Capitalism
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{{otheruses|Capitalism (disambiguation)}}
{{Capitalism}}
{{Economic systems (sidebar)}}
'''Capitalism''' is an [[economic system]] in which [[property]] is owned by [[Personal property|private]] [[person]]s and operated for [[profit]]<ref>{{cite book|title=Profit Theory and Capitalism|author=Obrinsky, Mark|publisher=University of Pennsylvania Press|year=1983|pages=1}}</ref> and where [[investment]]s, [[distribution (business)|distribution]], [[income]], [[Production, costs, and pricing|production]] and [[pricing]] of [[goods]] and [[Service (economics)|services]] are predominantly determined through the operation of an unregulated, or minimally regulated, [[market economy]]. Capitalism is usually considered to involve the right of individuals and [[corporation]]s to [[trade]], using [[money]], in goods, services (including [[finance]]), [[Labor (economics)|labor]] and [[land (property)|land]].
Capitalist economic practices became institutionalized in the [[United Kingdom]] between the 16th and 19th centuries, although some features of capitalist organization existed in the [[Ancient history|ancient world]], and early forms of [[merchant capitalism]] flourished during the [[Middle Ages]].<ref name="britannica">{{cite book|title=Capitalism|publisher=Encyclopedia Britannica|year=2006}}</ref><ref name="Banaji" /> Capitalism has been dominant in the Western world since the end of [[feudalism]].<ref name="britannica" /> From Britain it gradually spread throughout Europe, across political and cultural frontiers. In the 19th and 20th centuries, capitalism provided the main, but not exclusive, means of [[industrialization]] throughout much of the world.<ref name="Scott">{{cite book|title=Industrialism: A Dictionary of Sociology|author=Scott, John|publisher=Oxford University Press|year=2005}}</ref>
The concept of capitalism has limited analytic value, given the great variety of historical cases over which it is applied, varying in time, geography, politics and culture, and some feel that the term "[[mixed economies]]" more precisely describes most contemporary economies.<ref>{{cite book|author=Tucker, Irvin B.|title=Macroeconomics for Today|pages=553|year=1997}}</ref><ref>{{cite book|author=Case, Karl E.|title=Principles of Macroeconomics|publisher=Prentice Hall|year=2004}}</ref> Some economists have specified a variety of different types of capitalism, depending on specifics of concentration of economic power and wealth, and methods of capital accumulation.<ref name="Scott" /> During the last century capitalism has been contrasted with [[planned economy|centrally planned economies]], such as [[Marxist]] economies.
==Perspectives==
{| align="left" class="box" style="margin-right:10px;text-align: left; border: 3px solid #aaaaaa; padding: 2px; font-size: 80%; width: 25%;"
|bgcolor="#dbeaff"|
The term ''capitalism'' was most likely coined in the mid-19th century by [[Karl Marx]]. Other terms sometimes used for capitalism, include:
*economic liberalism<ref>{{cite journal|title=Adam Smith and His Legacy for Modern Capitalism|author=Werhane, P.H.|journal=The Review of Metaphysics|volume=47|number=3|year=1994|publisher=Philosophy Education Society, Inc.}}</ref>
*free enterprise<ref name="britannica"/>
*laissez-faire<ref name=friedman>Friedman, Milton. 1962. ''Capitalism and Freedom.'' University of Chicago Press. p 38.</ref>
*laissez-faire capitalism<ref name=friedman>Friedman, Milton. 1962. ''Capitalism and Freedom.'' University of Chicago Press. p 38.</ref>
*market capitalism<ref name="britannica"/>
*market liberalism
*private enterprise<ref name="britannica"/>
|}
The concept of capitalism has evolved over time, with later thinkers often building on the analysis of earlier thinkers. Moreover, the component concepts used in defining capitalism — such as [[private ownership]], markets and investment — have evolved along with changes in theory, in law, and in practice.
===Classical political economy===
{{main|Economic liberalism}}
The "classical" tradition in [[history of economic thought|economic thought]] emerged in Britain in the late 18th century. The classical political economists [[Adam Smith]], [[David Ricardo]], [[Jean-Baptiste Say]], and [[John Stuart Mill]] published analyses of the production, distribution, and exchange of goods in a capitalist economy that have since formed the basis of study for most contemporary economists. Contributions to this tradition are also found in the earlier work of [[David Hume]] and the [[physiocrats]] like [[Richard Cantillon]].
[[Image:Adam Smith.jpg|thumb|left|150px|[[Adam Smith]]]]
[[Adam Smith|Adam Smith's]] attack on [[mercantilism]] and his reasoning for "the system of natural liberty" in ''[[The Wealth of Nations]]'' (1776) are usually taken as the beginning of classical political economy. Smith devised a set of concepts that remain strongly associated with capitalism today, particularly his theory of the "[[invisible hand]]" of the market, through which the pursuit of individual self-interest unintentionally produces a collective good for society. He criticized monopolies, tariffs, duties, and other state enforced restrictions of his time and believed that the market is the most fair and efficient arbitrator of resources. This view was shared by [[David Ricardo]], second most important of the classical political economists and one of the most influential economists of modern times.<ref>{{cite book|author=Hunt, E.K.|title=History of Economic Thought: A Critical Perspective|publisher=M.E. Sharpe|year=2002|pages=92}}</ref> In ''The Principles of Political Economy and Taxation'' (1817) he developed the law of [[comparative advantage]], which explains why it is profitable for two parties to trade, even if one of the trading partners is more efficient in every type of economic production. This principle supports the economic case for [[free trade]]. Ricardo was a supporter of [[Say's Law]] and held the view that full employment is the normal equilibrium for a competitive economy.<ref>{{cite book|title=Blackwell Encyclopedia of Political Thought|publisher=Blackwell Publishing|year=1991|pages=91}}</ref> He also argued that [[inflation]] is closely related to changes in quantity of [[money]] and [[Credit (finance)|credit]] and was a proponent of the law of [[diminishing returns]], which states that each additional unit of input yields less and less additional output.<ref>{{cite book|author=Skousen, Mark|title=The Making of Modern Economics: The Lives and Ideas of the Great Thinkers|publisher=M.E. Sharpe|year=2001|pages=98-102}}</ref>
The values of classical political economy are strongly associated with the [[classical liberalism|classical liberal]] doctrine of minimal government intervention in the economy. Classical liberal thought has generally assumed a clear division between the economy and other realms of social activity, such as the state.<ref>{{cite book|title=Capitalism: Dictionary of the Social Sciences|author=Calhoun, Craig|publisher=Oxford University Press|year=2002}}</ref>
While economic liberalism favors markets unfettered by the government, it maintains that the state has a legitimate role in providing [[public good]]s.<ref name="econlib">{{cite web|title=Adam Smith|publisher=econlib.org|url=http://www.econlib.org/library/Enc/bios/Smith.html}}</ref> For instance, Adam Smith argued that the state has a role in providing roads, canals, schools and bridges that cannot be efficiently implemented by private entities. However, he preferred that these goods should be paid proportionally to their consumption (e.g. putting a [[Toll road|toll]]). In addition, he advocated [[Free trade area|retaliatory tariff]]s to bring about free trade, and [[copyright]]s and [[patent]]s to encourage innovation.<ref name=econlib>{{cite web|title=Adam Smith|publisher=econlib.org|url=http://www.econlib.org/library/Enc/bios/Smith.html}}</ref>
===Marxian political economy===
{{main article|Marxian economics}}
[[Image:Karl Marx.jpg|left|thumb|150px|[[Karl Marx]]]]
[[Karl Marx]] considered capitalism to be a historically specific [[mode of production]] (the way in which the productive property is owned and controlled, combined with the corresponding [[social relations of production|social relations]] between individuals based on their connection with the process of production) in which capital has become the dominant mode of production.<ref name="Burnham">{{cite book|author=Burnham, Peter|title=Capitalism: The Concise Oxford Dictionary of Politics|publisher=Oxford University Press|year=2003}}</ref> The capitalist stage of development or "bourgeois society," for Marx, represented the most advanced form of social organization to date.
