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Capitalism is an economic system in which trade, industry, and the means of production are largely or entirely privately owned and operated for profit.[1][2] Central characteristics of capitalism include capital accumulation, competitive markets and wage labour.[3] In a capitalist economy, the parties to a transaction typically determine the prices at which assets, goods, and services are exchanged.[4]

The degree of competition, role of intervention and regulation, and scope of public ownership varies across different models of capitalism.[5] Economists, political economists, and historians have taken different perspectives in their analysis of capitalism and recognized various forms of it in practice. These include laissez-faire capitalism, welfare capitalism and state capitalism; each highlighting varying degrees of dependency on markets, public ownership, and inclusion of social policies. The extent to which different markets are free, as well as the rules defining private property, is a matter of politics and policy. Many states have what are termed capitalist mixed economies, referring to a mix between planned and market-driven elements.[6] Crony capitalism is a state of affairs in which insider corruption, nepotism and cartels dominate the system. In Marxian economics this is considered to be the normal state of mature capitalism, while in anarcho-capitalist theory it is considered a political distortion of capital and markets.[7] Capitalism has existed under many forms of government, in many different times, places, and cultures.[8] Following the demise of feudalism, capitalism became the dominant economic system in the Western world.

Capitalism was carried across the world by broader processes of globalization such as imperialism and, by the end of the nineteenth century, became the dominant global economic system, in turn intensifying processes of economic and other globalization.[9] Later, in the 20th century, capitalism overcame a challenge by centrally-planned economies and is now the encompassing system worldwide,[10][11] with the mixed economy being its dominant form in the industrialized Western world. Barry Gills and Paul James write:

The process remains uneven, but notwithstanding the continuing importance of national and regional economies today, global capitalism is undoubtedly the dominant framework of economics in the world. There are many debates about what this means, but across the political spectrum ‘capitalism’ has become the taken-for-granted way of naming the economic pattern that weaves together the current dominant modes of production and exchange.[12]

Different economic perspectives emphasize specific elements of capitalism in their preferred definition. Laissez-faire and liberal economists emphasize the degree to which government does not have control over markets and the importance of property rights.[13][14] Neoclassical and Keynesian macro-economists emphasize the need for government regulation to prevent monopolies and to soften the effects of the boom and bust cycle.[15] Marxian economists emphasize the role of capital accumulation, exploitation and wage labor. Most political economists emphasize private property as well, in addition to power relations, wage labor, class, and the uniqueness of capitalism as a historical formation.[6]

Proponents of capitalism argue that it creates more prosperity than any other economic system, and that its benefits are mainly to the ordinary person.[16] Critics of capitalism variously associate it with economic instability,[17] an inability to provide for the well-being of all people,[18] and an unsustainable danger to the natural environment.[19] Socialists maintain that, although capitalism is superior to all previously existing economic systems (such as feudalism or slavery), the contradiction between class interests will only be resolved by advancing into a completely social system of production and distribution in which all persons have an equal relationship to the means of production.[20]

The term capitalism, in its modern sense, is often attributed to Karl Marx.[8][21] In his magnum opus Capital, Marx analysed 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.[22]


Main article: History of capitalism

Economic trade for profit has existed since at least the second millennium BC.[23] However, capitalism in its modern form is usually traced to the emergence of agrarian capitalism and mercantilism of the Early Modern era.

Agrarian capitalism[edit]

The economic foundations of the feudal agricultural system began to shift substantially in 16th century England; the manorial system had broken down by this time, and land began to be concentrated in the hands of fewer landlords with increasingly large estates. Instead of a serf-based system of labor, workers were increasingly being employed as part of a broader and expanding money economy. The system put pressure on both the landlords and the tenants to increase the productivity of the agriculture to make profit; the weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try out better methods, and the tenants also had incentive to improve their methods, in order to flourish in an increasingly competitive labor market. Terms of rent for the land were becoming subject to economic market forces rather than the previous stagnant system of custom and feudal obligation. [24]



Main article: Mercantilism

The economic doctrine that held sway between the sixteenth and eighteenth centuries is commonly described as mercantilism.[25] 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 production methods.[8] Most scholars consider the era of merchant capitalism and mercantilism as the origin of modern capitalism,[26][27] although Karl Polanyi argued that the hallmark of capitalism is the establishment of generalized markets for what he referred to as the "fictitious commodities": 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."[28]



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 argued 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 tariffs, which mercantilists thought were necessary to encourage home production of manufactured goods.


