| Capitalism is a system that rose to dominance in Europe between the 16th and 19th centuries and
replaced feudalism and mercantilism. There are many, sometimes contradictory, theories and definitions of capitalism that developed in the 19th century, in the context of the
industrial revolution, and in the 20th century, in the context of the Cold
War. Most definitions of capitalism include some combination of the following: the right of individuals, or groups of
individuals to act as corporations with distinct legal personality , to own
and trade private property
including capital goods and land in a competitive environment in the form of a free or
relatively free market, where price
and wages are determined by supply and demand, and where there is
investment for profit, with risks being assumed by the investors and investment
decisions being made privately; the state is relied upon to protect private property rights; explicit and implicit contractual
obligations are adjudicated by the state or contractually specified third parties.
Etymology
The etymology of the word capital reveals roots in the trade and ownership of animals. The Latin root of the word capital is capitalis, from the proto-Indo-European kaput, which means "head", this being how wealth was
measured. The more heads of cattle, the better. The terms chattel (meaning goods, animals, or slaves) and even
cattle itself also derive from this same origin.
The lexical connections between animal trade and economics can also be seen in the names of many currencies and words about
money: fee (faihu), rupee (rupya), buck (a deerskin), pecuniary (pecu), stock (livestock), and peso
(pecu or pashu) all derive from animal-trade origins.
The first use of the word "capitalism" in English is by Thackeray in 1854, by which he meant having ownership of
capital. In 1867 Proudhon used the term
"capitalist" to refer to owners of capital, and Marx and Engels refer to the "Capitalist production system" and in Das Kapital to "Kapitalist", "capitalist" (meaning a private owner of
capital). By the early 20th century the term had become widespread, as
evidenced by Max Weber's use of the term in his The
Protestant Ethic and the Spirit of Capitalism in 1904, and Werner Sombart's 1906 Modern
Capitalism. The OED cites the use of the term
"private capitalism" by Karl Daniel Adolf Douai, German-American socialist
and abolitionist in the late 19th century, in an 1877 work entitled "Better Times", and a citation by
an unknown author in 1884 in the pages of Pall
Mall magazine.
Under the Marxist theory of ideology, a dominant economic class is believed to have its own ideology serving its class interests. The ideology
of the "capitalist class" or bourgeoisie -- economic liberalism -- also came to be known as "capitalism", giving the word another meaning.
This usage has been adopted outside of Marxist circles, and today many economic liberals self-describe as "capitalists", even if
they are not personally involved in business investment.
History of capitalism
Main article: History of capitalism (practice)
History of theory of capitalism
Main article: History of theory of
capitalism
The conception of what constitutes capitalism has changed significantly over time, as well as varying depending on the
political perspective and analytical approach taken. Adam Smith focussed on the
role of enlightened self-interest (the "invisible hand") and the role of specialisation in making capital accumulation efficient. Some proponents of capitalism (like Milton Friedman) emphasize the role of free markets, which they claim promote cooperation between
individuals, innovation, economic growth, as well as liberty. For many (like Immanuel Wallerstein), capitalism hinges on the elaboration of an
economic system in which goods and services are traded in
markets, and capital goods belong
to non-state entities, onto a global scale. For others (like Karl Marx), it is
defined by the creation of a labor market in which most people have to sell
their labor-power in order to survive. As Marx argued (see also Hilaire Belloc), capitalism is also distinguished from other market economies
with private ownership by the concentration of the means of production in the hands of a few. Many others use capitalism as a
synonym for the market economy.
How capitalism works
Example of Starting a Business
The following example introduces many of the ideas involved in capitalism. When starting a business, the initial owners or investors typically provide some money (the Capital) which is used by the business to buy or rent some means of production. For example, the enterprise may buy or rent a piece of land and a building; it may buy machinery and hire workers (labor-power). The commodities produced by the workers become the property of the capitalist
("capitalist" in this context refers to a person who has capital, rather than a person who favors capitalism), and are sold by
the workers on behalf of the capitalist. The money from sales also becomes the property of the capitalist. The workers deposit
the money into the capitalist's bank account. Once the capitalist receives this money, he or she pays the workers a portion for
their labor, pays other overhead costs, and keeps the rest as profit. If more money is
needed than the initial owners are willing or able to provide, the business may need to borrow a limited amount of extra money
with a promise to pay it back with interest -- in effect it may rent more capital. The business is granted a degree of legal authority, and control, over a set of factors of production (as economists call them). The business can
register as a corporate entity, meaning that it can act as a type of virtual
person in many matters before the law (see Companies for listing of such
entities). The owners can pay themselves some of the income derived from the business (Dividends), sell shares of stock in the company, or they can sell all of the equipment, land, and other assets, and split the proceeds between them.