Following [[Adam Smith]], Marx distinguished the [[use value]] of commodities from their [[exchange value]] in the market. [[capital (economics)|Capital]], according to Marx, is created with the purchase of commodities for the purpose of creating new commodities with an exchange value higher than the sum of the original purchases. For Marx, the use of [[labor power]] had itself become a commodity under capitalism; the exchange value of labor power, as reflected in the wage, is less than the value it produces for the capitalist. This difference in values, he argues, constitutes [[surplus value]], which the capitalists extract and accumulate. In his book ''[[Das Kapital|Capital]]'', Marx argues that the [[capitalist mode of production]] is distinguished by how the owners of capital extract this surplus from workers — all prior class societies had extracted [[surplus labor]], but capitalism was new in doing so via the sale-value of produced commodities.<ref>{{cite web | url=http://www.marxists.org/archive/marx/works/1894-c3/ch47.htm| title= Capital. v. 3. Chapter 47: Genesis of capitalist ground rent| author=Karl Marx | accessdate=2008-02-26|publisher=Marxists }}</ref>
For Marx, this cycle of the extraction of the surplus value by the owners of capital or the bourgeoisie becomes the basis of [[class struggle]]. However, this argument is intertwined with Marx's version of the [[labor theory of value]] asserting that labor is the source of all value, and thus of profit. This theory is contested by most current [[economist]]s, including some contemporary Marxian economists.<ref name="Scott" /> One line of subsequent Marxian thinking sees the centrally-planned economic systems of existing "communist" societies that were still based on exploitation of labor as "[[state capitalism]]."<ref name="state capitalism">Early proponents of the term "state capitalism" include, for example, [[Tony Cliff]], [[Raya Dunayevskaya]], [[CLR James]] and [[Paul Mattick]]. [[Ernest Mandel]] has been a particularly prominent advocate of the analysis of post-WWII conditions as [[state capitalism]]. (See, for example, Mandel's ''The Theory of “State Capitalism”''.{{cite web | title=The Theory of “State Capitalism”|year=1951-06-01 | url=http://www.ernestmandel.org/en/works/txt/FI/theory_of_statecapitalism.htm | archiveurl=http://web.archive.org/web/20061002030657/http://www.ernestmandel.org/en/works/txt/FI/theory_of_statecapitalism.htm | archivedate=2006-10-02 | author=Ernest Mandel | accessdate=2008-02-26}}</ref>
[[Vladimir Lenin]], in ''[[Imperialism, the Highest Stage of Capitalism]]'' (1916), modified classic Marxist theory and argued that capitalism necessarily induced [[monopoly capitalism]] - which he also called "imperialism" - in order to find new markets and resources, representing the last and highest stage of capitalism.<ref>{{cite web|url=http://www.marxists.org/archive/lenin/works/1916/imp-hsc/index.htm|title=Imperialism, the Highest Stage of Capitalism|publisher=Marxists|accessdate=2008-02-26|date=1916}}</ref>
In Marxist thought, capitalism is often linked with [[patriarchal]] [[hegemony]].<ref name="Lewis">{{cite journal|author=Lewis, Herbert S.|year=1998|title=The Misrepresentation of Anthropology and its Consequences|journal=American Anthropologist|volume=100|pages=716–731|doi=10.1525/aa.1998.100.3.716}}</ref> Some 20th century [[Marxian economics|Marxian economists]] consider capitalism to be a social formation where capitalist class processes dominate, but are not exclusive.<ref>See, for example, the works of Stephen Resnick and Richard Wolff.</ref> Capitalist class processes, to these thinkers, are simply those in which [[surplus labor]] takes the form of [[surplus value]], usable as capital; other tendencies for utilization of labor nonetheless exist simultaneously in existing societies where capitalist processes are predominant. However, other late Marxian thinkers emphasize that capitalism is the mode by which a surplus is generated — the mode of surplus extraction — in modern societies where an absolute majority of the population is engaged in non-capitalist economic activity.<ref>{{cite book|author=Ste. Croix, G. E. M. de|title=The Class Struggle in the Ancient Greek World|year=1982}}</ref>
===Weberian political sociology===
[[Image:Max Weber 1917.jpg|thumb|300px|[[Max Weber]] in 1917]]
In some [[social science]]s, the understanding of the defining characteristics of capitalism has been strongly influenced by 19th century German social theorist [[Max Weber]]. Weber considered [[market]] [[exchange]], rather than production, as the defining feature of capitalism; capitalist enterprises, in contrast to their counterparts in prior modes of economic activity, was their rationalization of production, directed toward maximizing [[efficiency]] and [[Productivity (economics)|productivity]]. According to Weber, workers in pre-capitalist economic institutions understood work in terms of a personal relationship between [[Master craftsman|master]] and [[journeyman]] in a [[guild]], or between [[lord]] and [[peasant]] in a [[Manorialism|manor]].<ref>{{cite web|url=http://www.humanities.mq.edu.au/Ockham/y64l10.html|title=MAX WEBER: ON CAPITALISM|accessdate=2008-02-26|publisher=Macquarie University|author=Kilcullen, John|date=1996}}</ref>
In his book ''[[The Protestant Ethic and the Spirit of Capitalism]]'' (1904-1905), Weber sought to trace how capitalism transformed traditional modes of economic activity. For Weber, the 'spirit' of rational calculation eroded traditional restraints on capitalist exchange, and fostered the development of modern capitalism. This 'spirit' was gradually codified by law; rendering wage-laborers legally 'free' to sell work; encouraging the development of technology aimed at the organization of production on the basis of rational principles; and clarifying the separation of the public and private lives of workers, especially between the home and the workplace. Therefore, unlike Marx, Weber did not see capitalism as primarily the consequence of changes in the means of production.<ref>{{cite web|url=http://xroads.virginia.edu/~hyper/WEBER/WeberCH2.html|title=The Spirit of Capitalism|accessdate=2008-02-26|publisher=University of Virginia}}</ref> Instead, for Weber the origins of capitalism rested chiefly in the rise of a new [[entrepreneur]]ial 'spirit' in the political and cultural realm. In the ''Protestant Ethic'', Weber suggested that the origin of this 'spirit' (the [[Protestant work ethic]]) was related to the rise of [[Protestantism]], particularly [[Calvinism]].
Capitalism, for Weber, is the most advanced economic system ever developed over the course of human history. Weber associated capitalism with the advance of the business [[corporation]], public credit, and the further advance of [[bureaucracy]] of the modern world. Although Weber defended capitalism against its socialist critics of the period, he saw its rationalizing tendencies as a possible threat to traditional cultural values and institutions, and a possible 'iron cage' constraining human freedom.<ref>{{cite web|url=http://www.economyandsociety.com/events/Ethic&SpiritCapsm_Conf_Agenda2.pdf|title=Conference Agenda|publisher=Economy and Society|accessdate=2008-02-26}}</ref>
===German Historical School and Austrian School===
From the perspective of the [[Historical school of economics|German Historical School]], capitalism is primarily identified in terms of the organization of production for [[market]]s. Although this perspective shares similar theoretical roots with that of Weber, its emphasis on markets and [[money]] lends it different focus.<ref name="Burnham" /> For followers of the German Historical School, the key shift from traditional modes of economic activity to capitalism involved the shift from medieval restrictions on credit and money to the modern [[monetary system|monetary economy]] combined with an emphasis on the profit motive.
[[Image:MisesLibrary.jpg|thumb|left|193px|[[Ludwig von Mises]]]]
In the late 19th century the German historical school of economics diverged with the emerging [[Austrian School]] of economics, led at the time by [[Carl Menger]]. Later generations of followers of the Austrian School continued to be influential in Western economic thought through much of the 20th century. The Austrian economist [[Joseph Schumpeter]], a forerunner of the Austrian School of economics, emphasized the "[[creative destruction]]" of capitalism — the fact that market economies undergo constant change. At any moment of time, posits Schumpeter, there are rising industries and declining industries. Schumpeter, and many contemporary economists influenced by his work, argue that resources should flow from the declining to the expanding industries for an economy to grow, but they recognized that sometimes resources are slow to withdraw from the declining industries because of various forms of institutional resistance to change.
