post–World War II period through Keynesianism, followed by a return of more unregulated capitalism termed neoliberalism starting in the 1980s.
Etymology The term "capitalist", meaning an owner of capital, appears earlier than the term "capitalism" and dates to the mid-17th century. "Capitalism" is derived from capital, which evolved from , a late Latin word based on , meaning "head"—which is also the origin of "chattel" and "cattle" in the sense of movable property (only much later to refer only to livestock). emerged in the 12th to 13th centuries to refer to funds, stock of merchandise, sum of money or money carrying interest.James Augustus Henry Murray. "Capital". A New English Dictionary on Historical Principles. Oxford English Press. 2. p. 93. By 1283, it was used in the sense of the capital assets of a trading firm and was often interchanged with other words—wealth, money, funds, goods, assets, property and so on.
The Hollantse Mercurius (1651-1691) uses "capitalists" in 1653 and 1654 to refer to owners of capital. In French, Étienne Clavier referred to capitalistes in 1788,E.g., "L'Angleterre a-t-elle l'heureux privilège de n'avoir ni Agioteurs, ni Banquiers, ni Faiseurs de services, ni Capitalistes ?" in [Étienne Clavier] (1788) De la foi publique envers les créanciers de l'état : lettres à M. Linguet sur le n° CXVI de ses annales p. 19 four years before its first recorded English usage by Arthur Young in his work Travels in France (1792).Arthur Young. Travels in France. In his Principles of Political Economy and Taxation (1817), David Ricardo referred to "the capitalist" many times. English poet Samuel Taylor Coleridge used "capitalist" in his work Table Talk (1823).Samuel Taylor Coleridge. Tabel The Complete Works of Samuel Taylor Coleridge . p. 267. Pierre-Joseph Proudhon used the term in his first work, What is Property? (1840), to refer to the owners of capital. Benjamin Disraeli used the term in his 1845 work Sybil. Alexander Hamilton used "capitalist" in his Report of Manufactures presented to the United States Congress in 1791.
The initial use of the term "capitalism" in its modern sense is attributed to Louis Blanc in 1850 ("What I call 'capitalism' that is to say the appropriation of capital by some to the exclusion of others") and Pierre-Joseph Proudhon in 1861 ("Economic and social regime in which capital, the source of income, does not generally belong to those who make it work through their labor"). Karl Marx frequently referred to the "capital" and to the "capitalist mode of production" in Das Kapital (1867).MEW, 23, & Das Kapital. Kritik der politischen Oekonomie. Erster Band-Verlag von Otto Meissner (1867) Marx did not use the form capitalism but instead used capital, capitalist and capitalist mode of production, which appear frequently.The use of the word "capitalism" appears in Theories of Surplus Value, volume II. ToSV was edited by Kautsky. Due to the word being coined by socialist critics of capitalism, economist and historian Robert Hessen stated that the term "capitalism" itself is a term of disparagement and a misnomer for economic individualism.Hessen, Robert (2008) "Capitalism", in Henderson, David R. (ed.) The Concise Encyclopedia of Economics p. 57 Bernard Harcourt agrees with the statement that the term is a misnomer, adding that it misleadingly suggests that there is such a thing as "capital" that inherently functions in certain ways and is governed by stable economic laws of its own.Harcourt, Bernard E. (2020) For Coöperation and the Abolition of Capital, Or, How to Get Beyond Our Extractive Punitive Society and Achieve a Just Society, Rochester, NY: Columbia Public Law Research Paper No. 14-672, p. 31
In the English language, the term "capitalism" first appears, according to the Oxford English Dictionary (OED), in 1854, in the novel The Newcomes by novelist William Makepeace Thackeray, where the word meant "having ownership of capital".James Augustus Henry Murray. "Capitalism" p. 94. Also according to the OED, Carl Adolph Douai, a German American socialist and abolitionist, used the term "private capitalism" in 1863.
Other terms sometimes used for capitalism are: Capitalist mode of production Economic liberalism Free enterprise Free enterprise economy Free market Free market economy Laissez-faire Market economy Profits system Self-regulating market
Definition There is no universally agreed upon definition of capitalism; it is unclear whether or not capitalism characterizes an entire society, a specific type of social order, or crucial components or elements of a society. Societies officially founded in opposition to capitalism, such as the Union of Soviet Socialist Republics (U.S.S.R), and the People's Republic of China, have sometimes been argued to actually exhibit characteristics of capitalism, despite the denouncement from their claimed communist ideology. Nancy Fraser describes usage of the term "capitalism" by many authors as "mainly rhetorical, functioning less as an actual concept than as a gesture toward the need for a concept". Scholars who are uncritical of capitalism rarely actually use the term "capitalism". Some doubt that the term "capitalism" possesses valid scientific dignity, and it is generally not discussed in mainstream economics, with economist Daron Acemoglu suggesting that the term "capitalism" should be abandoned entirely. Consequently, understanding of the concept of capitalism tends to be heavily influenced by opponents of capitalism and by the followers and critics of Karl Marx.
History
Capitalism, in its modern form, can be traced to the emergence of agrarian capitalism and mercantilism in the early Renaissance, in city-states like Florence. Capital has existed incipiently on a small scale for centuries in the form of merchant, renting and lending activities and occasionally as small-scale industry with some wage labor. Simple commodity exchange and consequently simple commodity production, which is the initial basis for the growth of capital from trade, have a very long history. During the Islamic Golden Age, Arabs promulgated capitalist economic policies such as free trade and banking. Their use of Indo-Arabic numerals facilitated bookkeeping. These innovations migrated to Europe through trade partners in cities such as Venice and Pisa. Italian mathematicians traveled the Mediterranean talking to Arab traders and returned to popularize the use of Indo-Arabic numerals in Europe.
Agrarianism The economic foundations of the feudal agricultural system began to shift substantially in 16th-century England as the manorial system had broken down and land began to become concentrated in the hands of fewer landlords with increasingly large estates. Instead of a serf-based system of labor, workers were increasingly employed as part of a broader and expanding money-based economy. The system put pressure on both landlords and tenants to increase the productivity of agriculture to make profit; the weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try better methods, and the tenants also had incentive to improve their methods in order to flourish in a competitive labor market. Terms of rent for land were becoming subject to economic market forces rather than to the previous stagnant system of custom and feudal obligation.
Mercantilism
The economic doctrine prevailing from the 16th to the 18th centuries is commonly called mercantilism. This period, the Age of Discovery, was associated with the geographic exploration of foreign lands by merchant traders, especially from England and the Low Countries. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist methods. Most scholars consider the era of merchant capitalism and mercantilism as the origin of modern capitalism,Encyclopædia Britannica (2006) although Karl Polanyi argued that the hallmark of capitalism is the establishment of generalized markets for what he called the "fictitious commodities", i.e. land, labor and money. Accordingly, he argued that "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date".
England began a large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). A systematic and coherent explanation of balance of trade was made public through Thomas Mun's argument England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure. It was written in the 1620s and published in 1664.
European merchants, backed by state controls, subsidies and monopolies, made most of their profits by buying and selling goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices...".Quoted in
After the period of the proto-industrialization, the British East India Company and the Dutch East India Company, after massive contributions from the Mughal Bengal,Om Prakash, "Empire, Mughal", History of World Trade Since 1450, edited by John J. McCusker, vol. 1, Macmillan Reference USA, 2006, pp. 237–240, World History in Context. Retrieved 3 August 2017 inaugurated an expansive era of commerce and trade. These companies were characterized by their colonial and expansionary powers given to them by nation-states. During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a return on investment.
Industrial Revolution