The theory of capitalism describes the essential features of capitalism and how it functions. For other uses, see Capitalism (disambiguation). ...

Overview

The conception of what constitutes capitalism has 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 specialisation in promoting the efficiency of capital accumulation. 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 have to sell their labor power in order to make a living. As Marx argued (see also Hilaire Belloc), capitalism also differs from other market economies that feature private ownership through the concentration of the means of production in the hands of a few. Adam Smith, FRSE, (baptised June 5, 1723 O.S. (June 16 N.S.) – July 17, 1790) was a Scottish political economist and moral philosopher. ... Concept B is a specialization of concept A if and only if: every instance of concept B is also an instance of concept A; and there are instances of concept A which are not instances of concept B. For instance, Bird is a specialization of Animal because every bird is... Milton Friedman Milton Friedman (born July 31, 1912) is an American economist, known for his work on macroeconomics, microeconomics, economic history, statistics, and for his advocacy of laissez-faire capitalism. ... A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy... Political freedom is the right, or the capacity, of self-determination as an expression of the individual will. ... Immanuel Wallerstein Immanuel Wallerstein (born 1930) is a U.S. sociologist. ... A good in economics is any physical object (natural or man-made) or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. ... In economics and marketing, a service is the non-material equivalent of a good. ... A market is, as defined in economics, a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange. ... Capital goods, in contrast to consumer goods, are goods used in the production of (physical) capital. ... Karl Heinrich Marx (May 5, 1818, Trier, Germany – March 14, 1883, London) was an immensely influential German philosopher, political economist, and socialist revolutionary. ... Labour economics seeks to understand the functioning of the market for labour. ... Labor power (in German: Arbeitskraft, or labor force) is a crucial concept used by Karl Marx in his critique of political economy. ... Photograph of Belloc Joseph Hilaire Pierre René Belloc (July 27, 1870–July 16, 1953) was one of the most prolific writers in England during the early twentieth century. ...

Adam Smith

The first theorist of what we commonly refer to as capitalism is usually considered to be Adam Smith. 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 which would gradually supersede the mercantilist regime that was then prevalent. Adam Smith, FRSE, (baptised June 5, 1723 O.S. (June 16 N.S.) – July 17, 1790) was a Scottish political economist and moral philosopher. ... An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of Adam Smith, published in 1776. ... David Hume (April 26, 1711 – August 25, 1776)[1] was a Scottish philosopher, economist, and historian, as well as an important figure of Western philosophy and of the Scottish Enlightenment. ... A market is, as defined in economics, a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange. ... Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... Face-to-face trading interactions among on the New York Stock Exchange trading floor In the social sciences, economics is the study of human choice behavior and how it effects the production, distribution, and consumption of scarce resources. ... Mercantilism is the economic theory that a nations prosperity depended upon its supply of gold and silver, that the total volume of trade is unchangeable. ...

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.

Although he is often described as the "father of capitalism" (and the "father of economics"), Adam Smith himself never used the term "capitalism". He described his own preferred economic system as "the system of natural liberty." However, 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.[1] Face-to-face trading interactions among on the New York Stock Exchange trading floor In the social sciences, economics is the study of human choice behavior and how it effects the production, distribution, and consumption of scarce resources. ... The Statue of Liberty is a very popular icon of liberty. ...

A major difference between Adam Smith's view of economics and that of present day capitalist theory is that Adam Smith viewed value as a product of labor, and thus operated under the Labor Theory of Value, which was used by basically all economists until the Labor Theory of Value became central to Marxism.

