Characteristics of a Capitalist Society

Title: What social, economic or cultural characteristics define a society as capitalist? Which characteristics have held constant, and which been transformed, in the period since the late 18th century?

According to sources, it was William Makepeace Thackeray who initially applied the notion of ‘capitalism’ in 1854 to define the ownership of capital. Throughout the history, the term capitalism has been closely associated with other related notions, including: market capitalism, laissez-faire (pure capitalism), economic liberalism, private enterprise etc^[1]. Capitalism transformed feudalism in the Western world, namely Britain, from where it had flourished throughout Europe predetermining economic, cultural and political developments of the then society. Later, over the 19^th and 20^th centuries, capitalism formed the grounds of industrialization^[2]. Nevertheless, namely the eighteenth century became crucial in the foundation of capitalism concept after the first economic school was established in Britain. The school has produced much of the fundamental thought in the field of classical political economy supported by the invaluable contributions of David Ricardo, Adam Smith, John Stuart Mill, and Jean-Baptiste Say et al who thoroughly researched various ways goods were produced, distributed and exchanged under market conditions. Namely, those classical thoughts have set the foundations of the contemporary perception of capitalism^[3].

During the 18th century the concept of capitalism was much commercialized and dominated by merchants. Consequently, by the end of 18th century, mercantilism was in dire straits since mercantile activity could not longer provide sufficient resources to maintain military expenditures of those states that depended on commerce. The subsequent industrial revolution was another driving force that had intensified the crisis since the new industrializing countries were questioning the true value of mercantilist practices. In the course of the industrial revolution, merchants were replaced by industrialists to dominate the capitalist system and diminish the roles of conventional handicraft labourers, including guilds, artisans and journeymen. Other effects involved the advancement of bourgeoisie as a dominant social class as well as immense mechanization of agriculture. Being the center of the Industrial Revolution in the mid-18th century, Great Britain made a considerable influence on the new perception of traditional mercantilist doctrines through the works of economic theorists who claimed that the global wealth was constant and only states were able to increase their own wealth at the account of other (weaker) states. According to Marx, since the last third of the 18th century industrial capitalism should be associated with the following factors: (1) development of the factory system wherein manufacturing was based on the complex division and exploitation of labor within work processes; (2) routine designation of work duties; and (3) the overall dominance of the capitalist mode of production^[4].

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In the mid-18th century, French physiocrat David Hume much contributed to the promotion of free trade as well as the concept of land as the main source of wealth. Later on, in 1759 François Quesnay outlined further features of capitalism in his Tableau Économique, wherein he provided the first ever analytical description of the economy, having predetermined the grounds for the economic theory forwarded by physiocrats. These critical views were strongly supported by Anne Robert Jacques Turgot who advocated free trade in contrast to customs duties and tariff. More precisely, Richard Cantillon featured the notion of long-run equilibrium being the balance of income flows, pointed out the dependence between land and prices, and the impact supply and demand had on short-term prices^[5].

1776 marked the appearance of Adam Smith’s The Wealth of Nations wherein the economist defended his standpoint regarding natural liberty system and fiercely opposed mercantilism. At this point, according to economic theorists, the roots of classical political economy were put down. Specifically, the economist forwarded a couple of capitalism-related concepts that are of great theoretical and empirical importance today. For instance, Smith’s ‘invisible hand’ theory of the market indicates that individual interest is a core prerequisite of collective social good (wealth). While forwarding his liberal economic concepts favoring free markets, Smith was vehemently opposed by the sentiments of then domineering mercantilist society^[6]. In particular, Smith severely criticized all forms of state intervention in the economy, as well as restrictions imposed by a state including duties and tariffs, and monopolies, on the other hand. At that he held a strong view that market alone was able to fairly redistribute all the available resources. More than that, Smith advocated retaliatory tariffs as indispensable part of free trade, wherein patents and copyrights encouraged innovation^[7]. In a while, Smith’s views were supported by David Ricardo the author of the economic law of comparative advantage forwarded in 1817 in The Principles of Political Economy and Taxation, explaining mutual benefits of trade between the parties, regardless all possible economic differences between them. Thus, the notion of free trade was proven. Guided by the Say’s Law, Ricardo emphasized on the significance of full employment enabling a competitive economy with normal equilibrium^[8]. Furthermore, Ricardo advocated strong interrelation between the changes in credit and monetary quantities and inflation, and emphasized on the diminishing returns highlighting the interdependence of additional inputs and outputs^[9].

