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From Wikipedia, the free encyclopedia

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit.[1][2][3][4][5] Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, economic freedom, profit motive, entrepreneurship, commodification, voluntary exchange, wage labor and the production of commodities.[6][7][8][9] In a market economy, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in capital and financial markets—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.[10]

Economists, historians, political economists, and sociologists have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include laissez-faire or free-market capitalism, anarcho-capitalism, state capitalism, and welfare capitalism. Different forms of capitalism feature varying degrees of free markets, public ownership,[11] obstacles to free competition, and state-sanctioned social policies. The degree of competition in markets and the role of intervention and regulation, as well as the scope of state ownership, vary across different models of capitalism.[12][13] The extent to which different markets are free and the rules defining private property are matters of politics and policy. Most of the existing capitalist economies are mixed economies that combine elements of free markets with state intervention and in some cases economic planning.[14]

Capitalism in its modern form emerged from agrarianism in England, as well as mercantilist practices by European countries between the 16th and 18th centuries. The Industrial Revolution of the 18th century established capitalism as a dominant mode of production, characterized by factory work and a complex division of labor. Through the process of globalization, capitalism spread across the world in the 19th and 20th centuries, especially before World War I and after the end of the Cold War. During the 19th century, capitalism was largely unregulated by the state, but became more regulated in the post–World War II period through Keynesianism, followed by a return of more unregulated capitalism starting in the 1980s through neoliberalism.

Market economies have existed under many forms of government and in many different times, places, and cultures. Modern industrial capitalist societies developed in Western Europe in a process that led to the Industrial Revolution. Capitalist economies promote economic growth through accumulation of capital, however a business cycle of economic growth followed by recession is a common characteristic of such economies.[15]

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  • Capitalism and Socialism: Crash Course World History #33
  • Is capitalism actually broken?
  • HISTORY OF IDEAS - Capitalism
  • Is Capitalism Really Human Nature?
  • What is Capitalism? Capitalism Explained | Pros and Cons of Capitalism? Who is Adam Smith?