The Austrian economists [[Ludwig von Mises]] and [[Friedrich Hayek]] were among the leading defenders of [[market capitalism]] against 20th century proponents of socialist [[planned economies]]. Mises and Hayek argued that only market capitalism could manage a complex, modern economy. Since a modern economy produces such a large array of distinct goods and services, and consists of such a large array of consumers and enterprises, asserted Mises and Hayek, the information problems facing any other form of economic organization other than market capitalism would exceed its capacity to handle information. Thinkers within [[Supply-side economics]] built on the work of the Austrian School, and particular emphasize [[Say's Law]]: "supply creates its own demand." Capitalism, to this school, is defined by lack of state restraint on the decisions of producers.
Austrian economics has been a major influence on the ideology of [[libertarianism]], which considers [[laissez-faire]] capitalism to be the ideal economic system.
===Keynesian economics===
{{main|Keynesian economics}}
[[Image:John Maynard Keynes.jpg|thumb|right|150px|[[John Maynard Keynes]]]]
In his 1937 ''[[The General Theory of Employment, Interest, and Money]]'', the British economist [[John Maynard Keynes]] argued that capitalism suffered a basic problem in its ability to recover from periods of slowdowns in investment. Keynes argued that a capitalist economy could remain in an indefinite [[economic equilibrium|equilibrium]] despite high [[unemployment]]. Essentially rejecting [[Say's law]], he argued that some people may have a [[liquidity preference]] which would see them rather hold money than buy new goods or services, which therefore raised the prospect that the [[Great Depression]] would not end without what he termed in the ''General Theory'' "a somewhat comprehensive socialization of investment."
Keynesian economics challenged the notion that laissez-faire capitalist economics could operate well on their own, without state intervention used to promote aggregate demand, fighting high unemployment and [[Deflation (economics)|deflation]] of the sort seen during the 1930s. He and his followers recommended "[[Deficit spending|pump-priming]]" the economy to avoid [[recession]]: cutting taxes, increasing government borrowing, and spending during an economic down-turn. This was to be accompanied by trying to control wages nationally partly through the use of [[inflation]] to cut real wages and to deter people from holding money.<ref>{{cite web | url=http://www.marxists.org/archive/mattick-paul/1969/marx-keynes/ch01.htm | title=Marx and Keynes: the limits of the mixed economy | author=Paul Mattick | accessdate=2008-02-26|publisher=Marxists }}</ref> The premises of Keynes’s work have, however, since been challenged by neoclassical and [[supply-side economics]] and the Austrian School.
Another challenge to Keynesian thinking came from his colleague [[Piero Sraffa]], and subsequently from the [[Neo-Ricardianism|Neo-Ricardian school]] that followed Sraffa. In Sraffa's highly-technical analysis, capitalism is defined by an entire system of social relations among both producers and consumers, but with a primary emphasis on the demands of production. According to Sraffa, the tendency of capital to seek its highest rate of profit causes a dynamic instability in social and economic relations.
===Neoclassical economics and the Chicago School===
[[Image:MiltonFriedman2.JPG|thumb|left|[[Milton Friedman]]]]
Today, most academic research on capitalism in the English-speaking world draws on [[neoclassical economics|neoclassical economic thought]]. It favors extensive market coordination and relatively neutral patterns of governmental market regulation aimed at maintaining property rights, rather than privileging particular social actors; deregulated [[labor market]]s; corporate governance dominated by financial owners of firms; and financial systems depending chiefly on [[capital market]]-based financing rather than state financing.
The [[Chicago school (economics)|Chicago School of economics]] is best known for its free market advocacy and [[monetarist]] ideas. According to [[Milton Friedman]] and monetarists, market economies are inherently stable [[laissez-faire|if left to themselves]] and depressions result only from government intervention.<ref>{{cite book|title=Macroeconomics and New Macroeconomics|author=Felderer, Bernhard}}</ref> Friedman, for example, argued that the Great Depression was result of a contraction of the money supply, controlled by the [[Federal Reserve System|Federal Reserve]], and not by the lack of investment as Keynes had argued. [[Ben Bernanke]], current Chairman of the Federal Reserve, is among the economists today generally accepting Friedman's analysis of the causes of the Great Depression.<ref name="fed">{{cite web|url=http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm|title= Remarks by Governor Ben S. Bernanke |publisher=The Federal Reserve Board|accessdate=2008-02-26|date=2002-11-08|author=Ben Bernanke}}</ref>
Neoclassical economists, which today are the majority of economists,<ref>{{cite book|author=Yonary, Yuval P.|title=The Struggle Over the Soul of Economics|year=1998|publisher=Princeton University Press|isbn=0691034192|pages=29}}</ref> consider value to be subjective, varying from person to person and for the same person at different times, and thus reject the labor theory of value. [[Marginalism]] is the theory that economic value results from marginal utility and [[marginal cost]] (the [[marginal concepts]]). These economists see capitalists as earning profits by forgoing current consumption, by taking risks, and by organizing production.
==History==
{{Main|History of capitalism}}
Private ownership of some means of production has existed at least in a small degree since the invention of agriculture. Some writers see medieval [[guilds]] as forerunners of the modern capitalist concern (especially through using [[apprentices]] as a kind of paid laborer); but economic activity was bound by customs and controls which, along with the rule of the [[aristocracy]] which would expropriate wealth through arbitrary fines, taxes and enforced loans, meant that [[profit]]s were difficult to accumulate. By the 18th century, however, these barriers to profit were overcome and capitalism became the dominant economic system of the United Kingdom and by the 19th century Western Europe.
Some writers trace back the earliest stages of [[merchant capitalism]] even further to the [[Caliphate]] during the 9th-12th centuries, where a vigorous [[monetary economy|monetary]] [[market economy]] was created on the basis of the expanding levels of circulation of a stable high-value [[currency]] (the [[dinar]]) and the integration of [[monetary]] areas that were previously independent. Innovative new [[business]] techniques and forms of [[business organization]] were introduced by [[economist]]s, [[merchant]]s and [[trader]]s during this time. Such innovations included [[trading company|trading companies]], [[bills of exchange]], [[contract]]s, long-distance [[trade]], [[big business]]es, the first forms of [[partnership]] (''mufawada'' in [[Arabic language|Arabic]]) such as [[limited partnership]]s (''mudaraba'') (''mufawada'' partnership possessed features similar to those of the [[Middle Ages#Early Middle Ages|early medieval]] family ''compagnia'' in [[Europe]]<ref>[http://links.jstor.org/sici?sici=0007-6805%28197223%2946%3A3%3C397%3APAPIMI%3E2.0.CO%3B2-R&size=LARGE&origin=JSTOR-enlargePage Partnership and Profit in Medieval Islam by Abraham L. Udovitch]</ref>), and the concepts of [[Credit (finance)|credit]], [[profit]], [[Capital (economics)|capital]] (''al-mal'') and [[capital accumulation]] (''nama al-mal''). Many of these early capitalist ideas were further advanced in [[Middle Ages|medieval Europe]] from the 13th century onwards.<ref name=Banaji>{{cite journal|author=Banaji, Jairus|year=2007|title=Islam, the Mediterranean and the rise of capitalism|journal=Journal Historical Materialism|volume=15|pages=47–74|publisher=Brill Publishers|doi=10.1163/156920607X171591}}</ref><ref>{{cite book|author=Shatzmiller, Maya|year=1994|title=Labour in the Medieval Islamic World|pages=402-403|publisher=Brill Publishers|isbn=9004098968}}</ref><ref>{{cite journal|author=Labib, Subhi Y.|year=1969|title=Capitalism in Medieval Islam|journal=The Journal of Economic History|volume=29|pages=79–96}}</ref>
Some [[Economic history|economic historians]] (like [[Peter Temin]]) argue that the economy of the Early [[Roman Empire]] was a [[market economy]] and one of the most advanced agricultural economies to have existed (in terms of productivity, urbanization and development of capital markets), comparable to the most advanced economies of the world before the [[Industrial Revolution]], namely the economies of 18th century [[England]] and 17th century [[Netherlands]]. There were markets for every type of good, for land, for cargo ships; there was even an insurance market.<ref>[http://econpapers.repec.org/paper/nufesohwp/_5F039.htm A Market Economy in the Early Roman Empire]</ref>
In the period between the late 15th century and the late 18th century the institution of private property was brought into existence in the full, legal meaning of the term. Important contribution to the theory of property is found in the work of [[John Locke]], who argued that the right to private property is a [[natural right]]. During the Industrial Revolution much of Europe underwent a thorough economic transformation associated with the rise of capitalism and levels of wealth and economic output in the Western world have risen dramatically since that period.
