Capitalism 1 Capitalism Part of a series on Capitalism • Capitalism portal • Economics portal • Philosophy portal • Politics portal Part of a series on Economic systems • Business and economics portal Capitalism is an economic system in which capital assets are privately owned and items are brought to market for profit. In a capitalist economy, the parties to a transaction determine the prices at which assets, goods, and services are exchanged.[1][2][3] Central elements of capitalism include capital accumulation, competitive markets and wage labor.[4] Capitalism has existed under many forms of government, in many different times, places, and cultures.[] Following the demise of feudalism, capitalism became the dominant economic system in the Western world. Capitalism successfully overcame a challenge by communism and is now the dominant system worldwide.[][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, all characterizing varying levels of state power and public capital control. A pejorative characterization, crony capitalism, refers to a state of affairs in which insider corruption, nepotism and cartels dominate the system. This is considered to be the normal state of mature capitalism in Marxian economics but as an aberrant state by advocates of capitalism. All such characterizations are subjective and tend to mark out a point of view either more or less sympathetic to attempts by voters to regulate business. Laissez-faire economists emphasize the degree to which government does not have control over markets and the importance of property rights.[6][7] Others emphasize the need for government regulation, to prevent monopolies and to soften the effects of the boom and bust cycle.[8] 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.[9] The extent to which different markets are free, as well as the rules defining private property, is a matter of politics and Capitalism 2 policy. Many states have what are termed mixed economies, referring to the varying degree of planned and market-driven elements in an economic system.[9] Proponents of capitalism use historical precedent to claim that it is the greatest wealth-producing system known to man, and that its benefits are mainly to the ordinary person.[10] Critics of capitalism associate it with economic instability[11] and an inability to provide for the well-being of all people.[12] The term capitalism, in its modern sense, is often attributed to Karl Marx.[][13] However, Marx was far more concerned with characterizing the sociological effects of capital economics. The "ism" was used only twice in the more political interpretations of Marx's work, which were primarily authored by 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 sometimes associated with capitalism.[] The author Ayn Rand attempted a positive moral defense of capitalism as such but in highly romantic or literary terms that did not stand logical or historical scrutiny.[14] By contrast modern welfare economics has produced a number of detailed defenses of the mixed capitalist economy based on public ownership of infrastructure and defense of positive human rights such as housing or education. Amartya Sen in particular, in Development as Freedom[15] , his Nobel Prize winning work, outlined the reasoning by which many human societies have reached the common conclusion that mixed democratic capitalist economies with welfare systems were optimal to support human life. In practice, all early 21st century developed economies devote 40–60% of their GDP to taxes and the public sector. Those that devote more, such as Scandinavian countries, are also rated the most successful by their citizens, and by measures of economic well-being such as literacy, housing, lifespan, and gender equality. This suggests that capitalism is or has evolved towards some kind of compromise or truce with democracy, as Joseph Schumpeter first clearly predicted.[16] Economic elements There are a number of different elements in the capitalist socio-economic system. Capitalism is defined as a social and economic system in which capital assets are mainly 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 uses. The extent to which the price mechanism is used, the degree of competitiveness, and government intervention in markets distinguish exact forms of capitalism.[17] There are different variations of capitalism which have different relationships to markets and the state. In free-market and laissez-faire forms of capitalism, markets are utilized most extensively with minimal or no regulation over the pricing mechanism. In interventionist and mixed economies, 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, and fund defense and public safety. 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 generally considered to be the opposite of socialism, which contrasts with all forms of capitalism in the following ways: social ownership of the means of production, where returns on the means of production accrue to society at large, and goods and services are produced directly for their utility (as opposed to being produced by profit-seeking businesses). Capitalism 3 Money, capital, and accumulation 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. Capital in this sense refers to money used to buy something only in order to sell it again to realize a financial profit. 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 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. Capitalism is the system of raising, conserving and spending a set monetary value in a specified market. There are three main markets in a basic capitalistic economy: labor, goods and services, and financial. Labor markets (people) make products and get paid for work by the goods and services market (companies, firms, or corporations, etc.) which then sells the products back to the laborers. However, both of the first two markets pay into and receive benefits from the financial market, which handles and regulates the actual money in the economic system. This includes banks, credit-unions, stock exchanges, etc. From a monetary standpoint, governments control just how much money is in circulation worldwide, which can play a role on how money is spent in one's own country. Wage labor and class structure 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.[] 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