Hi, I’m John Green, this is Crash Course World History and today we’re going to talk about capitalism. [off we go then!] Yeah, Mr. Green, capitalism just turns men into wolves. Your purportedly free markets only make slaves of us all. Oh, God, Stan, it’s Me from College. Me from the Past has become Me from College. This is a disaster. The reason he’s so unbearable, Stan, is that he refuses to recognize the legitimacy of other people’s narratives and that means that he will never, ever be able to have a productive conversation with another human in his entire life. [harsh much, Mr. Green?] So, listen, Me from the Past, I’m going to disappoint you by being too capitalist. And I’m going to disappoint a lot of other people by not being capitalist enough. [100% guaranteed] And, I’m going to disappoint the historians by not using enough jargon. [and Stan. Stan loves jargon] But, what can I do? We only have 12 minutes. [ish] Fortunately capitalism is all about efficiency so let’s do this, Me from College. Randy Riggs becomes a bestselling author; [I love pictures & the word peculiar] Josh Radnor stars in a great sitcom; [Ted Mosby is super Rad(nor), Josh] it is NOT GOING TO WORK OUT with Emily, and DO NOT go to Alaska with a girl you’ve known for 10 days. [Shenanigans?] OKAY, LET’S TALK CAPITALISM. [Intro music] [intro music] [intro music] [intro music] [intro music] [intro music] [intro music] So, capitalism is an economic system, but it’s also a cultural system. It’s characterized by innovation and investment to increase wealth. But today we’re going to focus on production and how industrial capitalism changed it. Stan, I can’t wear these emblems of the bourgeoisie while Karl Marx himself is looking at me. It’s ridiculous. I’m changing. Very hard to take off a shirt dramatically. [or unsuggestively] So let’s say it’s 1,200 CE and you’re a rug merchant. Just like merchants today, you sometimes need to borrow money in order to buy the rugs you want to resell at a profit, and then you pay that money back, often with interest, once you’ve resold the rugs. This is called mercantile capitalism, and it was a global phenomenon, from the Chinese to the Indian Ocean trade network to Muslim merchants who would sponsor trade caravans across the Sahara. But by the 17th century, merchants in the Netherlands and in Britain had expanded upon this idea to create joint stock companies. Those companies could finance bigger trade missions and also spread the risk of international trade. But the thing about international trade is sometimes boats sink or they get taken by pirates, [Aaarrr!] and while that’s bad if you’re a sailor because, you know, you lose your life, it’s really bad if you’re a mercantile capitalist because you lost all your money. But if you own one tenth of ten boats, your risk is much better managed. [but is mischief managed?] That kind of investment definitely increased wealth, but it only affected a sliver of the population, and it didn’t create a culture of capitalism. Industrial Capitalism was something altogether different, both in scale and in practice. Let’s use Joyce Appleby’s definition of industrial capitalism: "An economic system that relies on investment of capital in machines and technology that are used to increase production of marketable goods.” So, imagine that someone made a Stan Machine. [lots of Stantastic possibilities there] By the way, Stan, this is a remarkable likeness. And that Stan Machine could produce and direct ten times more episodes of Crash Course than a human Stan. [not super sure Stan's not a robot, btw] Well, of course, even if there are significant upfront costs, I’m going to invest in a Stan Machine, so I can start cranking out ten times the knowledge. Stan, are you focusing on the robot instead of me? I am the star of the show! [sounds like unemployment, Stanimal] Stan Bot, you’re going behind the globe. So, when most of us think of capitalism, especially when we think about its downsides (long hours, low wages, miserable working conditions, child labor, unemployed Stans) [doing yo-yo tricks on the Indy streets] that’s what we’re thinking about. Now admittedly this is just one definition of industrial capitalism among many, but it’s the definition we’re going with. Alright, let’s go to the Thought Bubble. Industrial capitalism developed first in Britain in the 19th century. Britain had a bunch of advantages: It was the dominant power on the seas and it was making good money off of trade with its colonies, including the slave trade. Also, the growth of capitalism was helped by the half-century of civil unrest that resulted from the 17th century English Civil War. Now, I’m not advocating for civil wars or anything, but in this particular case it was useful, because before the war the British crown had put a lot of regulations on the economy— complicated licenses, royal monopolies, etc. —but during the turmoil, it couldn’t enforce them, which made for freer markets. Another factor was a remarkable increase in agricultural productivity in the 16th century. As food prices started to rise, it became profitable for farmers, both large and small, to invest in agricultural technologies that would improve crop yields. Those higher prices for grain probably resulted from population growth, which in turn was encouraged by increased production of food crops. A number of these agricultural improvements came from the Dutch, who had chronic problems feeding themselves and discovered that planting different kinds of crops, like clover that added nitrogen to the soil and could be used to feed livestock at the same time, meant that more fields could be used at once. This increased productivity eventually brought down prices, and this encouraged further innovation in order to increase yield to make up for the drop in prices. Lower food prices had an added benefit – since food cost less and wages in England remained high, workers would have more disposable income, which meant that if there were consumer goods available, they would be consumed, which incentivized people to make consumer goods more efficiently, and therefore more cheaply. You can see how this positive feedback loop leads to more food and more stuff, culminating in a world where people have so much stuff that we must rent space to store it, and so much food that obesity has become a bigger killer than starvation. Thanks, Thought Bubble. So this increased productivity also meant that fewer people needed to work in agriculture in order to feed the population. To put this in perspective, in 1520, 80% of the English population worked the land. By 1800, only 36% of adult male laborers were working in agriculture, and by 1850, that percentage had dropped to 25. This meant that when the factories started humming, there were plenty of workers to hum along with them. [humming < obnoxious than whistling] Especially child laborers. So far all this sounds pretty good, right? I mean, except for the child labor. Who wouldn’t want more, cheaper food? Yeah, well, not so fast. One of the ways the British achieved all this agricultural productivity was through the process of enclosure. Whereby landlords would re-claim and privatize fields that for centuries had been held in common by multiple tenants. [they busted up hippie communes?] This increased agricultural productivity, but it also impoverished many tenant farmers, many of whom lost their livelihoods. Okay, for our purposes, capitalism is also a cultural system, rooted in the need of private investors to turn a profit. So the real change needed here was a change of mind. People had to develop the capitalist values of taking risks and appreciating innovation. And they had to come to believe that making an upfront investment in something like a Stan Machine [silent mode not optional] could pay for itself and then some. One of the reasons that these values developed in Britain was that the people who initially held them were really good at publicizing them. Writers like Thomas Mun, who worked for the English East India Company, exposed people to the idea that the economy was controlled by markets. And, other writers popularized the idea that it was human nature for individuals to participate in markets as rational actors. Even our language changed: the word “individuals” did not apply to persons until the 17th century. And in the 18th century, a “career” still referred only to horses’ racing lives. Perhaps the most important idea that was popularized in England [other than safety pin accessories later) was that men and women were consumers as well as producers and that this was actually a good thing because the desire to consume manufactured goods could spur economic growth. “The main spur to trade, or rather to industry and ingenuity, is the exorbitant appetite of men, which they will take pain to gratify,” So wrote John Cary, one of capitalism’s cheerleaders, in 1695. And in talking about our appetite, he wasn’t just talking about food. That doesn’t seem radical now, but it sure did back then. So here in the 21st century, it’s clear that industrial capitalism— at least for now— has won. Sorry, buddy. But, you know, you gave it a good run. You didn’t know about Stalin. [or the bright future of manscaping] But capitalism isn’t without its problems, or its critics, ["haters" in the parlance of our times] and there were certainly lots of shortcomings to industrial capitalism in the 19th century. Working conditions were awful. Days were long, arduous, and monotonous. Workers lived in conditions that people living in the developed world today would associate with abject poverty. One way that workers responded to these conditions was by organizing into labor unions. Another response was in many cases purely theoretical: socialism, [gasp, clutch the pearls] most famously Marxian socialism. I should probably point out here that socialism is an imperfect opposite to capitalism, even though the two are often juxtaposed. [consider that before commenting maybe?] Capitalism’s defenders like to point out that it’s “natural,” meaning that if left to our own devices, humans would construct economic relationships that resemble capitalism. Socialism, at least in its modern incarnations, makes fewer pretenses towards being an expression of human nature; it’s the result of human choice and human planning. So, socialism, as an intellectual construct, began in France. [he spins the whole world in his hand] How’d I do, Stan? Mm, in the border between Egypt and Libya. There were two branches of socialism in France, utopian and revolutionary. Utopian socialism is often associated with Comte de Saint Simon and Charles Fourier, both of whom rejected revolutionary action after having seen the disaster of the French Revolution. Both were critical of capitalism and while Fourier is usually a punchline in history classes because he believed that, in his ideal socialist world, the seas would turn to lemonade, [wut] he was right that human beings have desires that go beyond basic self interest, and that we aren’t always economically rational actors. [truth] The other French socialists were the revolutionaries, and they saw the French Revolution, even its violence, in a much more positive light. [Vive Goddard!] The most important of these revolutionaries was Auguste Blanqui, and we associate a lot of his ideas with communism, which is a term that he used. Like the utopians, he criticized capitalism, but he believed that it could only be overthrown through violent revolution by the working classes. However, while Blanqui thought that the workers would come to dominate a communist world, he was an elitist. [by which you mean an arugula eater?] And he believed that workers on their own could never, on their own, overcome their superstitions and their prejudices in order to throw off bourgeois oppression. [interesting] And that brings us to Karl Marx, whose ideas and beard cast a shadow over most of the 20th century. Oh, it’s time for the Open Letter? [roll all you want, i'm not looking] [aloha miss hand] An Open Letter to Karl Marx’s Beard. But, first, let’s see what’s in the secret compartment today. Oh, robots. Stan Bots! Two Stan Bots, one of them female! [a featured female, on Crash Course? ha] now I own all the means of production. [no evil laugh and/or mustache twisting?] You’re officially useless to me, Stan. Now, turn the camera off. Turn the ca-- I’m going to have to get up and turn the camera off? Stan Bot, go turn the camera off. Hey there, Karl Marx’s beard. Wow, you are intense. [and probably pretty grody] Karl Marx, these days there are a lot of young men who think beards are cool. Beard lovers, if you will. [beardos] Those aren’t beards, those are glorified milk mustaches. I mean, I haven’t shaved for a couple weeks, Karl Marx, but I’m not claiming a beard. [nothing a solid scrubbing couldn't fix?] You don’t get a beard by being lazy, you get a beard by being a committed revolutionary. That’s why hardcore Marxists are literally known as “Bearded Marxists.” [not to be confused w/ "Mulleted Marxists" from the 80's] These days, that’s an insult. But you know what, Karl Marx, when I look back at history, I prefer the bearded communists. Let’s talk about some communists who didn’t have beards: Mao Zedong, Pol Pot, Kim Jong-il, Joseph freakin’ Stalin with his face caterpillar. So, yeah, Karl Marx’s beard, it’s my great regret to inform you that there are some paltry beards trying to take up the class struggle these days. Best Wishes, John Green Although he’s often considered the father of communism, because he co-wrote The Communist Manifesto, Marx was above all a philosopher and a historian. It’s just that, unlike many philosophers and historians, he advocated for revolution. His greatest work, Das Kapital, sets out to explain the world of the 19th century in historical and philosophical terms. Marx’s thinking is deep and dense and we’re low on time, but I want to introduce one of his ideas, that of class struggle. [yeah buddy, here we go] So, for Marx, the focus isn’t on the class, it’s on the struggle. Basically Marx believed that classes don’t only struggle to make history, but that the struggle is what makes classes into themselves. The idea is that through conflict, classes develop a sense of themselves, and without conflict, there is no such thing as class consciousness. So, Marx was writing in 19th century England and there were two classes that mattered: the workers and the capitalists. The capitalists owned most of the factors of production (in this case, land and the capital to invest in factories). The workers just had their labor. So, the class struggle here is between capitalists, who want labor at the lowest possible price, and the workers who want to be paid as much as possible for their work. There are two key ideas that underlie this theory of class struggle. First, Marx believed that “production,” or work, was the thing that gave life material meaning. Second, is that we are by nature social [St]animals. We work together, we collaborate, we are more efficient when we share resources. Marx’s criticism of capitalism is that capitalism replaces this egalitarian collaboration with conflict. And that means that it isn’t a natural system after all. And by arguing that capitalism actually isn’t consistent with human nature, Marx sought to empower the workers. That’s a lot more attractive than Blanqui’s elitist socialism, and while purportedly Marxist states like the USSR usually abandon worker empowerment pretty quickly, the idea of protecting our collective interest remains powerful. That’s where we’ll have to leave it for now, lest I start reading from The Communist Manifesto. [noooooo!] But, ultimately socialism has not succeeded in supplanting capitalism, as its proponents had hoped. In the United States, at least, “socialism” has become something of a dirty word. So, industrial capitalism certainly seems to have won out, and in terms of material well being and access to goods and services for people around the world, that’s probably a good thing. Ugh, you keep falling over. You’re a great bit, but a very flimsy one. Actually, come to think of it, you’re more of an 8-bit. [haha… um, crickets] But how and to what extent we use socialist principles to regulate free markets remains an open question, and one that is answered very differently in, say, Sweden than in the United States. [lingonberries & Skarsgards pwn] And this, I would argue, is where Marx still matters. Is capitalist competition natural and good, or should there be systems in place to check it for the sake of our collective well-being? Should we band together to provide health care for the sick, [and that's Jenga] or pensions for the old? Should government run businesses, and if so, which ones? The mail delivery business? [stamps are awesome.<3 you USPS] The airport security business? The education business? Those are the places where industrial capitalism and socialism are still competing. And in that sense, at least, the struggle continues. Thanks for watching, I’ll see you next week. Crash Course is produced and directed by Stan Muller. Our script supervisor is Danica Johnson. The show is written by my high school history teacher, Raoul Meyer and myself. We’re ably interned by Meredith Danko. And our graphics team is Thought Bubble. Last week’s phrase of the week was “the TARDIS,” so you can stop suggesting that now! If you want to suggest future phrases of the week or guess at this week’s, you can do so in comments, where you can also ask questions about today’s video that will be answered by our team of historians. Thanks for watching Crash Course, and as we say in my hometown, don’t forget You are my density. Alright, Stan, bring the movie magic... Yes! [outro] [outro]


