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{{chomskytorrent|562|A Book for a Better World (Miscellaneous)}}<br/>
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{{chomskytorrent|103|Capitalism and Other Kids' Stuff (Miscellaneous)}}<br/>
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'''Capitalism''' generally refers to:
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In common usage '''capitalism''' refers to an economic system where the means of production are privately owned and operated, and where the investment of capital, and production, distribution, income, and prices are determined not by government (as in a planned economy) but through the operation of a market where all decisions regarding transfer of money, goods (including capital goods), and services are voluntary. In capitalism, the means of production are generally operated for profit. ''For a survey of definitions, see [http://en.wikiquote.org/wiki/Definitions_of_capitalism Wikiquote].''
* a combination of [[economics|economic]] practices that became institutionalized in [[Europe]] between the [[16th century|16th]] and [[19th century|19th]] centuries, especially involving the right of individuals and groups of individuals acting as "legal persons" (or [[corporations]]) to buy and sell [[capital]] goods such as [[land]], [[labor]], and [[money]] (see [[finance]] and [[credit]]), in a [[free market]] (see [[trade]]), and relying on the enforcement by the state of [[private property]] rights rather than [[feudalism|feudal]] obligations.
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* competing 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 (economics)|capital]], to explain the operation of such markets, and to guide the application or elimination of [[government]] [[regulation]] of [[property]] and markets. (See [[economics]], [[political economy]], [[laissez-faire]])
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* a belief in the advantages of such practices.  
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== Etymology ==
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Although some developed countries are regarded as capitalist, some of them have been called "mixed economies", due to government-owned means of production and economic interventionism.
  
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 language|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.
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Capitalism is "also called free market economy," or "free enterprise economy."
  
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.
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== Etymology ==
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The word "capital" has roots in the trade and ownership of animals. The Latin root of the word is capitalis, from the proto-Indo-European kaput, which means "head", this being how wealth was measured. The more head of cattle, the better. The terms chattel (meaning goods, animals, or slaves) and even cattle itself also derive from this same origin.
  
Although he is often described as the "father of capitalist thinking," [[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 to keep the revenue from improvements to that stock. Smith also made capital improvement the central goal of the economic and political system.[http://www.adamsmith.org/smith/won-b2-c1.htm]
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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 first use of the word "capitalism" in English is by [[William Makepeace Thackeray|Thackeray]] in 1854, by which he meant having ownership of capital. In 1867 Prudhon used the term "capitalist" to refer to owners of capital, and Marx and Engels refer to the "Capitalist production system" and in ''[[Das Kapital]]'' to "kapitalistische Produktionsweise", which does not translate to "capitalism", but "capitalist mode of production". The word "capitalism" only appears twice in "Das Kapital", namely in tome II, p.124 (German edition) and in Theories about Surplus Value, tome 2 p.493 (German edition). However, the late Engels made more frequent use of the term "capitalism". They also consistently use the word "capitalist" to mean the private owners of the means of production. By the early 20th century the term had become widespread, as evidenced by [[Max Weber]]'s use of the term in his ''[[The Protestant Ethic and the Spirit of Capitalism]]'' in 1904, and [[Werner Sombart]]'s 1906 ''Modern Capitalism''. The [[Oxford English Dictionary|OED]] cites the use of the term "private Capitalism" by [[Karl Daniel Adolf Douai]], German-American Socialist and Abolitionist in the late 19th century, in an 1877 work entitled "Better Times", and a citation by an unknown author in 1884 in the pages of [[Pall Mall]] magazine.
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[[Image:Thackeray_william.jpg|150px|thumb|right|The first known use of the word "capitalism" was by novelist William Thackeray in 1854{{fact}}]]  
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The first known use of the word "capitalism", if not yet in our sense, was by novelist William Thackeray in 1854
  
== Capitalism as an economic system ==
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The first use of the word Kapitalist was in 1848 in the Communist Manifesto by Marx and Engels; however, Kapitalismus, the German equivalent of capitalism, was not used. The first use of the word capitalism is by novelist Thackeray in 1854, by which he meant ownership of a large amount of capital, not a system of production.
  
[[Image:Pyramid2.jpg|thumb|right|450px|Capitalist pyramid (Anti-capitalist propaganda)]]
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In 1867 Proudhon used the term capitalist to refer to owners of capital, and Marx and Engels refer to the "capitalist form of production" ("kapitalistische Produktionsform") and in Das Kapital to "Kapitalist", "capitalist" (meaning a private owner of capital). However, the first person to use the word "capitalism" as it is commonly used today was Werner Sombart in his Modern Capitalism in 1902. Max Weber, a close friend and colleague of Sombart's, used the term in his The Protestant Ethic and the Spirit of Capitalism in 1904.
  
There is much debate over how to define capitalism.  Some proponents of capitalism (like [[Milton Friedman]]) emphasize the role of [[free market]]s, which, they claim, promote [[freedom]] and [[democracy]].  For many (like [[Immanuel Wallerstein]]), capitalism hinges on the elaboration of an economic system in which [[goods and services]] are traded in [[market]]s, and [[capital good]]s belong to non-state entities, onto a global scale.  For others (like [[Karl Marx]]), it is defined by the creation of a [[labor market]] in which most people had to sell their [[labor-power]] in order to survive. As Marx argued (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. Marx defines "capital" as money and "capitalist production" as the use of money to denominate wealth in money terms, a meaning which referes to [[John Stuart Mill]]'s definition of value in a market economy as being the going price for a good or service.
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The Oxford English Dictionary cites the use of the term "private capitalism" by Karl Daniel Adolf Douai, German-American socialist and abolitionist in the late 19th century, in an 1877 work entitled "Better Times", and a citation by an unknown author in 1884 in the pages of Pall Mall magazine.
  
The first theorist of what we refer to as capitalism is generally thought to be [[Adam Smith]]. His 1776 work, ''[[An Inquiry into the Nature and Causes of the Wealth of Nations]]'', theorized that within a stable system of commerce and evaluation, individuals would respond to the rewards 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 mean that the whole economy could produce more, and would therefore be wealthier. His systematic treatment of how 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 supercede the [[mercantilist]] regime then in place. Smith argued that protecting particular producers would lead to inefficient production, and that a national hoarding of specie would only increase prices, in an argument similar to that of [[David Hume]].
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The definition of capitalism given in dictionaries has changed over time. For example, the 1909 Century Dictionary defined capitalism as:" The state of having capital or property; possession of capital. The concentration or massing of capital in the hands of a few; also, the power or influence of large or combined capital."
  
Over the course of the next century, there would be a gradual movement in Europe and the states founded by Europeans, to reduce trade barriers, specific restrictions on production and labor, localized weights and measurements, restraints in forming new businesses and royal perogatives in interfering with the operation of commerce. Two doctrines grew up to describe this process. One was the legal doctrine that the proper owner of land or a right was the one who could make best economic use of it, enshrined in property law. The other was the political doctrine of "laissez-faire" economics, namely that all [[coercion|coercive]] government regulation of the market is unjustified "interference" and that economies would perform best with government only playing a defensive role to insure the operation of free markets.
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The contemporary definition, however, probably influenced by the philosophical and ideological debates of the 19th century, refers to an economic system (as Sombart and Weber did). For example, the Merriam-Webster Third International Unabridged Dictionary refers to capitalism as: " an economic system characterized by private or corporation ownership of capital goods, by investments that are determined by private decision rather than by state control, and by prices, production, and the distribution of goods that are determined mainly in a free market."
  
When speaking of critics of capitalism, it is generally thought that the most lasting and thorough critique of the results of capitalism orginates with Karl Marx. 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 [[commodity|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 of stock 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.
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However, the Oxford English Dictionary (1987 edition) describes it as: "The condition of possessing capital; The position of a capitalist; A system which favours the existance of capitalists". This difference with the American dictionary defintion is also likely to stem from ideological differences and etymological interpretion.
  
The next major revision to the theory of capitalism began occuring in the late 19th century with the expansion of corporations, finance, globalization of production and markets, and the increasing desire to tap the productive capacity of the capital sectors of the economies in order to secure markets and resources with which to continue economic growth. The state became seen by many, particularly the wealthy, as a vehicle for improving business conditions, securing markets, and gaining access to scarce materials, even if this required military force. This philosophy would reach a pinnacle in the 1920's with President [[Calvin Coolidge]]'s declaration that "the business of America is business". Critics of this period label it "corporatism", while adherents generally regard it as an extension of "laissez-faire" principles of natural liberty.
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==Capitalist theory==
  
== Example of Starting a Business ==
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Capitalism is contrasted with [[feudalism]], where land is owned by the feudal lords, which collects rent from private operators; [[socialism]], where the means of production are owned and used by the state; and [[communism]], where the means of production are owned and used by the community collectively.
  
The following example introduces many of the ideas involved in capitalism.  When starting a [[business]], the initial owners typically provide some money (the [[Capital (economics)|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 (economics)|labor-power]]). The commodities produced by the workers become the property of the capitalist, and are sold by the workers on behalf of the capitalist. The money from sales also becomes the property of the capitalist. The workers deposit the money into the capitalist's bank account. Once the capitalist receives this money, he or she 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 or able 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 (economics)|capital]].  The business is granted a degree of legal authority, and control, over a set of [[Factors of production|factors of production]] (as economists call them). The business can register as a [[Corporation|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 ([[Dividend]]s), sell shares of [[stock]] in the [[Companies|company]], or they can sell all of the equipment, land, and other assets, and split the proceeds between them.
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Some emphasize the private ownership of [[capital (economics)|capital]] as being the essence of capitalism, or emphasize of the importance of a [[free market]] as a mechanism for the movement and accumulation of capital, while others measure capitalism through class analysis (i.e., class structure of society, relations between the [[proletariat]] and the [[bourgeois]]). Some note the growth of a [[International trade|global market]] system.  
  
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 [[cooperative]]s, 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.
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Others focus on the application of the market to human [[labor]]. Still others, such as Hayek, note the [[self-organization|self-organizing]] character of economies which are not centrally-planned by government. Many, such as Adam Smith, point to what is believed to be the value of individuals pursuing their [[self-interest]] as opposed to altruistically working to serve the "public good."
  
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 [[Corporation|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.
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Many of these theories call attention to various [[economics|economic]] practices that became institutionalized in [[Europe]] between the [[16th century|16th]] and [[19th century|19th]] centuries, especially involving the right of individuals and groups of individuals acting as "legal persons" (or [[corporations]]) to buy and sell [[capital good]]s, as well as [[land]], [[labor]], and [[money]] (see [[finance]] and [[credit]]), in a [[free market]] (see [[trade]]), and relying on the state for the enforcement of [[private property]] rights rather than on a system of feudal protection and obligations.
  
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 [[Bond (finance)|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.
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Due to the vagueness of the term, debates and controversies have emerged. In particular, there is contention on whether capitalism is an actual system, or an ideal, i.e. on whether it has actually been implemented in particular economies, or if not, then to what degree capitalism exists in them (see ''[[mixed economy]]''). From a historic point of view, there is an argument on whether capitalism is specific to a particular era or geographic region or if it is a universally valid system that may exist throughout various times and spaces. Some interpret capitalism as a purely economic system; others however contend that capitalism is a political, social, and cultural system as well. Debate also rages about the characteristics of capitalism: is it [[Justice|fair]]; is it [[rationality|rational]]; is it a coherent concept?
  
In 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):
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===Contrasts with capitalism===
  
* which land production will take place on,
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Capitalism contrasts with (and in Western Europe, developed out of) feudalism, where a monarch holds both law-making power and the ability to claim ownership over the land rather than having to purchase it; the monarch loans the land to vassals in exchange for various services, and the vassals, in turn, use serfs to work the land.
  
* how many people to employ,
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Capitalism contrasts with socialism, where the means of production are theoretically owned and run by popular collectives (or by the state) for the people. It contrasts with communism where the means of production are owned collectively rather than privately by bosses or employers, and the produce of labor is collectivized, resulting in the "abolition of bourgeois property" ("private property") [2]. In addition, as suggested by Karl Marx, the products of labour are directly distributed "to each according to his need" [3], and "buying and selling" is abolished (Communist Manifesto).
  
* what activities employees will do,
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Capitalism as it exists in market economies is said to be in opposition to planned economies, where "the elements of an economy (as labor, capital, and natural resources) are subject to government control and regulation designed to achieve the objectives of a comprehensive plan of economic development."[6] Capitalism also contrasts with corporatism, where private businesses work more closely with the government in an ostensible attempt to serve the interests of the nation. Countries undergoing periods of dynamic class struggle (as in times of revolution) would be accompanied by significant changes in material conditions such as industrialisation and display features such as the war economy and Commodification.
  
* which machines and tools to use for production.
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Participatory economics and council communism are alternative systems of workers' and consumers' councils utilizing self-managerial methods for decision making, as opposed to an economy dominated by big corporations or state enterprises.
  
In larger companies, authority is usually delegated in a hierarchical or [[bureaucracy| bureaucratic]] system of [[management]].  When company ownership is spread among many shareholders, the shareholders generally have votes in the exercise of authority over the company in proportion to the size of their share of ownership.
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==History of theory of capitalism==
  
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 (and "[[capital gains]]"). 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 remarkably consistent 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 necessarily result in a positive impact on society.
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[[Image:AdamSmith.jpg|133px|thumb|[[Adam Smith]] is widely regarded as the intellectual father of capitalism]]
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Most theories of what has come to be called capitalism developed in the [[18th century]], [[19th century]] and [[20th century]], for instance in the context of the [[industrial revolution]] and [[New imperialism|European imperialism]] (e.g. [[Anders Chydenius|Chydenius]], [[Adam Smith|Smith]], [[David Ricardo|Ricardo]], [[Karl Marx|Marx]]), [[The Great Depression]] (e.g.[[John Maynard Keynes|Keynes]]) and the [[Cold war]] (e.g. [[Friedrich Hayek|Hayek]], [[Milton Friedman|Friedman]]). These theorists characterise capitalism as an economic system in which capital is privately owned and economic decisions are determined in a market - that is, by trades that occur as a result of agreement between buyers and sellers; where a market mentality and [[Entrepreneur|entrepreneurial]] spirit exists; and where specific, legally enforceable, notions of [[property]] and [[contract]] are instituted. Such theories typically try to explain why capitalist economies are likely to generate more economic growth than those subject to a greater degree of governmental intervention (see [[economics]], [[political economy]], [[laissez-faire]]).  
  
== Which Economies are "Capitalist" ? ==
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In his [[1765]] book ''[[The National Gain]]'', [[Anders Chydenius]], a [[Finnish]] parlamentarian, became the first to propose freedom of trade and industry and the principles of [[liberalism]], 11 years before [[Adam Smith]] in ''[[The Wealth of Nations]]'' ([[1776]]).
  
In mainstream economics, a capitalist economy is one where the overwhelming majority of production and consumption is private and is handled through a free market that includes free enterprise. However, exactly where to draw the line in labeling economies is a matter of some debate.
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[[Image:Anders Chydenius.jpg|133px|thumb|However, [[Anders Chydenius]] was the first to propose free trade and industry and to lay out the principles of liberalism in 1765, eleven years before Adam Smith]]
  
Some believe that it is inaccurate to call any of the major industrialized economies "capitalist" because of the level of government intervention (see [[statism]]) into what would otherwise be a [[free market]]. For example, some assert that the economy of the United States of America is significantly less than "free", and that therefore it is more appropriately termed a [[mixed economy]] that is merely skewed more toward capitalism than most national economies, rather than being a true representation of capitalism. Still others might say that the U.S. economy is capitalist, but the U.K. economy is a "mixed economy," and so on, depending upon their perception of how much economic freedom exists in those locales.
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The conception of what constitutes capitalism has changed significantly over time, as well as varying depending on the political perspective and analytical approach taken. [[Adam Smith]]'s advocacy of [[economic liberalism]] focused on the role of enlightened self-interest (the "invisible hand") and the role of [[specialisation]] in making capital accumulation efficient. Some proponents of capitalism (like [[Milton Friedman]], [[Ayn Rand]] and [[Alan Greenspan]]) emphasize the role of [[free market]]s, which they claim promote [[cooperation]] between individuals, innovation, economic growth, as well as [[liberty]]. For many (like [[Immanuel Wallerstein]]), capitalism hinges on the elaboration of an economic system in which [[good (economics)|goods]] and [[service]]s are traded in [[market]]s, and capital goods belong to non-state entities, onto a global scale.  For others (like [[Karl Marx]]), it is defined by historically unprecedented social relations resulting from the creation of a [[labor market]] in which most people have to sell their [[labor-power]] in order to survive. As Marx argued (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 individuals. The economists of the [[Austrian School]] expound that an economy that is not planned or guided by governmental authority will be superior in efficiency and organization due to the phenomenon of [[self organization]]. Many others use capitalism as a synonym for a [[market economy]].
  
Many Greens, Marxists and anti-Globalists agree that the governments of the major industrial economies are not serving in the role of protecting "the free market", but would go on to say that these governments are, in fact, acting to protect the owners of capital and corporations as their first priority, sometimes expressed as "socialism for the rich, capitalism (cut throat competition) for the poor." These critics, therefore, would assert that the correct term for the core industrial nations is neither capitalism, nor mixed economy, but [[corporatist]]. Libertarians and other free-market advocates may also share this opinion regarding some or all of the major economies.
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==Characteristics of capitalist economies==
  
Nevertheless, mainstream economists, for their part, admit that the present economic systems have diverged from earlier forms labeled "capitalism", and many believe that some of the modern economies are still best described as being "capitalism" rather than "mixed economy" or "corporatist."
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A set of broad characteristics are generally agreed on by both advocates and critics of capitalism. These are a [[private sector]], [[private property]], free enterprise, [[profit]], unequal distribution of [[wealth]], competition, [[self-organization]] (or ''[[catallaxy]]''), the existence of [[markets]] (including the [[labor market]]) and the pursuit of [[self-interest]].
  
== Characteristics of capitalist economies ==
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An economy with a large amount of intervention - which may include state ownership of some of the means of production - in combination with some free market characteristics is sometimes referred to as a ''[[mixed economy]]'', rather than a capitalist one. [http://economics.about.com/od/howtheuseconomyworks/a/mixed_economy.htm] If intervention occurs to such a degree that it overwhelms private decision, such an economy is often referred to as [[statist]]. Some economists, such as [[Milton Friedman]], oppose all or almost all such state control over an economy. However, such distinctions are  disputed. By some definitions, all of the economies in the [[developed world]] are capitalist, or as mixed economies based in capitalism. Others see the world integrated into a global capitalist system, and even those nations which today resist capitalism, operate within a globalized capitalist economy.
  
