Capitalism – Definition, Concept, Different Ways, and More

Capitalism Definition

Capitalism is the West’s prevailing socio-economic system after medieval feudalism and dominant throughout the world today in the 21st century. It is a system typical of bourgeois industrial societies.

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Its two central and defining features are the private ownership of production and the free financial year. Its name comes from the idea of capital, that is, the central role of money in production and consumption relations.

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Different Ways of Capitalism

Capitalism proposes that money marks the measure of the exchange of goods and services and that it obtain in different ways:

  • And also, compensation for work, in the case of workers.
  • From income, in the case of owners.
  • As a result of risk and investment, in the case of business people or entrepreneurs.
  • For all this to be possible, private property must exist. The productive and commercial exercise be free, that is, that everyone invests in whatever want and reap the fruits or losses that the market throws at them.
  • In capitalist societies, therefore, the relations of production and labor and the consumption of goods and services are determined respectively by a wage system and a price system.
  • In this way, individuals consume what the amount of money they produce allows them.
  • The entire society works, then, seeking to benefit an economic income greater than expenses, which allows a surplus of capital (with which to consume, invest, or save).
  • Central to capitalism is the “self-regulation” of the market that marks the relationship between supply and demand.
  • The most in-demand (and therefore scarcer) products become more expensive, while the least demanded (and therefore more abundant) become cheaper.
  • This idea is the subject of many debates. It is often known as the “invisible hand” of the market.

What are the Characteristics of Capitalism?

Capitalism can characterize as follows:

  • It proposes capital as a measure of the economic relationship, obtaining through financial freedom and private property exploitation. For this, the latter must be allowed and protected by the State.
  • Capitalism is the economic system proper to industrial and bourgeois societies, and its appearance marked the end of feudalism.
  • The bourgeoisie ( merchants and later industrialists) displaced the aristocracy (landowners of noble descent) as the dominant social class.
  • It bases on ​​supply and demand goods and services are demanded by their consuming public and offered by their producers.
  • And also, depending on how this relationship occurs, the products will be more or less expensive and more or less abundant.
  • As a system, capitalism promotes competition and rewards risk, entrepreneurship, and innovation, which in the 20th century resulted in unbridled technological development.
  • Simultaneously, it allows and rewards speculation and usury, allowing the generation of profit from debt, interest, and other unproductive activities.

There are or have been dissimilar models of the capitalist system, such as:

1. Protectionism

The State sets tariffs and regulations to increase products’ prices from abroad artificially, thus protecting its industry and promoting national goods and services.

2. Laissez-Faire (from the French for “Letting Go”)

That limits the State’s interference to the maximum and allows the most significant quota of freedoms to the market without regulations.

3. Social Market Economy

Contrary to the previous one, it states that the financial year must be guided and planned by the State, without reaching the extreme of suffocating fundamental economic freedoms.

4. Corporate Capitalism

The market dominated hierarchical corporations and large economic groups that exercise power and determine the need.

On the other hand, capitalism builds a society divided into social classes according to their economic income and possession of capital (or property). And also, these social classes are, according to the Marxist gaze of capitalism:

5. The Bourgeoisie

Owner of the means of production (factories, shops, etc.) or large investment capital.

6. The Working Class

Whose participation in society is to sell their work capacity, be it qualified (professionals, technicians) or not (workers).

The lumpen. And also the unproductive sector of society.

Origin and History of Capitalism

  • Capitalism has not always operated in the same way that it does today. Although its formal beginnings date from the 16th and 17th centuries, there were essential antecedents at various times and places in history.
  • Its most direct antecedent locate towards the end of the Middle Ages, as a new dominant social class emerged from feudal society.
  • The bourgeoisie, whose commercial activity allowed the accumulation of money or other assets (merchandise and latest machinery), is a fundamental feature for the emergence of capitalist logic.
  • The origin of capitalism strongly determines by expanding the English textile industry from the seventeenth century, thanks to work’s massification. In the 18th century, with the first artisan machines, the industrial mode of production began.
  • The emergence of the first nation-states and the Industrial Revolution were critical elements in establishing the new system in Europe.
  • The spirit of classical capitalism understands by the Scottish economist and philosopher Adam Smith (1723-1790).
  • It was embodied in his The Wealth of Nations (1776), from which arose the free market’s central foundation, which advised the State’s least possible interference.
  • His ideas were later part of the philosophy of Liberalism in the 19th century, which witnessed the factory system’s development and the massive exodus from rural to urban regions that it caused, thus giving rise to the working class proletariat.
  • Henceforth, capitalism underwent enormous changes in its mode of operation, driven by the economic catastrophes of the 20th period and its two world wars.
  • The constant technological innovation marked the second half of that century until capitalism became global at the beginning of the 21st century.

Criticism of Capitalism

  • The current pollution is partly a consequence of capitalism.
  • Capitalism has been harshly criticized from two perspectives, mainly: the Marxist and the ecological.
  • It is an inherently unjust production system in which the bourgeoisie exploits the proletarian classes as labor.
  • In return, they obtain a salary that they use to consume, among other things, the goods that they produced.
  • In other words, the workers’ work is capitalized by the bourgeoisie, which extracts a surplus or profit from it, thus exempting itself from taking part in the work.
  • It was born within the brutal capitalist society of the 19th century. This view proposed that capitalism reproduced poverty, only benefiting the wealthy classes, who needed large numbers of workers to exploit.
  • Twentieth-century capitalism achieved economic development and a welfare state that vastly raised living standards in Europe and the United States, softening capitalism’s harmful effects and displacing them towards underdeveloped nations, thus creating an unequal world.
  • Furthermore, this development achieves thanks to colonialism and the looting of the so-called Third World’s natural resources.
  • On the other hand, ecological criticism points out that the industrial activity and energy consumption that sustains the capitalist production model is unfeasible and unsustainable over time since it imposes a very high environmental cost on the planet.
  • Climate change, pollution, and ecological destruction of ecosystems part of the responsibilities that he blames on the global capitalist model.

Also Read: What is Product-Market Fit? – Concept, Stages, and More

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