Over the course of the past five hundred years, capital has been accumulated by a variety of different methods, in a variety of scales, and associated with a great deal of variation in the concentration of economic power and wealth.<ref name="Scott" /> Much of the history of the past five hundred years is concerned with the development of capitalism in its various forms, its defense and its rejection, particularly by [[socialism|socialists]].
===Mercantilism===
{{Main article|Mercantilism}}
[[Image:Lorrain.seaport.jpg|left|thumb|200px|A painting of a [[France|French]] seaport from 1638 at the height of [[mercantilism]].]]
The economic and political system of the [[early modern period]] (16th to 18th centuries) from which capitalism evolved is commonly described as [[merchant capitalism]] or [[mercantilism]]<ref name="Burnham" /> (EB). This period was associated with geographic discoveries by merchant overseas traders, especially from England and the Low Countries; the [[European colonization of the Americas]]; and the rapid growth in overseas trade. The associated rise of a bourgeoisie class eclipsed the prior feudal system. It is mercantilism that Adam Smith refuted in his Wealth of Nations which is a recognized treatise of capitalist theory.
Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods.<ref name="Scott" /> Noting the various pre-capitalist features of mercantilism, [[Karl Polanyi]] argued that capitalism did not emerge until the establishment of [[free trade]] in Britain in the 1830s.
Under mercantilism, European [[merchant]]s, backed by state controls, [[subsidy|subsidies]], and [[monopoly|monopolies]], made most of their profits from the buying and selling of goods. In the words of [[Francis Bacon]], the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices…"<ref>{{cite book|author=Clark, Sir George|title=The Seventeenth Century|location=New York|publisher=Oxford University Press|year=1961|pages=24}}</ref> Similar practices of economic regimentation had begun earlier in the medieval towns. However, under mercantilism, given the contemporaneous rise of [[Absolutism (European history)|absolutism]], the state superseded the local [[guild]]s as the regulator of the economy.
Among the major tenets of mercantilist theory was [[bullionism]], a doctrine stressing the importance of accumulating [[precious metals]]. Mercantilists argued that a state should export more goods than it imported so that foreigners would have to pay the difference in precious metals. Mercantilists asserted that only raw materials that could not be extracted at home should be imported; and promoted government subsidies, such as the granting of monopolies and protective [[tariff]]s, were necessary to encourage home production of manufactured goods.
Proponents of mercantilism emphasized state power and overseas conquest as the principal aim of economic policy. If a state could not supply its own raw materials, according to the mercantilists, it should acquire colonies from which they could be extracted. Colonies constituted not only sources of supply for raw materials but also markets for finished products. Because it was not in the interests of the state to allow competition, held the mercantilists, colonies should be prevented from engaging in manufacturing and trading with foreign powers.
===Industrial capitalism and laissez-faire===
{{see also|Industrial revolution|Laissez-faire}}
[[Image:london.bankofengland.arp.jpg|thumb|right|200px|The [[Bank of England]] is one of the oldest [[central bank]]s. It was founded in 1694 and [[nationalised]] in 1946.]]
Mercantilism declined in Great Britain in the mid-18th century, when a new group of economic theorists, led by [[David Hume]]<ref>{{cite book|author=Hume, David|title=Political Discourses|location=Edinburgh|publisher=A. Kincaid & A. Donaldson|year=1752}}</ref> and [[Adam Smith]], challenged fundamental mercantilist doctrines as the belief that the amount of the world’s wealth remained constant and that a state could only increase its wealth at the expense of another state. However, in more undeveloped economies, such as [[Prussia]] and [[Imperial Russia|Russia]], with their much younger manufacturing bases, mercantilism continued to find favor after other states had turned to newer doctrines.
The mid-18th century gave rise to industrial capitalism, made possible by the accumulation of vast amounts of capital under the merchant phase of capitalism and its investment in machinery. Industrial capitalism, which Marx dated from the last third of the 18th century, marked the development of the [[factory]] system of manufacturing, characterized by a complex [[division of labor]] between and within work process and the routinization of work tasks; and finally established the global domination of the capitalist mode of production.<ref name="Burnham" />
During the resulting [[Industrial Revolution]], the industrialist replaced the merchant as a dominant actor in the capitalist system and affected the decline of the traditional handicraft skills of [[artisan]]s, [[guild]]s, and [[journeyman|journeymen]]. Also during this period, capitalism marked the transformation of relations between the British landowning gentry and peasants, giving rise to the production of [[cash crop]]s for the market rather than for subsistence on a [[feudal]] [[Manorialism|manor]]. The surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture.
The rise of industrial capitalism was also associated with the decline of mercantilism. Mid- to late-nineteenth-century Britain is widely regarded as the classic case of [[laissez-faire]] capitalism.<ref name="Burnham" /> Laissez-faire capitalism gained favor over mercantilism in Britain in the 1840s with the repeal of the [[Corn Laws]] and the [[Navigation Acts]]. In line with the teachings of the classical political economists, led by [[Adam Smith]] and [[David Ricardo]], Britain embraced [[classical liberalism|liberalism]], encouraging competition and the development of a [[market economy]].
British laissez-faire was not exclusively unregulated due to [[United Kingdom company law|companies legislation]].<ref name="walker">{{cite journal|title=Laissez-faire, Collectivism And Companies Legislation In Nineteenth-century Britain|last=Walker|first=S.P.|journal=The British Accounting Review|volume=28|number=4|pages=305--324|year=1996|publisher=Elsevier}}</ref> The [[Limited Liability Act 1855]] and the [[Joint Stock Companies Act 1856]] were examples.
Most of the early proponents of a [[economic liberalism]] in the United States subscribed to the [[American School (economics)]]. This school of thought was inspired by the ideas of [[Alexander Hamilton]], who proposed the creation of the [[First National Bank]] and the [[Second National Bank]] and increased tariffs (e.g. [[tariff of 1828]]) to favor northern industrial interests. Following Hamilton's death, the more abiding protectionist influence in the antebellum period came from [[Henry Clay]] and his ''[[American System (economic plan)|American System]]''.
In the mid-19th century, the [[United States]] followed the [[Whig Party|Whig]] tradition of economic liberalism, which included increased state control such as the provision and regulation of railroads. The [[Pacific Railway Acts]] provided the development of the [[First Transcontinental Railroad]].<ref>{{citation|first=Allen C.|last=Guelzo|title=Abraham Lincoln: Redeemer President|isbn=0-8028-3872-3|year=1999|url=http://www.questia.com/PM.qst?a=o&d=99466893}}</ref>
Following the [[Civil War]], the movement towards a mixed economy accelerated with even more [[protectionism]] and [[government regulation]]. In the 1880s and 1890s, significant tariff increases were enacted (see the [[McKinley Tariff]] and [[Dingley Tariff]]). Moreover, with the enactment of the [[Interstate Commerce Act of 1887]], the [[Sherman Anti-trust Act]], the federal government began to assume an increasing role in regulating and directing the country's economy.