Capitalist ownership
Traditionally, capitalist economies have had corporations working along the lines of the above example existing in parallel
with other types of organisation such as governments, sole traders, partnerships and sometimes cooperatives, credit unions, and other entities. Observers do not always agree which of these organisations, or
which features of them are part of capitalism, although most often companies, or many features of their operation, are included
as part of the definition.
Additionally, many of the characteristics and techniques of business workings in the above example existed before capitalism,
and many have continued to be added. So this leaves much room for debate. However, many people agree that it was around the time
when share-trading in corporate bodies became common and widely understood
that capitalism can be said to have begun, even though there is often disagreement that it was the share-trading itself that
defined capitalism. Such share trading first took place widely in Europe during the 17th century and continued to develop and
spread thereafter, although the word "capitalism" itself did not come into use until the 19th century.
One can view shares as converting company ownership into a commodity - the ownership rights are divided into units (the
shares) for ease of trading in them. In a similar way, one can view bonds as a commoditisation of debt. Other financial instruments have come into being since the early years
of capitalism that have commoditised fluctuations in markets, future prices, classes of items, and many other things. Increases
in communications technologies have helped facilitate an increase in the number and availability of financial instruments, and
the ease of trading.
In the bulk of capitalist economies, a predominant proportion of productive capacity has belonged to corporate bodies such as
companies. Therefore, to a large degree, authority over productive capacity has resided with the owners of companies. Within
legal limits and the financial means available to them, the owners of each company can decide how it will operate. This normally
includes deciding the following things (among many others):
- which land production will take place on,
- how many people to employ,
- what activities employees will do,
- which machines and tools to use for production.
In larger companies, authority is usually delegated in a hierarchical or bureaucratic system of management. When company ownership is
spread among many shareholders, the shareholders generally have votes in the exercise of authority over the company in proportion
to the size of their share of ownership.
Importantly, the owners receive any profits or proceeds generated by the productive capacity that they own - sometimes in the
form of dividends, other times in the form of profits being re-invested in the capacity that is owned (and "capital gains"). The price at which ownership of productive capacity sells is
generally in rough proportion to the profits currently being generated and/or expected to be generated by that productive
capacity in the future. There is therefore a financial incentive for owners to exercise their authority in ways that increase the
productive capacity of what they own. Various owners are motivated to various degrees by this incentive -- some give away a
proportion of what they own, others seem very driven to increase their holdings. Nevertheless the incentive is always there, and
it is credited by many as being a key aspect behind the remarkably consistent growth exhibited by capitalist economies.
Meanwhile, some critics of capitalism claim that the incentive for the owners is exaggerated and that it results in the owners
receiving money that rightfully belongs to the workers, while others point to the fact that the incentive only motivates owners
to make a profit - something which may not necessarily result in a positive
impact on society.
Characteristics of capitalist economies
Despite wide disagreements over the precise definition of capitalism, and arguments over which economies are capitalist and to
what degree, a set of broad characteristics are generally agreed on by both advocates and critics of capitalism. These are a
private sector, property rights, economic growth, economic mobility, unequal
distribution of wealth, competition, evolving entrepreneurial networks and social arrangements, and the existence of free markets like the labor market.
Property rights
One core difference from earlier social systems was the introduction of strong formal property rights and the rule of law.