The British East India Company and the Dutch East India Company inaugurated an expansive era of commerce and trade.[31][32] These companies were characterized by their colonial and expansionary powers given to them by nation-states.[31] 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 capitalism[edit]


A new group of economic theorists, led by David Hume[34] and Adam Smith, in the mid-18th century, challenged fundamental mercantilist doctrines such 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.


Britain also abandoned its protectionist policy, as embraced by mercantilism. In the 19th century, Richard Cobden and John Bright, who based their beliefs on the Manchester School, initiated a movement to lower tariffs.[35] In the 1840s, Britain adopted a less protectionist policy, with the repeal of the Corn Laws and the Navigation Acts.[25] Britain reduced tariffs and quotas, in line with David Ricardo's advocacy for free trade.







Keynesianism and neoliberalism[edit]

Main articles: Keynesianism and Neoliberalism
The New York stock exchange traders' floor (1963)

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. The post war era was greatly influenced by Keynesian economic stabilization policies. The postwar boom ended in the late 1960s and early 1970s, and the situation was worsened by the rise of stagflation.[39]


Economic elements[edit]

The essential feature of capitalism is the investment of money in order to make a profit.[41]

In a capitalist economic system capital assets can be owned and controlled by private persons, labor is purchased for money wages, capital gains accrue to private owners, and the price mechanism is utilized to allocate capital goods between competing uses. The extent to which the price mechanism is used, the degree of competitiveness, the balance between the public sector and the private sector, and the extent of government intervention in markets are the factors which distinguish several forms of capitalism in the modern world.[5]

In free-market and laissez-faire forms of capitalism, markets are utilized most extensively with minimal or no regulation over the pricing mechanism. In mixed economies, which are almost universal today,[42] markets continue to play a dominant role but are regulated to some extent by government in order to correct market failures, promote social welfare, conserve natural resources, fund defense and public safety or for other reasons. 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.

Capitalism and capitalist economics is often contrasted with socialism, though the meaning of the word socialism has changed over time. The original meaning of socialism was state ownership of the means of production. Today, the word is often used to mean any state control of economic decision-making.

Money, capital, and accumulation[edit]

Money is primarily a standardized medium of exchange, and final means of payment, that serves to measure the value of all goods and commodities in a standard of value. It is an abstraction of economic value and medium of exchange that eliminates the cumbersome system of barter by separating the transactions involved in the exchange of products, thus greatly facilitating specialization and trade through encouraging the exchange of commodities. Capitalism involves the further abstraction of money into other exchangeable assets and the accumulation of money through ownership, exchange, interest and various other financial instruments.

The accumulation of capital refers to the process of "making money", or growing an initial sum of money through investment in production. Capitalism is based around the accumulation of capital, whereby financial capital is invested in order to realize 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 and financial markets[edit]

The defining feature of capitalist markets, in contrast to markets and exchange in pre-capitalist societies like feudalism, is the existence of a market for capital goods (the means of production), meaning exchange-relations (business relationships) exist within the production process. Additionally, capitalism features a market for labor. This distinguishes the capitalist market from pre-capitalist societies which generally only contained market exchange for final goods and secondary goods. The "market" in capitalism refers to capital markets and financial markets. Thus, there are three main markets in a typical capitalistic economy: labor, goods and services, and financial.

Wage labor and class structure[edit]

Wage labor refers to the class-structure of capitalism, whereby workers receive either a wage or a salary, and owners receive the profits generated by the factors of production employed in the production of economic value. Individuals who possess and supply financial capital to productive ventures become owners, either jointly (as shareholders) or individually. In Marxian 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 to an employer of producers, and eventually came to refer to owners of the means of production.[22] The term capitalist is not generally used by supporters of mainstream economics.

"Workers" includes those who expend both manual and mental (or creative) labor in production, where production does not simply mean physical production but refers to the production of both tangible and intangible economic value. "Capitalists" are individuals who derive income from investments.



Macroeconomics keeps its eyes on things such as inflation: a general increase in prices and fall in the purchasing value of money; growth: how much money a government has and how quickly it accrues money; unemployment, and rates of trade between other countries. Whereas microeconomics deals with individual firms, people, and other institutions that work within a set frame work of rules to balance prices and the workings of a singular government.