Other terms sometimes used for capitalism:

The term "capitalist", meaning an owner of capital, appears earlier than the term "capitalism" and dates to the mid-17th century. "Capitalism" is derived from capital, which evolved from capitale, a late Latin word based on caput, meaning "head"—which is also the origin of "chattel" and "cattle" in the sense of movable property (only much later to refer only to livestock). Capitale emerged in the 12th to 13th centuries to refer to funds, stock of merchandise, sum of money or money carrying interest.[23]: 232 [24] By 1283, it was used in the sense of the capital assets of a trading firm and was often interchanged with other words—wealth, money, funds, goods, assets, property and so on.[23]: 233 

The Hollantse (German: holländische) Mercurius uses "capitalists" in 1633 and 1654 to refer to owners of capital.[23]: 234  In French, Étienne Clavier referred to capitalistes in 1788,[25] four years before its first recorded English usage by Arthur Young in his work Travels in France (1792).[24][26] In his Principles of Political Economy and Taxation (1817), David Ricardo referred to "the capitalist" many times.[27] English poet Samuel Taylor Coleridge used "capitalist" in his work Table Talk (1823).[28] Pierre-Joseph Proudhon used the term in his first work, What is Property? (1840), to refer to the owners of capital. Benjamin Disraeli used the term in his 1845 work Sybil.[24] Alexander Hamilton used "capitalist" in his Report of Manufactures presented to the United States Congress in 1791.

The initial use of the term "capitalism" in its modern sense is attributed to Louis Blanc in 1850 ("What I call 'capitalism' that is to say the appropriation of capital by some to the exclusion of others") and Pierre-Joseph Proudhon in 1861 ("Economic and social regime in which capital, the source of income, does not generally belong to those who make it work through their labor").[23]: 237  Karl Marx frequently referred to the "capital" and to the "capitalist mode of production" in Das Kapital (1867).[29][30] Marx did not use the form capitalism but instead used capital, capitalist and capitalist mode of production, which appear frequently.[30][31] Due to the word being coined by socialist critics of capitalism, economist and historian Robert Hessen stated that the term "capitalism" itself is a term of disparagement and a misnomer for economic individualism.[32] Bernard Harcourt agrees with the statement that the term is a misnomer, adding that it misleadingly suggests that there is such a thing as "capital" that inherently functions in certain ways and is governed by stable economic laws of its own.[33]

In the English language, the term "capitalism" first appears, according to the Oxford English Dictionary (OED), in 1854, in the novel The Newcomes by novelist William Makepeace Thackeray, where the word meant "having ownership of capital".[34] Also according to the OED, Carl Adolph Douai, a German American socialist and abolitionist, used the term "private capitalism" in 1863.