===Late 19th and early 20th centuries===
{{see also|Progressive Era}}
In the late 19th century, the control and direction of large areas of industry came into the hands of financiers. This period has been defined as "[[finance capitalism]]," characterized by the subordination of processes of production to the accumulation of [[money]] profits in a [[financial system]].<ref name="Scott" /> Major characteristics of capitalism in this period included the establishment of large industrial cartels or [[monopoly|monopolies]]; the ownership and management of industry by financiers divorced from the production process; and the development of a complex system of [[banking]], an [[equity market]], and corporate holdings of capital through [[stock]] ownership.<ref name="Scott" /> Increasingly, large industries and land became the subject of profit and loss by financial [[speculator]]s.
Late 19th and early 20th century capitalism has also been described as an era of "[[monopoly capitalism]]," marked by movement from [[laissez-faire]] ideology and government policies to the concentration of capital into large monopolistic or [[oligopoly|oligopolistic]] holdings by banks and financiers, and characterized by the growth of large [[corporation]]s and a division of labor separating [[shareholder]]s, owners, and managers.<ref>{{cite book|author=Scott, John|title=A Dictionary of Sociology|publisher=Oxford University Press|year=2005}}</ref> Although the concept of monopoly capitalism originated among Marxist theorists,<ref>{{cite journal|author=Charlene Gannage|title=E.S. Varga and the Theory of State Monopoly Capitalism|year=1980|journal=Review of Radical Political Economics|volume=12|issue=3|pages=36–49|doi=10.1177/048661348001200304}}</ref> non-Marxist economic historians have also commented on the rise of monopolies and trusts in the period. [[Murray Rothbard]], asserting that the large cartels of the late 19th century could not arise on the free market, argued that the "state monopoly capitalism" of the period was the result of interventionist policies adopted by governments, such as tariffs, quotas, licenses, and partnership between state and big business.<ref>{{cite journal|author=Stromberg, Joseph R.|title=The Role of State Monopoly Capitalism in the American Empire|journal=Journal of Libertarian Studies|volume=15|issue=3|year=2001|pages=74–75}}</ref>
By the last quarter of the 19th century, the emergence of large industrial trusts had provoked legislation in the U.S. to reduce the monopolistic tendencies of the period. Gradually, the U.S. federal government played a larger and larger role in passing [[United States antitrust law|antitrust]] laws and regulation of industrial standards for key industries of special public concern. However, some economic historians believe these new laws were in fact designed to aid large corporations at the expense of smaller competitors.<ref>{{cite book|title=A History of Money and Banking in the United States: The Colonial Era to World War II|pages=185-186|author=Rothbard, Murray}}</ref> By the end of the 19th century, [[economic depression]]s and [[boom and bust]] [[business cycle]]s had become a recurring problem, although such problems were most likely caused by government intervention, not failures in free markets (Rand 1967, Friedman 1962, Bernstein 2005). In particular, the [[Long Depression]] of the 1870s and 1880s and the [[Great Depression]] of the 1930s affected almost the entire capitalist world, and generated discussion about capitalism’s long-term survival prospects. During the 1930s, Marxist commentators often posited the possibility of capitalism's decline or demise, often in alleged contrast to the ability of the [[Soviet Union]] to avoid suffering the effects of the global depression.<ref>{{cite book|author=Engerman, Stanley L.|title=The Oxford Companion to United States History|publisher=Oxford University Press|year=2001}}</ref>
===After the Great Depression===
The economic recovery of the world's leading capitalist economies in the period following the end of the Great Depression and the [[World War II|Second World War]] — a period of unusually rapid growth by historical standards — eased discussion of capitalism's eventual decline or demise (Engerman 2001).
In the period following the global depression of the 1930s, the state played an increasingly prominent role in the capitalistic system throughout much of the world. In 1929, for example, total U.S. government expenditures (federal, state, and local) amounted to less than one-tenth of [[GNP]]; from the 1970s they amounted to around one-third (EB). Similar increases were seen in all industrialized capitalist economies, some of which, such as France, have reached even higher ratios of government expenditures to GNP than the United States. These economies have since been widely described as "[[mixed economy|mixed economies]]."
[[Image:NY stock exchange traders floor LC-U9-10548-6.jpg|thumb|right|200px|The New York [[stock exchange]] [[trading room|traders' floor]] (1963)]]
During the postwar boom, a broad array of new analytical tools in the social sciences were developed to explain the social and economic trends of the period, including the concepts of [[post-industrial society]] and the [[welfare state]].<ref name="Burnham" /> The phase of capitalism from the beginning of the postwar period through the 1970s has sometimes been described as “[[state capitalism]]”, especially by Marxian thinkers.<ref name="state capitalism"/>
The long postwar boom ended in the late 1960s and early 1970s, and the situation was worsened by the rise of [[stagflation]].<ref>{{cite book|author=Barnes, Trevor J.|title=Reading economic geography|publisher=Blackwell Publishing|isbn=063123554X|pages=127}}</ref> Exceptionally high [[inflation]] combined with slow output growth, rising unemployment, and eventually [[recession]] caused loss of credibility of [[Keynesian]] welfare-statist mode of regulation. Under the influence of [[Friedrich Hayek]] and [[Milton Friedman]], Western states embraced policy prescriptions inspired by the laissez-faire capitalism and [[classical liberalism]]. In particular, [[monetarism]], a theoretical alternative to Keynesianism that is more compatible with laissez-faire, gained increasing prominence in the capitalist world, especially under the leadership of [[Ronald Reagan]] in the U.S. and [[Margaret Thatcher]] in the UK in the 1980s. In the eyes of many economic and political commentators, collapse of the [[Soviet Union]] brought further evidence of superiority of market capitalism over state-centered economic systems.
===Globalisation===
:{{main article|Globalisation}}
{{POV-section|date=July 2007}}
Although overseas trade has been associated with the development of capitalism for over five hundred years, some thinkers argue that a number of trends associated with [[globalization]] have acted to increase the mobility of people and capital since the last quarter of the 20th century, combining to circumscribe the room to maneuver of states in choosing non-capitalist models of development. Today, these trends have bolstered the argument that capitalism should now be viewed as a truly [[world system]].<ref name="Burnham" /> However, other thinkers argue that globalization, even in its quantitative degree, is no greater now than during earlier periods of capitalist trade.<ref>{{cite book | title=After the New Economy | last=Henwood | first=Doug | publisher=New Press |date=2003-10-01 | isbn= 1-56584-770-9}}</ref>
After the abandonment of the [[Bretton Woods system]] and the strict state control of foreign exchange rates, the total value of transactions in foreign exchange was estimated to be at least twenty times greater than that of all foreign movements of goods and services (EB). The internationalization of finance, which some see as beyond the reach of state control, combined with the growing ease with which large corporations have been able to relocate their operations to low-wage states, has posed the question of the 'eclipse' of state sovereignty, arising from the growing 'globalization' of capital.<ref>{{cite journal|author=Evans, Peter|title=The Eclipse of the State? Reflections on Stateness in an Era of Globalization|journal=World Politics|volume=50|issue=1|date=1997-10-01|pages=62–87}}</ref>
Economic growth in the last half-century has been consistently strong. [[Life expectancy]] has almost doubled in the developing world since the postwar years and is starting to close the gap on the developed world where the improvement has been smaller. [[Infant mortality]] has decreased in every developing region of the world.<ref>{{cite web|url=http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=2429|author=Pfefferman, Guy|title=The Eight Losers of Globalization|accessdate=2008-02-26|date=2002-04-19}}</ref> While scientists generally agree about the size of global [[income inequality]], there is a general disagreement about the recent direction of change of it.<ref>{{cite journal|author=Milanovic, Branko|title=Global Income Inequality: What It Is And Why It Matters?|journal=DESA Working Paper|volume=26|date=2006-08-01|pages=9}}</ref> However, it is growing within particular nations such as China.<ref>{{cite web|url=http://www.columbia.edu/~xs23/papers/worldistribution/NYT_november_27.htm|author=Brooks, David|title=Good News about Poverty|accessdate=2008-02-26|date=2004-11-27}}</ref> The book ''[[The Improving State of the World]]'' argues that economic growth since the industrial revolution has been very strong and that factors such as adequate [[nutrition]], [[life expectancy]], [[infant mortality]], [[literacy]], prevalence of [[child labor]], [[education]], and available free time have improved greatly.