Earlier social systems were much weaker in these respects, often meaning that the weak had to accept the leadership of a strong
patron or lord and pay him for protection. It has been argued that a strong formal property and legal system made possible a)
greater independence; b) clear and provable protected ownership; c) the standardization and integration of property rules and
property information in the country as a whole; d) increased trust arising from a greater certainty of punishment for cheating in
economic transactions; e) more formal and complex written statements of ownership that permitted the easier assumption of shared
risk and ownership in companies, and the insurance of risk; f) greater availability of loans for new projects, since more things
could be used as collateral for the loans; g) easier and more reliable information regarding such things as credit history and
the worth of assets; h) an increased fungibility, standardization and transferability of statements documenting the ownership of
property, which paved the way for structures such as national markets for companies and the easy transportation of property
through complex networks of individuals and other entities. All of these things enhanced economic growth.
Economic growth
One of the primary objectives in a social system in which commerce and property have a central role is to promote the growth
of capital. The standard measures of growth are Gross Domestic Product or GDP, capacity utilization, and 'standard of living'.
The ability of capitalist economies to sustainably increase and improve their stock of capital was central to the argument
which Adam Smith advanced for a free market setting production, price and
resource allocation. It has been argued that GDP per capita was essentially flat until the industrial revolution and the
emergence of the capitalist economy, and that it has since increased rapidly in capitalist countries [1] (http://www.minneapolisfed.org/pubs/region/04-05/essay.cfm)[2] (http://www.j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html). It has
also been argued that a higher GDP per capita promotes a higher standard of living, including the adequate or improved
availability of food, housing, clothing, health care, reduced working hours and freedom from work for children and the elderly.
These are reduced or unavailable if the GDP per capita is too low, so that most people are living a marginal existence.
Economic growth is, however, not universally viewed as an unequivocal good. The downside of such growth is referred to by
economists as the 'externalization of costs' (see externalization).
Among other things, these effects include pollution, the disruption of traditional living patterns and cultures, the spread of
pathogens, wars over resources or market access, and the creation of underclasses. In defense of capitalism, philosophers such as
Isaiah Berlin have pointed out that all of these ills are neither unique
to capitalism, nor are they its inevitable consequences.
Economic mobility
One of the key markers of entrepreneurial economies and 'growth' in a society is its economic mobility, defined as the
existence of large changes in the make-up of its socio-economic strata. This is manifested as the occurrence of large
fluctuations in the various deciles or
quintiles of income and wealth among the
population, and the existence of large changes over a person's lifetime in relation to their real earning power. In standard
economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new
professions or establishing a business venture. The instability of economic strata is contrasted with traditional feudal or tribal societies, which are considered to
have more stable wealth relationships, and with the egalitarianism that
exists in socialist societies, which distribute more of their wealth in the form of social benefits and therefore reduce income
mobility, particularly among those who own capital and wish to trade it.
However, the existence of large fluctuations in income deciles does not always represent income mobility - with individuals
receiving regular wage increases over their working lives and then retiring, such fluctuations alone do not show that there is
'mobility' per se. Moreover, it is argued by many labor economists that wage instability represents the transfer of risk
to workers and particular sectors of the economy such as agriculture, and away from the holders of capital.
Distribution of wealth
Capitalist economies have shown an uneven distribution of wealth. Typically between
0.5% and 1% of people own more than half of productive capacity, if not half of all wealth. Various studies have shown
distributions with the peak in the distribution at or near zero with fewer people owning progressively higher wealth. Common
mathematical models of such distributions include power-law
distributions, exponential distributions, and mixtures of the two. In these distributions some people own hundreds of thousands,
or sometimes millions of times more than average. Differences in actual income are smaller, for example in the US 1% of the
population earning under 20% of all household income.
Arguments directed against unfairness or dysfunctionality of this have a tendency to go roughly as follows: Most
characteristics of people, such as height or weight, and it might be surmised people's ability to be productive, are distributed
according to a bell shaped curve (standard
normal distribution) with a peak at the average and few people far on either side. For example, there are very few people who
are twice as tall as average, or who can run twice as fast, or have twice as high an IQ. The fact that capitalism doesn't
distribute wealth in a similar fashion could mean that an untamed capitalist system has inherent biases favoring those who
already possess greater resources. For example, rich people can give their children a better education and inherited wealth. This
can create or even increase large differences in wealth between people who do not differ in ability or effort.