Despite wide disagreements over the precise definition of capitalism, and arguments over which economies are capitalist and to what degree, a set of broad characteristics of the [[Private sector]] of an economy are generally agreed on by both advocates and critics of capitalism. These are capital accumulation and specialization or [[Economic growth]], changing levels of individual wealth and income or [[Economic mobility]], unequal distribution of [[wealth]], [[Entrepreneurial]] networks and social arrangements, and the existence of a [[labor market]] with its attendant [[unemployment]].
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=== Private Ownership of the means of production ===
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[[Image:Dairycattle2173.JPG|thumb|right|200px|Cattle on an Amish dairy farm]]
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[[Image:Moyer Factory Post Card 1910-1915.jpg|thumb|right|200px|Private ownership of the means of production is an essential characteristic of capitalism]]
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An essential characteristic of capitalism is the institution of rule of law in establishing and protecting private property, including, most notably, private ownership of the [[means of production]] (as opposed to state ownership and communist ownership). Private property was embraced in some earlier systems legal systems such as in ancient Rome [http://www.libertystory.net/LSBIGSTORIESROMANPROPERTYLAW.htm], but protection of these rights was sometimes difficult, especially since Rome had no police [http://nefer-seba.net/essays/roman-police.php]. Such and other earlier system often forced the weak to accept the leadership of a strong patron or lord and pay him for protection. It has been argued that a strong formal property and legal system made possible a) greater independence; b) clear and provable protected ownership; c) the standardization and integration of property rules and property information in the country as a whole; d) increased trust arising from a greater certainty of punishment for cheating in economic transactions; e) more formal and complex written statements of ownership that permitted the easier assumption of shared risk and ownership in companies, and the insurance of risk; f) greater availability of loans for new projects, since more things could be used as collateral for the loans; g) easier and more reliable information regarding such things as credit history and the worth of assets; h) an increased fungibility, standardization and transferability of statements documenting the ownership of property, which paved the way for structures such as national markets for companies and the easy transportation of property through complex networks of individuals and other entities. All of these things enhanced economic growth.
  
=== [[Economic growth]] ===
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Capitalism is often contrasted to [[socialism]] in that besides embracing private property in terms of personal possessions, it supports private ownership of the means of production. Those who support capitalism often credit the lack of control over the means of production by government as crucial to maximizing economic output. [[Ludwig von Mises]], in ''Liberalism'', says that the "history of private ownership of the means of production coincides with the history of the development of mankind from an animal-like condition to the highest reaches of modern civilization." [http://www.mises.org/liberal/ch2sec1.asp] In all modern economies some of the means of production are owned by the state, however an economy is not considered capitalism unless the bulk of ownership is private. Some characterize those that have a mixture of state and private ownership as "[[mixed economy|mixed economies]]."
  
One of the primary objectives of establishing a system by which commerce and property have a central role in the society is to promote the accumulation of capital. The measurements for "growth" are Gross Domestic Product or [[GDP]], capacity utilization, and "standard of living".  
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Many governments extend the concept of private property to ideas, in the form of "[[intellectual property]]." It has been argued that the introduction of the [[patent]] system was a crucial factor behind the rapid development and widespread use of new technology and [[memes]] during and following the industrial revolution. [http://depts.washington.edu/~teclass/mit/khanSokoloff.pdf]. Some oppose the establishment of intellectual property as being counterproductive or coercive. Others argue that some intellectual property rights may be too rigid or constraining to innovation, favoring weaker protections.
  
The ability of capitalist economies to sustainably increase and improve their stock of capital was central to the argument which [[Adam Smith]] advanced for having a free market set production, price and resource allocation.
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=== Free market ===
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The notion of a "[[free market]]" where all economic decisions regarding transfers of money, goods, and services take place on a voluntary basis, free of coercive influence, is commonly considered to be an essential characteristic of capitalism.  Some individuals contend, that in systems where individuals are prevented from owning the means of production (including the profits), or coerced to share them, not ''all'' economic decisions are free of coercive influence, and, hence, are not free markets. In an ideal free market system none of these economic decisions involve coercion.  Instead, they are determined in a decentralized manner by individuals trading, bargaining, cooperating, and competing with each other. In a free market, government may act in a defensive mode to forbid coercion among market participants but does not engage in proactive interventionist coercion. Nevertheless, some authorities claim that capitalism is perfectly compatible with interventionist  [[authoritarian]] governments, and/or that a free market can exist without capitalism (see [[market socialism]]).
  
Economic growth, however, is not universally agreed on, nor is it universally seen to be an unequivocal good. Growth's down sides are, within the discipline of economics, referred to as "externalization of costs" (see [[externalization]]). These include pollution, disruption of traditional living patterns and cultures, spread of pathogens, wars over resources or market access, the creation of underclasses, among others. In defense of capitalism, philosophers such as [[Isiah Berlin]] have pointed out that all of these ills are neither unique to capitalism, nor are they inevitable results of it.
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A legal system that grants and protects property rights provides property owners the entitlement to sell their property in accordance to their own valuation of that property; if there are no willing buyers at their offered price they have the freedom to retain it. According to standard capitalist theory, as explained by Adam Smith in ''Wealth of Nations'', 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.
  
=== Economic Mobility ===
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[[Image:CME.JPG|200px|thumb|left|The [[Chicago Mercantile Exchange]]. A free market consists of voluntary trade without interventionist regulation. Prices, for example, are determined by trade rather than by government.]]
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In regard to pricing of goods and services in a free market, rather than this being ordained by government it is determined by trades that occur as a result of price agreement between buyers and sellers. The prices buyers are willing to pay for a commodity and the prices at which sellers are willing to part with that commodity are directly influenced by [[supply and demand]] (as well as the quantity to be traded). In abstract terms, the price is thus defined as the equilibrium point of the demand and the supply curves, which represent the prices at which buyers would buy (and sellers sell) certain quantities of the good in question. A price above the equilibrium point will lead to oversupply (the buyers which to buy less goods at that price than the sellers are willing to produce), while a price below the equilibrium will lead to the opposite situation. When the price a buyer is willing to pay coincides with the price a seller is willing to offer, a trade occurs and price is determined.
  
One of the key signs entrepreneurial economies, and of "growth" is economic mobility - expressed as a large change in the socio-economic strata. The way this is measured is by large changes in the populations in the various [[deciles]] or [[quintiles]] of income and wealth, and large changes over a person's lifetime in real wage earning power. In standard economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new professions, or by forming a business venture. The instability of economic strata is contrasted with traditional [[feudal]] or [[tribal]] societies that are thought to have more stable relationships of wealth and with [[egalitarianism]] in socialist societies which distribute more of the wealth in social benefits, and therefore reduce the income mobility, particularly of those who own capital and wish to sell it.
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However, not everyone believes that a free or even a relatively-free market is a good thing. One reason proffered by many to justify economic intervention by government into what would otherwise be a free market is [[market failure]]. A [[market failure]] is a case in which a market fails to efficiently provide or allocate goods and services (for example, a failure to allocate goods in ways some see as socially or morally preferable). Some believe that the lack of "perfect information" or "perfect competition" in a free market is grounds for government intervention (see ''[[perfect competition]]''). Other situations or activities often perceived as problems with a free market may appear, such [[monopoly|monopolies]], [[monopsony|monopsonies]], information inequalities (e.g. [[insider trading]]), or [[price gouging]]. Wages determined by a free market mechanism are also commonly seen as a problem by those who would claim that some wages are unjustifiably low or unjustifiably high. Another critique is that free markets usually fail to deal with the problem of [[externality|externalities]], where an action by an agent positively or negatively affects another agent without any compensation taking place. The most widely known externality is [[pollution]]. More generally, the free market allocation of resources in areas such as health care, unemployment, wealth inequality, and education are considered market failures by some. Also, governments overseeing economies typically labeled as capitalist have been known to set mandatory ''[[price floor|price floors]]'' or ''[[price ceiling|price ceilings]]'' at times, thereby interfering with the free market mechanism. This usually occurred either in times of crises, or was related to goods and services which were viewed as strategically important. [[Electricity]], for example, is a good that was or is subject to price ceilings in many countries. Many eminent economists have analysed market failures, and see governments as having a legitimate role as mitigators of these failures, for examples through regulation and compensation schemes.  
  
Large turnover in the population of income deciles, however, does not always represent income mobility - with individuals having regular increases in wages over their life and then retiring, population change alone, does not show that there is "mobility" per se. More over, it is argued by many labor economists that instability of working wages represents the moving of risk on to workers and into particular sectors such as agriculture, and off of holders of capital.
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[[Image:MiltonFriedmanBook.JPG|150px|thumb|right|Nobel economist [[Milton Friedman]] is a noted advocate of free markets]]
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However, some economists, such as [[Nobel prize]]-winning economist [[Milton Friedman]] as well as those of the [[Austrian School]], oppose intervention into free markets. They argue that government should limit its involvement in economies to protecting freedom rather than diminishing it for the sake of remedying "market failure." They tend to regard the notion of market failure as a misguided contrivance wrongly used to justify coercive government action to further various political agendas, such as [[egalitarian]] goals. These economists believe that government intervention creates more problems than it is supposed to solve --as well-meaning as some of these interventions may be. [[Laissez-faire]] advocates do not oppose monopolies unless they maintain their existence through coercion to prevent competition (see ''[[coercive monopoly]]''), and often assert that monopolies have historically only developed ''because'' of government intervention rather than due to a lack of intervention. They may argue that [[minimum wage]] laws cause unnecessary unemployment, that laws against insider trading reduce market efficiency and transparency, or that government-enforced price-ceilings cause shortages. While economists tend to offer pragmatic arguments, some individuals put forth moral justifications for opposing coercion in favor of free markets.
  
=== Distribution of wealth ===
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Some believe that free markets and capitalism are not synonymous, arguing that particular aspects of capitalist entitlement or property enforcement violate the ability of individuals to trade in the absence of coercion.  Others dismiss the whole idea of "free markets", claiming that markets are exploitative or coercive in essence. For example, some say that wages set by a free market rather than by government decree is exploitative since capitalists have appropriated private ownership of resources, thereby putting individuals in a position to accept low wages in order to survive.  However, many believe that decreases in wage rates are the result of the same thing as deflation in any other market:  the price of labor falls due to either a lower demand for labor or a larger supply thereof. 
  
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 [[Pareto distribution|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.
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[[Financial markets]], though some of these markets are far from being free due to heavy regulation, allow the large scale, standardized, and easy trading of [[debt]], [[foreign exchange]], and ownership of companies. ''See'' [[finance capitalism]]. Similar changes have taken place for products from [[agriculture]], [[mining]], and [[energy]] production. Standardized markets have even appeared for [[pollution]] rights and for the prediction of future events like future [[weather]] and political elections.
  
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.
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Markets have, of course, existed throughout human history. Hunter-gatherers used to exchange their goods in [[barter]]. The appearance of money in [[Ancient history|Antiquity]] facilitated exchanges, permitting the flowering of trade fairs in the [[Middle Ages]]. Nevertheless, many regulations existed, and the influence of the [[guild]]s prevented truly free markets. In modern economies, governments likewise do not allow unfettered market operation in many areas, but the price restrictions are much smaller than those imposed by guilds.
  
This seems to strike many people as being unfair and/or dysfunctional, while others don't see it as a problem.
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===Profit===
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[[Image:ProfitLoss.JPG|200px|thumb|The pursuit of [[profit]] is one characteristic of capitalism]]
  
Arguments directed against unfairness or dysfunctionality 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 ([[standard normal distribution]]) with a peak at the average and few people far on either side.  For example, there are very few people who are twice as tall as average, or who can run twice as fast, or have twice as high an IQThe fact that capitalism doesn't distribute wealth in a similar fashion must mean either that people do not realize their full productivity under capitalism, or that an untamed capitalist system is not a pure meritocracy due to inherent biases favoring those who already possess greater resources. Thus they accumulate more wealth for themselves in a cyclical fashion (as the old statement goes, "the rich get richer").
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The pursuit and realization of [[profit]] is an essential characteristic of capitalism. Profit is derived by selling a product for more than the cost required to produce or acquire it. Some consider the pursuit of profit to be the essence of capitalism. Sociologist and economist, Max Weber, says that "capitalism is identical with the pursuit of profit, and forever renewed profit, by means of conscious, rational, capitalistic enterprise." However, it is not a unique characteristic for capitalism, some hunter-gatherers practiced profitable barter and monetary profit has been known since antiquityOpponents of capitalism often protest that private owners of capital do not remunerate laborers the full value of their production but keep a portion as profit, claiming this to be exploitative. However, defenders of capitalism argue that when a worker is paid the wage for which he agreed to work, there is no exploitation, especially in a free market where no one else is making an offer more desirable to the worker; that "the full value of a worker's production" is based on his work, not on how much profit is created, something that depends almost entirely on factors that are independent of the worker's performance; that profit is a critical measure of how much [[value]] is created by the production process; that the private owners are the ones who should decide how much of the profit is to be used to increase the compensation of the workers (which they often do, as bonuses); and that profit provides the capital for further growth and innovation.
  
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 wealth, and often argue that so long as a high proportion of people have enough wealth to live above a minimum standard, the distribution of the remaining wealth may as well be left alone.
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===Self interest===
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[[Image:Ayn_Rand1.jpg|150px|thumb|left|[[Ayn Rand]] was an outspoken advocate of the role of self-interest in capitalism]]
  
Another problem with using "distribution of wealth" as a standard to measure economic systems is that such a standard can produce seemingly irrational judgments. Under the "distribution of wealth" standard, a system where everyone has nothing is judged as equal to a system where everyone has enormous wealth since the distribution of wealth in the two systems is equal. Furthermore, there is [[Robert Nozick]] obvious objection that no condition of perfect equality could be maintained for very long. If all agents possess the same amount of wealth, they will immediately begin investing it in different ventures which will pay off to varying degreesWithin moments of the first trade, then, inequality would be restored.
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The pursuit of self-interest is commonly regarded as playing an essential role in capitalism. Many writers, such as [[Adam Smith]] and [[Ayn Rand]], point to what they believe to be the benefit of individuals trading for their [[self-interest]] rather than ''altruistically'' attempting to serve the "public good." Smith, widely considered to be the intellectual father of capitalism, says in ''[[Wealth of Nations]]'': "By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." Ayn Rand, probably the most outspoken advocate of the role of self-interest in capitalism, says in ''Capitalism: The Unknown Ideal'': "America's abundance was created not by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes." Nobel-economist [[Milton Friedman]] also embraces the role of self-interest in capitalism. In his famous article ''The Social Responsibility of Business is to Increase Profits'', as he asserts that business has no [[social responsibility]] other than to increase profits and refrain from engaging in "deception or fraud." He maintains that when business seeks to maximize profits, while respecting the guidelines of a [[free market]] by not defrauding or deceiving, it almost always incidentally does what is good for society. Friedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to "devote resources to providing amenities to [the] community..." in order to "generate goodwill" and thereby increase profitsSome, including some supporters of capitalism, dislike the focus on self-interest. For example, self-described "free market libertarian" founder and CEO of [[Whole Foods Market]], [[John Mackey (businessman)|John Mackey]], claims in an article in ''Reason'' magazine that he is serving customers and society out of "love" rather than self-interest while he boasts the profitability of his company in that article. (''[http://www.reason.com/0510/fe.mf.rethinking.shtml Rethinking the Social Responsibility of Business]'', [[Reason magazine]] October 2005).
  
Disputes over this issue become entangled with disputes over the roles of cities vis-a-vis their rural supply regions. [[Jane Jacobs]], for example, has expounded a theory that is ambivalent on capitalism-versus-communism disputes, but holds in essence that the dynamism of a city is essential for any lasting wealth.
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=== Private enterprise ===
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In capitalist economies, a predominant proportion of productive capacity has belonged to [[companies]], in the sense of for-profit organizations. This include many forms of organisations that existed in earlier economic systems, such as [[sole proprietorship]]s and [[partnerships]]. Non-profit organizations existing in capitalism include [[cooperative]]s, [[credit unions]] and [[communes]].  
In "Cities and the Wealth of Nations" ([[1984]]), for example, she argued that development aid to regions without capital-generating cities of their own is generally wasted, adducing examples from the rural south of the [[United States]] in the wake of the [[Tennessee Valley Authority]] to [[Iran]] under the Shah.
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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.
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More unique to capitalism is the form of organization called [[corporation]], which can be both for-profit and non-profit. This entity can act as a virtual person in many matters before the law. This gives some unique advantages to the owners, such as [[limited liability]] of the owners and perpetual lifetime beyond that of current owners.
  
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.
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A special form of corporation is a corporation owned by [[shareholders]] who can sell their [[shares]] in a market. 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.  Such share trading first took place widely in Europe during the 17th century and continued to develop and spread thereafter. When company ownership is spread among many shareholders, the shareholders generally have votes in the exercise of authority over the company in proportion to the size of their share of ownership.
  
