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Capitalism: the story on HearLore | HearLore
Capitalism
The word capital itself began as a simple Latin term for head, a word that once described the very top of a human body before it evolved to mean the head of a herd of cattle and eventually the sum of money used to generate more money. This linguistic shift from the biological to the financial occurred over centuries, with the concept of capital assets appearing in trading firms by the year 1283. The term capitalist first emerged in the mid-17th century to describe owners of such capital, appearing in the Dutch publication Hollantse Mercurius in 1653. By the time the word capitalism entered the English language in 1854 through the novel The Newcomes by William Makepeace Thackeray, it had already been used by socialist critics like Louis Blanc and Pierre-Joseph Proudhon to describe a system where capital was appropriated by some to the exclusion of others. The very name of the system was born from its detractors, a fact that has shaped the debate around it ever since. The etymology reveals a deep connection between the physical body and the abstract concept of wealth, suggesting that the drive to accumulate capital is as old as the human desire to own and control resources.
From Feudal Fields to Factory Floors
The economic foundations of the modern world began to shift in 16th-century England as the manorial system broke down and land became concentrated in the hands of fewer landlords. Instead of a serf-based system of labor, workers were increasingly employed as part of a broader and expanding money-based economy. This transition put pressure on both landlords and tenants to increase the productivity of agriculture to make profit, as the weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try better methods. The system put tenants in a position where they had to improve their methods to flourish in a competitive labor market, and terms of rent for land became subject to economic market forces rather than to the previous stagnant system of custom and feudal obligation. This agrarian shift laid the groundwork for the Industrial Revolution, which began in the mid-18th century and saw industrialists replace merchants as a dominant factor in the capitalist system. The Industrial Revolution established the factory system of manufacturing, characterized by a complex division of labor between and within work processes and the routine of work tasks. It marked the development of the capitalist mode of production, which eventually established the domination of the capitalist mode of production. The transition from agrarianism to industrial capitalism was not merely a change in technology but a fundamental restructuring of how society organized labor and production.
The Age of Discovery and Empire
Common questions
When did the word capitalism enter the English language?
The word capitalism entered the English language in 1854 through the novel The Newcomes by William Makepeace Thackeray. Socialist critics like Louis Blanc and Pierre-Joseph Proudhon had already used the term to describe a system where capital was appropriated by some to the exclusion of others.
What year did the Industrial Revolution begin in the mid-18th century?
The Industrial Revolution began in the mid-18th century and saw industrialists replace merchants as a dominant factor in the capitalist system. This period established the factory system of manufacturing and marked the development of the capitalist mode of production.
When did the United Kingdom formally adopt the gold standard?
The United Kingdom first formally adopted the gold standard in 1821. From the 1870s to the early 1920s, the global financial system was mainly tied to the gold standard.
What years did Ronald Reagan serve as president of the United States?
Ronald Reagan served as president of the United States from 1981 to 1989. His administration gained increasing prominence for monetarism, a modification of Keynesianism that is more compatible with laissez-faire analyses.
When was the book The Road to Serfdom published by Friedrich Hayek?
Friedrich Hayek published his book The Road to Serfdom in 1944. He asserted that the free-market understanding of economic freedom as present in capitalism is a requisite of political freedom.
When was the book Capital in the Twenty-First Century published by Thomas Piketty?
Thomas Piketty published his book Capital in the Twenty-First Century in 2013. He asserted that inequality is the inevitable consequence of economic growth in a capitalist economy and the resulting concentration of wealth can destabilize democratic societies.
The economic doctrine prevailing from the 16th to the 18th centuries is commonly called mercantilism, a system of trade for profit that was associated with the geographic exploration of foreign lands by merchant traders, especially from England and the Low Countries. European merchants, backed by state controls, subsidies and monopolies, made most of their profits by buying and selling goods. The British East India Company and the Dutch East India Company, after massive contributions from the Mughal Bengal, inaugurated an expansive era of commerce and trade. These companies were characterized by their colonial and expansionary powers given to them by nation-states. During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a return on investment. The imperialism of the 18th-century decisively shaped globalization, as Europeans colonized areas of Africa and the Pacific islands. Colonisation by Europeans, notably of Africa by the British and French, 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. From the 1870s to the early 1920s, the global financial system was mainly tied to the gold standard, which the United Kingdom first formally adopted in 1821. New technologies such as the telegraph, transatlantic cable, radiotelephone, steamships, and railways allowed goods and information to move around the world to an unprecedented degree.
The Clash of Ideologies and the Cold War
The postwar boom ended in the late 1960s and early 1970s and the economic situation grew worse with the rise of stagflation. 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 from 1981 to 1989 and of Margaret Thatcher in the United Kingdom from 1979 to 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. 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. Harvard Kennedy School economist Dani Rodrik distinguishes between three historical variants of capitalism: Capitalism 1.0 during the 19th century entailed largely unregulated markets with a minimal role for the state; 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; and Capitalism 2.1 entailed a combination of unregulated markets, globalization, and various national obligations by states. The ideological struggle between capitalism and socialism shaped the political landscape of the 20th century, with the victory of capitalism in the late 20th century leading to the dominance of mixed economies in the industrialized Western world.
The Invisible Hand and the Price of Freedom
In the mid-18th century a group of economic theorists, led by David Hume and Adam Smith, 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. Adam 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. 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. The relationship between democracy and capitalism is a contentious area in theory and in popular political movements. Friedrich Hayek asserted in his book The Road to Serfdom in 1944 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, claiming that centralized economic operations are always accompanied by political repression. However, Thomas Piketty of the Paris School of Economics asserted in his book Capital in the Twenty-First Century in 2013 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.
The Many Faces of the Market
There are many variants of capitalism in existence that differ according to country and region. 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. They include advanced capitalism, corporate capitalism, finance capitalism, free-market capitalism, mercantilism, state capitalism and welfare capitalism. 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 emphasize the role of finance capital as the determining and ruling-class interest in capitalist society, particularly in the latter stages. State capitalism is a market economy dominated by state-owned enterprises, where the state enterprises are organized as commercial, profit-seeking businesses. The designation has been used broadly during parts of the 20th and 21st centuries, especially in a few of the former Eastern Bloc countries such as Yugoslavia. 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. The diversity of capitalist models reflects the adaptability of the system to different political and cultural contexts.
The Shadow of Exploitation and Inequality
Criticism of capitalism comes from various political and philosophical approaches, including anarchist, socialist, religious and nationalist viewpoints. 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. Critiques of capitalism allege that it is inherently exploitative of labor, alienating, unsustainable, and economically inefficient. Other critics argue that 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 ethic of maximizing shareholder value creates a harmful form of capitalism, while Millard Fuller's or John Bogle's ethic of enough creates a sustainable form. The concentration and centralization 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 refers nowadays to accumulation. The term accumulation is occasionally used in national accounts. The debate over the nature of capitalism continues to shape political discourse and economic policy, with critics pointing to the social and environmental costs of the system.