A different explanation for the wealth inequality is that some people voluntarily do not achieve their full economic
potential. For example, some people may not see money as very important and make life choices that make them earn less than their
potential. Another explanation is that human contributions vary much more than humans vary in height. As can be illustrated by
comparing the contributions of an arsonist and an inventor/producer of antibiotics. Still another explanation is that economic
systems are not even the main culprit. The economist Thomas Sowell has
attributed factors such as geography, climate, culture, and natural resources as primary reasons for inequality. Although this
may apply primarily to wealth inequality between nations, not to wealth inequality in a nation.
A problem with using "distribution of wealth" as a standard to measure economic systems is that such a standard can produce
seemingly irrational judgments. Under the "distribution of wealth" standard, a system where everyone has nothing is judged as
equal to a system where everyone has enormous wealth since the distribution of wealth in the two systems is equal. The claim is
made that capitalist economics are not zero-sum games and that more wealth for most
people is actually "created" through innovation, and risk-taking. And that inequality may be necessary in this process. For
example, the inheritance of wealth may cause people to continue working and saving when they get older.
Robert Nozick has argued that no condition of perfect equality could
be maintained for very long. If all agents possess the same amount of wealth, they will immediately begin investing it in
different ventures which will pay off to varying degrees. Within moments of the first trade, then, inequality would be restored.
But voluntary economic exchange is seen as leaving both parties better off as both would not be trading unless the outcome of the
trade was an improvement for both. According to this view, even if the resulting distribution is not even, at least it is better
than if there were no trading.
Thus, people who see uneven wealth distribution as a lesser or unavoidable problem tend to argue that if inequality leads to
higher average wealth and higher wealth and income for most people, then wealth inequality may be acceptable. For example, there
are far fewer poor in China today than under communism, even if there is more inequality.[3] (http://www.worldbank.org/research/povmonitor/) In response, critics of capitalism have argued
that even if these arguments could justify some economic inequity, they cannot explain the very high inequality that
capitalism brings with it.
Other points of view on capitalism's wealth distribution include:
- Pro-Capitalist:
- The distribution is not important: the poor in capitalist countries have it better than the average people in socialist
countries.
- Also poor people try to flee from socialist countries to capitalist ones, not vice versa.
- Collection of wealth in relatively few hands serves a function that in the end benefits all. (see philanthropist)
- Capitalist economies concentrate wealth in the hands of those that are the most
productive in terms of providing goods and services that society values.
- The prospect of becoming wealthier than others serves as an incentive to produce (see motivation).
- A significant cause of poverty is the lack of capitalism.
- Capitalism hasn't been properly implemented yet.
- Wealth distribution concentrated in the hands of the minority of individuals is the natural outcome of capitalism since being
more productive than others is a matter of being willing to exert oneself and most people are naturally content to "just get by"
with minimal effort.
- Financial markets and banks where most wealth is stored act as a means of redistribution of wealth (see banking and stock market). Some say
that this causes the simple dollar amounts assigned to a persons "net worth" to be completely misleading and inflated.
- Distribution of wealth does not correlate with economic freedom but prosperity, growth, individual freedom, democracy, and
freedom from corruption do, see Economic freedom index (http://www.heritage.org/research/features/index/press.cfm)
- Rich people invest a larger proportion of their income than poor people, and according to the standard consensus from
Keynes to the neoclassical consensus, this is more beneficiary for the society as whole.
- The inequality of consumption is far less than the inequality in wealth, since there is no way most of the wealthy could
consume all their wealth. To the extent that they consume their wealth, they are redistributing it to others. To the extent that
they are are not consuming it, they are generally either managing it to create more wealth or giving it away (philanthropy).
- Anti-Capitalist:
- Wealth is not beneficial to everyone - not even the wealthy.
- Perhaps government interference in markets protects the wealthy.
- Uneven distribution of wealth shows capitalism to be faulty, or immoral.
- Many people have little wealth left over after living expenses, so they can't make it grow quickly.
- Persistent long-term inequality of wealth undermines the motivation of the poor to improve their stance.
- Wealthy people save relatively more than poor people. Hence an unequal distribution off wealth undermines an economy's mass
buying power, effectively leading to lower aggregate sales and wealth production in the future.
- Wealth is defined and judged incorrectly, in many different ways.