Other points of view on capitalism's wealth distribution include:
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To a large degree, authority over productive capacity in capitalism 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. In larger companies, authority is usually delegated in a hierarchical or [[bureaucracy| bureaucratic]] system of [[management]].
* Pro-Capitalist:
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** Collection of wealth in relatively few hands serves a function that in the end benefits all. (see [[philanthropist]])
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** Capitalist economies allocate wealth to the rich because they deserve it (see [[wealth]]).
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** Society requires that they have it as an incentive, or for any number of reasons (see [[motivation]]). 
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** The cause of poverty is the insufficient application of capitalist principles.
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** Capitalism hasn't been properly implemented yet.
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** Present wealth distribution is the only possible outcome of capitalism. 
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** 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.
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* Anti-Capitalist:
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[[Image:Rotterdam 16.03.05 fortis.jpg|200px|thumb|left|A bank in [[Rotterdam]]: Banks act as merchants of money and suppliers of capital in capitalist economies.]]
** Wealth is not beneficial to anyone - not even the wealthy.
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** Perhaps government interference in markets protects the wealthy.
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** Uneven distribution of wealth shows capitalism to be faulty, or immoral.
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** Many people have little wealth left over after living expenses, so they can't make it grow quickly.
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** Wealth is defined and judged incorrectly, in many different ways.
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While it may be debated as to whether capitalism causes the uneven distribution of wealth in capitalist economies, or whether it is good or bad, it is clear that capitalist economies do have uneven wealth distributions.
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Importantly, the owners receive some of the profits or proceeds generated by the company, sometimes in the form of [[dividends]], sometimes from selling their ownership at higher price than their initial cost. They may also re-invest the profit in the company which may increase future profits and value of the company. They may also liquidate the company, selling all of the equipment, land, and other assets, and split the proceeds between them. The price at which ownership of productive capacity sells is generally the maximum of either the [[net present value]] of the expected future stream of profits or the value of the assets, net of any obligations.  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 remarkably consistent 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 necessarily result in a positive impact on society. Others note that in order to get a profit in a non-violent way, one must satisfy some need among other persons that they are willing to pay for. Also, most people in practice prefer to work for and buy products from for-profit organizations rather than to buy from or work for non-profit and communal production organizations which are legal in capitalist economies and which anyone can start or join.
  
=== Evolving network structure ===
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When starting a [[business]], the initial owners or investors typically provide some money (the [[Capital (economics)|capital]]) which is used by the business to buy or [[lease]] some means of production.  For example, the enterprise may buy or [[lease]] a piece of land and a building; it may buy machinery and hire workers ([[Labour (economics)|labor-power]]), or the capitalist may provide the labor himself.  The commodities produced by the workers become the property of the capitalist ("capitalist" in this context refers to a person who has capital, rather than a person who favors capitalism), and are sold by the workers on behalf of the capitalist or by the capitalist himself. The money from sales also becomes the property of the capitalist. The capitalist pays the workers a portion of this profit for their labor, pays other overhead costs, and keeps the rest. This profit may be used in a variety of ways, it may be consumed, or it may be used in pursuit of more profit such as by investing it in the development of new products or technological innovations, or expanding the business into new geographic territories. If more money is needed than the initial owners are willing or able to provide, the business may need to borrow a limited amount of extra money with a promise to pay it back with interest. In effect, it may rent more capital.
  
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 otherTherefore, 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 [[Network|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. [http://www.theyrule.net/] has examples of networks of company board membersNetworks of customer links, and monetary flows exhibit similar structures.
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=== Economic growth ===
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One of the primary objectives in a social system in which commerce and property have a central role is to promote the growth of capital. The standard measures of growth are Gross Domestic Product or [[Gross Domestic Product|GDP]], capacity utilization, and 'standard of living'.  
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The ability of capitalist economies to sustainably increase and improve their stock of capital was central to the argument which [[Adam Smith]] advanced for a free market setting production, price and resource allocation.  It has been argued that GDP per capita was essentially flat until the industrial revolution and the emergence of the capitalist economy, and that it has since increased rapidly in capitalist countries [http://www.minneapolisfed.org/pubs/region/04-05/essay.cfm][http://www.j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html]. It has also been argued that a higher GDP per capita promotes a higher standard of living, including the adequate or improved availability of food, housing, clothing, health care, reduced working hours and freedom from work for children and the elderly. These are reduced or unavailable if the GDP per capita is too low, so that most people are living a marginal existence.
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Economic growth is, however, not universally viewed as an unequivocal good. The downside of such growth is referred to by economists as the 'externalization of costs' (see [[externality]]). Among other things, these effects include pollution, the disruption of traditional living patterns and cultures, the spread of pathogens, wars over resources or market access, and the creation of underclasses.
  
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 [[Evolutionary_economics|evolved]] then both viewpoints are valid, since random and chaotic fluctuations could be viewed as [[mutation]]s. It is possible that capitalism is a [[Maxima_and_minima|local optimum or maximum]], 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.
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In defense of capitalism, liberal philosopher [[Isaiah Berlin]] has claimed that all of these ills are neither unique to capitalism, nor are they its inevitable consequences.
  
=== Unknown/unapproved direction of capitalist economies ===
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See also the "Sustainability" section below.
  
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. A common feature in modern capitalist economies is for the State to maintain a certain degree of economic planning in order to stop huge economic fluctuations and additionally to give capitalist economies more longer-term aim.
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=== Economic mobility ===
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One of the key markers of entrepreneurial economies and 'growth' in a society is its economic mobility, defined as the existence of large changes in the make-up of its socio-economic strata. This is manifested as the occurrence of large fluctuations in the various [[decile]]s or [[quintiles]] of income and wealth among the population, and the existence of large changes over a person's lifetime in relation to their real earning power. In standard economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new professions or establishing a business venture. The instability of economic strata is contrasted with traditional [[feudal]] or [[tribal]] societies, which are considered to have more stable wealth relationships, and with the [[egalitarianism]] that exists in socialist societies, which distribute more of their wealth in the form of social benefits and therefore reduce income mobility, particularly among those who own capital and wish to trade it.
  
=== [[Unemployment|'''Unemployment/employment''']] ===
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However, the existence of large fluctuations in income deciles does not always represent income mobility - with individuals receiving regular wage increases over their working lives and then retiring, such fluctuations alone do not show that there is 'mobility' ''per se''. Moreover, it is argued by many labor economists that wage instability represents the transfer of risk to workers and particular sectors of the economy such as agriculture, and away from the holders of capital.
  
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 unemployment" to describe this situation. Occasionally unemployment 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 inefficiencies of a capitalist economy, since not all resources, human labor in this case, are efficiently allocated.
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===Self-organization===
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[[Image:f_hayek.jpg|150px|thumb|right|[[Friedrich Hayek]] advocated allowing an economy to [[self-organization|self-organize]], maintaining that government cannot access or coordinate the widespread distribution of information possessed by millions of individuals.]]
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While a great deal of planning is undertaken among individual companies and other organisations in capitalist economies, few significant mechanisms for imposing overall direction are available to governments. There is also a scarcity of reliable predictive tools and foreknowledge of how an economy is likely to behave or perform more than a year or two into the future. While most transactions may be planned and agreed by the actors involved, many society-wide phenomena that emerge from the markets and its transactions are often not planned, predicted, approved or authorised by anyone. Nevertheless, such an economic system can organize itself into a complex system without an external guidance or planning mechanism. This phenomenon is called "[[self-organization]]." [[Friedrich Hayek]] coined the term "[[catallaxy]]" as a market where "spontaneous order" emerges when no centralized control source (government) overrides decisions of individuals pursuing their own ends. However, in all large-scale modern economies the State conducts a degree of [[planned economy|centralized economic planning]] (using such tools as allowing the country's [[central bank]] to set base [[interest rates]]), ostensibly as an attempt to improve efficiency, attenuate cyclical volatility, and further particular social goals.  
  
== Criticisms of capitalism ==
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Some economists use [[chaos theory]] to argue that it is impossible to make accurate long-term economic predictions. They view the decentralized nature of economic planning and development that occurs in capitalism as one of its greatest strengths, arguing that it permits many solutions to be tried, and that real-world competition generally finds a good solution to emerging challenges. This is opposed to the [[central planning]] approach to the running of a society, which often selects inappropriate solutions as a result of faulty forecasting. One possible example is the experience in Somalia where the previously regulated telecommunications industry is reported to be "thriving" now that, and reportedly because, the country lacks a government. [http://news.bbc.co.uk/2/hi/africa/4020259.stm]
  
[[Marxism|Marxists]] and others criticize capitalism for enriching capitalists (owners of [[capital (economics)|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 and by pointing out that the [[First World]] has gotten richer primarily at the expense of the [[Third World]].
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Capitalist economies typically contain numerous companies, and people are free to enter into many different types of arrangement with each other.  Such an economy reacts to technological change, new discoveries and other developments through continual readjustments in the relationships which exist among companies and individuals. In this way the economy's control mechanisms and how information flows through it evolve over time, and are characterised by a kind of "survival of the fittest" selection and evolution process which is not dissimilar to that exhibited in natural systems and their component relationships.
  
Marxists believe that the capitalism allows capitalists - the owners of capital - to [[Exploitation#Marxian_theory|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.
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Ancient [[Rome]] and China under the [[Song dynasty]] are examples of societies that had some of the characteristics of capitalism, like no feudal [[fiefs]], (weak) property rights, economic growth, and for their times advanced technology. It is much debated why these societies did not have their own "industrial revolution" and thus achieve industrial capitalism in the modern sense. It has been suggested that these states formed monopolies in their parts of the world with very limited competition from other states. The ruling class then become complacent and the successful institutions were overturned in order to enrich certain special interest groups. Much innovation has historically taken place when there where many competing states, like in the city states of ancient [[Greece]] and [[renaissance]] [[Italy]].
  
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. For this reason Marxists typically emphasise the capitalist economic system of Western countries rather than the democratic political systemA 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]].
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Analysis of the [[Network|networks]] of connections and arrangements in the economy has shown a degree of similarity to other networks such as phone systems or the Internet[http://www.theyrule.net/] contains examples of networks of company board members.  Networks of customer links and monetary flows exhibit similar characteristics.
  
In [[mainland China]] differences in terminology sometimes confuse and complicate discussions of [[Chinese economic reform]]. Under [[Chinese Marxism]], which is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bourgeoisie. In the official Chinese ideology, China is currently in the primary stage of [[socialism with Chinese characteristics]]. However, because of [[Deng Xiaoping]]'s dictum to [[seek truth from facts]], this view does not prevent China from undertaking policies which in the West would be considered capitalistic including employing wage labor, increasing unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and encouraging the growth of the joint venture and private capitalist sectors.
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=== Which economies are "capitalist"? ===
 +
 +
[[Image:CapitalismUnknownIdeal.JPG|150px|thumb|right|As exemplified by the title of this book, some do not believe that capitalism has been fully implemented.]]
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Some believe that it is inaccurate to call any or some of the major industrialized economies "capitalist" because of the level of government intervention. For example, some assert that the market in the United States of America is significantly less than "free", and that therefore it is more appropriately termed a mixed economy that is merely skewed more toward capitalism than most national economies, rather than being a true representation of capitalism. Still others might say that the U.S. economy is capitalist, but the U.K. economy is a "mixed economy," or the Hong Kong economy is capitalist and the U.S. economy is mixed and so on, depending upon their perception of how much economic freedom exists in those locales. According to economic and business historian Robert Hessen of Stanford Graduate School of Business:
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"a fully free economy (true laissez-faire) never has existed, but governmental authority over economic activity has sharply increased since the eighteenth century, and especially since the Great Depression...Today the United States, once the citadel of capitalism, is a "mixed economy" in which government bestows favors and imposes restrictions with no clear or consistent principle in mind." [http://www.econlib.org/library/Enc/Capitalism.html]
  
==Capitalism and imperialism==
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A similar classification, associated largely with the Austrian school of economics, regards most present economic systems as a perversion of capitalism, sometimes called crony capitalism, and envisages a de-cronied capitalist ideal. Similarly, some use the phrase "laissez-faire capitalism" to distinguish between "ordinary capitalism," believing that there is a difference. Others find the phrase "laissez-faire capitalism" redundant, pointing out that the common definition of capitalism explicitly refers to trade occurring in a "free market".
  
[[J.A. Hobson]], a British liberal writing at the time of the fierce debate on imperialism during the [[Boer War]], observed the spectacle of the ''[[New Imperialism|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, extremely influential in its day, suggested that that capitalism suffered from under-consumption due the rise of monopoly capitalism and the resultant concentration of wealth in fewer hands, which apparently gave rise to a misdistribution of purchasing power. This argument calls attention to Europe's huge, impoverished industrial working class, which was typically far too poor to consume the goods 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.
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Many Marxists, anarchists, Greens and anti-globalists agree that the governments in capitalist societies, that is to say societies where a capitalist class is the ruling class, are not serving in the role of protecting "the free market", but would go on to say that these governments are, in fact, acting to protect the owners of capital and corporations as their first priority. Noam Chomsky says that "There's nothing remotely like capitalism in existence. To the extent there ever was, it had disappeared by the 1920s or '30s." (interview with Detroit Metro Times). Libertarians and other free-market advocates may also share this opinion regarding some or all of the major economies. However, in the 18th century in America, production and distribution of goods were regulated by government ministries. Also, government subsidies were granted to agriculture. Economic intervention continued throughout the 19th century.
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A map of the [[Heritage Foundation]]'s Index of Economic Freedoms. Various reserachers have argued that nations with a higher economic freedom have a higher GDP/capita and less poverty.
  
Although Hobson's works are still read, it is now widely acknowledged that his analysis had neglected the mediating impact of a free-floating [[interest rate]] on the accumulation of unused capital. His causal economic relation between capitalism and imperialism, then, ultimately fails, although his discussions of capitalism's cultural impacts may remain valid.
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Proponents of the world-system perspective suggest that the whole globe has been incorporated into a single capitalist world-economy. Even though a state (such as Cuba) may be socialist, it works in relation to a much larger, overarching capitalist world-economy.
  
Contemporary World-Systems theorist [[Immanuel Wallerstein]] perhaps better addresses Hobson's counterarguments without degrading Hobson's underlying inferences.  Wallerstein's conception of imperialism as a part of a general, gradual extension of capital investment from the center of the industrial countries to an overseas periphery thus 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 hence perceives formal empire as performing a function analogous to that of the mercantilist drives of the late seventeenth and eighteenth centuries in England and France. The expansion of the Industrial Revolution hence contributed to the emergence of an era of aggressive national rivalry, leading to the late nineteenth century scramble for Africa and formal empire.
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Many believe that some of the modern economies are still best described as being "capitalism".
  
== Capitalism as an ideology ==
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==Criticisms of capitalism==
  
As with many common words, and most particularly ideologically laden words, "capitalism" has many meanings. There can be great confusion amongst these meanings, and readers must be careful of which meaning a writer intends in any particular usage.
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=== Unequal distribution of wealth and income ===
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''Main article: [[Economic inequality]]''
  
"Capitalism" defined as the system of the private ownership of capital goods, is distinct from "capitalism" as an ideology, that is the philosophical advocacy of that system. Of course, the precise ideology meant by "capitalism" in the latter sense differs: what a [[Marxism|Marxist]] or [[Greens|Green]] may describe as capitalist ideology may seem thoroughly alien to what an advocate of [[laissez-faire]] [[liberalism]] means capitalism as an ideology.
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It is reasonable to expect that some disparity in wealth and income among individuals would exist in a capitalist system as this is determined through market forces rather than by centralized governmental authority. Some view a significant disparity and concentration of wealth to be problem and that such is endemic to capitalism, while others do not have such egalitarian concerns. Some opponents of capitalism assert that there should be no inequality in wealth and earnings among individuals commensurate to their inheritance, skills, abilities or efforts. Defenders of capitalism respond that since free market capitalism distributes wealth and earnings among individuals commensurate to their inheritance, skills, abilities and efforts, it provides inherent incentives for human beings to hone their skills, improve their abilities, and make strong efforts to meet the needs of each other, incentives that are missing or significantly less present in any other type of economic/political system.
  
Some argue that capitalism as a system and capitalism as an ideology go hand in hand. This view is often founded upon the Marxist idea that ideology is largely a consequence of underlying economic realities -- or the simplification of that idea which holds that people favor ideologies which justify their behavior or privilege. This viewpoint is often held by liberals, who regard an "open society" as necessary for capitalism, and economic freedom as being essential for an open society.
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====Excessive inequality====
  
Whether capitalism is, as Marx held, the natural ideology of the class of business owners, capitalists, is itself controversial. Indeed, Adam Smith looked on the tradesman class with suspicion, and warned that they would engage in attempts to fix prices, gain government monopolies, or attempt to stiffle competition. David Riccardo defined the rent collecting class as "parasitic", producing no "value".  
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Other critics argue that inequality may be necessary but that the distribution of wealth and earnings is unfair, dysfunctional, or immoral in capitalism. In the capitalist economies, the distributions of earnings and, especially, of wealth are concentrated and skewed to the right. In the US, the shares of earnings and wealth of the households in the top 1 percent of the corresponding distributions are 15 percent and 30 percent, respectively [http://www.ssc.upenn.edu/~vr0j/papers/maxrefin.pdf].
  
Business corporations have frequently favored forms of ''mercantilism'', under which the state supports domestic business against foreign interests. Mercantilism is usually not identified as a form of capitalism, though many nations engage in mercantilist policies from time to time even if nominally capitalist in their ideology.  
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Some critics note that there are very few people who are twice as tall as average, or who can run twice as fast, or have twice as high an IQ. Some critics argue that the fact capitalism doesn't distribute wealth in a similar fashion means that something is fundamentally wrong with the system. Supporters argue that human contributions vary much more than humans vary in height or IQ (as can be illustrated, for example, by comparing the contributions of an arsonist and an inventor/producer of antibiotics).
  
Modern [[Japan | Japanese ]] capitalism after [[World War II]] might be seen as capitalist mercantilism, while the European [[mercantilism]] of the period before 1600 or so has been seen by some economic historians as being pre-capitalist. Further, [[Austrian school]] economists regard mercantilist policies as an interference with free-market capitalism.[http://www.mises.org/fullstory.aspx?control=1568] For them, "capitalism" ''by definition'' involves [[free market| free markets]] and free markets by definition involve free trade and free enterprise, which are two aspects of the economy that mercantile policies seek to regulate: both what can be imported, and what areas of development receive capital support.  
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Critics also note that there are many people who have no wealth. If wealth followed a a bell shaped curve ([[standard normal distribution]]), as many other human characteristics and it might be surmised people's ability to be productive, then there should be very few people with no wealth. Supporters might argue that human productivity and especially the tendency to save wealth is not bell-shaped.
  