Karl Marx

It is generally considered that the most thorough and enduring critique of the results of capitalism was the one 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. Marx observed that some people bought commodities in order to use them, while others bought them in order to sell them on 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 through the process of exchange rather through 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. The prevalence of commodity speculation in modern capitalism significantly shapes its outcomes. Karl Heinrich Marx (May 5, 1818, Trier, Germany – March 14, 1883, London) was an immensely influential German philosopher, political economist, and socialist revolutionary. ... The word commodity is a term with distinct meanings in business and in Marxian political economy. ... In Marxist theory, commodity fetishism is an inauthentic state of social relations, said to arise in complex capitalist market systems, where social relationships are confused with their medium, the commodity. ... The word commodity is a term with distinct meanings in business and in Marxian political economy. ... David Harvey, 1990s David Harvey (b. ...

Marx defines "capital" as money and "capitalist production" as the use of money to denominate wealth in money terms; these labels refer to John Stuart Mill's definition of value in a market economy as being the going price for a good or service. John Stuart Mill (May 20, 1806 – May 8, 1873), an English philosopher and political economist, was an influential liberal and socialist thinker of the 19th century. ...

Marx expounded on the Labor Theory of Value to show that according to the Labor Theory of Value (which was the theory of value that was used by Thomas Hobbes, John Locke, Adam Smith, David Ricardo, etc) capitalists (owners of the means of production) exploit workers by depriving them of value that workers themselves create. According to Marx, profit is the difference between the value that the worker has created and the wage that the worker receives from his employer.

Once Marx firmly established this principle, the Labor Theory of Value was criticized and abandoned by supporters of capitalism.

Historical development

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 the curtailing of 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. Coercion is the practice of compelling a person to act by employing threat of harm (usually physical force, sometimes other forms of harm). ...

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. The state came to be viewed by many, particularly by the wealthy, 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. John Calvin Coolidge, Jr. ... Historically, corporatism or corporativism (Italian corporativismo) is a political system in which legislative power is given to civic assemblies that represent economic, industrial, agrarian, and professional groups. ... Laissez-faire is short for laissez faire, laissez passer, a French phrase meaning to let things alone, let them pass. First used by the eighteenth century Physiocrats as an injunction against government interference with trade, it is now used as a synonym for strict free market economics. ...

Capitalism and imperialism

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 the goods that were produced by an industrialized economy. His analysis of capital flight and the rise of mammoth cartels later influenced Lenin in his book Imperialism: The Highest Stage of Capitalism, which has become a basis for the neo-Marxist analysis of imperialism. John A. Hobson, (1858–1940) was an English economist and imperial critic, widely popular as a lecturer and writer. ... Imperialism is a policy of extending control or authority over foreign entities as a means of acquisition and/or maintenance of empires. ... Combatants British Empire Orange Free State, South African Republic Commanders Frederick Roberts later Lord Kitchener Christiaan Rudolf de Wet and Paul Kruger Casualties Military dead:22,000 Civilian dead:N/A Total dead:22,000 Military dead:6,500 Civilian dead:24,000 Total dead:30,500 The Second Boer... The term New Imperialism refers to the policy and ideology of imperial colonial expansion adopted by Europes powers and, later, Japan and the United States, during the late 19th and early 20th centuries; approximately from the Franco-Prussian War to World War I (c. ... Vladimir Ilyich Lenin ( Russian: Влади́мир Ильи́ч Ле́нин  listen?), original surname Ulyanov (Улья́нов) ( April 22 (April 10 ( O.S.)), 1870 – January 21, 1924), was a...

Although Hobson's works are still read, it is now widely acknowledged that his analysis neglected the mediating impact of a free-floating interest rate on the accumulation of unused capital. His causal economic link between capitalism and imperialism therefore ultimately fails, although his discussions of capitalism's cultural impacts may still be valid. An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ...

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. Immanuel Wallerstein Immanuel Wallerstein (born 1930) is a U.S. sociologist. ... A painting of a French seaport from 1638, at the height of mercantilism. ... The category of Newly industrializing countries (NICs) is a social/economic classification status applied to several countries around the world by political scientists and economists. ...

External links

• Capitalism by Robert Hessen - says "capitalism" is a misnomer for "economic individualism" and discusses the emergence of capitalism