- The wealthy may not put their wealth to productive uses, for example, buying land just to deny access to it to others, to
keep or return it to a natural state, that they value for some reason
Competition, survival of the fittest and evolving network structure
Capitalist economies typically contain numerous companies, and people are free to enter into many different types of
arrangement with each other. Such an economy reacts to technological change, new discoveries and other developments through
continual readjustments in the relationships which exist among companies and individuals. In this way the economy's control
mechanisms and how information flows through it evolve over time, and are characterised by a kind of "survival of the fittest"
selection and evolution process which is not dissimilar to that exhibited in natural systems and their component
relationships.
Analysis of the networks of connections and arrangements in the economy has shown
a degree of similarity to other networks such as phone systems or the Internet. [4] (http://www.theyrule.net/)
contains examples of networks of company board members. Networks of customer links and monetary flows exhibit similar
characteristics.
Unpredictable/unapproved direction of capitalist economies
While a great deal of planning is undertaken among individual companies and other organisations in capitalist economies, few
significant mechanisms for imposing overall direction are available to governments. There is also a scarcity of reliable
predictive tools and foreknowledge of how an economy is likely to behave or perform more than a year or two into the future.
While most transactions may be planned and agreed by the actors involved, many society-wide phenomena that emerge from the
markets and its transactions are often not planned, predicted, approved or authorised by anyone. Nevertheless, in most modern
capitalist economies the State attempts to maintain a certain degree of economic planning (using such tools as allowing the
country's central bank to set base interest rates) in order to discourage economic instability and provide greater longer-term
direction.
Some economists use chaos theory to argue that it is impossible to make
accurate long-term economic predictions. They view the unplanned development of capitalism as one of its greatest strengths,
arguing that it permits many solutions to be tried, and that real-world competition generally finds a good solution to emerging
challenges. This is opposed to the central planning approach to the
running of a society, which often selects inappropriate solutions as a result of faulty forecasting.
Employment/unemployment
Since individuals typically earn their incomes from working for companies whose requirements are constantly changing, it is
quite possible that at any given time not all members of a country's potential work force will be able to find an employer that
needs their labor. This would be less problematic in an economy in which such individuals had unlimited access to resources such
as land in order to provide for themselves, but when the ownership of the bulk of its productive capacity resides in relatively
few hands, most individuals will be dependent on employment for their economic well-being. It is typical for true capitalist
economies to have rates of unemployment that fluctuate between 3% and 15%.
Some economists have used the term "natural
rate of unemployment" to describe this phenomenon.
Depressed or stagnant economies have been known to reach unemployment rates as high as 30%, while events such as military
mobilization (a good example is that of World War II) have resulted in just
1-2% unemployment, a level that is often termed "full employment". Typical unemployment rates in Western economies range between
5% and 10%. Some economists consider that a certain level of unemployment is necessary for the proper functioning of capitalist
economies. Equally, some politicians have claimed that the "natural rate of unemployment" highlights the inefficiency of a
capitalist economy, since not all its resources -- in this case human labor -- are being allocated efficiently.
Some libertarian economists, such as Henry Hazlitt, argue that higher unemployment rates are chiefly the result of minimum wage laws, and are not inevitable in a capitalist economy. In "Economics in One Lesson", Hazlitt argues that if the value of
the work of some potential employees is lower than the minimum wage, it would penalise the employer to employ them. Accordingly,
if the value of the productive capacity of a given employee is worth less to the employer than the minimum wage, that person will
become unemployed, and therefore unemployment will exist whenever the legal minimum wage exceeds the true economic value of the
least productive members of the labor
pool. Likewise, if the amount of money a person can obtain on welfare approaches
or equals what they could make by working, that person's incentive to work will be reduced.
Some unemployment is voluntary, such as when a potential job is turned down because the unemployed person is seeking a better
job, is voluntarily living on savings, or has a non-wage-earning role, such as in the case of a traditional homemaker. Some measures of employment disregard these categories of unemployment,
counting only people who are actively seeking work and have been unable to find any.
Size of government, taxes, regulations and market failures
Many consider an economy with lower taxes, smaller government and fewer regulations to be more capitalistic. Anarcho-capitalists claim that capitalism require no government or
taxes. Others doubt that property rights could exist in such a system and consider minarchism to be the most capitalistic political system.