Since capitalism is a word which is considered both an epithet and a compliment, and because of the diversity of both ideology and theory involved, the use of the word often reduces to, alternately a [[straw man]] or a [[shibboleth]], used to damn or justify almost any imaginable policy choice or social arrangement.
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An untamed capitalist system may have inherent biases favoring those who already possess greater resources. For example, rich people can give their children a better education and inherited wealth. This can create or even increase large differences in wealth between people who do not differ in ability or effort. There are some data supporting this, like that in the US 43.35% of the Forbes 400 richest individuals were already rich enough at birth to qualify. [http://www.faireconomy.org/press/archive/Pre_1999/forbes_400_study.html], or a study that indicates that in the US wealth, race, and schooling are important to the inheritance of economic status, but IQ is not a major contributor and the genetic transmission of IQ is even less important [http://www.umass.edu/preferen/gintis/intergen.pdf]. On the other hand, at least some of the difference in wealth between people of equal ability may be explained by that some people voluntarily, maybe because they see other things as more valuable, make life choices that make them earn or save less than other people with the same ability. Defenders respond that since 30.1% of the individuals on the Forbes list of the 400 richest did not inherit great wealth (meaning they did not inherit at least $1 million in assets) this shows that even such people can gain the very highest level of wealth in capitalist economies. For opposing views of IQ and income, see [[IQ]]. There are also some data indicating that income inequality for the world as a whole is diminishing, see below in "Marxist critique of capitalism".
  
=== Capitalism and political ideologies ===
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Supporters argue that a problem with using "distribution of wealth" as a standard to measure economic systems is that such a standard can produce seemingly irrational judgments. Under the "distribution of wealth" standard, a system where everyone has nothing is judged as equal to a system where everyone has enormous wealth since the distribution of wealth in the two systems is equal. The claim is made that capitalist economics are not [[zero-sum]] games and that more wealth for most people is actually "created" through innovation, entrepreneurship and risk-taking. Rewards for this may cause a necessary inequality. Regarding the inheritance of wealth, this may be necessary so that the most productive people continue to do productive work and save money when they get older. Thus, people who see uneven wealth distribution as a lesser or unavoidable problem tend to argue that if inequality leads to higher average wealth and higher wealth and income for most people, then wealth inequality may be acceptable. Several [[peer-reviewed]] studies show that the relative income share of the poorest do not decrease with higher [[economic freedom]], but their absolute income increases. For example, one study found that the poorest 10% earn $823 per year in the quintile of nations with the lowest economic freedom, but earn $6877 per year in the quintile of nations with the highest economic freedom. [http://www.ratioinstitutet.nu/pdf/wp/nb_efi.pdf][http://www.terry.uga.edu/~dmustard/courses/e4450/Grubel.pdf][http://www.cato.org/research/articles/vas-0109.html][http://www.freetheworld.com/2004/efw2004ch1.pdf].
  
Some political ideologies make support of their notion of capitalism crucial to their identity, these groups might, or might not support other ideologies laying claim to capitalism:
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Some advocates of capitalism may partly agree with the critics but think that the problem can be resolved with solutions like [[progressive taxation]], [[wealth tax]], and/or [[inheritance tax]]. They note that such taxes are already implemented in most capitalist states. The best extent of such taxes and how much inequality there should be is much discussed and researched, but these variables can be changed without abandoning capitalism.
  
*'''[[Libertarianism]]''', which can be considered a branch of '''[[classical liberalism]]''', defends a capitalist [[free market]] with minimal state intervention. (See [[laissez-faire]].) [[Minarchist]] libertarians see the role for government in the economy as solely defending the rights of the participants against violence, theft, fraud, and damages such as pollution.
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Other points of view on capitalism's unequal wealth distribution include:
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* Pro-Capitalist:
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**[[Robert Nozick]] has argued that no condition of perfect equality could be maintained for very long.  If all agents possess the same amount of wealth, they will immediately begin investing it in different ventures which will pay off to varying degrees. But if voluntary economic exchange is seen as leaving both parties (since both would not be trading unless the outcome of the trade was mutually beneficial), even if the resulting distribution is not even, it is better than if there were no trading.
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** Lack of established property rights force the poor to operate in extralegal markets, keeping them from unlocking the capital in their assets. When only the politically privileged can leverage capital, the division between formally and informally owned property is an unbalancing barrier to the benefits of a modern market economy.
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** Wealth tends to be directed toward individuals in proportion to how productive they are in terms of creating and providing goods and services that others value, therefore the possibility of becoming wealthier than others can be seen as an incentive to benefit society. A limit on freedom of individuals to reap a disproportionate amount of wealth would dampen incentive. Technological progress would stagnate, and, as a result, the standard of living would suffer.
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**The inequality of consumption is far less than the inequality in wealth, since there is no way most of the wealthy could consume all their wealth.  To the extent that they consume their wealth, they are redistributing it to others.  To the extent that they are not consuming it, they are generally either managing it to create more wealth or giving it away.
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** Many rich give significantly to [[charity]] (see also [[philanthropist]]). Some argue that charity is more efficient than state welfare.
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** The economist [[Thomas Sowell]] has attributed factors such as geography, climate, culture, and natural resources as contributing factors to inequality inside of and between nations.
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** The income share of the poorest 10% do not decrease with higher economic freedom but the absolute income of the 10% poorest, prosperity, economic growth, democracy, and freedom from corruption increase, see [http://www.heritage.org/research/features/index/press.cfm Economic freedom index].  
  
*'''[[Anarcho-capitalists]]''' see no role for government whatsoever. They believe that all government functions, including physical security and the adjudication of commercial disputes, will be better achieved by market mechanisms, such as [[mercenary|mercenary armies]] and private [[arbitration]].  
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* Anti-Capitalist:
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** The capitalists gather their wealth by [[exploitation|exploiting]] the workers. A worker is not paid the entire produce of his labor, as the employer retains a portion as profit. Profiting in this way tends to further enrich those with capital while not significantly enhancing the material well-being of workers. This perpetuates concentration of wealth in the hands of a few.
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** Wealth and unequal distribution can create social problems (such as higher [[crime]] rates). These problems affect both poor and rich. 
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** Government interference in markets can be skewed to benefit the wealthy. In particular, wealthy people have the financial means and incentives to influence or corrupt government officials and to lobby for favourable legislation.
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** Many people have little wealth left over after living expenses, so they can't make it grow quickly.
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** Persistent long-term inequality of wealth undermines the motivation of the poor to improve their stance.
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** Wealthy people save relatively more than poor people. Hence some economists believe that an unequal distribution of wealth undermines an economy's mass buying power, effectively leading to lower aggregate sales, reduced wealth production, unemployment and crises. (see [[Keynes]]) Economists, however, argue that saving is also necessary in an economy, since it provides the means for investment into new technologies and processes.
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** Wealth is defined and judged incorrectly, in many different ways. In particular, people may attach value to things for seemingly irrational reasons (sentimental value). Some may also value spiritual development more than material wealth.
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** The wealthy may not put their wealth to productive use. For example, they may buy land just to deny access to it to others, for personal or environmental reasons. Other critics of capitalism, however, would ask whether or not capitalistic production narrowly-defined is a good thing, especially if it is seen as damaging the environment, and such an action of denial may be seen as the lesser of two evils.
  
*'''[[Objectivist_philosophy | Objectivism]]''' argues that from the individual's standpoint, the only moral economic system is ''true'' capitalism, since capitalism itself can never come to exist without free men who act [[rationality | rationally]] and within the bounds of their unalienable, and rationally derived, [[rights]].
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=== Employment/unemployment ===
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Since individuals typically earn their incomes from working for companies whose requirements are constantly changing, it is quite possible that at any given time not all members of a country's potential work force will be able to find an employer that needs their labor. This would be less problematic in an economy in which such individuals had unlimited access to resources such as land in order to provide for themselves, but when the ownership of the bulk of its productive capacity resides in relatively few hands, most individuals will be dependent on employment for their economic well-being. It is typical for true capitalist economies to have rates of [[unemployment]] that fluctuate between 3% and 15%.  Some economists have used the term "[[natural rate of unemployment]]" to describe this phenomenon.
  
*'''[[Conservatism]]''' varies depending between countries in its specific stances. In Western nations, conservatives often defend the ''status quo'' of capitalist practices. These are often called [[Conservatism#Business_conservatism|business conservatives]]. Many people who call themselves [[political conservatism|politically conservative]], however, prefer a government-regulated capitalism (sometimes called "mercantilism") over free-market capitalism. According to them, free-market capitalism disrupts traditional ways of life and what they often call "family values". Thus, others might classify conservatives as being in favor of a mixed economy.  
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Depressed or stagnant economies have been known to reach unemployment rates as high as 30%, while events such as military mobilization (a good example is that of [[World War II]]) have resulted in just 1-2% unemployment, a level that is often termed "full employment". Typical unemployment rates in Western economies range between 5% and 10%. Some economists consider that a certain level of unemployment is necessary for the proper functioning of capitalist economies. Equally, some politicians have claimed that the "natural rate of unemployment" highlights the inefficiency of a capitalist economy, since not all its resources -- in this case human labor -- are being allocated efficiently.
  
*'''[[Fascism]]''' is often an [[anti-Marxist]] ideology, which argues that it is defending capitalism from take over by [[socialist]] or [[bolshevik]] forces. Many supporters of "capitalism" as a liberating ideology would vehemently exclude such parties and governments from the definition of "capitalist", prefering terms such as "totalitarian", "closed society" or "corporatist". However pro-business conservative parties have, at various times, supported fascist states, coups or dicatorships in preference to [[communist]] or [[soviet]] systems, even to the point of backing coups against democratically elected governments, for example [[Pinochet]]'s Chile, or [[Neville Chamberlain]]'s preference for [[Nazi Germany]] over the [[Soviet Union]]. Former ministers of such governments are often the guests of such [[libertarian]] think tanks as the [[American Enterprise Institute]] and the [[Cato Institute]].
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Some [[libertarian]] economists, such as [[Henry Hazlitt]], argue that higher unemployment rates are in part the result of [[minimum wage]] laws, as well as in part the result of misguided [[monetary policy]], and are not inevitable in a capitalist economy. In "[[Economics in One Lesson]]", Hazlitt argues that if the value of the work of some potential employees is lower than the minimum wage, it would penalise the employer to employ them. Accordingly, if the value of the productive capacity of a given employee is worth less to the employer than the minimum wage, that person will become unemployed, and therefore unemployment will exist whenever the legal minimum wage exceeds the true economic value of the least productive members of the [[labor pool]]. Likewise, if the amount of money a person can obtain on [[welfare]] approaches or equals what they could make by working, that person's incentive to work will be reduced.
  
*[[Liberalism]] because of the broad application of the word, not every "liberal" party makes support for unrestricted laissez-faire capitalism part of its ideology. However, most liberal parties over the course of the 20th century, have made continuance of capitalism as the central part of the economy a primary objective, and have made [[free trade]] a centerpiece of their economic programs. In many contexts [[liberalism]] is synonymous with reduction in regulations, trade barriers and state monopolization, and [[liberalization]] the political and economic process of accomplishing these goals. Again the applicability is context dependent.
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Some unemployment is voluntary, such as when a potential job is turned down because the unemployed person is seeking a better job, is voluntarily living on savings, or has a non-wage-earning role, such as in the case of a traditional [[homemaker]]. Some measures of employment disregard these categories of unemployment, counting only people who are actively seeking work and have been unable to find any.
  
Some ideologies explictly favor a mixed economy:
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=== Marxist critique of capitalism ===
  
*'''[[Mercantilist Capitalism]]''' defends a mostly free market within the nation, but proposes state intervention to protect domestic commerce and industries against foreign competition. See also [[protectionism]], and in opposition, [[free trade]], and [[crony capitalism]].
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''Main article: [[Marxism]], [[Category:Marxist theory]]''
  
*'''[[Dirigisme]]''' defends a mostly free market within the nation, but proposes state intervention so as to direct the industry into directions of higher priority, or so as to make it more efficient.
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[[Image:YoungerMarx.JPG|150px|thumb|left|[[Karl Marx]] recognized that capitalism was immensely productive but also generated immense social problems (which probably explains the stern look on his face)]]
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Marxists define [[capital (economics)|capital]] as "a social, economic relation" between people (rather than between people and things).  They seek to replace capitalism after it has completed its positive work as a stage of economic history.  In the cartton version of Marxism gavored by both vulgar Marxists and anti-Marxists, all Marxists are said to believe that private ownership of the means of production does nothing more than enrich capitalists (owners of capital) at the expense of workers ("the rich get richer, and the poor get poorer"), and that this is the cause of modern social ills.  Anti-Marxists 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").  Marxists counter this by pointing out the unchanged after-tax income of the poorest quintile of the U.S. population during the last two decades.  While at the same time the average income and especially the income of the rich have increased. [http://www.cbo.gov/showdoc.cfm?index=5324&amp;sequence=0]. According to &quot;United for a Fair Economy,&quot; in 1982 CEOs of major corporations in the U.S. earned 42 times the annual wages of the average worker; in 2002 the ratio stood at 282:1 [http://www.faireconomy.org/press/2004/CEOPayRatio_pr.html]. Anti-Marxists point out that the percentage of people in developing countries living below $1 per day have halved in only twenty years, especially in countries like China that have embraced aspects of capitalism such as the markets [http://www.worldbank.org/research/povmonitor/].  Life expectancy has almost doubled in the developing world since WWII and the gap to the developed world is starting to close [http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=2429].  Looking at the world ''as a whole'' and not just at the U.S. shows that income inequality is in fact diminishing [http://www.columbia.edu/~xs23/papers/worldistribution/NYT_november_27.htm].  Marxists counter that the greater equality seen in other advanced industrial democracies, as opposed to the U.S., is the result of social-democratic public policies that redistribute wealth.  
  
*'''[[Social democracy]]'''  argue for extensive state regulation and partial intervention in an otherwise capitalist economy. Social democrats occupy a position between socialists and classical liberals with regards to economic matters. They see a need for government to regulate employment, trade, and labor, and sometimes favor nationalization of certain industries. This view is also held by some [[liberalism | liberal parties]], particularly in regard to natural monopolies and public goods. See also [[welfare state]].
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Marxists believe that capitalism allows capitalists &mdash; the owners of capital &mdash; to [[Exploitation#Marxian_theory|exploit]] workers. The private ownership of the means of production is seen as a restriction on freedom, whereas supporters of capitalism believe that private ownership is essential to enriching society as well as preserving personal 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.
  
*'''[[Distributism]]''' desires an economy with private property and with almost all people possessing a means of production. This would take place in for example a country of subsistence farmers. In a distributist economy, laws would be made to restrict large corporations from taking over. Distributists favor achieving these goals not primarily through government regulation, but firstly through grass roots efforts and collaboration.
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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 bourgeois democracy. 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: the classic case is the [[United Kingdom]], where less than 20% of adult males could vote prior to [[1885]], and women did not receive the vote until [[1918]].[http://www.electoral-reform.org.uk/diary/historylesson.htm] Some recent examples include [[Hong Kong]], [[Singapore]], and [[Chile]] under the rule of General [[Pinochet]]. It is also argued by Marxists that governments espousing [[fascist]] (or "[[national socialist]]") rhetoric do not make substantive changes to the capitalist economies when they assume power.
  
*'''[[Fascism]]''' can also mean establishing a "war economy": a state-controlled capitalist economy with powers delegated to capitalist interests subservient to a militarized central government. Socialists sometimes describe modern capitalism as "fascist", meaning an analogy to historical fascism with its cooperation (or cronyism) between industry and government. (See [[Militarism]])
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In [[mainland China]] differences in terminology sometimes confuse and complicate discussions of [[Chinese economic reform]].  Under [[Chinese Marxism]], which is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bourgeoisie. In the official Chinese ideology, China is currently in the primary stage of [[socialism with Chinese characteristics]]. However, because of [[Deng Xiaoping]]'s dictum to [[seek truth from facts]], this view does not prevent China from undertaking policies which in the West would be considered capitalistic including employing wage labor, increasing unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and encouraging the growth of the joint venture and private capitalist sectors.
  
Some ideologies oppose capitalism and support a collectively run economy:
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=== Capitalism in decline or on the rise? ===
 +
Citing the ideal of a [[free market]], many consider an economy with lower taxes, smaller government and fewer regulations to be more capitalistic. If government spending is used as a gauge of government expansion, the last century saw a very large increase in the role of government in Western countries. Combined U.S. government spending increased from 3-4% of GDP to 33% flattening somewhat since 1983 when the sharp upward trend was broken during President Ronald Reagan's term. An average for 16 industrial nations jumped from 8% of GDP to 45%. ''Non-defense'' spending in the U.S. as a percentage of net income increase from 11.5% in 1945 to 30% in 1983, remaining stable through 2003 (some exclude defense spending when gauging government expansion). Compliance with more regulations is increasingly costly [http://mwhodges.home.att.net/intl-spend.htm][http://mwhodges.home.att.net/regulation.htm]. Thus it can be argued that the degree of capitalism has seen a remarkable ''decline'' in Western nations. However, since 1983 the percentage of non-defense government spending in the U.S. has stabilised, leading some such as Milton Friedman to express some hope that the tide may reverse toward more capitalism [http://www.hooverdigest.org/051/friedman.html]. Alan Greenspan, in a speech in 2005, expressed his belief that "free-market capitalism" is being rediscovered through deregulation after a period of stifling regulation brought about by Keynesian economics. [http://business.timesonline.co.uk/article/0,,16849-1823177,00.html]
  
*'''[[Socialism]]''' argues for greater public control of the economy, under a more extensive kind of democracy than is usually seen in capitalism. Areas of [[private ownership]] may remain in certain sectors (such as [[small business]]es) under socialism, but most economic sectors are run by the state for the benefit of the populace at large. In particular, the state is to control the "commanding heights" of the economy, such as the banking system and the major industries.
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One explanation for this is that the Western nations have increasingly averted or regulated various market failures such as pollution, health care, unemployment, wealth inequality, and education. Supporters of less state interference, such as [[libertarians]][[neoliberals]], and financial [[conservatives]], would instead argue that the regulations restrict competition, that the taxes go to the special interest groups with the most political clout, and that the almost constantly expanding governments do things less efficiently than the private sector.
  
*'''[[Communism]]''' goes farther in the direction of government and/or social control of production, which calls for the overthrow, democratically or by revolution, of the capitalist system and the establishment of public ownership of the means of production. Communists see socialism as a stage towards the establishment of a stateless and classless economy. Historical [[Soviet Union|Soviet]] Communism, a system of Party-controlled dictatorship (sometimes referred to as "[[Stalinism]]"), is distinct from the Communist ideal.
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=== Sustainability ===
  
*'''[[Libertarian socialism]]''' argues for collective control of the economy without the need for a [[state]].
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An economic system that causes strong economic growth may inevitably have a large effect on the environment. Some question the continued [[sustainability]] of this, arguing that many aspects of the environment have been degraded since the industrial revolution. Defenders of capitalism note the many environmental disasters in communist states. Yet  this argument constitutes an evasion more than a defense. While it may be true that state-communist governments in economic competition with capitalism tended to mindlessly ape its industrial processes, sometimes producing more environmentally destructive results, it hardly lets capitalism off the hook.  
  