==Political advocacy==
===Support===
[[Image:Gdp chart.png|thumb|right|280px|World's [[GDP]] per capita shows exponential acceleration since the beginning of the industrial revolution.<ref>{{cite book | title=The World Economy: A Millennial Perspective | author=Angus Maddison | publisher=[[OECD]] | location=Paris | date=2001 | isbn= 92-64-18998-X}}</ref>]]
Many theorists and policymakers in predominantly capitalist nations have emphasized capitalism's ability to promote economic growth, as measured by [[Gross Domestic Product]] (GDP), [[capacity utilization]] or [[standard of living]]. This argument was central, for example, to [[Adam Smith]]'s advocacy of letting a free market control production and price, and allocate resources. Many theorists have noted that this increase in global GDP over time coincides with the emergence of the modern world capitalist system.<ref>{{cite web | url=http://www.minneapolisfed.org/pubs/region/04-05/essay.cfm | title=The Industrial Revolution: Past and Future | author=Robert E. Lucas Jr. | work=Federal Reserve Bank of Minneapolis 2003 Annual Report | accessdate=2008-02-26}}</ref><ref>{{cite web | url=http://www.j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html | title=Estimating World GDP, One Million B.C. – Present | author=J. Bradford DeLong | accessdate=2008-02-26 }}</ref> While the measurements are not identical, proponents argue that increasing GDP (per capita) is empirically shown to bring about improved standards of living, such as better availability of food, housing, clothing, and health care.<ref>{{cite web | url=http://www.econlib.org/library/Enc/IndustrialRevolutionandtheStandardofLiving.html | title=Industrial Revolution and the Standard of Living | author=Clark Nardinelli | accessdate=2008-02-26 }}</ref> The decrease in the number of hours worked per week and the decreased participation of children and the elderly in the workforce have been attributed to capitalism.<ref>{{cite book|author=Barro, Robert J.|title=Macroeconomics|publisher=MIT Press|year=1997|isbn=0262024365}}</ref><ref>{{cite web|url=http://www.capitalism.org/faq/labor.htm|title=Labor and Minimum Wages|publisher=Capitalism.org|accessdate=2008-02-26}}</ref><ref>{{cite web|url=http://www.mises.org/article.aspx?Id=1481|title= Morality and Economic Law: Toward a Reconciliation|publisher=Ludwig von Mises Institute|accessdate=2008-02-26|author=Woods, Thomas E.|date=2004-04-05}}</ref><ref>{{cite web|url=http://www.taemag.com/issues/articleid.18013/article_detail.asp|title=Three Cheers for Global Capitalism |publisher=The American Enterprise|accessdate=2008-02-26|author=Norberg, Johan}}</ref> Proponents also believe that a capitalist economy offers far more opportunities for individuals to raise their income through new professions or business ventures than do other economic forms. To their thinking, this potential is much greater than in either traditional [[feudal]] or [[tribe|tribal]] societies or in socialist societies.
[[Milton Friedman]] has argued that the [[economic freedom]] of competitive capitalism is a requisite of [[political freedom]]. Friedman argued that centralized control of economic activity is always accompanied by political repression. In his view, transactions in a market economy are voluntary, and the wide diversity that voluntary activity permits is a fundamental threat to repressive political leaders and greatly diminish power to coerce. Friedman's view was also shared by [[Friedrich Hayek]] and [[John Maynard Keynes]], both of whom believed that capitalism is vital for freedom to survive and thrive.<ref>{{cite book|author=Friedrich Hayek|title=The Road to Serfdom|publisher=University Of Chicago Press|year=1944|isbn=0-226-32061-8}}</ref><ref>{{cite book|author=Bellamy, Richard|title=The Cambridge History of Twentieth-Century Political Thought|publisher=Cambridge University Press|year=2003|isbn=0-521-56354-2|pages=60}}</ref>
Austrian School economists have argued that capitalism can organize itself into a complex system without an external guidance or planning mechanism. Friedrich Hayek coined the term "[[catallaxy]]" to describe what he considered the phenomenon of [[self-organization]] underpinning capitalism. From this perspective, in process of self-organization, the [[profit]] motive has an important role. From transactions between buyers and sellers price systems emerge, and prices serve as a signal as to the urgent and unfilled wants of people. The promise of profits gives entrepreneurs incentive to use their knowledge and resources to satisfy those wants. Thus the activities of millions of people, each seeking his own interest, are coordinated.<ref>{{cite book|author=Walberg, Herbert|title=Education and Capitalism|publisher=Hoover Institution Press|year=2001|pages=87-89|isbn=0-8179-3972-5}}</ref>
This decentralized system of coordination is viewed by some supporters of capitalism as one of its greatest strengths. They argue that it permits many solutions to be tried, and that real-world competition generally finds a good solution to emerging challenges. In contrast, they argue, [[central planning]] often selects inappropriate solutions as a result of faulty forecasting. However, in all existing modern economies, the state conducts some 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. Proponents who follow the Austrian School argue that even this limited control creates inefficiencies because we cannot predict the long-term activity of the economy. Milton Friedman, for example, has argued that the [[Great Depression]] was caused by the erroneous policy of the [[Federal Reserve System|Federal Reserve]].<ref name="fed"/>
[[Ayn Rand]] was a prominent philosophical supporter of [[laissez-faire capitalism]]; her novel [[Atlas Shrugged]] was one of the most influential publications ever written on the subject of business.<ref>[http://www.nytimes.com/2007/09/15/business/15atlas.html?_r=1&oref=slogin ''Ayn Rand's Literature of Capitalism'', The New York Times]</ref> The first person to endow capitalism with a new code of morality (Rational [[Selfishness]]),<ref>[[The Virtue of Selfishness]]</ref> she did not justify capitalism on the grounds of pure "practicality" (that it is the best wealth-creating system), or the [[supernatural]] (that [[God]] or [[religion]] supports capitalism), or because it benefits the most people, but maintained that it is the only morally valid [[socio-political]] system because it allows people to be free to act in their rational self-interest.<ref>[[Capitalism: The Unknown Ideal]]</ref>
===Criticism===
{{main|Criticisms of capitalism|Anti-capitalism}}''
Capitalism has met with strong opposition throughout its history. Most of the criticism came from the left, but some from the right, and some from religious elements. Many 19th century conservatives were among the most strident critics of capitalism, seeing market exchange and commodity production as threats to cultural and religious traditions. Some critics of capitalism consider economic regulation necessary in order to reduce corruption, negligence, and numerous of other problems caused by free markets.
Prominent leftist critics have included [[socialism|socialists]] like [[Karl Marx]], [[Frantz Fanon]], [[Vladimir Lenin]], [[Mao Zedong]], [[Leon Trotsky]], [[Antonio Gramsci]] and [[Rosa Luxemburg]], and [[anarchism|anarchists]] including [[Benjamin Tucker]], [[Lysander Spooner]], [[Pierre-Joseph Proudhon]], [[Mikhail Bakunin]], [[Peter Kropotkin]], [[Emma Goldman]], [[Murray Bookchin]], [[Rudolf Rocker]], [[Noam Chomsky]], and others. Movements like the [[Luddite]]s, [[Narodnik]]s, [[Shakers]], [[Utopian socialism|Utopian Socialists]] and others have opposed capitalism for various reasons. Marxism advocated a revolutionary overthrow of capitalism that would lead eventually to [[communism]]. Marxism also influenced [[Social democracy|social democratic]] and [[Labour Party|labour parties]], which seek change through existing democratic channels instead of revolution, and believe that capitalism should be heavily regulated rather than abolished. Many aspects of capitalism have come under attack from the relatively recent [[anti-globalization]] movement.