The last century saw a very large increase in these variables in western countries. Combined U.S. government spending
increased from 3-4% of GDP to 33%. An average for 16 industrial nations jumped from 8% of GDP to 45%.[5] (http://mwhodges.home.att.net/intl-spend.htm) Thus it can be argued that the degree of
capitalism has seen a remarkable decline in Western nations.
Related to this is the question of market failures. A market failure
is a case in which a market fails to efficiently provide or allocate goods and services. Examples could be pollution, health care, unemployment or wealth inequality. Libertarians argue that there are no market failures. Socialists that the markets always fail. Between these extremes there are a wide spectrum of political
ideologies with different views on market failures and how to prevent them.
One explanation for the apparent decline in capitalism is that the Western nations have increasingly regulated various market
failures. Libertarians would instead argue that the regulations restrict competition, that the taxes go to the special interest
groups with the most political clout and that the almost constantly expanding governments do things less efficiently than the
private sector. One warning historical example being the constantly growing size of taxes and regulations in Rome before the fall
of that civilization. [6] (http://www.cato.org/pubs/journal/cjv14n2-7.html)
Other approaches
Capitalism in political ideologies
Main article: Capitalism and related political ideologies
Marxist critique of capitalism
Marxists and others criticize capitalism for enriching capitalists (owners of
capital) at the expense of workers without necessarily
working themselves ("the rich get richer, and the poor get poorer"), and for the degree of control over the lives of workers
enjoyed by owners. Supporters of capitalism counter this criticism by claiming that ownership of productive capacity provides
motivation to owners to increase productive capacity and so generally increase the average material wealth ("we all get richer").
Opponents of capitalism counter this by pointing out the unchanged after-tax income of the poorest quintile of the U.S.
population during the last two decades. While at the same time the average income and especially the income of the rich have
increased. [7] (http://www.cbo.gov/showdoc.cfm?index=5324&sequence=0). According to "United for a Fair
Economy," in 1982 CEOs of major corporations in the U.S. earned 42 times the annual wages of the average worker; in 2002 the
ratio stood at 282:1 [8] (http://www.faireconomy.org/press/2004/CEOPayRatio_pr.html). Supporters of capitalism point
out that the percentage of people in developing countries living below $1 per day have halved in only twenty years, especially in
countries like China that have embraced capitalism [9] (http://www.worldbank.org/research/povmonitor/). Life expectancy has almost doubled in the
developing world since WWII and the gap to the developed world is starting to close [10] (http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=2429). Looking at the world as a whole
and not only the U.S. shows that income inequality is in fact diminishing [11] (http://www.columbia.edu/~xs23/papers/worldistribution/NYT_november_27.htm).
Marxists believe that capitalism allows capitalists - the owners of capital - to exploit workers. The existence of private property is seen as a restriction on freedom, whereas
supporters of capitalism believe in the freedom to become wealthy which requires
establishing private property. Marxists also argue that capitalism has inherent contradictions that will inevitably lead to its
collapse. Capitalism is seen as just one stage in the evolution of the economy of a society.
Marxists also often argue that the structure of capitalism necessarily leads to unjust exploitation of workers, regardless of
whether or not the political system is one of an elected democracy. For this reason Marxists typically emphasise the capitalist
economic system of Western countries rather than the democratic political system. A capitalist system is an economic system -
although often associated with democratic political systems, they are independent from each other. Capitalist systems have often
functioned under unelected governments, some examples being Hong Kong, Singapore, and Chile under the rule of General
Pinochet.
In mainland China differences in terminology sometimes confuse and
complicate discussions of Chinese economic reform.
Under Chinese Marxism, which
is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat
is exploited by the bourgeoisie. In the official Chinese ideology, China is currently in the primary stage of socialism with Chinese
characteristics. However, because of Deng Xiaoping's dictum to
seek truth from facts, this view does not prevent China
from undertaking policies which in the West would be considered capitalistic including employing wage labor, increasing
unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and
encouraging the growth of the joint venture and private capitalist sectors.
Which Economies are "Capitalist" ?
In mainstream economics, a capitalist economy is one where the overwhelming majority of decisions regarding pricing,
production, and distribution of goods and services are made through market interactions by the private sector in a free market.