*'''[[Anarchism]]''' strives for the immediate abolition of both the state and private property, and the establishment of a communal society quite similar to the one advocated by marxists as their final goal (but in contrast to the marxists, anarchists oppose the idea of a transitional socialist stage).
+
Some defenders note that many aspects of the environment in developed nations have improved recently, after the dangers of certain pollutants have become known. Examples include greatly reduced emissions of [[chlorofluorocarbons]] affecting the [[ozone layer]], removal of [[lead]] from gasoline and other products, greatly improved cleaning of emissions from fossil fuel power plants, and much stricter control of emissions into rivers, lakes, and oceans. However, some leading [[conservation]] organizations such as the [[WWF]] and The [[United Nations Environment Programme]] argue that the impact of humanity on Earth is continually increasing. They in 2004 jointly reported that "humanity's Ecological Footprint grew by 150% between 1961 and 2000" and that most of this growth occurred in the 27 wealthiest countries of the world, in other words, the leading capitalist countries [http://www.panda.org/news_facts/publications/general/livingplanet/lpr04.cfm]]. Critics note that the statistical methods used in calculating [[Ecological Footprint]] have been criticized and some find the whole concept of counting how much land is used to be flawed, arguing that there is nothing intrinsically negative about using more land to improve living standards. [http://econpapers.repec.org/scripts/redir.pl?u=http%3A%2F%2Fwww.tinbergen.nl%2Fdiscussionpapers%2F98105.pdf;h=repec:dgr:uvatin:19980105][http://www-pam.usc.edu/volume1/v1i1a2print.html]
  
== Arguments for and against capitalism ==
+
This view, however, does not recognize [[biodiversity]] as an intrinsic good. [[Monoculture]], paving and other human activities reduce the amount of earth's surface available to support diverse communities of life.
  
Since there are so many divergent ideologies backing or fighting capitalism, there is no possible agreed upon argument list for or against it. Each of the above ideologies makes very different claims for or about capitalism. Some ideologies refuse to use the word at all.
+
Supporters of capitalism argue that in many cases environmental problems are greatest when a common exists and there is no clear owner. See [[Tragedy of the commons]], [[Free market environmentalism]], and a proposal to have [http://user.intersatx.net/jc/gaia.html natural resource wealth owned by all people equally]. Defenders of capitalism also note that world population has greatly expanded due to higher living standards since the industrial revolution. However, this growth is declining due to the [[demographic transition]] and the world population is expected to stabilize at nine billion.  
  
There seem to be at least five separate and distinct questions about capitalism which have clearly survived the [[20th century]] and remain hotly debated today. Certain thinkers claim or claimed to have simple answers to these questions, but [[political science]] generally sees them as scales or shades of grey:
+
Yet many environmentalists have long argued that the real dangers are due to the world's current social institutions that they claim promote environmentally irresponsible consumption and production. Under what they call the "grow or die" imperative of capitalism, they claim there is little reason to expect hazardous consumption and production practices to change in a timely manner. They also claim that markets and states invariably drag their feet on substantive environmental reform, and are notoriously slow to adopt viable sustainable technologies. [http://www.social-ecology.org/article.php?story=20031118113538865][http://www.monthlyreview.org/1200jbf.htm]. [[Immanuel Wallerstein]], referring to the [http://www.pbs.org/itvs/openoutcry/talkback.html externalization of costs] as the "dirty secret" of capitalism, claims that there are built-in limits to ecological reform, the costs of doing business in the world capitalist economy are ratcheting upward because of deruralization and democratization, he therefore sees no exit from our dilemnas within the framework of the capitalist world-system.[http://fbc.binghamton.edu/iwecol.htm]
  
Is capitalism ''moral''?  Does it encourage traits and behaviors we find virtuous or proper in human beings? Can a successful participant in a capitalist economy also be a moral or virtuous person?  Yes:  [[Ludwig von Mises]], [[Ayn Rand]], [[Robin Hanson]]  No:  [[John McMurtry]], [[Karl Marx]], [[Vladimir Lenin]]
+
Strong economic growth also requires increasingly greater amounts of natural resources and energy and some question whether this can continue in the future. Those arguing for continued growth note that numerous past predictions of shortages have failed since new technology has continuously allowed exploitation of previously unavailable resources. That this continues in the future is of critical importance, especially for energy which may face a peak in fossil fuel production. Since 1970, each 1% increase in world GDP has yielded a 0.64% increase in energy consumption. See [[Future energy development]].
  
Is capitalism ''ethical''?  Can its rules and contracts and enforcement systems be made wholly objective of the people administering them, to a greater degree than other systems? Is it compatible with the [[rule of law]]? Yes: [[Buckminster Fuller]], [[John McMurtry]], [[Friedrich Hayek]] No:  [[Karl Marx]], [[Peter Kropotkin]], [[Vladimir Lenin]]
+
=== Human rights violations, imperialism, and democracy ===
 +
Detractors claim that ills caused by capitalism include [[imperialism]], [[poverty]], [[oppression]] [[exploitation]] and abuse of [[human rights]]. They point to lack of [[democracy]] and systematic violence against political opponents (like in [[Chile]] under the regime of [[Pinochet]] or [[People's Republic of China|China]] today); exploitative wars (like the [[Opium wars]] or the [[Sino-Japanese War (1937-1945)|Sino-Japanese War]]); and large scale [[democide]] (like in the [[Congo Free State]]). Many of these violations occurred during a time period and in states sometimes considered being more capitalist than today since the government share of the economy was much smaller.       
  
Is capitalism ''efficient''?  Given whatever moral purposes or ethical standards it might serve, can it be said to allocate energy, material resources, or human creativity better than any of the alternatives?  Yes:  [[Ludwig von Mises]], [[Paul Hawken]], [[Joseph Schumpeter]] No:  [[Peter Kropotkin]], [[Rosa Luxemburg]]
+
Proponents of capitalism point out that these problems have been widespread through all of human history, including in states characterized as socialist such as in [[Cambodia]] under Pol Pot. Some assert that these practices are not consistent with principles of capitalism even though they have existed in nations or in the colonies of nations commonly, or loosely, labeled as capitalist. They deny that many of the colonies had capitalist economic systems and claim that their economies mostly continued to be feudalistic. Instead they emphasize that it was capitalist states that abolished [[slavery]] throughout the world and that it was capitalist states who developed the modern [[democracy|democratic]] system. The strong economic growth during capitalism may encourage [[democratization]], or vice versa. There is debate about whether [[liberal democracy]], in the sense of electoral rights and civil liberties, is a consequence of economic growth [http://www.heritage.org/research/features/index/ChapterPDFs/2000_Chapter_2.pdf], a cause of it [http://64.233.161.104/search?q=cache:WPTnHhUTq5IJ:econwpa.wustl.edu:8089/eps/dev/papers/0212/0212002.pdf], or completely unrelated to it [http://64.233.161.104/search?q=cache:UxJlj8TGKuoJ:www.be.udel.edu/economics/WorkingPapers/papers/paper2004-03.pdf]. These studies tend to indicate that establishing the rule of law in protecting private property and free markets, rather than mere democratization, is what is most instrumental in generating economic growth.
  
Is capitalism ''sustainable''?  Can it persist as a means of organizing human affairs, under any conceivable set of reforms as per the above? Can it overcome both political challenges (such as socialist revolutionism) and material challenges (such as limited natural resources)?  Yes:  [[Buckminster Fuller]], [[Paul Hawken]]  No:  [[Joseph Schumpeter]], [[Karl Marx]], [[Vladimir Lenin]], [[Leon Trotsky]]
+
One of the very few studies simultaneously examining the relationship among economic freedom (see below), economic development (measured with GDP/capita), and political freedom (measured with the [[Freedom House]] index) found that high economic freedom increases GDP/capita and a high GDP/capita increases economic freedom. A high GDP/capita also increases political freedom but political freedom did not increase GDP/capita. There was no direct relationship either way between economic freedom and political freedom if keeping GDP/capita constant. {{ref|note1}}
  
Often, when political polemicists use the word "capitalism," they actually have in mind a more specific and recent phenomenon, [[finance capitalism]], i.e. the purchase and sale of corporate [[debt]] and [[equity]], often on [[liquidity|liquid]] [[secondary markets]]. This brings up a fifth question: ''does finance capitalism undermine industrial capitalism?'' There are those, from [[Thorstein Veblen]] to [[Mahathir bin Mohamed]] who have contended that finance undermines the productive economy, while others from [[Eugen von Böhm-Bawerk]] to [[George Soros]] have replied that financial profit-seeking prods and complements industrial capitalism.
+
One common criticism that Marxists make about Capitalism is that it is only democratic to the Bourgeoisie (the exploitive class that owns the 'means of production') citing examples such as not being able to criticize one's boss out of risk of getting fired and not expressing opinions on tv due to lack of funds to afford a channel.
  
== Why does no one agree what capitalism is? ==
+
Marxists also criticize capitalism for needing Imperialism (the exportion of capital to other nations) to survive. Due to Capitalism not being a planned economy it inevitably overproduces commodities and overuse resources. This leads it to expand it markets into and drain the resources out of other nations.
  
It's hard to answer this objectively.  Apparently there has never been a clear agreement about the [[linguistic]], economic, ethical and moral implications, that is, the "[[political economy]]" of capitalism itself.
+
==Other approaches==
 +
=== Capitalism in political ideologies ===
 +
''Main article: [[Capitalism and related political ideologies]]''
  
Rather like a governing political party that everyone seeks to control, regardless of ideology, the definition of "capitalism" at any given time tends to reflect the current conflicts between interest groups.
+
=== Indices of economic freedom ===
 +
[[Image:Index2006_EconFreedomMAP.jpg|150px|thumb|left|A map of the Heritage Foundation's Index of Economic Freedoms. Various reserachers have argued that nations with a higher economic freedom have a higher GDP/capita and less poverty]]
 +
There are two controversial pro-business Indices of Economic Freedom sometimes used in economic research. The most popular of the two is published by the Washington, D.C.-based Heritage Foundation and the Wall Street Journal. A second such index is published by the Canada-based Fraser Institute. Both attempt to measure of the degree of economic freedom in countries, mostly in regard to rule of law, lack of governmental intervention, private property rights, and free trade. The Index of Economic Freedom defines "economic freedom" [http://www.heritage.org/research/features/index/faq.cfm] as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." (This is otherwise known as laissez-faire).
  
The non-obvious combinations demonstrate the complexity of the debate. For instance, [[Joseph Schumpeter]] claimed in 1962 that capitalism was more efficient than any alternative, but doomed due to its complex and abstract rationale which the ordinary citizen would not ultimately defend.
+
They use statistics from independent organizations like the United Nations to score countries in various categories like the size of government, degree of taxes, security of property rights, degree of free trade and size of market regulations. Many peer-reviewed papers have been published using this material on the relationship between capitalism and for example poverty, mostly by researchers independent from the think tanks.[http://www.freetheworld.com/papers.html] The Fraser Institute argues that more advanced capitalist countries have much higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less capitalistic countries.[http://www.freetheworld.com/2004/efw2004ch1.pdf] Other studies have shown similar results.[http://www.cato.org/research/articles/vas-0109.html]
  
Also, the overlapping claims confuse most debaters. [[Ayn Rand]] made an original defense of capitalism as a [[moral code]], but her arguments for its efficiency were not original, and selected to support her moral claims. [[Karl Marx]] believed capitalism inefficient and unfair at the administration of an immoral purpose, and thus ultimately unsustainable. [[John McMurtry]], a current commentator within the [[anti-globalization movement]], believes it has become increasingly fair at the administration of this immoral purpose. [[Robin Hanson]], another current commentator, asks if fitness and fairness and morality can ever really be separated by other than electoral political means?
+
Attempts to decide the importance of the subcomponents of the indices have often yielded contradictory results. Strong property rights may be important - the economist Hernando de Soto has argued that weak property rights, especially for the poor, play a major role in poverty and underdevelopment in developing countries [http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm] [http://www.carnegiecouncil.org/viewMedia.php/prmTemplateID/8/prmID/100]. Many developing countries are now trying to strengthen and simplify their property rights system after the successful application of his ideas in Peru [http://www.ild.org.pe/eng/facts.htm]. Others have emphasized the importance of a functioning credit system, especially microcredit.
  
== In whose interest is capitalism? ==
+
==Notes==
 +
{{note|note1}} {{Journal reference issue | Author=Ken Farr, Richard A. Lord, and J. Larry Wolfenbarger | Title=[http://catoinstitute.org/pubs/journal/cj18n2/cj18n2-5.pdf Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis] | Journal=Cato Journal | Volume=18 | Issue=2 | Year=1998 | Pages=247-262}}
  
Finally, the arguments appeal strongly to different interest groups, and often support their positions as "rights". 
+
== See also ==
 
+
{{wikiquote}}
Currently recognized property owners, especially corporate shareholders and holders of deeds in land or rights to exploit [[natural capital]], are generally recognized as advocating extremely strong property rights.
+
* Related topics: [[History of Economic Thought]], [[Emergence of early capitalism]], [[Capitalism.org]], [[Distributed resource allocation]], [[Spirit of capitalism]]
 
+
* Related words: [[capitalist]], [[crony capitalism]] [[capitalist mode of production]]
However, the definition of [[capital (economics)|capital]] has broadened in recent years to recognize and include the rationales of other major interest groups: artists or other creators who rely on [[copyright|copyright law]], legal patent and trademark holders who improve what they call [[intellectual capital]], workers who are largely trading in their own less creative labor guided by a body of shared and imitative [[instructional capital]] - the trades themselves, all have reasons to prefer status quo property law over any given set of proposed reforms.
+
* Related ideologies: [[anti-capitalism]], [[classical liberalism]] ([[libertarianism]], [[culture of capitalism]], [[minarchism]], [[anarcho-capitalism]]), [[conservatism]] ([[political conservatism]]), [[mercantilism]], [[protectionism]], [[social democracy]] ([[welfare state]], [[liberalism]], [[political liberalism]], [[liberal democracy]]), [[statism]], [[state capitalism]], [[socialism]], [[fascism]], [[communism]], [[libertarian socialism]], [[Democratic Capitalism|democratic capitalism]], [[Marxism]], [[Objectivist philosophy|Objectivism]]
 
+
* disambiguation: [[Capitalism (game)]]
Even judges, mediators or administrators charged with fair execution of some ethical code and the maintenance of some relationship between [[human capital]] and [[financial capital]] within a capitalist representative democracy, tend to have strong self-interest reasons to argue for one view or another - typically, that view that assigns them a meaningful role in the capitalist economy.
+
 
+
[[Karl Marx]] made the strong claim that this role actually affects their cognition, and leads them inexorably to irreconcilable points of view, i.e. that no agreement about capitalism was possible by "class collaboration", and "[[class struggle]]" between these defined it.  This view was advocated by many revolutionary movements of the [[20th century]], but was often abandoned in practice as it seemed to lead to "class war", endless violence between those with irreconcilable points of view.
+
 
+
Today, certain parties that were traditionally opposed to capitalism, e.g. the [[Communist Party of China]], see some role for it in the development of their society. In such cases, debate focuses on incentive systems, not on the overall moral structure or ethical clarity of "capitalism". Former anti-capitalist groups holding such views are generally seen as having "switched sides", however, and they are often no longer on good terms with their old allies.
+
 
+
== What is capitalism good for? ==
+
 
+
One important modern argument is that capitalism simply isn't a system, merely a set of questions, challenges, and assertions regarding human behavior.  Like [[biology]], or [[ecology]] and its relationship to animal behavior, it is made complex by human language, culture and ideas.  [[Jane Jacobs]] and [[George Lakoff]] argued separately that there was a [[Guardian Ethic]] which was fundamentally related to nurturing and protection of life, and a [[Trader Ethic]] more related to the unique primate practice of trade.  Jacobs thought that the two were made and kept separate in history, and that any collaboration between them was corruption, i.e. any unifying system that claimed to make assertions regarding both, would simply be serving itself.
+
  
Other doctrines focus narrowly on the application of capitalist means to [[natural capital]] ([[Paul Hawken]]) or [[individual capital]] ([[Ayn Rand]]) - assuming a more general moral and legal framework which discourages these same mechanisms when applied to non-living beings coercively, e.g. "creative accounting" combining individual creativity with the complex instructional base of accounting itself.
+
==Further Reading==
 +
*[[Fernand Braudel|Braudel, Fernand]]. ''Civilization and Capitalism : 15th - 18th Century'' 3 vols.
 +
* [[Alfred D. Chandler, Jr.|Chandler, Alfred D., Jr.]] ''The Visible Hand: The Managerial Revolution in American Business''. Cambridge, Mass., and London: Belknap Press of Harvard University Press, 1977.
 +
* [[John Kenneth Galbraith| Galbraith, John Kenneth]]. ''The New Industrial State'', 4th ed., 1985.
 +
* [[David Harvey|Harvey, David]]. "The Political-Economic Transformation of Late Twentieth Century Capitalism." In Harvey, David. ''The Condition of Postmodernity''. Cambridge, MA: Blackwell Publishers, 1990. ISBN 0631162941
 +
* [[Robert L. Heilbroner| Heilbroner, Robert L.]] ''The Nature and Logic of Capitalism'', 1985.
 +
* [[David S. Landes| Landes, David S.]]  ''The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present''. Cambridge, U.K.: Cambridge University Press, 1969.
 +
* [[Karl Marx| Marx, Karl]]. ''Capital: A Critical Analysis of Capitalist Production'', 3 vol., 1886&#8211;1909; first published in German as ''Das Kapital: Kritik der politischen Oekonomie'', 1867&#8211;1894.
 +
* [[Jerry Z. Muller| Muller, Jerry Z.]], "The Mind and the Market - Capitalism in Modern European Thought". New York: Alfred A. Knopf (Random House), 2002
 +
* [[Ayn Rand| Rand, Ayn]]. ''Capitalism: The Unknown Ideal'' ISBN 0451147952
 +
* [[W.W. Rostow| Rostow, W. W.]] ''The Stages of Economic Growth: A Non-Communist Manifesto''. Cambridge: Cambridge University Press, 1960.
 +
* [[Murray Rothbard| Rothbard, Murray]]. ''Man, Economy, and State: A Treatise on Economic Principles'', (2 volumes.) [[1962]].
 +
* [[Adam Smith| Smith, Adam]]. ''An Inquiry into the Nature and Causes of the Wealth of Nations'', 1776.
  