There is no universally agreed upon definition of capitalism; it is unclear whether or not capitalism characterizes an entire society, a specific type of social order, or crucial components or elements of a society.[35] Societies officially founded in opposition to capitalism (such as the Soviet Union) have sometimes been argued to actually exhibit characteristics of capitalism.[36] Nancy Fraser describes usage of the term "capitalism" by many authors as "mainly rhetorical, functioning less as an actual concept than as a gesture toward the need for a concept".[8] Scholars who are uncritical of capitalism rarely actually use the term "capitalism".[37] Some doubt that the term "capitalism" possesses valid scientific dignity,[35] and it is generally not discussed in mainstream economics,[8] with economist Daron Acemoglu suggesting that the term "capitalism" should be abandoned entirely.[38] Consequently, understanding of the concept of capitalism tends to be heavily influenced by opponents of capitalism and by the followers and critics of Karl Marx.[37]


Cosimo de' Medici (pictured in a 16th century portrait by Pontormo) built an international financial empire and was one of the first Medici bankers.
Augsburg, the centre of early capitalism[39]

Capitalism, in its modern form, can be traced to the emergence of agrarian capitalism and mercantilism in the early Renaissance, in city-states like Florence.[40] Capital has existed incipiently on a small scale for centuries[41] in the form of merchant, renting and lending activities and occasionally as small-scale industry with some wage labor. Simple commodity exchange and consequently simple commodity production, which is the initial basis for the growth of capital from trade, have a very long history. During the Islamic Golden Age, Arabs promulgated capitalist economic policies such as free trade and banking. Their use of Indo-Arabic numerals facilitated bookkeeping. These innovations migrated to Europe through trade partners in cities such as Venice and Pisa. Italian mathematicians traveled the Mediterranean talking to Arab traders and returned to popularize the use of Indo-Arabic numerals in Europe.[42]


The economic foundations of the feudal agricultural system began to shift substantially in 16th-century England as the manorial system had broken down and land began to become concentrated in the hands of fewer landlords with increasingly large estates. Instead of a serf-based system of labor, workers were increasingly employed as part of a broader and expanding money-based economy. The system put pressure on both landlords and tenants to increase the productivity of agriculture to make profit; the weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try better methods, and the tenants also had incentive to improve their methods in order to flourish in a competitive labor market. Terms of rent for land were becoming subject to economic market forces rather than to the previous stagnant system of custom and feudal obligation.[43][44]


A painting of a French seaport from 1638 at the height of mercantilism
Robert Clive with the Nawabs of Bengal after the Battle of Plassey which began the British rule in Bengal

The economic doctrine prevailing from the 16th to the 18th centuries is commonly called mercantilism.[45][46] This period, the Age of Discovery, was associated with the geographic exploration of foreign lands by merchant traders, especially from England and the Low Countries. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist methods.[47] Most scholars consider the era of merchant capitalism and mercantilism as the origin of modern capitalism,[46][48] although Karl Polanyi argued that the hallmark of capitalism is the establishment of generalized markets for what he called the "fictitious commodities", i.e. land, labor and money. Accordingly, he argued that "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date".[49]

England began a large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). A systematic and coherent explanation of balance of trade was made public through Thomas Mun's argument England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure. It was written in the 1620s and published in 1664.[50]

European merchants, backed by state controls, subsidies and monopolies, made most of their profits by buying and selling goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices...".[51]

After the period of the proto-industrialization, the British East India Company and the Dutch East India Company, after massive contributions from the Mughal Bengal,[52][53] inaugurated an expansive era of commerce and trade.[54][55] These companies were characterized by their colonial and expansionary powers given to them by nation-states.[54] During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a return on investment.

Industrial Revolution

The Watt steam engine, fuelled primarily by coal, propelled the Industrial Revolution in Britain.[56]

In the mid-18th century a group of economic theorists, led by David Hume (1711–1776)[57] and Adam Smith (1723–1790), challenged fundamental mercantilist doctrines—such as the belief that the world's wealth remained constant and that a state could only increase its wealth at the expense of another state.

During the Industrial Revolution, industrialists replaced merchants as a dominant factor in the capitalist system and effected the decline of the traditional handicraft skills of artisans, guilds and journeymen. Industrial capitalism marked the development of the factory system of manufacturing, characterized by a complex division of labor between and within work process and the routine of work tasks; and eventually established the domination of the capitalist mode of production.[58]

Industrial Britain eventually abandoned the protectionist policy formerly prescribed by mercantilism. In the 19th century, Richard Cobden (1804–1865) and John Bright (1811–1889), who based their beliefs on the Manchester School, initiated a movement to lower tariffs.[59] In the 1840s Britain adopted a less protectionist policy, with the 1846 repeal of the Corn Laws and the 1849 repeal of the Navigation Acts.[60] Britain reduced tariffs and quotas, in line with David Ricardo's advocacy of free trade.


The gold standard formed the financial basis of the international economy from 1870 to 1914.

Broader processes of globalization carried capitalism across the world. By the beginning of the nineteenth century, a series of loosely connected market systems had come together as a relatively integrated global system, in turn intensifying processes of economic and other globalization.[61][62] Late in the 20th century, capitalism overcame a challenge by centrally-planned economies and is now the encompassing system worldwide,[19][63] with the mixed economy as its dominant form in the industrialized Western world.

Industrialization allowed cheap production of household items using economies of scale, while rapid population growth created sustained demand for commodities. The imperialism of the 18th-century decisively shaped globalization.[61][64][65][66]

After the First and Second Opium Wars (1839–60) and the completion of the British conquest of India by 1858, vast populations of Asia became consumers of European exports. Europeans colonized areas of sub-Saharan Africa and the Pacific islands. Colonisation by Europeans, notably of sub-Saharan Africa, yielded valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment between the European imperial powers, their colonies and the United States:

The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914.[67]

From the 1870s to the early 1920s, the global financial system was mainly tied to the gold standard.[68][69] The United Kingdom first formally adopted this standard in 1821. Soon to follow were Canada in 1853, Newfoundland in 1865, the United States and Germany (de jure) in 1873. New technologies, such as the telegraph, the transatlantic cable, the radiotelephone, the steamship and railways allowed goods and information to move around the world to an unprecedented degree.[70]

In the United States, the term "capitalist" primarily referred to powerful businessmen[71] until the 1920s due to widespread societal skepticism and criticism of capitalism and its most ardent supporters.

The New York stock exchange traders' floor (1963)

Contemporary capitalist societies developed in the West from 1950 to the present and this type of system continues throughout the world—relevant examples started in the United States after the 1950s, France after the 1960s, Spain after the 1970s, Poland after 2015, and others. At this stage most capitalist markets are considered[by whom?] developed and characterized by developed private and public markets for equity and debt, a high standard of living (as characterized by the World Bank and the IMF), large institutional investors and a well-funded banking system. A significant managerial class has emerged[when?] and decides on a significant proportion of investments and other decisions. A different future than that envisioned by Marx has started to emerge—explored and described by Anthony Crosland in the United Kingdom in his 1956 book The Future of Socialism[72] and by John Kenneth Galbraith in North America in his 1958 book The Affluent Society,[73] 90 years after Marx's research on the state of capitalism in 1867.[74]

The postwar boom ended in the late 1960s and early 1970s and the economic situation grew worse with the rise of stagflation.[75] Monetarism, a modification of Keynesianism that is more compatible with laissez-faire analyses, gained increasing prominence in the capitalist world, especially under the years in office of Ronald Reagan in the United States (1981–1989) and of Margaret Thatcher in the United Kingdom (1979–1990). Public and political interest began shifting away from the so-called collectivist concerns of Keynes's managed capitalism to a focus on individual choice, called "remarketized capitalism".[76]

The end of the Cold War and the dissolution of the Soviet Union allowed for capitalism to become a truly global system in a way not seen since before World War I. The development of the neoliberal global economy would have been impossible without the fall of communism.[77][78]

Harvard Kennedy School economist Dani Rodrik distinguishes between three historical variants of capitalism:[79]

  • Capitalism 1.0 during the 19th century entailed largely unregulated markets with a minimal role for the state (aside from national defense, and protecting property rights);
  • Capitalism 2.0 during the post-World War II years entailed Keynesianism, a substantial role for the state in regulating markets, and strong welfare states;
  • Capitalism 2.1 entailed a combination of unregulated markets, globalization, and various national obligations by states.