Both micro and macroeconomics work together to form a single set of evolving rules and regulations. Governments (the macroeconomic side) set both national and international regulations that keep track of prices and corporations' (microeconomics) growth rates, set prices, and trade, while the corporations influence what federal laws are set.[45][46][47]

Types of capitalism[edit]



Main articles: Mercantilism and Protectionism


Free-market economy[edit]


Social-market economy[edit]

Main articles: Social market and Nordic model



State capitalism[edit]

Main article: State capitalism


According to Aldo Musacchio, a professor at Harvard Business School, it is a system in which governments, whether democratic or autocratic, exercise a widespread influence on the economy, through either direct ownership or various subsidies. Musacchio also emphasizes the difference between today's state capitalism and its predecessors. Gone are the days when governments appointed bureaucrats to run companies. The world's largest state-owned enterprises are traded on the public markets and kept in good health by large institutional investors.[48]

Corporate capitalism[edit]

Main article: Corporate capitalism


Mixed economy[edit]

Main article: Mixed economy




Other variants of capitalism include:

Etymology and early usage[edit]

Other terms sometimes used for capitalism:

The term capitalist as referring to an owner of capital (rather than its meaning of someone adherent to the economic system) shows earlier recorded use than the term capitalism, dating back to the mid-17th century. Capitalist is derived from capital, which evolved from capitale, a late Latin word based on caput, meaning "head" — 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 in the sense of referring to funds, stock of merchandise, sum of money, or money carrying interest.[57][58][59] By 1283 it was used in the sense of the capital assets of a trading firm. It was frequently interchanged with a number of other words — wealth, money, funds, goods, assets, property, and so on.[57]

The Hollandische Mercurius uses capitalists in 1633 and 1654 to refer to owners of capital.[57] In French, Étienne Clavier referred to capitalistes in 1788,[60] six years before its first recorded English usage by Arthur Young in his work Travels in France (1792).[59][61] David Ricardo, in his Principles of Political Economy and Taxation (1817), referred to "the capitalist" many times.[62] Samuel Taylor Coleridge, an English poet, used capitalist in his work Table Talk (1823).[63] Pierre-Joseph Proudhon used the term capitalist in his first work, What is Property? (1840) to refer to the owners of capital. Benjamin Disraeli used the term capitalist in his 1845 work Sybil.[59] Karl Marx and Friedrich Engels used the term capitalist (Kapitalist) in The Communist Manifesto (1848) to refer to a private owner of capital.

According to the Oxford English Dictionary (OED), the term capitalism was first used by novelist William Makepeace Thackeray in 1854 in The Newcomes, where he meant "having ownership of capital".[59] Also according to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the term private capitalism in 1863.

The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850 and Pierre-Joseph Proudhon in 1861.[64] Karl Marx and Friedrich Engels referred to the capitalistic system (kapitalistisches System)[65][66] and to the capitalist mode of production (kapitalistische Produktionsform) in Das Kapital (1867).[67] The use of the word "capitalism" in reference to an economic system appears twice in Volume I of Das Kapital, p. 124 (German edition), and in Theories of Surplus Value, tome II, p. 493 (German edition). Marx did not extensively use the form capitalism, but instead those of capitalist and capitalist mode of production, which appear more than 2600 times in the trilogy Das Kapital.

Marx's notion of the capitalist mode of production is characterised as a system of primarily private ownership of the means of production in a mainly market economy, with a legal framework on commerce and a physical infrastructure provided by the state. He believed that no legal framework was available to protect the laborers, and so exploitation by the companies was rife.[68][page needed] Engels made more frequent use of the term capitalism; volumes II and III of Das Kapital, both edited by Engels after Marx's death, contain the word "capitalism" four and three times, respectively. The three combined volumes of Das Kapital (1867, 1885, 1894) contain the word capitalist more than 2,600 times.



Classical political economy[edit]

The classical school of 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 market that have since formed the basis of study for most contemporary economists.

In France, 'Physiocrats' like François Quesnay promoted free trade based on a conception that wealth originated from land. Quesnay's Tableau Économique (1759), described the economy analytically and laid the foundation of the Physiocrats' economic theory, followed by Anne Robert Jacques Turgot who opposed tariffs and customs duties and advocated free trade. Richard Cantillon defined long-run equilibrium as the balance of flows of income, and argued that the supply and demand mechanism around land influenced short-term prices.