 
== See also ==
 
== See also ==
Line 277: Line 314:
 
* [http://thesupporteconomy.com/questions.shtml The Support Economy] - Distributed Capitalism
 
* [http://thesupporteconomy.com/questions.shtml The Support Economy] - Distributed Capitalism
 
* [http://www.powells.com/cgi-bin/biblio?inkey=17-1859843921-0 Ellen Meiksins Wood's ''The Origin of Capitalism: A Longer View'']
 
* [http://www.powells.com/cgi-bin/biblio?inkey=17-1859843921-0 Ellen Meiksins Wood's ''The Origin of Capitalism: A Longer View'']
 +
* [http://www.adamsmith.org/ Adam Smith Institute] The Adam Smith Institute is the UK's leading innovator of free-market policies.
 +
* [http://reality.gn.apc.org/econ/hayek.htm Information and Economics: A Critique of Hayek]
 +
* [http://capitalism.org/ Capitalism.org: The Capitalism Site ]
 +
* [http://www.celebratecapitalism.org/bernsteindeclaration/ The Bernstein Declaration] “On the Principles and Possibilities of Capitalism” (from the “Celebrate Capitalism” organization)
 +
* [http://capitalism.net/ Capitalism.net: A treatise on economics, by George Reisman ]
 +
* [http://austrianforum.com/ The Austrian Forum] - Discussion of Austrian and other economic schools
 +
* [http://libcom.org/library/value-price-and-profit-karl-marx Value, Price and Profit] - Karl Marx on the basic features of capitalism.
 +
* [http://globalpolitician.com/articles.asp?ID=324 In Defense of the Free Market]
 +
* [http://www.sozialoekonomie.info/Info_Foreign_Languages/info_foreign_languages.htm Social economy: A Market Economy without Capitalism]
 +
* [http://www.blackmask.com/books18c/prspircap.htm Protestantism and the Rise of Capitalism, by Max Weber]
 +
* [http://www.mises.org/ The Mises Institute, adherents of the Austrian school]
 +
* [http://www.freetheworld.com/ The Frazer Institue Index of Economic Freedom]
 +
* [http://www.heritage.org/research/features/index/ The Heritage Foundation Index of Economic Freedom]
 +
* [http://www.rationalrevolution.net/articles/capitalism_economy.htm Understanding Capitalism Part I: Capital and Society]
 +
* [http://www.polyarchy.org/essays/english/capitalism.html "Capitalism/Anticapitalism" - On the origin and features of capitalism]
 +
* [http://www.greekshares.com/capitalism.asp Capitalism Basics]
 +
* [http://easyweb.easynet.co.uk/~rcgfrfi/ww/castro/1992-csw.htm ''Capitalism is a Society of Wolves'' by Fidel Castro]
 +
* [http://salsa.babson.edu/Media/FWright.htm Cartoon by Fred Wright critical of capitalism]
 +
* [http://www.personal.psu.edu/users/w/x/wxk116/antic/ ''Anti-Capitalism: Modern Theory and Historical Origins'']
 +
* [http://www.econ.boun.edu.tr/staff/adaman/research/adaman-devine.PDF A Reconsideration of the Theory of Entrepreneurship: a participatory approach - Critique of capitalism]
 +
* [http://economics.about.com/od/howtheuseconomyworks/a/mixed_economy.htm "A Mixed Economy: The Role of the Market" from U.S. Department of State] Article from the [[U.S. Department of State]] says the U.S. is a [[mixed economy]]
 +
* [http://www.phys.uu.nl/~droop/sheepfoot/what-is-capitalism.mp3 What is Capitalism?] an MP3 of a speech giving a Marxist perspective on the structure of capitalism
 +
* [http://business.timesonline.co.uk/article/0,,16849-1823177,00.html Alan Greenspan Speech] [[Alan Greenspan]] defends "free market capitalism" in speech to the [[NIAF]] (2005)
 +
 
[[Category:Social philosophy]]
 
[[Category:Social philosophy]]
 
[[Category:Political theories]]
 
[[Category:Political theories]]
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[[id:Kapitalisme]]
 
[[id:Kapitalisme]]
 
[[it:Capitalismo]]
 
[[it:Capitalismo]]
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[[es:Capitalismo]]

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In common usage capitalism refers to an economic system where the means of production are privately owned and operated, and where the investment of capital, and production, distribution, income, and prices are determined not by government (as in a planned economy) but through the operation of a market where all decisions regarding transfer of money, goods (including capital goods), and services are voluntary. In capitalism, the means of production are generally operated for profit. For a survey of definitions, see Wikiquote.

Although some developed countries are regarded as capitalist, some of them have been called "mixed economies", due to government-owned means of production and economic interventionism.

Capitalism is "also called free market economy," or "free enterprise economy."

Etymology[edit]

The word "capital" has roots in the trade and ownership of animals. The Latin root of the word is capitalis, from the proto-Indo-European kaput, which means "head", this being how wealth was measured. The more head 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 first known use of the word "capitalism" was by novelist William Thackeray in 1854[unverified]

The first known use of the word "capitalism", if not yet in our sense, was by novelist William Thackeray in 1854

The first use of the word Kapitalist was in 1848 in the Communist Manifesto by Marx and Engels; however, Kapitalismus, the German equivalent of capitalism, was not used. The first use of the word capitalism is by novelist Thackeray in 1854, by which he meant ownership of a large amount of capital, not a system of production.

In 1867 Proudhon used the term capitalist to refer to owners of capital, and Marx and Engels refer to the "capitalist form of production" ("kapitalistische Produktionsform") and in Das Kapital to "Kapitalist", "capitalist" (meaning a private owner of capital). However, the first person to use the word "capitalism" as it is commonly used today was Werner Sombart in his Modern Capitalism in 1902. Max Weber, a close friend and colleague of Sombart's, used the term in his The Protestant Ethic and the Spirit of Capitalism in 1904.

The Oxford English Dictionary cites the use of the term "private capitalism" by Karl Daniel Adolf Douai, German-American socialist and abolitionist in the late 19th century, in an 1877 work entitled "Better Times", and a citation by an unknown author in 1884 in the pages of Pall Mall magazine.

The definition of capitalism given in dictionaries has changed over time. For example, the 1909 Century Dictionary defined capitalism as:" The state of having capital or property; possession of capital. The concentration or massing of capital in the hands of a few; also, the power or influence of large or combined capital."

The contemporary definition, however, probably influenced by the philosophical and ideological debates of the 19th century, refers to an economic system (as Sombart and Weber did). For example, the Merriam-Webster Third International Unabridged Dictionary refers to capitalism as: " an economic system characterized by private or corporation ownership of capital goods, by investments that are determined by private decision rather than by state control, and by prices, production, and the distribution of goods that are determined mainly in a free market."

However, the Oxford English Dictionary (1987 edition) describes it as: "The condition of possessing capital; The position of a capitalist; A system which favours the existance of capitalists". This difference with the American dictionary defintion is also likely to stem from ideological differences and etymological interpretion.

Capitalist theory[edit]

Capitalism is contrasted with feudalism, where land is owned by the feudal lords, which collects rent from private operators; socialism, where the means of production are owned and used by the state; and communism, where the means of production are owned and used by the community collectively.

Some emphasize the private ownership of capital as being the essence of capitalism, or emphasize of the importance of a free market as a mechanism for the movement and accumulation of capital, while others measure capitalism through class analysis (i.e., class structure of society, relations between the proletariat and the bourgeois). Some note the growth of a global market system.

Others focus on the application of the market to human labor. Still others, such as Hayek, note the self-organizing character of economies which are not centrally-planned by government. Many, such as Adam Smith, point to what is believed to be the value of individuals pursuing their self-interest as opposed to altruistically working to serve the "public good."

Many of these theories call attention to various economic practices that became institutionalized in Europe between the 16th and 19th centuries, especially involving the right of individuals and groups of individuals acting as "legal persons" (or corporations) to buy and sell capital goods, as well as land, labor, and money (see finance and credit), in a free market (see trade), and relying on the state for the enforcement of private property rights rather than on a system of feudal protection and obligations.

Due to the vagueness of the term, debates and controversies have emerged. In particular, there is contention on whether capitalism is an actual system, or an ideal, i.e. on whether it has actually been implemented in particular economies, or if not, then to what degree capitalism exists in them (see mixed economy). From a historic point of view, there is an argument on whether capitalism is specific to a particular era or geographic region or if it is a universally valid system that may exist throughout various times and spaces. Some interpret capitalism as a purely economic system; others however contend that capitalism is a political, social, and cultural system as well. Debate also rages about the characteristics of capitalism: is it fair; is it rational; is it a coherent concept?

Contrasts with capitalism[edit]

Capitalism contrasts with (and in Western Europe, developed out of) feudalism, where a monarch holds both law-making power and the ability to claim ownership over the land rather than having to purchase it; the monarch loans the land to vassals in exchange for various services, and the vassals, in turn, use serfs to work the land.

Capitalism contrasts with socialism, where the means of production are theoretically owned and run by popular collectives (or by the state) for the people. It contrasts with communism where the means of production are owned collectively rather than privately by bosses or employers, and the produce of labor is collectivized, resulting in the "abolition of bourgeois property" ("private property") [2]. In addition, as suggested by Karl Marx, the products of labour are directly distributed "to each according to his need" [3], and "buying and selling" is abolished (Communist Manifesto).

Capitalism as it exists in market economies is said to be in opposition to planned economies, where "the elements of an economy (as labor, capital, and natural resources) are subject to government control and regulation designed to achieve the objectives of a comprehensive plan of economic development."[6] Capitalism also contrasts with corporatism, where private businesses work more closely with the government in an ostensible attempt to serve the interests of the nation. Countries undergoing periods of dynamic class struggle (as in times of revolution) would be accompanied by significant changes in material conditions such as industrialisation and display features such as the war economy and Commodification.

Participatory economics and council communism are alternative systems of workers' and consumers' councils utilizing self-managerial methods for decision making, as opposed to an economy dominated by big corporations or state enterprises.

History of theory of capitalism[edit]

Adam Smith is widely regarded as the intellectual father of capitalism

Most theories of what has come to be called capitalism developed in the 18th century, 19th century and 20th century, for instance in the context of the industrial revolution and European imperialism (e.g. Chydenius, Smith, Ricardo, Marx), The Great Depression (e.g.Keynes) and the Cold war (e.g. Hayek, Friedman). These theorists characterise capitalism as an economic system in which capital is privately owned and economic decisions are determined in a market - that is, by trades that occur as a result of agreement between buyers and sellers; where a market mentality and entrepreneurial spirit exists; and where specific, legally enforceable, notions of property and contract are instituted. Such theories typically try to explain why capitalist economies are likely to generate more economic growth than those subject to a greater degree of governmental intervention (see economics, political economy, laissez-faire).

In his 1765 book The National Gain, Anders Chydenius, a Finnish parlamentarian, became the first to propose freedom of trade and industry and the principles of liberalism, 11 years before Adam Smith in The Wealth of Nations (1776).

However, Anders Chydenius was the first to propose free trade and industry and to lay out the principles of liberalism in 1765, eleven years before Adam Smith

The conception of what constitutes capitalism has changed significantly over time, as well as varying depending on the political perspective and analytical approach taken. Adam Smith's advocacy of economic liberalism focused on the role of enlightened self-interest (the "invisible hand") and the role of specialisation in making capital accumulation efficient. Some proponents of capitalism (like Milton Friedman, Ayn Rand and Alan Greenspan) emphasize the role of free markets, which they claim promote cooperation between individuals, innovation, economic growth, as well as liberty. For many (like Immanuel 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 Karl Marx), it is defined by historically unprecedented social relations resulting from the creation of a labor market in which most people have to sell their labor-power in order to survive. As Marx argued (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 individuals. The economists of the Austrian School expound that an economy that is not planned or guided by governmental authority will be superior in efficiency and organization due to the phenomenon of self organization. Many others use capitalism as a synonym for a market economy.

Characteristics of capitalist economies[edit]

A set of broad characteristics are generally agreed on by both advocates and critics of capitalism. These are a private sector, private property, free enterprise, profit, unequal distribution of wealth, competition, self-organization (or catallaxy), the existence of markets (including the labor market) and the pursuit of self-interest.

An economy with a large amount of intervention - which may include state ownership of some of the means of production - in combination with some free market characteristics is sometimes referred to as a mixed economy, rather than a capitalist one. [1] If intervention occurs to such a degree that it overwhelms private decision, such an economy is often referred to as statist. Some economists, such as Milton Friedman, oppose all or almost all such state control over an economy. However, such distinctions are disputed. By some definitions, all of the economies in the developed world are capitalist, or as mixed economies based in capitalism. Others see the world integrated into a global capitalist system, and even those nations which today resist capitalism, operate within a globalized capitalist economy.

Private Ownership of the means of production[edit]

Cattle on an Amish dairy farm
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Private ownership of the means of production is an essential characteristic of capitalism

An essential characteristic of capitalism is the institution of rule of law in establishing and protecting private property, including, most notably, private ownership of the means of production (as opposed to state ownership and communist ownership). Private property was embraced in some earlier systems legal systems such as in ancient Rome [2], but protection of these rights was sometimes difficult, especially since Rome had no police [3]. Such and other earlier system often forced the weak to accept the leadership of a strong patron or lord and pay him for protection. It has been argued that a strong formal property and legal system made possible a) greater independence; b) clear and provable protected ownership; c) the standardization and integration of property rules and property information in the country as a whole; d) increased trust arising from a greater certainty of punishment for cheating in economic transactions; e) more formal and complex written statements of ownership that permitted the easier assumption of shared risk and ownership in companies, and the insurance of risk; f) greater availability of loans for new projects, since more things could be used as collateral for the loans; g) easier and more reliable information regarding such things as credit history and the worth of assets; h) an increased fungibility, standardization and transferability of statements documenting the ownership of property, which paved the way for structures such as national markets for companies and the easy transportation of property through complex networks of individuals and other entities. All of these things enhanced economic growth.

Capitalism is often contrasted to socialism in that besides embracing private property in terms of personal possessions, it supports private ownership of the means of production. Those who support capitalism often credit the lack of control over the means of production by government as crucial to maximizing economic output. Ludwig von Mises, in Liberalism, says that the "history of private ownership of the means of production coincides with the history of the development of mankind from an animal-like condition to the highest reaches of modern civilization." [4] In all modern economies some of the means of production are owned by the state, however an economy is not considered capitalism unless the bulk of ownership is private. Some characterize those that have a mixture of state and private ownership as "mixed economies."

Many governments extend the concept of private property to ideas, in the form of "intellectual property." It has been argued that the introduction of the patent system was a crucial factor behind the rapid development and widespread use of new technology and memes during and following the industrial revolution. [5]. Some oppose the establishment of intellectual property as being counterproductive or coercive. Others argue that some intellectual property rights may be too rigid or constraining to innovation, favoring weaker protections.

Free market[edit]

The notion of a "free market" where all economic decisions regarding transfers of money, goods, and services take place on a voluntary basis, free of coercive influence, is commonly considered to be an essential characteristic of capitalism. Some individuals contend, that in systems where individuals are prevented from owning the means of production (including the profits), or coerced to share them, not all economic decisions are free of coercive influence, and, hence, are not free markets. In an ideal free market system none of these economic decisions involve coercion. Instead, they are determined in a decentralized manner by individuals trading, bargaining, cooperating, and competing with each other. In a free market, government may act in a defensive mode to forbid coercion among market participants but does not engage in proactive interventionist coercion. Nevertheless, some authorities claim that capitalism is perfectly compatible with interventionist authoritarian governments, and/or that a free market can exist without capitalism (see market socialism).

A legal system that grants and protects property rights provides property owners the entitlement to sell their property in accordance to their own valuation of that property; if there are no willing buyers at their offered price they have the freedom to retain it. According to standard capitalist theory, as explained by Adam Smith in Wealth of Nations, 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.

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The Chicago Mercantile Exchange. A free market consists of voluntary trade without interventionist regulation. Prices, for example, are determined by trade rather than by government.

In regard to pricing of goods and services in a free market, rather than this being ordained by government it is determined by trades that occur as a result of price agreement between buyers and sellers. The prices buyers are willing to pay for a commodity and the prices at which sellers are willing to part with that commodity are directly influenced by supply and demand (as well as the quantity to be traded). In abstract terms, the price is thus defined as the equilibrium point of the demand and the supply curves, which represent the prices at which buyers would buy (and sellers sell) certain quantities of the good in question. A price above the equilibrium point will lead to oversupply (the buyers which to buy less goods at that price than the sellers are willing to produce), while a price below the equilibrium will lead to the opposite situation. When the price a buyer is willing to pay coincides with the price a seller is willing to offer, a trade occurs and price is determined.

However, not everyone believes that a free or even a relatively-free market is a good thing. One reason proffered by many to justify economic intervention by government into what would otherwise be a free market is market failure. A market failure is a case in which a market fails to efficiently provide or allocate goods and services (for example, a failure to allocate goods in ways some see as socially or morally preferable). Some believe that the lack of "perfect information" or "perfect competition" in a free market is grounds for government intervention (see perfect competition). Other situations or activities often perceived as problems with a free market may appear, such monopolies, monopsonies, information inequalities (e.g. insider trading), or price gouging. Wages determined by a free market mechanism are also commonly seen as a problem by those who would claim that some wages are unjustifiably low or unjustifiably high. Another critique is that free markets usually fail to deal with the problem of externalities, where an action by an agent positively or negatively affects another agent without any compensation taking place. The most widely known externality is pollution. More generally, the free market allocation of resources in areas such as health care, unemployment, wealth inequality, and education are considered market failures by some. Also, governments overseeing economies typically labeled as capitalist have been known to set mandatory price floors or price ceilings at times, thereby interfering with the free market mechanism. This usually occurred either in times of crises, or was related to goods and services which were viewed as strategically important. Electricity, for example, is a good that was or is subject to price ceilings in many countries. Many eminent economists have analysed market failures, and see governments as having a legitimate role as mitigators of these failures, for examples through regulation and compensation schemes.