Relationship to democracy

The relationship between democracy and capitalism is a contentious area in theory and in popular political movements.[80] The extension of adult-male suffrage in 19th-century Britain occurred along with the development of industrial capitalism and representative democracy became widespread at the same time as capitalism, leading capitalists to posit a causal or mutual relationship between them. However, according to some authors in the 20th-century, capitalism also accompanied a variety of political formations quite distinct from liberal democracies, including fascist regimes, absolute monarchies and single-party states.[46] Democratic peace theory asserts that democracies seldom fight other democracies, but others suggest this may be because of political similarity or stability, rather than because they are "democratic" or "capitalist". Critics argue that though economic growth under capitalism has led to democracy, it may not do so in the future as authoritarian régimes have been able to manage economic growth using some of capitalism's competitive principles[81][82] without making concessions to greater political freedom.[83][84]

Political scientists Torben Iversen and David Soskice see democracy and capitalism as mutually supportive.[85] Robert Dahl argued in On Democracy that capitalism was beneficial for democracy because economic growth and a large middle class were good for democracy.[86] He also argued that a market economy provided a substitute for government control of the economy, which reduces the risks of tyranny and authoritarianism.[86]

In his book The Road to Serfdom (1944), Friedrich Hayek (1899–1992) asserted that the free-market understanding of economic freedom as present in capitalism is a requisite of political freedom. He argued that the market mechanism is the only way of deciding what to produce and how to distribute the items without using coercion. Milton Friedman and Ronald Reagan also promoted this view.[87] Friedman claimed that centralized economic operations are always accompanied by political repression. In his view, transactions in a market economy are voluntary and that the wide diversity that voluntary activity permits is a fundamental threat to repressive political leaders and greatly diminishes their power to coerce. Some of Friedman's views were shared by John Maynard Keynes, who believed that capitalism was vital for freedom to survive and thrive.[88][89] Freedom House, an American think-tank that conducts international research on, and advocates for, democracy, political freedom and human rights, has argued that "there is a high and statistically significant correlation between the level of political freedom as measured by Freedom House and economic freedom as measured by the Wall Street Journal/Heritage Foundation survey".[90]

In Capital in the Twenty-First Century (2013), Thomas Piketty of the Paris School of Economics asserted that inequality is the inevitable consequence of economic growth in a capitalist economy and the resulting concentration of wealth can destabilize democratic societies and undermine the ideals of social justice upon which they are built.[91]

States with capitalistic economic systems have thrived under political regimes deemed to be authoritarian or oppressive. Singapore has a successful open market economy as a result of its competitive, business-friendly climate and robust rule of law. Nonetheless, it often comes under fire for its style of government which, though democratic and consistently one of the least corrupt,[92] operates largely under a one-party rule. Furthermore, it does not vigorously defend freedom of expression as evidenced by its government-regulated press, and its penchant for upholding laws protecting ethnic and religious harmony, judicial dignity and personal reputation. The private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception, despite having an authoritarian government. Augusto Pinochet's rule in Chile led to economic growth and high levels of inequality[93] by using authoritarian means to create a safe environment for investment and capitalism. Similarly, Suharto's authoritarian reign and extirpation of the Communist Party of Indonesia allowed for the expansion of capitalism in Indonesia.[94][95]

The term "capitalism" in its modern sense is often attributed to Karl Marx.[47][96] In his Das Kapital, Marx analyzed the "capitalist mode of production" using a method of understanding today known as Marxism. However, Marx himself rarely used the term "capitalism" while it was used twice in the more political interpretations of his work, primarily authored by his collaborator Friedrich Engels. In the 20th century, defenders of the capitalist system often replaced the term "capitalism" with phrases such as free enterprise and private enterprise and replaced "capitalist" with rentier and investor in reaction to the negative connotations associated with capitalism.[97]


In general, capitalism as an economic system and mode of production can be summarized by the following:[98]


In free market and laissez-faire forms of capitalism, markets are used most extensively with minimal or no regulation over the pricing mechanism. In mixed economies, which are almost universal today,[106] markets continue to play a dominant role, but they are regulated to some extent by the state in order to correct market failures, promote social welfare, conserve natural resources, fund defense and public safety or other rationale. In state capitalist systems, markets are relied upon the least, with the state relying heavily on state-owned enterprises or indirect economic planning to accumulate capital.

Competition arises when more than one producer is trying to sell the same or similar products to the same buyers. Adherents of the capitalist theory believe that competition leads to innovation and more affordable prices. Monopolies or cartels can develop, especially if there is no competition. A monopoly occurs when a firm has exclusivity over a market. Hence, the firm can engage in rent seeking behaviors such as limiting output and raising prices because it has no fear of competition.

Governments have implemented legislation for the purpose of preventing the creation of monopolies and cartels. In 1890, the Sherman Antitrust Act became the first legislation passed by the United States Congress to limit monopolies.[107]

Wage labor

Wage labor, usually referred to as paid work, paid employment, or paid labor, refers to the socioeconomic relationship between a worker and an employer in which the worker sells their labor power under a formal or informal employment contract.[108] These transactions usually occur in a labor market where wages or salaries are market-determined.[109]

In exchange for the money paid as wages (usual for short-term work-contracts) or salaries (in permanent employment contracts), the work product generally becomes the undifferentiated property of the employer. A wage laborer is a person whose primary means of income is from the selling of their labor in this way.[110]

Profit motive

The profit motive, in the theory of capitalism, is the desire to earn income in the form of profit. Stated differently, the reason for a business's existence is to turn a profit.[111] The profit motive functions according to rational choice theory, or the theory that individuals tend to pursue what is in their own best interests. Accordingly, businesses seek to benefit themselves and/or their shareholders by maximizing profit.