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. His theories regarding the "invisible hand" are commonly interpreted to mean individual pursuit of self-interest unintentionally producing collective good for society. It was necessary for Smith to be so forceful in his argument in favor of free markets because he had to overcome the popular mercantilist sentiment of the time period.[69]


In On 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.[71] He also argued that inflation is closely related to changes in quantity of money and 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.[72]

The values of classical political economy are strongly associated with the classical liberal doctrine of minimal government intervention in the economy, though it does not necessarily oppose the state's provision of a few basic public goods.[73] Classical liberal thought has generally assumed a clear division between the economy and other realms of social activity, such as the state.[74]

While economic liberalism favors markets unfettered by the government, it maintains that the state has a legitimate role in providing public goods.[75] 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). In addition, he advocated retaliatory tariffs to bring about free trade, and copyrights and patents to encourage innovation.[75]

Marxist political economy[edit]

Main article: Marxian economics




This difference in values, he argues, constitutes surplus value, which the capitalists extract and accumulate. In his book 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.[78] He argues that a core requirement of a capitalist society is that a large portion of the population must not possess sources of self-sustenance that would allow them to be independent, and must instead be compelled, to survive, to sell their labor for a living wage.[79][80][81]

In conjunction with his criticism of capitalism was Marx's belief that the working class, due to its relationship to the means of production and numerical superiority under capitalism, would be the driving force behind the socialist revolution.[82] This argument is intertwined with Marx's version of the labor theory of value arguing that labor is the source of all value, and thus of profit.



In Limits to Capital (1982), David Harvey outlines an overdetermined, "spatially restless" capitalism coupled with the spatiality of crisis formation and resolution.[86] Harvey used Marx's theory of crisis to aid his argument that capitalism must have its "fixes" but that we cannot predetermine what fixes will be implemented, nor in what form they will be. His work on contractions of capital accumulation and international movements of capitalist modes of production and money flows has been influential.[87] According to Harvey, capitalism creates the conditions for volatile and geographically uneven development [88]

Weberian political sociology[edit]

In social science, the understanding of the defining characteristics of capitalism has been strongly influenced by the German sociologist, Max Weber. Weber considered market exchange, a voluntary supply of labor and a planned division of labor within the enterprises as defining features of capitalism. Capitalist enterprises, in contrast to their counterparts in prior modes of economic activity, were directed toward the rationalization of production, maximizing efficiency and productivity – a tendency embedded in a sociological process of enveloping rationalization that formed modern legal bureaucracies in both public and private spheres.[89] According to Weber, workers in pre-capitalist economies understood work in terms of a personal relationship between master and journeyman in a guild, or between lord and peasant in a manor.[90]

For these developments of capitalism to emerge, Weber argued, it was necessary the development of a "capitalist spirit"; that is, ideas and habits that favor a rational pursuit of economic gain. These ideas, in order to propagate a certain manner of life and come to dominate others, "had to originate somewhere ... as a way of life common to whole groups of men".[89] In his book The Protestant Ethic and the Spirit of Capitalism (1904–1905), Weber sought to trace how a particular form of religious spirit, infused into traditional modes of economic activity, was a condition of possibility of modern western capitalism. For Weber, the 'spirit of capitalism' was, in general, that of ascetic Protestantism; this ideology was able to motivate extreme rationalization of daily life, a propensity to accumulate capital by a religious ethic to advance economically through hard and diligent work, and thus also the propensity to reinvest capital. This was sufficient, then, to create "self-mediating capital" as conceived by Marx.

This is pictured in the Protestant understanding of beruf [91] – whose meaning encompass at the same time profession, vocation, and calling – as exemplified in Proverbs 22:29, "Seest thou a man diligent in his calling? He shall stand before kings". In the Protestant Ethic, Weber describes the developments of this idea of calling from its religious roots, through the understanding of someone's economic success as a sign of his salvation, until the conception that moneymaking is, within the modern economic order, the result and the expression of diligence in one's calling.

Finally, as the social mores critical for its development became no longer necessary for its maintenance, modern western capitalism came to represent the order "now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with economic acquisition, with irresistible force. Perhaps it will so determine them until the last ton of fossilized coal is burnt" (p. 123).[92] This is further seen in his criticism of "specialists without spirit, hedonists without a heart" that were developing, in his opinion, with the fading of the original Puritan "spirit" associated with capitalism.

Institutional economics[edit]

Institutional economics, once the main school of economic thought in the United States, holds that capitalism cannot be separated from the political and social system within which it is embedded. It emphasizes the legal foundations of capitalism (see John R. Commons) and the evolutionary, habituated, and volitional processes by which institutions are erected and then changed.