Some religions criticize or outright oppose specific elements of capitalism. Some traditions of [[Judaism]], [[Christianity]], and [[Islam]] forbid [[usury|lending money at interest]], although methods of [[Islamic banking]] have been developed. Christianity has been a source of both praise and criticism for capitalism, particularly its [[economic materialism|materialist]] aspects.<ref>{{cite web|url=http://www.vatican.va/archive/ENG0015/__P8C.HTM#-2FX|title=III. The Social Doctrine of the Church|publisher=The Vatican|accessdate=2008-02-26}}</ref> The first socialists drew many of their principles from Christian values (see [[Christian socialism]]), against "bourgeois" values of profiteering, greed, selfishness, and hoarding. Christian critics of capitalism may not oppose capitalism entirely, but support a mixed economy in order to ensure adequate labor standards and relations, as well as economic justice. There are many [[Protestant]] denominations (particularly in the United States) who have reconciled with — or are ardently in favor of — capitalism, particularly in opposition to secular socialism. However, in the U.S. and around the world there are many Protestant Christian traditions which are critical of, or even oppose, capitalism. Another critic is the Indian philosopher [[P.R. Sarkar]], founder of the [[Ananda Marga]] movement, who developed the [[Social cycle theory (Sarkar)|Social Cycle Theory]] and proposed a solution called the [[Progressive Utilization Theory]] (PROUT).<ref>{{cite web | url=http://www.prout.org/aftercapitalism/ | title=After Capitalism | author=Dada Maheshvarananda | accessdate=2008-02-26}}</ref><ref>{{cite web | url=http://www.proutworld.org/|title=proutworld|accessdate=2008-02-26|publisher=ProutWorld}}</ref>
Some problems said to be associated with capitalism include: unfair and inefficient [[distribution of wealth]] and power; a tendency toward market [[monopoly]] or [[oligopoly]] (and government by [[oligarchy]]); [[imperialism]] and various forms of economic and cultural [[exploitation]]; and phenomena such as [[social alienation]], [[inequality]], [[unemployment]], and economic instability. Critics have maintained that there is an inherent tendency towards oligolopolistic structures when laissez-faire is combined with capitalist private property. Because of this tendency either laissez-faire, or private property, or both, have drawn fire from critics who believe an essential aspect of economic freedom is the extension of the freedom to have meaningful decision-making control over productive resources to everyone. Economist Branko Horvat explains, "it is now well known that capitalist development leads to the concentration of capital, employment and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom."<ref>{{cite book|author=Horvat, B.|title=The Political Economy of Socialism|location=Armonk, NY|publisher=M.E.Sharpe Inc.|pages=11}}</ref>
Near the start of the 20th century, Vladimir Lenin claimed that state use of military power to defend capitalist interests abroad was an inevitable corollary of monopoly capitalism.<ref>{{cite web | url=http://www.marxists.org/archive/lenin/works/1916/imp-hsc/index.htm | title=Imperialism: The Highest Stage of Capitalism | author=Vladimir Lenin | accessdate=2008-02-26}}</ref> This concept of [[political economy]] concerning the relationship between economic and political power among and within states includes critics of capitalism who assign to it responsibility for not only economic [[exploitation]], but [[imperialism|imperialist]], [[colonialist]] and [[counter-revolutionary]] wars, repressions of workers and trade unionists, [[genocide]]s, [[wiktionary:massacre|massacres]], and so on.
Some environmentalists claim that capitalism requires continual economic growth, and will inevitably deplete the finite natural resources of the earth, and other broadly utilized resources. Such thinkers, including [[Murray Bookchin]], have argued that capitalist production passes on environmental costs to all of society, and is unable to adequately mitigate its impact upon ecosystems and the biosphere at large.
Some [[labor history|labor historians]] and scholars, such as [[Immanuel Wallerstein]], Tom Brass and, latterly [[Marcel van der Linden]], have also argued that [[unfree labour|unfree labor]] — the use of a labor force comprised of [[slavery|slaves]], [[indentured servant]]s, criminal convicts, political prisoners, and/or other coerced persons — is compatible with capitalist relations.<ref>That unfree labor is acceptable to capital was argued during the 1980s by Tom Brass. See ''Towards a Comparative Political Economy of Unfree Labor'' (Cass, 1999). {{cite web | url=http://www.historycooperative.org/journals/llt/52/linden.html | title="Labour History as the History of Multitudes", ''Labour/Le Travail'', 52, Fall 2003, p. 235-244 | author=Marcel van der Linden | accessdate=2008-02-26}}</ref>
===Democracy, the state, and legal frameworks===
{{Main|History of theory of capitalism}}
The relationship between the [[state]], its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. [[Hernando de Soto (economist)|Hernando de Soto]] is a contemporary economist who has argued that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded.<ref>{{cite web | url=http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm | title=The mystery of capital| author= Hernando de Soto| accessdate=2008-02-26}}</ref> According to de Soto, this is the process by which physical assets are transformed into capital, which in turn may be used in many more ways and much more efficiently in the market economy. A number of Marxian economists have argued that the [[Enclosure Acts]] in [[England]], and similar legislation elsewhere, were an integral part of capitalist [[primitive accumulation]] and that specific legal frameworks of private land ownership have been integral to the development of capitalism.<ref>{{cite web | url=http://www.marxists.org/archive/marx/works/1867-c1/ch27.htm | title=Capital, v. 1. Part VIII: primitive accumulation| author= Karl Marx| accessdate=2008-02-26}}</ref><ref>{{cite journal | author=N. F. R. Crafts | title=Enclosure and labor supply revisited | journal=Explorations in economic history | issue=15 | month=April | year=1978 | pages=172–183 | doi=10.1016/0014-4983(78)90019-0 | volume=15}}.</ref>
[[New institutional economics]], a field pioneered by [[Douglass North]], stresses the need of capitalism for a legal framework to function optimally, and focuses on the relationship between the historical development of capitalism and the creation and maintenance of political and economic institutions.<ref>{{cite book|author=North, Douglass C.|title=Institutions, Institutional Change and Economic Performance|publisher=Cambridge University Press|date=1990}}</ref> In new institutional economics and other fields focusing on public policy, economists seek to judge when and whether governmental intervention (such as [[tax]]es, [[Welfare (financial aid)|welfare]], and [[Regulatory economics|government regulation]]) can result in potential gains in efficiency. According to [[Gregory Mankiw]], a [[New Keynesian economics|New Keynesian economist]], governmental intervention can improve on market outcomes under conditions of "[[market failure]]," or situations in which the market on its own does not allocate resources efficiently.<ref>{{cite book|Mankiw, N. Gregory|title=Principles of Economics|publisher=Harvard University|year=1997|pages=10}}</ref> The idea of market failure is that markets fail to realize all potential gains from trade. This means that markets fail to deliver perfect economic results. Critics of market failure theory, like [[Ronald Coase]], [[Harold Demsetz]], and [[James M. Buchanan]] argue that government programs and policies also fall short of absolute perfection. Market failures are often small, and government failures are sometimes large. It is therefore the case that imperfect markets are often better than imperfect governmental alternatives. While all nations currently have some kind of market regulations, the desirable degree of regulation is disputed.