In capitalist theoretics, the profit motive is said to ensure that resources are being allocated efficiently. For instance, Austrian economist Henry Hazlitt explains: "If there is no profit in making an article, it is a sign that the labor and capital devoted to its production are misdirected: the value of the resources that must be used up in making the article is greater than the value of the article itself".[112]

Socialist theorists note that, unlike merchantilists, capitalists accumulate their profits while expecting their profit rates to remain the same. This causes problems as earnings in the rest of society do not increase in the same proportion. [113]

Private property

The relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. Hernando de Soto is a contemporary Peruvian 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.[114]

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.[115][116]

Private property rights are not absolute, as in many countries the state has the power to seize private property, typically for public use, under the powers of eminent domain.

Market competition

In capitalist economics, market competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share and sales volume by varying the elements of the marketing mix: price, product, distribution and promotion. Merriam-Webster defines competition in business as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms".[117] It was described by Adam Smith in The Wealth of Nations (1776) and later economists as allocating productive resources to their most highly valued uses[118] and encouraging efficiency. Smith and other classical economists before Antoine Augustine Cournot were referring to price and non-price rivalry among producers to sell their goods on best terms by bidding of buyers, not necessarily to a large number of sellers nor to a market in final equilibrium.[119] Competition is widespread throughout the market process. It is a condition where "buyers tend to compete with other buyers, and sellers tend to compete with other sellers".[120] In offering goods for exchange, buyers competitively bid to purchase specific quantities of specific goods which are available, or might be available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering goods on the market, competing for the attention and exchange resources of buyers. Competition results from scarcity, as it is not possible to satisfy all conceivable human wants, and occurs as people try to meet the criteria being used to determine allocation.[120]: 105 

In the works of Adam Smith, the idea of capitalism is made possible through competition which creates growth. Although capitalism has not entered mainstream economics at the time of Smith, it is vital to the construction of his ideal society. One of the foundational blocks of capitalism is competition. Smith believed that a prosperous society is one where "everyone should be free to enter and leave the market and change trades as often as he pleases."[121] He believed that the freedom to act in one's self-interest is essential for the success of a capitalist society. In response to the idea that if all participants focus on their own goals, society's well-being will be water under the bridge, Smith maintains that despite the concerns of intellectuals, "global trends will hardly be altered if they refrain from pursuing their personal ends."[122] He insisted that the actions of a few participants cannot alter the course of society. Instead, Smith maintained that they should focus on personal progress instead and that this will result in overall growth to the whole.

Competition between participants, "who are all endeavoring to justle one another out of employment, obliges every man to endeavor to execute his work" through competition towards growth.[121]

Economic growth

Economic growth is a characteristic tendency of capitalist economies.[123] However, capitalist economies may experience fluctuations in growth that cannot be accounted for by demographic or technological changes. These fluctuations, which involve sustained periods of economic growth and recession, are referred to as business cycles in macroeconomics. Economic growth is measured as growth in investment, economic output, and economic consumption per capita. Changes in hours of employment on their own are not considered as a factor of economic growth.[15]

As a mode of production

The capitalist mode of production refers to the systems of organising production and distribution within capitalist societies. Private money-making in various forms (renting, banking, merchant trade, production for profit and so on) preceded the development of the capitalist mode of production as such.

The term capitalist mode of production is defined by private ownership of the means of production, extraction of surplus value by the owning class for the purpose of capital accumulation, wage-based labor and, at least as far as commodities are concerned, being market-based.[124]

Capitalism in the form of money-making activity has existed in the shape of merchants and money-lenders who acted as intermediaries between consumers and producers engaging in simple commodity production (hence the reference to "merchant capitalism") since the beginnings of civilisation. What is specific about the "capitalist mode of production" is that most of the inputs and outputs of production are supplied through the market (i.e. they are commodities) and essentially all production is in this mode.[12] By contrast, in flourishing feudalism most or all of the factors of production, including labor, are owned by the feudal ruling class outright and the products may also be consumed without a market of any kind, it is production for use within the feudal social unit and for limited trade.[99] This has the important consequence that, under capitalism, the whole organisation of the production process is reshaped and re-organised to conform with economic rationality as bounded by capitalism, which is expressed in price relationships between inputs and outputs (wages, non-labor factor costs, sales and profits) rather than the larger rational context faced by society overall—that is, the whole process is organised and re-shaped in order to conform to "commercial logic". Essentially, capital accumulation comes to define economic rationality in capitalist production.[100]

A society, region or nation is capitalist if the predominant source of incomes and products being distributed is capitalist activity, but even so this does not yet mean necessarily that the capitalist mode of production is dominant in that society.[125]

Mixed economies rely on the nation they are in to provide some goods or services, while the free market produces and maintains the rest.[105]

Role of government

Government agencies regulate the standards of service in many industries, such as airlines and broadcasting, as well as financing a wide range of programs. In addition, the government regulates the flow of capital and uses financial tools such as the interest rate to control such factors as inflation and unemployment.[126]

Supply and demand

The economic model of supply and demand states that the price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D): the diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product.

In capitalist economic structures, supply and demand is an economic model of price determination in a market. It postulates that in a perfectly competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at the current price) will equal the quantity supplied by producers (at the current price), resulting in an economic equilibrium for price and quantity.

The "basic laws" of supply and demand, as described by David Besanko and Ronald Braeutigam, are the following four:[127]: 37 

  1. If demand increases (demand curve shifts to the right) and supply remains unchanged, then a shortage occurs, leading to a higher equilibrium price.
  2. If demand decreases (demand curve shifts to the left) and supply remains unchanged, then a surplus occurs, leading to a lower equilibrium price.
  3. If demand remains unchanged and supply increases (supply curve shifts to the right), then a surplus occurs, leading to a lower equilibrium price.
  4. If demand remains unchanged and supply decreases (supply curve shifts to the left), then a shortage occurs, leading to a higher equilibrium price.

Supply schedule

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.[128]

Demand schedule

A demand schedule, depicted graphically as the demand curve, represents the amount of some goods that buyers are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, tastes and preferences, the price of substitute goods and the price of complementary goods, remain the same. According to the law of demand, the demand curve is almost always represented as downward sloping, meaning that as price decreases, consumers will buy more of the good.[129]

Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves.[130]


In the context of supply and demand, economic equilibrium refers to a state where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition equilibrium occurs at the point at which quantity demanded and quantity supplied are equal.[131] Market equilibrium, in this case, refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or market clearing price and will tend not to change unless demand or supply changes.