German Historical School and Austrian School[edit]


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 in the early part of the 20th century.

Austrian-born economist Joseph Schumpeter, sometimes associated with the School,[93] emphasized the "creative destruction" of capitalism—the fact that market economies undergo constant change. Schumpeter argued that at any moment in time 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 economy 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, argued 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 particularly 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.

Keynesian economics[edit]

Main article: Keynesian economics

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 equilibrium despite high unemployment.

Essentially rejecting Say's law, he argued that some people may have a liquidity preference that 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."


John Maynard Keynes tried to provide solutions to many of Marx's problems without completely abandoning the classical understanding of capitalism. His work attempted to show that regulation can be effective, and that economic stabilizers can rein in the aggressive expansions and recessions that Marx disliked. These changes sought to create more stability in the business cycle, and reduce the abuses of laborers. Keynesian economists argue that Keynesian policies were one of the primary reasons capitalism was able to recover following the Great Depression.[95] The premises of Keynes's work have, however, since been challenged by neoclassical and supply-side economics and the Austrian School.


Neoclassical economics and the Chicago School[edit]

Today, the majority of academic research on capitalism in the English-speaking world draws on neoclassical economic thought. It favors extensive market coordination and relatively neutral patterns of governmental market regulation aimed at maintaining property rights; deregulated labor markets; corporate governance dominated by financial owners of firms; and financial systems depending chiefly on capital market-based financing rather than state financing.

Milton Friedman took many of the basic principles set forth by Adam Smith and the classical economists and gave them a new twist. One example of this is his article in the September 1970 issue of The New York Times Magazine, where he argues that the social responsibility of business is "to use its resources and engage in activities designed to increase its profits ... (through) open and free competition without deception or fraud." This is similar to Smith's argument that self-interest in turn benefits the whole of society.[96] Work like this helped lay the foundations for the coming marketization (or privatization) of state enterprises and the supply-side economics of Ronald Reagan and Margaret Thatcher.

The Chicago School of economics is best known for its free market advocacy and monetarist ideas. According to Friedman and other monetarists, market economies are inherently stable if left to themselves and depressions result only from government intervention.[97]

Friedman, for example, argued that the Great Depression was result of a contraction of the money supply, controlled by the Federal Reserve, and not by the lack of investment as John Maynard Keynes had argued. Ben Bernanke, former Chairman of the Federal Reserve, is among the economists today generally accepting Friedman's analysis of the causes of the Great Depression.[98]

Neoclassical economists, who by 1998 constituted a majority of academic economists,[99] subscribe to a subjective theory of value, according to which the value derived from consumption of a good, rather than being objective and static, varies widely from person to person and for the same person at different times. Adherence to a subjective theory of value compels Neoclassical thinkers to reject the labor theory of value upheld by Adam Smith and other classical liberal thinkers, which was grounded upon a conception of objective value.

Neoclassical models typically adopt the assumptions of Marginalism, according to which economic value results from marginal utility and marginal cost (the marginal concepts). Marginalist theory implies that capitalists earn profits not by exploiting workers, but by forgoing current consumption, taking risks, and organizing production.

Neoclassical economic theory[edit]

Neoclassical economics explain capitalism as made up of individuals, enterprises, markets and government. According to their theories, individuals engage in a capitalist economy as consumers, laborers, and investors. As laborers, individuals may decide which jobs to prepare for, and in which markets to look for work. As investors they decide how much of their income to save and how to invest their savings. These savings, which become investments, provide much of the money that businesses need to grow.




The market[edit]




Role of government[edit]




Democracy, the state, and legal frameworks[edit]

Private property[edit]








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 indicates that capitalist democracies rarely make war with one another[106] and have little internal violence. However, critics of the democratic peace theory note that democratic capitalist states may fight infrequently and or never with other democratic capitalist states because of political similarity or 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, as authoritarian regimes have been able to manage economic growth without making concessions to greater political freedom.[107][108] States that have highly capitalistic economic systems have thrived under authoritarian or oppressive political systems. Singapore, which maintains a highly open market economy and attracts lots of foreign investment, does not protect civil liberties such as freedom of speech and expression. 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[109] by using authoritarian means to create a safe environment for investment and capitalism. Thomas Piketty of the Paris School of Economics asserts that rising economic inequality is a natural consequence of capitalist activity, and is destabilizing to democratic societies and undermines the ideals of social justice upon which they are built.[110]