With private ownership of the means of production procured by the investment of capital. However, exactly where to draw the line in labeling economies is a matter of some debate.
Some believe that it is inaccurate to call any of the major industrialized economies "capitalist" because of the level of
government intervention in the economy. For example, some assert that the market in the United States of America is significantly
less than "free", and that therefore it is more appropriately termed a mixed economy that is merely skewed more toward capitalism than most national economies, rather than
being a true representation of capitalism. Still others might say that the U.S. economy is capitalist, but the U.K. economy is a
"mixed economy," and so on, depending upon their perception of how much economic freedom exists in those locales.
Many Greens, Marxists and anti-Globalists agree that the governments of the major industrial economies are not serving in the
role of protecting "the free market", but would go on to say that these governments are, in fact, acting to protect the owners of
capital and corporations as their first priority, sometimes expressed as "socialism for the rich, capitalism (cut throat
competition) for the poor." These critics, therefore, would assert that the correct term for the core industrial nations is
neither capitalism, nor mixed economy, but corporatist. For example, noteable
leftist Noam Chomsky says that "There's nothing remotely like capitalism in existence. To the extent there ever was, it had
disappeared by the 1920s or '30s." (interview with Detroit Metro Times). Libertarians and other free-market advocates may
also share this opinion regarding some or all of the major economies.
Nevertheless, mainstream economists, for their part, admit that the present economic systems have diverged from earlier forms
labeled "capitalism", and many believe that some of the modern economies are still best described as being "capitalism" rather
than "mixed economy" or "corporatist."
Another classification, associated largely with the Austrian
school of economics, regards most present economic systems as a perversion of capitalism, sometimes called crony capitalism, and envisages a de-cronied capitalist ideal.
Some use the phrase "laissez-faire capitalism"
to distinguish between "ordinary capitalism," believing that there is a difference. Some also use the phrase to differentiate
their preferred economic system from present economic systems which they believe are wrongly labeled as capitalism by many. These
also say that the phrase "laissez-faire capitalism" is redundant, pointing out that the common definition of capitalism
explicitly refers to trade occurring in a "free market." These assert that "capitalism" is already a laissez-faire system by
definition.
Proponents of the world-system perspective suggest that the whole globe has been incorporated into a single capitalist
world-economy. Even though a state may be socialist, it works in relation to a much larger, overarching capitalist
world-economy.
Indexes of Economic Freedom
There are two Indexes of Economic Freedom used
in economic research, one published by the Heritage
Foundation(a neoliberal thinktank) and the Wall Street Journal, another published by the Fraser Institute. Both attempt to measure of the degree of capitalism in
countries. They use statistics from independent organizations like the United Nations to score countries in various categories like the size of government, degree of taxes,
security of property rights, degree of free trade and size of market regulations. Many peer-reviewed papers have been published
using this material on the relationship between capitalism and for example poverty [12] (http://www.freetheworld.com/papers.html). The more advanced capitalist countries have much
higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant
mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the
same for both more and less capitalistic countries. [13] (http://www.freetheworld.com/2004/efw2004ch1.pdf). Other studies have shown similar results
[14] (http://www.cato.org/research/articles/vas-0109.html).
Attempts to decide the importance of the subcomponents of the indexes have often yielded contradictory results. However,
strong property rights may be particularly important. The economist Hernando de Soto has argued that weak property rights, especially for the poor, play a major
role in poverty and underdevelopment in developing countries [15] (http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm) [16] (http://www.carnegiecouncil.org/viewMedia.php/prmTemplateID/8/prmID/100). Many developing
countries are now trying to strengthen and simplify their property rights system after the successful application of his ideas in
Peru [17] (http://www.ild.org.pe/eng/facts.htm).
External links
Books
- Braudel, Fernand, Civilization and Capitalism : 15th -
18th Century 3 vols.
- Chandler, Alfred D., Jr. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass., and
London: Belknap Press of Harvard University Press, 1977.
- Landes, David S. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to
the Present. Cambridge, U.K.: Cambridge University Press, 1969.
- Rostow, W. W. The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press,
1960.
- Rand, Ayn, Capitalism: The Unknown Ideal ISBN 0451147952
- Smith, Adam, The Wealth of Nations (An Inquiry into the Nature and Causes of)
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