Partial equilibrium

Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium. Jain proposes (attributed to George Stigler): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis".[132]


According to Hamid S. Hosseini, the "power of supply and demand" was discussed to some extent by several early Muslim scholars, such as fourteenth century Mamluk scholar Ibn Taymiyyah, who wrote: "If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down".[133]

Adam Smith

John Locke's 1691 work Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money[134] includes an early and clear description[non-primary source needed] of supply and demand and their relationship. In this description, demand is rent: "The price of any commodity rises or falls by the proportion of the number of buyer and sellers" and "that which regulates the price... [of goods] is nothing else but their quantity in proportion to their rent".

David Ricardo titled one chapter of his 1817 work Principles of Political Economy and Taxation "On the Influence of Demand and Supply on Price".[135] In Principles of Political Economy and Taxation, Ricardo more rigorously laid down the idea of the assumptions that were used to build his ideas of supply and demand.

In his 1870 essay "On the Graphical Representation of Supply and Demand", Fleeming Jenkin in the course of "introduc[ing] the diagrammatic method into the English economic literature" published the first drawing of supply and demand curves therein,[136] including comparative statics from a shift of supply or demand and application to the labor market.[137] The model was further developed and popularized by Alfred Marshall in the 1890 textbook Principles of Economics.[135]


There are many variants of capitalism in existence that differ according to country and region.[138] They vary in their institutional makeup and by their economic policies. The common features among all the different forms of capitalism are that they are predominantly based on the private ownership of the means of production and the production of goods and services for profit; the market-based allocation of resources; and the accumulation of capital.

They include advanced capitalism, corporate capitalism, finance capitalism, free-market capitalism, mercantilism, social capitalism, state capitalism and welfare capitalism. Other theoretical variants of capitalism include anarcho-capitalism, community capitalism, humanistic capitalism, neo-capitalism, state monopoly capitalism, and technocapitalism.


Advanced capitalism is the situation that pertains to a society in which the capitalist model has been integrated and developed deeply and extensively for a prolonged period. Various writers identify Antonio Gramsci as an influential early theorist of advanced capitalism, even if he did not use the term himself. In his writings, Gramsci sought to explain how capitalism had adapted to avoid the revolutionary overthrow that had seemed inevitable in the 19th century. At the heart of his explanation was the decline of raw coercion as a tool of class power, replaced by use of civil society institutions to manipulate public ideology in the capitalists' favour.[139][140][141]

Jürgen Habermas has been a major contributor to the analysis of advanced-capitalistic societies. Habermas observed four general features that characterise advanced capitalism:

  1. Concentration of industrial activity in a few large firms.
  2. Constant reliance on the state to stabilise the economic system.
  3. A formally democratic government that legitimises the activities of the state and dissipates opposition to the system.
  4. The use of nominal wage increases to pacify the most restless segments of the work force.[142]


Corporate capitalism is a free or mixed-market capitalist economy characterized by the dominance of hierarchical, bureaucratic corporations.


Finance capitalism is the subordination of processes of production to the accumulation of money profits in a financial system. In their critique of capitalism, Marxism and Leninism both emphasise the role of finance capital as the determining and ruling-class interest in capitalist society, particularly in the latter stages.[143][144]

Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence through Finance Capital, his 1910 study of the links between German trusts, banks and monopolies—a study subsumed by Vladimir Lenin into Imperialism, the Highest Stage of Capitalism (1917), his analysis of the imperialist relations of the great world powers.[145] Lenin concluded that the banks at that time operated as "the chief nerve centres of the whole capitalist system of national economy".[146] For the Comintern (founded in 1919), the phrase "dictatorship of finance capitalism"[147] became a regular one.

Fernand Braudel would later point to two earlier periods when finance capitalism had emerged in human history—with the Genoese in the 16th century and with the Dutch in the 17th and 18th centuries—although at those points it developed from commercial capitalism.[148][need quotation to verify] Giovanni Arrighi extended Braudel's analysis to suggest that a predominance of finance capitalism is a recurring, long-term phenomenon, whenever a previous phase of commercial/industrial capitalist expansion reaches a plateau.[149]

Free market

A capitalist free-market economy is an economic system where prices for goods and services are set entirely by the forces of supply and demand and are expected, by its adherents, to reach their point of equilibrium without intervention by government policy. It typically entails support for highly competitive markets and private ownership of the means of production. Laissez-faire capitalism is a more extensive form of this free-market economy, but one in which the role of the state is limited to protecting property rights. In anarcho-capitalist theory, property rights are protected by private firms and market-generated law. According to anarcho-capitalists, this entails property rights without statutory law through market-generated tort, contract and property law, and self-sustaining private industry.

Fernand Braudel argued that free market exchange and capitalism are to some degree opposed; free market exchange involves transparent public transactions and a large number of equal competitors, while capitalism involves a small number of participants using their capital to control the market via private transactions, control of information, and limitation of competition.[150]


The subscription room at Lloyd's of London in the early 19th century

Mercantilism is a nationalist form of early capitalism that came into existence approximately in the late 16th century. It is characterized by the intertwining of national business interests with state-interest and imperialism. Consequently, the state apparatus is used to advance national business interests abroad. An example of this is colonists living in America who were only allowed to trade with and purchase goods from their respective mother countries (e.g., United Kingdom, France and Portugal). Mercantilism was driven by the belief that the wealth of a nation is increased through a positive balance of trade with other nations—it corresponds to the phase of capitalist development sometimes called the primitive accumulation of capital.


A social market economy is a free-market or mixed-market capitalist system, sometimes classified as a coordinated market economy, where government intervention in price formation is kept to a minimum, but the state provides significant services in areas such as social security, health care, unemployment benefits and the recognition of labor rights through national collective bargaining arrangements.

This model is prominent in Western and Northern European countries as well as Japan, albeit in slightly different configurations. The vast majority of enterprises are privately owned in this economic model.

Rhine capitalism is the contemporary model of capitalism and adaptation of the social market model that exists in continental Western Europe today.