Advocacy for capitalism[edit]

Economic growth[edit]

World's GDP per capita shows exponential growth since the beginning of the Industrial Revolution.[111]
Capitalism and the economy of the People's Republic of China


Between 1000 and 1820, the world economy grew sixfold, a faster rate than the population growth, so each individual enjoyed, on the average, a 50% increase in wealth. Between 1820 and 1998, world economy grew 50-fold, a much faster rate than the population growth, so each individual enjoyed, on the average, a 9-fold increase in wealth.[114] In most capitalist economic regions such as Europe, the United States, Canada, Australia and New Zealand, the economy grew 19-fold per person, even though these countries already had a higher starting level, and in Japan, which was poor in 1820, the increase per person was 31-fold. In the third world there was an increase, but only 5-fold per person.[114]

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.[115] 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.[116][117]


Political freedom[edit]


The novelist and philosopher Ayn Rand made positive moral defences of laissez-faire capitalism, most notably in her 1957 novel Atlas Shrugged, and in her 1966 collection of essays Capitalism: The Unknown Ideal. She argued that capitalism should be supported on moral grounds, not just on the basis of practical benefits.[120][121] She has significantly influenced conservative and libertarian supporters of capitalism, especially in the American Tea Party movement.[122]




Critics of capitalism associate it with social inequality and unfair distribution of wealth and power; a tendency toward market monopoly or oligopoly (and government by oligarchy); imperialism, counter-revolutionary wars and various forms of economic and cultural exploitation; materialism; repression of workers and trade unionists; social alienation; economic inequality; unemployment; and economic instability. Individual property rights have also been associated with the tragedy of the anticommons.

Notable critics of capitalism have included: socialists, anarchists, communists, national socialists, a few social democrats, technocrats, some types of conservatives, Luddites, Narodniks, Shakers, and some types of nationalists.

Marxists have advocated a revolutionary overthrow of capitalism that would lead to socialism, before eventually transforming into communism. Many socialists consider capitalism to be irrational, in that production and the direction of the economy are unplanned, creating many inconsistencies and internal contradictions.[124] Labor historians and scholars such as Immanuel Wallerstein have argued that unfree labor — by slaves, indentured servants, prisoners, and other coerced persons — is compatible with capitalist relations.[125] According to Wallerstein, institutional racism has been "one of the most significant pillars" of the capitalist system and serves as "the ideological justification for the hierarchization of the work-force and its highly unequal distributions of reward."[126] Marxian economist Richard D. Wolff postulates that capitalist economies prioritize profits and capital accumulation over the social needs of communities, and capitalist enterprises rarely ever include the workers in the basic decisions of the enterprise.[127]

Many aspects of capitalism have come under attack from the anti-globalization movement, which is primarily opposed to corporate capitalism. Environmentalists have argued that capitalism requires continual economic growth, and that it will inevitably deplete the finite natural resources of the Earth.[128] Such critics argue that while this neoliberalism, or contemporary capitalism,[129] has indeed increased global trade, it has also destroyed traditional ways of life, exacerbated inequality and increased global poverty - with more living today in abject poverty than before neoliberalism, and that environmental indicators indicate massive environmental degradation since the late 1970s.[130]

Following the banking crisis of 2007, Alan Greenspan told the United States Congress on October 23, 2008, "The whole intellectual edifice collapsed. I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders. ... I was shocked."[131]

Many religions have criticized or opposed specific elements of capitalism. Traditional Judaism, Christianity, and Islam forbid lending money at interest,[132][133] although alternative methods of banking have been developed. Some Christians have criticized capitalism for its materialist aspects[134] and its inability to account for the wellbeing of all people. Many of Jesus' parables deal with clearly economic concerns: farming, shepherding, being in debt, doing hard labor, being excluded from banquets and the houses of the rich, and have implications for wealth and power distribution.[135][136]

In his 84-page apostolic exhortation Evangelii Gaudium, Pope Francis described unfettered capitalism as "a new tyranny" and called upon world leaders to fight rising poverty and inequality.[137] In it he says:


See also[edit]


Further reading[edit]