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Nobel economist Milton Friedman is a noted advocate of free markets

However, some economists, such as Nobel prize-winning economist Milton Friedman as well as those of the Austrian School, oppose intervention into free markets. They argue that government should limit its involvement in economies to protecting freedom rather than diminishing it for the sake of remedying "market failure." They tend to regard the notion of market failure as a misguided contrivance wrongly used to justify coercive government action to further various political agendas, such as egalitarian goals. These economists believe that government intervention creates more problems than it is supposed to solve --as well-meaning as some of these interventions may be. Laissez-faire advocates do not oppose monopolies unless they maintain their existence through coercion to prevent competition (see coercive monopoly), and often assert that monopolies have historically only developed because of government intervention rather than due to a lack of intervention. They may argue that minimum wage laws cause unnecessary unemployment, that laws against insider trading reduce market efficiency and transparency, or that government-enforced price-ceilings cause shortages. While economists tend to offer pragmatic arguments, some individuals put forth moral justifications for opposing coercion in favor of free markets.

Some believe that free markets and capitalism are not synonymous, arguing that particular aspects of capitalist entitlement or property enforcement violate the ability of individuals to trade in the absence of coercion. Others dismiss the whole idea of "free markets", claiming that markets are exploitative or coercive in essence. For example, some say that wages set by a free market rather than by government decree is exploitative since capitalists have appropriated private ownership of resources, thereby putting individuals in a position to accept low wages in order to survive. However, many believe that decreases in wage rates are the result of the same thing as deflation in any other market: the price of labor falls due to either a lower demand for labor or a larger supply thereof.

Financial markets, though some of these markets are far from being free due to heavy regulation, allow the large scale, standardized, and easy trading of debt, foreign exchange, and ownership of companies. See finance capitalism. Similar changes have taken place for products from agriculture, mining, and energy production. Standardized markets have even appeared for pollution rights and for the prediction of future events like future weather and political elections.

Markets have, of course, existed throughout human history. Hunter-gatherers used to exchange their goods in barter. The appearance of money in Antiquity facilitated exchanges, permitting the flowering of trade fairs in the Middle Ages. Nevertheless, many regulations existed, and the influence of the guilds prevented truly free markets. In modern economies, governments likewise do not allow unfettered market operation in many areas, but the price restrictions are much smaller than those imposed by guilds.

Profit[edit]

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The pursuit of profit is one characteristic of capitalism

The pursuit and realization of profit is an essential characteristic of capitalism. Profit is derived by selling a product for more than the cost required to produce or acquire it. Some consider the pursuit of profit to be the essence of capitalism. Sociologist and economist, Max Weber, says that "capitalism is identical with the pursuit of profit, and forever renewed profit, by means of conscious, rational, capitalistic enterprise." However, it is not a unique characteristic for capitalism, some hunter-gatherers practiced profitable barter and monetary profit has been known since antiquity. Opponents of capitalism often protest that private owners of capital do not remunerate laborers the full value of their production but keep a portion as profit, claiming this to be exploitative. However, defenders of capitalism argue that when a worker is paid the wage for which he agreed to work, there is no exploitation, especially in a free market where no one else is making an offer more desirable to the worker; that "the full value of a worker's production" is based on his work, not on how much profit is created, something that depends almost entirely on factors that are independent of the worker's performance; that profit is a critical measure of how much value is created by the production process; that the private owners are the ones who should decide how much of the profit is to be used to increase the compensation of the workers (which they often do, as bonuses); and that profit provides the capital for further growth and innovation.

Self interest[edit]

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Ayn Rand was an outspoken advocate of the role of self-interest in capitalism

The pursuit of self-interest is commonly regarded as playing an essential role in capitalism. Many writers, such as Adam Smith and Ayn Rand, point to what they believe to be the benefit of individuals trading for their self-interest rather than altruistically attempting to serve the "public good." Smith, widely considered to be the intellectual father of capitalism, says in Wealth of Nations: "By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." Ayn Rand, probably the most outspoken advocate of the role of self-interest in capitalism, says in Capitalism: The Unknown Ideal: "America's abundance was created not by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes." Nobel-economist Milton Friedman also embraces the role of self-interest in capitalism. In his famous article The Social Responsibility of Business is to Increase Profits, as he asserts that business has no social responsibility other than to increase profits and refrain from engaging in "deception or fraud." He maintains that when business seeks to maximize profits, while respecting the guidelines of a free market by not defrauding or deceiving, it almost always incidentally does what is good for society. Friedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to "devote resources to providing amenities to [the] community..." in order to "generate goodwill" and thereby increase profits. Some, including some supporters of capitalism, dislike the focus on self-interest. For example, self-described "free market libertarian" founder and CEO of Whole Foods Market, John Mackey, claims in an article in Reason magazine that he is serving customers and society out of "love" rather than self-interest while he boasts the profitability of his company in that article. (Rethinking the Social Responsibility of Business, Reason magazine October 2005).

Private enterprise[edit]

In capitalist economies, a predominant proportion of productive capacity has belonged to companies, in the sense of for-profit organizations. This include many forms of organisations that existed in earlier economic systems, such as sole proprietorships and partnerships. Non-profit organizations existing in capitalism include cooperatives, credit unions and communes.

More unique to capitalism is the form of organization called corporation, which can be both for-profit and non-profit. This entity can act as a virtual person in many matters before the law. This gives some unique advantages to the owners, such as limited liability of the owners and perpetual lifetime beyond that of current owners.

A special form of corporation is a corporation owned by shareholders who can sell their shares in a market. 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. Such share trading first took place widely in Europe during the 17th century and continued to develop and spread thereafter. When company ownership is spread among many shareholders, the shareholders generally have votes in the exercise of authority over the company in proportion to the size of their share of ownership.

To a large degree, authority over productive capacity in capitalism 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. In larger companies, authority is usually delegated in a hierarchical or bureaucratic system of management.

A bank in Rotterdam: Banks act as merchants of money and suppliers of capital in capitalist economies.

Importantly, the owners receive some of the profits or proceeds generated by the company, sometimes in the form of dividends, sometimes from selling their ownership at higher price than their initial cost. They may also re-invest the profit in the company which may increase future profits and value of the company. They may also liquidate the company, selling all of the equipment, land, and other assets, and split the proceeds between them. The price at which ownership of productive capacity sells is generally the maximum of either the net present value of the expected future stream of profits or the value of the assets, net of any obligations. 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 remarkably consistent 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 necessarily result in a positive impact on society. Others note that in order to get a profit in a non-violent way, one must satisfy some need among other persons that they are willing to pay for. Also, most people in practice prefer to work for and buy products from for-profit organizations rather than to buy from or work for non-profit and communal production organizations which are legal in capitalist economies and which anyone can start or join.

When starting a business, the initial owners or investors typically provide some money (the capital) which is used by the business to buy or lease some means of production. For example, the enterprise may buy or lease a piece of land and a building; it may buy machinery and hire workers (labor-power), or the capitalist may provide the labor himself. The commodities produced by the workers become the property of the capitalist ("capitalist" in this context refers to a person who has capital, rather than a person who favors capitalism), and are sold by the workers on behalf of the capitalist or by the capitalist himself. The money from sales also becomes the property of the capitalist. The capitalist pays the workers a portion of this profit for their labor, pays other overhead costs, and keeps the rest. This profit may be used in a variety of ways, it may be consumed, or it may be used in pursuit of more profit such as by investing it in the development of new products or technological innovations, or expanding the business into new geographic territories. If more money is needed than the initial owners are willing or able to provide, the business may need to borrow a limited amount of extra money with a promise to pay it back with interest. In effect, it may rent more capital.

Economic growth[edit]

One of the primary objectives in a social system in which commerce and property have a central role is to promote the growth of capital. The standard measures of growth are Gross Domestic Product or GDP, capacity utilization, and 'standard of living'.

The ability of capitalist economies to sustainably increase and improve their stock of capital was central to the argument which Adam Smith advanced for a free market setting production, price and resource allocation. It has been argued that GDP per capita was essentially flat until the industrial revolution and the emergence of the capitalist economy, and that it has since increased rapidly in capitalist countries [6][7]. It has also been argued that a higher GDP per capita promotes a higher standard of living, including the adequate or improved availability of food, housing, clothing, health care, reduced working hours and freedom from work for children and the elderly. These are reduced or unavailable if the GDP per capita is too low, so that most people are living a marginal existence.

Economic growth is, however, not universally viewed as an unequivocal good. The downside of such growth is referred to by economists as the 'externalization of costs' (see externality). Among other things, these effects include pollution, the disruption of traditional living patterns and cultures, the spread of pathogens, wars over resources or market access, and the creation of underclasses.

In defense of capitalism, liberal philosopher Isaiah Berlin has claimed that all of these ills are neither unique to capitalism, nor are they its inevitable consequences.

See also the "Sustainability" section below.

Economic mobility[edit]

One of the key markers of entrepreneurial economies and 'growth' in a society is its economic mobility, defined as the existence of large changes in the make-up of its socio-economic strata. This is manifested as the occurrence of large fluctuations in the various deciles or quintiles of income and wealth among the population, and the existence of large changes over a person's lifetime in relation to their real earning power. In standard economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new professions or establishing a business venture. The instability of economic strata is contrasted with traditional feudal or tribal societies, which are considered to have more stable wealth relationships, and with the egalitarianism that exists in socialist societies, which distribute more of their wealth in the form of social benefits and therefore reduce income mobility, particularly among those who own capital and wish to trade it.

However, the existence of large fluctuations in income deciles does not always represent income mobility - with individuals receiving regular wage increases over their working lives and then retiring, such fluctuations alone do not show that there is 'mobility' per se. Moreover, it is argued by many labor economists that wage instability represents the transfer of risk to workers and particular sectors of the economy such as agriculture, and away from the holders of capital.

Self-organization[edit]

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Friedrich Hayek advocated allowing an economy to self-organize, maintaining that government cannot access or coordinate the widespread distribution of information possessed by millions of individuals.

While a great deal of planning is undertaken among individual companies and other organisations in capitalist economies, few significant mechanisms for imposing overall direction are available to governments. There is also a scarcity of reliable predictive tools and foreknowledge of how an economy is likely to behave or perform more than a year or two into the future. While most transactions may be planned and agreed by the actors involved, many society-wide phenomena that emerge from the markets and its transactions are often not planned, predicted, approved or authorised by anyone. Nevertheless, such an economic system can organize itself into a complex system without an external guidance or planning mechanism. This phenomenon is called "self-organization." Friedrich Hayek coined the term "catallaxy" as a market where "spontaneous order" emerges when no centralized control source (government) overrides decisions of individuals pursuing their own ends. However, in all large-scale modern economies the State conducts a degree of centralized economic planning (using such tools as allowing the country's central bank to set base interest rates), ostensibly as an attempt to improve efficiency, attenuate cyclical volatility, and further particular social goals.

Some economists use chaos theory to argue that it is impossible to make accurate long-term economic predictions. They view the decentralized nature of economic planning and development that occurs in capitalism as one of its greatest strengths, arguing that it permits many solutions to be tried, and that real-world competition generally finds a good solution to emerging challenges. This is opposed to the central planning approach to the running of a society, which often selects inappropriate solutions as a result of faulty forecasting. One possible example is the experience in Somalia where the previously regulated telecommunications industry is reported to be "thriving" now that, and reportedly because, the country lacks a government. [8]

Capitalist economies typically contain numerous companies, and people are free to enter into many different types of arrangement with each other. Such an economy reacts to technological change, new discoveries and other developments through continual readjustments in the relationships which exist among companies and individuals. In this way the economy's control mechanisms and how information flows through it evolve over time, and are characterised by a kind of "survival of the fittest" selection and evolution process which is not dissimilar to that exhibited in natural systems and their component relationships.

Ancient Rome and China under the Song dynasty are examples of societies that had some of the characteristics of capitalism, like no feudal fiefs, (weak) property rights, economic growth, and for their times advanced technology. It is much debated why these societies did not have their own "industrial revolution" and thus achieve industrial capitalism in the modern sense. It has been suggested that these states formed monopolies in their parts of the world with very limited competition from other states. The ruling class then become complacent and the successful institutions were overturned in order to enrich certain special interest groups. Much innovation has historically taken place when there where many competing states, like in the city states of ancient Greece and renaissance Italy.

Analysis of the networks of connections and arrangements in the economy has shown a degree of similarity to other networks such as phone systems or the Internet. [9] contains examples of networks of company board members. Networks of customer links and monetary flows exhibit similar characteristics.

Which economies are "capitalist"?[edit]

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As exemplified by the title of this book, some do not believe that capitalism has been fully implemented.

Some believe that it is inaccurate to call any or some of the major industrialized economies "capitalist" because of the level of government intervention. For example, some assert that the market in the United States of America is significantly less than "free", and that therefore it is more appropriately termed a mixed economy that is merely skewed more toward capitalism than most national economies, rather than being a true representation of capitalism. Still others might say that the U.S. economy is capitalist, but the U.K. economy is a "mixed economy," or the Hong Kong economy is capitalist and the U.S. economy is mixed and so on, depending upon their perception of how much economic freedom exists in those locales. According to economic and business historian Robert Hessen of Stanford Graduate School of Business: "a fully free economy (true laissez-faire) never has existed, but governmental authority over economic activity has sharply increased since the eighteenth century, and especially since the Great Depression...Today the United States, once the citadel of capitalism, is a "mixed economy" in which government bestows favors and imposes restrictions with no clear or consistent principle in mind." [10]

A similar classification, associated largely with the Austrian school of economics, regards most present economic systems as a perversion of capitalism, sometimes called crony capitalism, and envisages a de-cronied capitalist ideal. Similarly, some use the phrase "laissez-faire capitalism" to distinguish between "ordinary capitalism," believing that there is a difference. Others find the phrase "laissez-faire capitalism" redundant, pointing out that the common definition of capitalism explicitly refers to trade occurring in a "free market".

Many Marxists, anarchists, Greens and anti-globalists agree that the governments in capitalist societies, that is to say societies where a capitalist class is the ruling class, are not serving in the role of protecting "the free market", but would go on to say that these governments are, in fact, acting to protect the owners of capital and corporations as their first priority. Noam Chomsky says that "There's nothing remotely like capitalism in existence. To the extent there ever was, it had disappeared by the 1920s or '30s." (interview with Detroit Metro Times). Libertarians and other free-market advocates may also share this opinion regarding some or all of the major economies. However, in the 18th century in America, production and distribution of goods were regulated by government ministries. Also, government subsidies were granted to agriculture. Economic intervention continued throughout the 19th century.

A map of the Heritage Foundation's Index of Economic Freedoms. Various reserachers have argued that nations with a higher economic freedom have a higher GDP/capita and less poverty.

Proponents of the world-system perspective suggest that the whole globe has been incorporated into a single capitalist world-economy. Even though a state (such as Cuba) may be socialist, it works in relation to a much larger, overarching capitalist world-economy.

Many believe that some of the modern economies are still best described as being "capitalism".

Criticisms of capitalism[edit]

Unequal distribution of wealth and income[edit]

Main article: Economic inequality

It is reasonable to expect that some disparity in wealth and income among individuals would exist in a capitalist system as this is determined through market forces rather than by centralized governmental authority. Some view a significant disparity and concentration of wealth to be problem and that such is endemic to capitalism, while others do not have such egalitarian concerns. Some opponents of capitalism assert that there should be no inequality in wealth and earnings among individuals commensurate to their inheritance, skills, abilities or efforts. Defenders of capitalism respond that since free market capitalism distributes wealth and earnings among individuals commensurate to their inheritance, skills, abilities and efforts, it provides inherent incentives for human beings to hone their skills, improve their abilities, and make strong efforts to meet the needs of each other, incentives that are missing or significantly less present in any other type of economic/political system.

Excessive inequality[edit]

Other critics argue that inequality may be necessary but that the distribution of wealth and earnings is unfair, dysfunctional, or immoral in capitalism. In the capitalist economies, the distributions of earnings and, especially, of wealth are concentrated and skewed to the right. In the US, the shares of earnings and wealth of the households in the top 1 percent of the corresponding distributions are 15 percent and 30 percent, respectively [11].

Some critics note that there are very few people who are twice as tall as average, or who can run twice as fast, or have twice as high an IQ. Some critics argue that the fact capitalism doesn't distribute wealth in a similar fashion means that something is fundamentally wrong with the system. Supporters argue that human contributions vary much more than humans vary in height or IQ (as can be illustrated, for example, by comparing the contributions of an arsonist and an inventor/producer of antibiotics).

Critics also note that there are many people who have no wealth. If wealth followed a a bell shaped curve (standard normal distribution), as many other human characteristics and it might be surmised people's ability to be productive, then there should be very few people with no wealth. Supporters might argue that human productivity and especially the tendency to save wealth is not bell-shaped.

An untamed capitalist system may have inherent biases favoring those who already possess greater resources. For example, rich people can give their children a better education and inherited wealth. This can create or even increase large differences in wealth between people who do not differ in ability or effort. There are some data supporting this, like that in the US 43.35% of the Forbes 400 richest individuals were already rich enough at birth to qualify. [12], or a study that indicates that in the US wealth, race, and schooling are important to the inheritance of economic status, but IQ is not a major contributor and the genetic transmission of IQ is even less important [13]. On the other hand, at least some of the difference in wealth between people of equal ability may be explained by that some people voluntarily, maybe because they see other things as more valuable, make life choices that make them earn or save less than other people with the same ability. Defenders respond that since 30.1% of the individuals on the Forbes list of the 400 richest did not inherit great wealth (meaning they did not inherit at least $1 million in assets) this shows that even such people can gain the very highest level of wealth in capitalist economies. For opposing views of IQ and income, see IQ. There are also some data indicating that income inequality for the world as a whole is diminishing, see below in "Marxist critique of capitalism".