State capitalism is a capitalist market economy dominated by state-owned enterprises, where the state enterprises are organized as commercial, profit-seeking businesses. The designation has been used broadly throughout the 20th century to designate a number of different economic forms, ranging from state-ownership in market economies to the command economies of the former Eastern Bloc. According to Aldo Musacchio, a professor at Harvard Business School, state capitalism is a system in which governments, whether democratic or autocratic, exercise a widespread influence on the economy either through direct ownership or various subsidies. Musacchio notes a number of differences between today's state capitalism and its predecessors. In his opinion, gone are the days when governments appointed bureaucrats to run companies: the world's largest state-owned enterprises are now traded on the public markets and kept in good health by large institutional investors. Contemporary state capitalism is associated with the East Asian model of capitalism, dirigisme and the economy of Norway.[151] Alternatively, Merriam-Webster defines state capitalism as "an economic system in which private capitalism is modified by a varying degree of government ownership and control".[152]

In Socialism: Utopian and Scientific, Friedrich Engels argued that state-owned enterprises would characterize the final stage of capitalism, consisting of ownership and management of large-scale production and communication by the bourgeois state.[153] In his writings, Vladimir Lenin characterized the economy of Soviet Russia as state capitalist, believing state capitalism to be an early step toward the development of socialism.[154][155]

Some economists and left-wing academics including Richard D. Wolff and Noam Chomsky, as well as many Marxist philosophers and revolutionaries such as Raya Dunayevskaya and C.L.R. James, argue that the economies of the former Soviet Union and Eastern Bloc represented a form of state capitalism because their internal organization within enterprises and the system of wage labor remained intact.[156][157][158][159][160]

The term is not used by Austrian School economists to describe state ownership of the means of production. The economist Ludwig von Mises argued that the designation of state capitalism was a new label for the old labels of state socialism and planned economy and differed only in non-essentials from these earlier designations.[161]


Welfare capitalism is capitalism that includes social welfare policies. Today, welfare capitalism is most often associated with the models of capitalism found in Central Mainland and Northern Europe such as the Nordic model, social market economy and Rhine capitalism. In some cases, welfare capitalism exists within a mixed economy, but welfare states can and do exist independently of policies common to mixed economies such as state interventionism and extensive regulation.

A mixed economy is a largely market-based capitalist economy consisting of both private and public ownership of the means of production and economic interventionism through macroeconomic policies intended to correct market failures, reduce unemployment and keep inflation low. The degree of intervention in markets varies among different countries. Some mixed economies such as France under dirigisme also featured a degree of indirect economic planning over a largely capitalist-based economy.

Most modern capitalist economies are defined as mixed economies to some degree, however French economist Thomas Piketty state that capitalist economies might shift to a much more laissez-faire approach in the near future.[162]


Eco-capitalism, also known as "environmental capitalism" or (sometimes[163]) "green capitalism", is the view that capital exists in nature as "natural capital" (ecosystems that have ecological yield) on which all wealth depends. Therefore, governments should use market-based policy-instruments (such as a carbon tax) to resolve environmental problems.[164]

The term "Blue Greens" is often applied to those who espouse eco-capitalism. Eco-capitalism can be thought of as the right-wing equivalent to Red Greens.[165][need quotation to verify]

Sustainable capitalism

Sustainable capitalism is a conceptual form of capitalism based upon sustainable practices that seek to preserve humanity and the planet, while reducing externalities and bearing a resemblance of capitalist economic policy. A capitalistic economy must expand to survive and find new markets to support this expansion.[166] Capitalist systems are often destructive to the environment as well as certain individuals without access to proper representation. However, sustainability provides quite the opposite; it implies not only a continuation, but a replenishing of resources.[167] Sustainability is often thought of to be related to environmentalism, and sustainable capitalism applies sustainable principles to economic governance and social aspects of capitalism as well.

The importance of sustainable capitalism has been more recently recognized, but the concept is not new. Changes to the current economic model would have heavy social environmental and economic implications and require the efforts of individuals, as well as compliance of local, state and federal governments. Controversy surrounds the concept as it requires an increase in sustainable practices and a marked decrease in current consumptive behaviors.[168]

This is a concept of capitalism described in Al Gore and David Blood's manifesto for the Generation Investment Management to describe a long-term political, economic and social structure which would mitigate current threats to the planet and society.[169] According to their manifesto, sustainable capitalism would integrate the environmental, social and governance (ESG) aspects into risk assessment in attempt to limit externalities.[170] Most of the ideas they list are related to economic changes, and social aspects, but strikingly few are explicitly related to any environmental policy change.[169]

Capital accumulation

The accumulation of capital is the process of "making money" or growing an initial sum of money through investment in production. Capitalism is based on the accumulation of capital, whereby financial capital is invested in order to make a profit and then reinvested into further production in a continuous process of accumulation. In Marxian economic theory, this dynamic is called the law of value. Capital accumulation forms the basis of capitalism, where economic activity is structured around the accumulation of capital, defined as investment in order to realize a financial profit.[171] In this context, "capital" is defined as money or a financial asset invested for the purpose of making more money (whether in the form of profit, rent, interest, royalties, capital gain or some other kind of return).[172]

In mainstream economics, accounting and Marxian economics, capital accumulation is often equated with investment of profit income or savings, especially in real capital goods. The concentration and centralisation of capital are two of the results of such accumulation. In modern macroeconomics and econometrics, the phrase "capital formation" is often used in preference to "accumulation", though the United Nations Conference on Trade and Development (UNCTAD) refers nowadays to "accumulation". The term "accumulation" is occasionally used in national accounts.

Wage labor

An industrial worker among heavy steel machine parts (Kinex Bearings, Bytča, Slovakia, c. 1995–2000)

Wage labor refers to the sale of labor under a formal or informal employment contract to an employer.[108] These transactions usually occur in a labor market where wages are market determined.[173] In Marxist economics, these owners of the means of production and suppliers of capital are generally called capitalists. The description of the role of the capitalist has shifted, first referring to a useless intermediary between producers, then to an employer of producers, and finally to the owners of the means of production.[97] Labor includes all physical and mental human resources, including entrepreneurial capacity and management skills, which are required to produce products and services. Production is the act of making goods or services by applying labor power.[174][175]


The Industrial Workers of the World poster "Pyramid of Capitalist System" (1911)

Criticism of capitalism comes from various political and philosophical approaches, including anarchist, socialist, religious and nationalist viewpoints.[176] Of those who oppose it or want to modify it, some believe that capitalism should be removed through revolution while others believe that it should be changed slowly through political reforms.[177][178]

Prominent critiques of capitalism allege that it is inherently exploitative,[179][180][181] alienating,[182] unstable,[183][184] unsustainable,[185][186][187] and economically inefficient[188][189][190]—and that it creates massive economic inequality,[191][192] commodifies people,[193][194] degrades the environment,[185][195] is undemocratic,[196][197][198] embeds uneven and underdevelopment between nation states,[199][200][201][202] and leads to an erosion of human rights[203] because of its incentivization of imperialist expansion and war.[204][205][206]

Other critics argue that such inequities are not due to the ethic-neutral construct of the economic system commonly known as capitalism, but to the ethics of those who shape and execute the system. For example, some contend that Milton Friedman's (human) ethic of 'maximizing shareholder value' creates a harmful form of capitalism,[207][208] while a Millard Fuller or John Bogle (human) ethic of 'enough' creates a sustainable form.[209][210] Equitable ethics and unified ethical decision-making is theorized to create a less damaging form of capitalism.[211]

See also


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