  1. ^ “Capitalism” Oxford Dictionaries. “capitalism. an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” Retrieved 4 January 2013.
  2. ^ Chris Jenks. Core Sociological Dichotomies. “Capitalism, as a mode of production, is an economic system of manufacture and exchange which is geared toward the production and sale of commodities within a market for profit, where the manufacture of commodities consists of the use of the formally free labor of workers in exchange for a wage to create commodities in which the manufacturer extracts surplus value from the labor of the workers in terms of the difference between the wages paid to the worker and the value of the commodity produced by him/her to generate that profit.” London, England, UK; Thousand Oaks, California, USA; New Delhi, India: SAGE. p. 383.
  3. ^ Heilbroner, Robert L. "capitalism." Durlauf, Steven N.and Lawrence E. Blume, eds., The New Palgrave Dictionary of Economics. 2nd ed. (Palgrave Macmillan, 2008) doi:10.1057/9780230226203.0198
  5. ^ a b Macmillan Dictionary of Modern Economics, 3rd Ed., 1986, p. 54.
  7. ^ “Review of Kosanke's Instead of Politics – Don Stacy” Libertarian Papers Vol. 3, Art. No. 3 (2011)
  10. ^ a b Capitalism. Encyclopædia Britannica. 2006. 
  11. ^ James Fulcher, Capitalism, A Very Short Introduction, “In one respect there can, however, be little doubt that capitalism has gone global and that is in the elimination of alternative systems.” p. 99, Oxford University Press, 2004, ISBN 978-0-19-280218-7.
  13. ^ Tucker, Irvin B. (1997). Macroeconomics for Today. p. 553. 
  15. ^ Fulcher, James (2004). Capitalism A Very Short Introduction. Oxford University Press. p. 41. 
  16. ^ Friedman, Milton. Capitalism and Freedom. [Chicago]: University of Chicago, 1962.
  18. ^ Caritas in veritate paragraph 36
  19. ^ McMurty, John (1999). The Cancer Stage of Capitalism. PLUTO PRESS. ISBN 0-7453-1347-7. 
  21. ^ ""capitalism, n.2". OED Online". 
  26. ^ Burnham (2003)
  27. ^ Encyclopædia Britannica (2006)
  32. ^ Economic system:: Market systems. Encyclopædia Britannica. 2006. 
  35. ^ "laissez-faire". 
  41. ^ James Fulcher, Capitalism A Very Short Introduction, "the investment of money in order to make a profit, the essential feature of capitalism." p. 14, Oxford, 2004, ISBN 9780192802187.
  45. ^ Taylor, Timothy (2011). Principles of Economics: Economics and the Economy. USA: Textbook Media. p. 744. ISBN 1-930789-13-0. 
  46. ^ Reisman, George. "Economics and capitalism". Capitalism: A Treatise on Economics. The Jefferson School of Philosophy, Economics, and Psychology. Retrieved 18 February 2012. 
  47. ^ Scott, Bruce R. "The Political Economy of Capitalism Bruce R.". Harvard Business School. Retrieved 20 February 2012. 
  52. ^ Barrons Dictionary of Finance and Investment Terms. 1995. p. 74
  53. ^ "Market economy", Merriam-Webster Unabridged Dictionary
  54. ^ "About Cato". Retrieved 6 November 2008. 
  55. ^ "The Achievements of Nineteenth-Century Classical Liberalism". 


  57. ^ a b c Braudel p. 232
  58. ^ Harper, Douglas. "cattle". Online Etymology Dictionary. 
  59. ^ a b c d e James Augustus Henry Murray. "Capital". A New English Dictionary on Historical Principles. Oxford English Press. Vol 2. p. 93.
  61. ^ Arthur Young. Travels in France
  65. ^ Karl Marx. Chapter 16: "Absolute and Relative Surplus-Value". Das Kapital.