The relationship between [[democracy]] and capitalism is a contentious area in theory and popular political movements. The extension of universal adult male [[suffrage]] in 19th century Britain occurred along with the development of industrial capitalism, and democracy became widespread at the same time as capitalism, leading many theorists to posit a causal relationship between them, or that each affects the other. However, in the 20th century, according to some authors, capitalism also accompanied a variety of political formations quite distinct from liberal democracies, including [[fascism|fascist]] regimes, monarchies, and single-party states,<ref name="Burnham" /> while it has been observed{{Who|date=March 2008}} that some ostensibly democratic regimes such as the [[Bolivarian Republic of Venezuela]] and [[Anarchist Catalonia]] have been expressly anti-capitalist.<ref>On the democratic nature of the Venezuelan state, see [http://www.gobiernoenlinea.ve/estructura_edo/estructura_edo4.html]. On the current government's rejection of capitalism in favor of socialism, see[http://www.gobiernoenlinea.ve/misc-view/sharedfiles/Metas_Milenio.pdf] and[http://www.minci.gob.ve/motores/62/11852]</ref> While some thinkers argue that capitalist development more-or-less inevitably eventually leads to the emergence of democracy, others dispute this claim. Research on the [[democratic peace theory]] further argue that capitalist democracies rarely make war with one another and have little internal violence.<ref>{{cite web | url=http://www.mtholyoke.edu/acad/intrel/ray.htm | title=Does democracy cause peace| author= James Lee Ray| accessdate=2008-02-26}}</ref><ref>{{cite web | url=http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/0,,contentMDK:20708340~pagePK:210058~piPK:210062~theSitePK:336806,00.html | title=Towards a democratic civil peace? : opportunity, grievance, and civil war 1816-1992| author= Hegre, Håvard|accessdate=2008-02-26}}</ref> However critics of the democratic peace theory note that democratic capitalist states may fight infrequently or never with other democratic capitalist states because of Political similarity or political stability rather than because they are democratic (or capitalist).
Some commentators argue that though economic growth under capitalism has led to democratization in the past, it may not do so in the future. Under this line of thinking, authoritarian regimes have been able to manage economic growth without making concessions to greater political freedom.<ref>{{cite web|author=Mesquita, Bruce Bueno de|url=http://www.foreignaffairs.org/20050901faessay84507/bruce-bueno-de-mesquita-george-w-downs/development-and-democracy.html|title=Development and Democracy|date=2005-09|accessdate=2008-02-26|publisher=Foreign Affairs}}</ref><ref>{{cite web|author=Single, Joseph T.|url=http://www10.nytimes.com/cfr/international/20040901facomment_v83n4_siegle-weinstein-halperin.html?_r=5&oref=slogin&oref=slogin&oref=slogin&oref=slogin|title=Why Democracies Excel|date=2004-09|accessdate=2008-02-26|publisher=New York Times}}</ref>
In response to criticism of the system, some proponents of capitalism have argued that its advantages are supported by empirical research. For example, advocates of different [[Index of Economic Freedom]] point to a statistical correlation between nations with more economic freedom (as defined by the Indices) and higher scores on variables such as income and life expectancy, including the poor in these nations. Some peer-reviewed studies find evidence for causation.
==See also==
{{Portal|Capitalism}}
* [[Anarcho-capitalism]]
* [[Crony capitalism]]
* [[Economic ideology]]
* [[Finance capitalism]]
* [[Late capitalism]]
* [[Liberal capitalism]]
* [[Objectivism (Ayn Rand)]]
* [[Post-capitalism]]
* [[Technocapitalism]]
* [[State capitalism]]
* [[State monopoly capitalism]]
==Notes==
{{reflist|2}}
==Further reading==
{{nofootnotes}}
* {{cite book | last = Ackerman | first = Frank | authorlink = | coauthors = Lisa Heinzerling | title = Priceless: On Knowing the Price of Everything and the Value of Nothing | publisher = New Press | date = [[August 24]], [[2005]] | location = | pages = 277 | url = | doi = | id = | isbn = 1565849817}}
* {{cite book|title=Politics Without Romance|author=Buchanan, James M.}}
* {{cite book|title=Civilization and Capitalism: 15th - 18 Century|author=Braudel, Fernand}}
* {{cite book|title=Theories of Modern Capitalism|author=Bottomore, Tom|year=1985}}
* {{cite journal | author=H. Doucouliagos and M. Ulubasoglu | title=Democracy and Economic Growth: A meta-analysis | journal=School of Accounting, Economics and Finance Deakin University Australia | year=2006 }}
* {{cite book|author=Coase, Ronald|year=1974|title=The Lighthouse in Economics}}
* {{cite book|author=Demsetz, Harold|year=1969|title=Information and Efficiency}}
* {{cite book|author=Fulcher, James|title=Capitalism|year=2004}}
* {{cite book|author=Friedman, Milton|title=Capitalism and Freedom|year=1952}}
* {{cite book|author=Galbraith, J.K.|title=American Capitalism|year=1952}}
* {{cite book|author=Böhm-Bawerk, Eugen von|title=Capital and Interest: A Critical History of Economical Theory|location=London|publisher=Macmillan and Co.|year=1890}}
* {{cite book|author=Harvey, David|title=The Political-Economic Transformation of Late Twentieth Century Capitalism.|location=Cambridge, MA|publisher=Blackwell Publishers|year=1990|isbn=0-631-16294-1}}
* {{cite book|author=Hayek, Friedrich A.|title=The Pure Theory of Capital|location=Chicago|publisher=University of Chicago Press|year=1975|isbn=0-226-32081-2}}
* {{cite book|author=Hayek, Friedrich A.|title=Capitalism and the Historians|location=Chicago|publisher=University of Chicago Press|year=1963}}
* {{cite book|author=Heilbroner, Robert L.|title=The Limits of American Capitalism|year=1966}}
* {{cite book|author=Heilbroner, Robert L.|title=The Nature and Logic of Capitalism|year=1985}}
* {{cite book|author=Heilbroner, Robert L.|title=Economics Explained|year=1987}}
* {{cite book|author=Marx, Karl|title=Capital: A Critical Analysis of Capitalist Production|year=1886}}
* {{cite book|author=Mises, Ludwig von|title=Human Action: A Treatise on Economics|publisher=Scholars Edition|year=1998}}
* {{cite book|author=Rand, Ayn|title=Capitalism: The Unknown Ideal|publisher=Signet|year=1986}}
* {{cite book|author=Reisman, George|year=1996|title=Capitalism: A Treatise on Economics|location=Ottawa, Illinois|publisher=Jameson Books|isbn=0-915463-73-3}}
* {{cite book|author=Resnick, Stephen|year=1987|title=Knowledge & Class: a Marxian critique of political economy|location=Chicago|publisher=University of Chicago Press}}
* {{cite book|author=Rostow, W. W.|title=The Stages of Economic Growth: A Non-Communist Manifesto|location=Cambridge|publisher=Cambridge University Press|year=1960}}
* {{cite book|author=Schumpeter, J. A.|title=Capitalism, Socialism, and Democracy|year=1983}}
* {{cite book|author=Scott, John|title=Corporate Business and Capitalist Classes|year=1997}}
* {{cite book|author=seldon, Arthur|year=2007|title=Capitalism: A Condensed Version|location=London|publisher=Institute of Economic Affairs}}
* {{cite book|author=Sennett, Richard|title=The Culture of the New Capitalism|year=2006}}
* {{cite book|author=Smith, Adam|title=An Inquiry into the Nature and Causes of the Wealth of Nations|year=1776}}
* {{cite book|author=De Soto, Hernando|year=2000|title=The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else|location=New York|publisher=Basic Books|isbn=0-465-01614-6}}
* {{cite book|author=Strange, Susan|title=Casino Capitalism|year=1986}}
* {{cite book|author=Wallerstein, Immanuel|title=The Modern World System}}
* {{cite book|author=Weber, Max|title=The Protestant Ethic and the Spirit of Capitalism|year=1926}}
* {{cite book|author=Norberg, Johan|title=In Defense of Global Capitalism|year=2001|isbn=978-1-93-086547-1}}
==External links==
{{wikiquote}}
* [http://www.wsu.edu/~dee/GLOSSARY/CAPITAL.HTM Capitalism in history.]
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