Supporters argue that a problem with using "distribution of wealth" as a standard to measure economic systems is that such a standard can produce seemingly irrational judgments. Under the "distribution of wealth" standard, a system where everyone has nothing is judged as equal to a system where everyone has enormous wealth since the distribution of wealth in the two systems is equal. The claim is made that capitalist economics are not zero-sum games and that more wealth for most people is actually "created" through innovation, entrepreneurship and risk-taking. Rewards for this may cause a necessary inequality. Regarding the inheritance of wealth, this may be necessary so that the most productive people continue to do productive work and save money when they get older. Thus, people who see uneven wealth distribution as a lesser or unavoidable problem tend to argue that if inequality leads to higher average wealth and higher wealth and income for most people, then wealth inequality may be acceptable. Several peer-reviewed studies show that the relative income share of the poorest do not decrease with higher economic freedom, but their absolute income increases. For example, one study found that the poorest 10% earn $823 per year in the quintile of nations with the lowest economic freedom, but earn $6877 per year in the quintile of nations with the highest economic freedom. [14][15][16][17].

Some advocates of capitalism may partly agree with the critics but think that the problem can be resolved with solutions like progressive taxation, wealth tax, and/or inheritance tax. They note that such taxes are already implemented in most capitalist states. The best extent of such taxes and how much inequality there should be is much discussed and researched, but these variables can be changed without abandoning capitalism.

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

  • Pro-Capitalist:
    • Robert Nozick has argued that no condition of perfect equality could be maintained for very long. If all agents possess the same amount of wealth, they will immediately begin investing it in different ventures which will pay off to varying degrees. But if voluntary economic exchange is seen as leaving both parties (since both would not be trading unless the outcome of the trade was mutually beneficial), even if the resulting distribution is not even, it is better than if there were no trading.
    • Lack of established property rights force the poor to operate in extralegal markets, keeping them from unlocking the capital in their assets. When only the politically privileged can leverage capital, the division between formally and informally owned property is an unbalancing barrier to the benefits of a modern market economy.
    • Wealth tends to be directed toward individuals in proportion to how productive they are in terms of creating and providing goods and services that others value, therefore the possibility of becoming wealthier than others can be seen as an incentive to benefit society. A limit on freedom of individuals to reap a disproportionate amount of wealth would dampen incentive. Technological progress would stagnate, and, as a result, the standard of living would suffer.
    • The inequality of consumption is far less than the inequality in wealth, since there is no way most of the wealthy could consume all their wealth. To the extent that they consume their wealth, they are redistributing it to others. To the extent that they are not consuming it, they are generally either managing it to create more wealth or giving it away.
    • Many rich give significantly to charity (see also philanthropist). Some argue that charity is more efficient than state welfare.
    • The economist Thomas Sowell has attributed factors such as geography, climate, culture, and natural resources as contributing factors to inequality inside of and between nations.
    • The income share of the poorest 10% do not decrease with higher economic freedom but the absolute income of the 10% poorest, prosperity, economic growth, democracy, and freedom from corruption increase, see Economic freedom index.
  • Anti-Capitalist:
    • The capitalists gather their wealth by exploiting the workers. A worker is not paid the entire produce of his labor, as the employer retains a portion as profit. Profiting in this way tends to further enrich those with capital while not significantly enhancing the material well-being of workers. This perpetuates concentration of wealth in the hands of a few.
    • Wealth and unequal distribution can create social problems (such as higher crime rates). These problems affect both poor and rich.
    • Government interference in markets can be skewed to benefit the wealthy. In particular, wealthy people have the financial means and incentives to influence or corrupt government officials and to lobby for favourable legislation.
    • Many people have little wealth left over after living expenses, so they can't make it grow quickly.
    • Persistent long-term inequality of wealth undermines the motivation of the poor to improve their stance.
    • Wealthy people save relatively more than poor people. Hence some economists believe that an unequal distribution of wealth undermines an economy's mass buying power, effectively leading to lower aggregate sales, reduced wealth production, unemployment and crises. (see Keynes) Economists, however, argue that saving is also necessary in an economy, since it provides the means for investment into new technologies and processes.
    • Wealth is defined and judged incorrectly, in many different ways. In particular, people may attach value to things for seemingly irrational reasons (sentimental value). Some may also value spiritual development more than material wealth.
    • The wealthy may not put their wealth to productive use. For example, they may buy land just to deny access to it to others, for personal or environmental reasons. Other critics of capitalism, however, would ask whether or not capitalistic production narrowly-defined is a good thing, especially if it is seen as damaging the environment, and such an action of denial may be seen as the lesser of two evils.

Employment/unemployment[edit]

Since individuals typically earn their incomes from working for companies whose requirements are constantly changing, it is quite possible that at any given time not all members of a country's potential work force will be able to find an employer that needs their labor. This would be less problematic in an economy in which such individuals had unlimited access to resources such as land in order to provide for themselves, but when the ownership of the bulk of its productive capacity resides in relatively few hands, most individuals will be dependent on employment for their economic well-being. It is typical for true capitalist economies to have rates of unemployment that fluctuate between 3% and 15%. Some economists have used the term "natural rate of unemployment" to describe this phenomenon.

Depressed or stagnant economies have been known to reach unemployment rates as high as 30%, while events such as military mobilization (a good example is that of World War II) have resulted in just 1-2% unemployment, a level that is often termed "full employment". Typical unemployment rates in Western economies range between 5% and 10%. Some economists consider that a certain level of unemployment is necessary for the proper functioning of capitalist economies. Equally, some politicians have claimed that the "natural rate of unemployment" highlights the inefficiency of a capitalist economy, since not all its resources -- in this case human labor -- are being allocated efficiently.

Some libertarian economists, such as Henry Hazlitt, argue that higher unemployment rates are in part the result of minimum wage laws, as well as in part the result of misguided monetary policy, and are not inevitable in a capitalist economy. In "Economics in One Lesson", Hazlitt argues that if the value of the work of some potential employees is lower than the minimum wage, it would penalise the employer to employ them. Accordingly, if the value of the productive capacity of a given employee is worth less to the employer than the minimum wage, that person will become unemployed, and therefore unemployment will exist whenever the legal minimum wage exceeds the true economic value of the least productive members of the labor pool. Likewise, if the amount of money a person can obtain on welfare approaches or equals what they could make by working, that person's incentive to work will be reduced.

Some unemployment is voluntary, such as when a potential job is turned down because the unemployed person is seeking a better job, is voluntarily living on savings, or has a non-wage-earning role, such as in the case of a traditional homemaker. Some measures of employment disregard these categories of unemployment, counting only people who are actively seeking work and have been unable to find any.

Marxist critique of capitalism[edit]

Main article: Marxism,

Karl Marx recognized that capitalism was immensely productive but also generated immense social problems (which probably explains the stern look on his face)

Marxists define capital as "a social, economic relation" between people (rather than between people and things). They seek to replace capitalism after it has completed its positive work as a stage of economic history. In the cartton version of Marxism gavored by both vulgar Marxists and anti-Marxists, all Marxists are said to believe that private ownership of the means of production does nothing more than enrich capitalists (owners of capital) at the expense of workers ("the rich get richer, and the poor get poorer"), and that this is the cause of modern social ills. Anti-Marxists 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"). Marxists counter this by pointing out the unchanged after-tax income of the poorest quintile of the U.S. population during the last two decades. While at the same time the average income and especially the income of the rich have increased. [18]. According to "United for a Fair Economy," in 1982 CEOs of major corporations in the U.S. earned 42 times the annual wages of the average worker; in 2002 the ratio stood at 282:1 [19]. Anti-Marxists point out that the percentage of people in developing countries living below $1 per day have halved in only twenty years, especially in countries like China that have embraced aspects of capitalism such as the markets [20]. Life expectancy has almost doubled in the developing world since WWII and the gap to the developed world is starting to close [21]. Looking at the world as a whole and not just at the U.S. shows that income inequality is in fact diminishing [22]. Marxists counter that the greater equality seen in other advanced industrial democracies, as opposed to the U.S., is the result of social-democratic public policies that redistribute wealth.

Marxists believe that capitalism allows capitalists — the owners of capital — to exploit workers. The private ownership of the means of production is seen as a restriction on freedom, whereas supporters of capitalism believe that private ownership is essential to enriching society as well as preserving personal 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 bourgeois democracy. 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: the classic case is the United Kingdom, where less than 20% of adult males could vote prior to 1885, and women did not receive the vote until 1918.[23] Some recent examples include Hong Kong, Singapore, and Chile under the rule of General Pinochet. It is also argued by Marxists that governments espousing fascist (or "national socialist") rhetoric do not make substantive changes to the capitalist economies when they assume power.

In mainland China differences in terminology sometimes confuse and complicate discussions of Chinese economic reform. Under Chinese Marxism, which is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bourgeoisie. In the official Chinese ideology, China is currently in the primary stage of socialism with Chinese characteristics. However, because of Deng Xiaoping's dictum to seek truth from facts, this view does not prevent China from undertaking policies which in the West would be considered capitalistic including employing wage labor, increasing unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and encouraging the growth of the joint venture and private capitalist sectors.

Capitalism in decline or on the rise?[edit]

Citing the ideal of a free market, many consider an economy with lower taxes, smaller government and fewer regulations to be more capitalistic. If government spending is used as a gauge of government expansion, the last century saw a very large increase in the role of government in Western countries. Combined U.S. government spending increased from 3-4% of GDP to 33% flattening somewhat since 1983 when the sharp upward trend was broken during President Ronald Reagan's term. An average for 16 industrial nations jumped from 8% of GDP to 45%. Non-defense spending in the U.S. as a percentage of net income increase from 11.5% in 1945 to 30% in 1983, remaining stable through 2003 (some exclude defense spending when gauging government expansion). Compliance with more regulations is increasingly costly [24][25]. Thus it can be argued that the degree of capitalism has seen a remarkable decline in Western nations. However, since 1983 the percentage of non-defense government spending in the U.S. has stabilised, leading some such as Milton Friedman to express some hope that the tide may reverse toward more capitalism [26]. Alan Greenspan, in a speech in 2005, expressed his belief that "free-market capitalism" is being rediscovered through deregulation after a period of stifling regulation brought about by Keynesian economics. [27]

One explanation for this is that the Western nations have increasingly averted or regulated various market failures such as pollution, health care, unemployment, wealth inequality, and education. Supporters of less state interference, such as libertarians, neoliberals, and financial conservatives, would instead argue that the regulations restrict competition, that the taxes go to the special interest groups with the most political clout, and that the almost constantly expanding governments do things less efficiently than the private sector.

Sustainability[edit]

An economic system that causes strong economic growth may inevitably have a large effect on the environment. Some question the continued sustainability of this, arguing that many aspects of the environment have been degraded since the industrial revolution. Defenders of capitalism note the many environmental disasters in communist states. Yet this argument constitutes an evasion more than a defense. While it may be true that state-communist governments in economic competition with capitalism tended to mindlessly ape its industrial processes, sometimes producing more environmentally destructive results, it hardly lets capitalism off the hook.

Some defenders note that many aspects of the environment in developed nations have improved recently, after the dangers of certain pollutants have become known. Examples include greatly reduced emissions of chlorofluorocarbons affecting the ozone layer, removal of lead from gasoline and other products, greatly improved cleaning of emissions from fossil fuel power plants, and much stricter control of emissions into rivers, lakes, and oceans. However, some leading conservation organizations such as the WWF and The United Nations Environment Programme argue that the impact of humanity on Earth is continually increasing. They in 2004 jointly reported that "humanity's Ecological Footprint grew by 150% between 1961 and 2000" and that most of this growth occurred in the 27 wealthiest countries of the world, in other words, the leading capitalist countries [28]]. Critics note that the statistical methods used in calculating Ecological Footprint have been criticized and some find the whole concept of counting how much land is used to be flawed, arguing that there is nothing intrinsically negative about using more land to improve living standards. [29][30]

This view, however, does not recognize biodiversity as an intrinsic good. Monoculture, paving and other human activities reduce the amount of earth's surface available to support diverse communities of life.

Supporters of capitalism argue that in many cases environmental problems are greatest when a common exists and there is no clear owner. See Tragedy of the commons, Free market environmentalism, and a proposal to have natural resource wealth owned by all people equally. Defenders of capitalism also note that world population has greatly expanded due to higher living standards since the industrial revolution. However, this growth is declining due to the demographic transition and the world population is expected to stabilize at nine billion.

Yet many environmentalists have long argued that the real dangers are due to the world's current social institutions that they claim promote environmentally irresponsible consumption and production. Under what they call the "grow or die" imperative of capitalism, they claim there is little reason to expect hazardous consumption and production practices to change in a timely manner. They also claim that markets and states invariably drag their feet on substantive environmental reform, and are notoriously slow to adopt viable sustainable technologies. [31][32]. Immanuel Wallerstein, referring to the externalization of costs as the "dirty secret" of capitalism, claims that there are built-in limits to ecological reform, the costs of doing business in the world capitalist economy are ratcheting upward because of deruralization and democratization, he therefore sees no exit from our dilemnas within the framework of the capitalist world-system.[33]

Strong economic growth also requires increasingly greater amounts of natural resources and energy and some question whether this can continue in the future. Those arguing for continued growth note that numerous past predictions of shortages have failed since new technology has continuously allowed exploitation of previously unavailable resources. That this continues in the future is of critical importance, especially for energy which may face a peak in fossil fuel production. Since 1970, each 1% increase in world GDP has yielded a 0.64% increase in energy consumption. See Future energy development.

Human rights violations, imperialism, and democracy[edit]

Detractors claim that ills caused by capitalism include imperialism, poverty, oppression exploitation and abuse of human rights. They point to lack of democracy and systematic violence against political opponents (like in Chile under the regime of Pinochet or China today); exploitative wars (like the Opium wars or the Sino-Japanese War); and large scale democide (like in the Congo Free State). Many of these violations occurred during a time period and in states sometimes considered being more capitalist than today since the government share of the economy was much smaller.

Proponents of capitalism point out that these problems have been widespread through all of human history, including in states characterized as socialist such as in Cambodia under Pol Pot. Some assert that these practices are not consistent with principles of capitalism even though they have existed in nations or in the colonies of nations commonly, or loosely, labeled as capitalist. They deny that many of the colonies had capitalist economic systems and claim that their economies mostly continued to be feudalistic. Instead they emphasize that it was capitalist states that abolished slavery throughout the world and that it was capitalist states who developed the modern democratic system. The strong economic growth during capitalism may encourage democratization, or vice versa. There is debate about whether liberal democracy, in the sense of electoral rights and civil liberties, is a consequence of economic growth [34], a cause of it [35], or completely unrelated to it [36]. These studies tend to indicate that establishing the rule of law in protecting private property and free markets, rather than mere democratization, is what is most instrumental in generating economic growth.

One of the very few studies simultaneously examining the relationship among economic freedom (see below), economic development (measured with GDP/capita), and political freedom (measured with the Freedom House index) found that high economic freedom increases GDP/capita and a high GDP/capita increases economic freedom. A high GDP/capita also increases political freedom but political freedom did not increase GDP/capita. There was no direct relationship either way between economic freedom and political freedom if keeping GDP/capita constant. [37]

One common criticism that Marxists make about Capitalism is that it is only democratic to the Bourgeoisie (the exploitive class that owns the 'means of production') citing examples such as not being able to criticize one's boss out of risk of getting fired and not expressing opinions on tv due to lack of funds to afford a channel.

Marxists also criticize capitalism for needing Imperialism (the exportion of capital to other nations) to survive. Due to Capitalism not being a planned economy it inevitably overproduces commodities and overuse resources. This leads it to expand it markets into and drain the resources out of other nations.

Other approaches[edit]

Capitalism in political ideologies[edit]

Main article: Capitalism and related political ideologies

Indices of economic freedom[edit]

File:Index2006 EconFreedomMAP.jpg
A map of the Heritage Foundation's Index of Economic Freedoms. Various reserachers have argued that nations with a higher economic freedom have a higher GDP/capita and less poverty

There are two controversial pro-business Indices of Economic Freedom sometimes used in economic research. The most popular of the two is published by the Washington, D.C.-based Heritage Foundation and the Wall Street Journal. A second such index is published by the Canada-based Fraser Institute. Both attempt to measure of the degree of economic freedom in countries, mostly in regard to rule of law, lack of governmental intervention, private property rights, and free trade. The Index of Economic Freedom defines "economic freedom" [38] as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." (This is otherwise known as laissez-faire).

They use statistics from independent organizations like the United Nations to score countries in various categories like the size of government, degree of taxes, security of property rights, degree of free trade and size of market regulations. Many peer-reviewed papers have been published using this material on the relationship between capitalism and for example poverty, mostly by researchers independent from the think tanks.[39] The Fraser Institute argues that more advanced capitalist countries have much higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less capitalistic countries.[40] Other studies have shown similar results.[41]

Attempts to decide the importance of the subcomponents of the indices have often yielded contradictory results. Strong property rights may be important - the economist Hernando de Soto has argued that weak property rights, especially for the poor, play a major role in poverty and underdevelopment in developing countries [42] [43]. Many developing countries are now trying to strengthen and simplify their property rights system after the successful application of his ideas in Peru [44]. Others have emphasized the importance of a functioning credit system, especially microcredit.

Notes[edit]

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See also[edit]

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Further Reading[edit]

  • Braudel, Fernand. Civilization and Capitalism : 15th - 18th Century 3 vols.
  • Chandler, Alfred D., Jr. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass., and London: Belknap Press of Harvard University Press, 1977.
  • Galbraith, John Kenneth. The New Industrial State, 4th ed., 1985.
  • Harvey, David. "The Political-Economic Transformation of Late Twentieth Century Capitalism." In Harvey, David. The Condition of Postmodernity. Cambridge, MA: Blackwell Publishers, 1990. ISBN 0631162941
  • Heilbroner, Robert L. The Nature and Logic of Capitalism, 1985.
  • Landes, David S. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge, U.K.: Cambridge University Press, 1969.
  • Marx, Karl. Capital: A Critical Analysis of Capitalist Production, 3 vol., 1886–1909; first published in German as Das Kapital: Kritik der politischen Oekonomie, 1867–1894.
  • Muller, Jerry Z., "The Mind and the Market - Capitalism in Modern European Thought". New York: Alfred A. Knopf (Random House), 2002
  • Rand, Ayn. Capitalism: The Unknown Ideal ISBN 0451147952
  • Rostow, W. W. The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press, 1960.
  • Rothbard, Murray. Man, Economy, and State: A Treatise on Economic Principles, (2 volumes.) 1962.
  • Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

See also[edit]

External links[edit]

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