  68. ^ Karl Marx. Das Kapital.
  70. ^ Hunt, E.K. (2002). History of Economic Thought: A Critical Perspective. M.E. Sharpe. p. 92. 
  71. ^ Blackwell Encyclopedia of Political Thought. Blackwell Publishing. 1991. p. 91. 
  72. ^ Skousen, Mark (2001). The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. M.E. Sharpe. pp. 98–102, 134. 
  74. ^ Calhoun, Craig (2002). Capitalism: Dictionary of the Social Sciences. Oxford University Press. 
  75. ^ a b "Adam Smith". 
  76. ^ The Communist Manifesto
  78. ^ Karl Marx. "Capital. v. 3. Chapter 47: Genesis of capitalist ground rent". Marxists. Retrieved 26 February 2008. 
  81. ^ David Harvey 1989 The Condition of Postmodernity
  82. ^ Wheen, Francis Books That Shook the World: Marx's Das Kapital1st ed. London: Atlantic Books, 2006
  84. ^ See, for example, the works of Stephen Resnick and Richard Wolff.
  85. ^ Ste. Croix, G. E. M. de (1982). The Class Struggle in the Ancient Greek World. pp. 52–3. 
  86. ^ David Harvey. The Limits to Capital. Verso, 17 January 2007. ISBN 1844670953
  89. ^ a b Bendix, Reinhard: Max Weber: An Intellectual Portrait. Love & Brydone; London, 1959
  90. ^ Kilcullen, John (1996). "Max Weber: On Capitalism". Macquarie University. Retrieved 26 February 2008. 
  92. ^ "Conference Agenda" (PDF). Economy and Society. Retrieved 26 February 2008. 
  93. ^ David Simpson, (1983) "Joseph Schumpeter and the Austrian School of Economics", Journal of Economic Studies, Vol. 10 Iss: 4, pp. 18–28
  94. ^ Paul Mattick. "Marx and Keynes: the limits of the mixed economy". Marxists. Retrieved 26 February 2008. 
  95. ^ Erhardt III, Erwin. "History of Economic Development." University of Cincinnati. Lindner Center Auditorium, Cincinnati. 7 November 2008.
  96. ^ Friedman, Milton. "The Social Responsibility of Business is to Increase its Profits." The New York Times Magazine 13 September 1970.
  97. ^ Felderer, Bernhard. Macroeconomics and New Macroeconomics. 
  98. ^ Ben Bernanke (8 November 2002). "Remarks by Governor Ben S. Bernanke". The Federal Reserve Board. Retrieved 26 February 2008. 
  99. ^ Yonary, Yuval P. (1998). The Struggle Over the Soul of Economics. Princeton University Press. p. 29. ISBN 0-691-03419-2. 
  100. ^ "Capitalism." World Book Encyclopedia. 1988. p. 194.
  105. ^ Mankiw, Gregory (1997). Principles of Economics. Harvard University. p. 10. ISBN 0-03-024719-5. 
  114. ^ a b Martin Wolf, Why Globalization works, pp. 43–45
  115. ^ Nardinelli, Clark. "Industrial Revolution and the Standard of Living". Retrieved 26 February 2008. 
  116. ^ Barro, Robert J. (1997). Macroeconomics. MIT Press. ISBN 0-262-02436-5. 
  120. ^ Burns, Jennifer (2006). "Godless Capitalism: Ayn Rand and the Conservative Movement". In Lichtenstein, Nelson (ed.). American Capitalism: Social Thought and Political Economy in the Twentieth Century. Philadelphia: University of Pennsylvania Press. pp. 282–283. ISBN 978-0-8122-3923-2. 
  121. ^ Den Uyl, Douglas & Rasmussen, Douglas (1984). "Capitalism". In Den Uyl, Douglas & Rasmussen, Douglas (eds.). The Philosophic Thought of Ayn Rand. Chicago: University of Illinois Press. pp. 173–174. ISBN 0-252-01033-7. OCLC 9392804. 
  125. ^ 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). Marcel van der Linden (Fall 2003). "Labour History as the History of Multitudes". Labour/Le Travail 52: 235–244. doi:10.2307/25149390. JSTOR 25149390. Retrieved 26 February 2008. 
  126. ^ Wallerstein, Immanuel (1983). Historical Capitalism. Verso Books. p. 78. ISBN 0860917614. 
  127. ^ Frances Goldin, Debby Smith, Michael Smith (2014). Imagine: Living in a Socialist USA. Harper Perennial. ISBN 0062305573 pp. 49-50.
  129. ^ The crisis of neoliberalism. The Real News. 30 March 2010. Retrieved 3 January 2014.
    • "When we speak of neoliberalism, we speak of contemporary capitalism." - Gérard Duménil, economist at the University of Paris.
  130. ^ Campbell Jones, Martin Parker, Rene Ten Bos (2005). For Business Ethics. Routledge. p. 101 ISBN 0415311357
  131. ^ New York Times, Oct. 23, 2007.
  132. ^ Baba Metzia 61b
  133. ^ Moehlman, 1934, p. 6–7.
  137. ^ Naomi O'Leary (26 November 2013). Pope attacks 'tyranny' of markets in manifesto for papacy. Reuters. Retrieved 30 December 2013.

External links[edit]