Following Smith’s ideas, Karl Marx clearly differentiated the use and exchange value of commodities in the market. Hence, Marx perceived capital as the value created through the purchase of commodities in order to create new commodities which exchange value would exceed the amount of initial purchases. Moreover, Marx considered the use of labor force featured by certain exchange value (i.e. wage) as a sufficient commodity in the capitalist society. Though, according to Marx, the value of labour force has always been less compared to the value potentially gained by the capitalist out of its use. Such principle difference, as Marx argues, creates surplus value extracted and accumulated in the capitalist society. Marx’s fundamental work is named Capital, where he clearly distinguished the capitalist mode of production. Precisely, to provide a relevant evidence Marx explained how the surplus was extracted by the capital owners from workers through the sale-value of produced commodities^[10]. In due respect, Marx claimed that namely surplus value extraction laid the grounds for a struggle between the classes. Thus, Marx considered labour as the primary source of profit. In addition to this, Marx held a strong opinion regarding an exploited labor as the driving force that could revolutionize socialist-style economies. Herewith, the analysis of Marxian thinking assumes that centrally-planned economies mainly established in the former communist societies to a great extent reflected the features of state capitalism through the exploitation of labor force. Subsequently, in 1916 Vladimir Lenin transformed the notion of Marxian capitalism into imperialism claiming monopoly capitalism as the highest stage of capitalism society in his Imperialism, the Highest Stage of Capitalism^[11].

The German Historical School provided fresh insight into the perception of capitalism as the efficient system that supplied markets with production. In such a way, this approach highlighted the core difference between capitalism and previous modes of economic activity since capitalism assumed principal shift from medieval restrictions imposed on money and credit to the monetary economy emphasizing on the profit. Another prominent thinker that influenced the understanding of distinguishing characteristics of capitalism in the 19th century was Max Weber, German social theorist. Weber mainly concentrated on market exchange conversely to production, as the main distinguishing characteristic of capitalism. At that, he pointed out that within the capitalist mode enterprises focused on the rationalization of production by maximizing productivity and efficiency^[12]. In his fundamental work 1904-1905 The Protestant Ethic and the Spirit of Capitalism, Weber traced the way capitalism transformed previous economic systems. For this purpose, the theorist highlighted the ‘spirit of capitalism’ particular to Puritan comprehension of human laboring. Weber deemed that a devotion to God helped the Puritans to lay the foundations of the then economic mode. Compared to Marx, Weber regarded capitalism in a broader perspective rather than merely a result caused by the alterations in the means of production^[13]. Therefore, capitalism, from Weber’s viewpoint, was the advanced economic system that had ever been developed throughout human evolution. In particular, Weber identified the following distinguishing characteristics particular to capitalism: public credit, corporate business, and expansion of bureaucracy. Being opposed to socialist remarks against capitalism, Weber himself criticized the very economic system as one that posed threat to the conventional cultural values shared by the society as well as the one that constrained human freedom. Namely, Weber much criticized ‘spiritless specialists’ and ‘heartless hedonists’ who had nothing in common with the genuine Puritan spirit particular to capitalism^[14].

During 1930-s, John Maynard Keynes had a tremendous influence on the notion of capitalism and the role of monetary policy. The British economist emphasized on the important functions of monetary policy within economic policy. In his The General Theory of Employment, Interest, and Money 1937 he argued that capitalism was not able to fully recover from the slowdowns in investment. At that, Keynes claimed that the economic mode particular to the capitalist society could sustain its indefinite equilibrium even in spite of high unemployment. At that, during the 1930s Keynesian approach to economics assumed that laissez-faire capitalist economics was self-sufficient and did not need any intervention from a state to cut down unemployment or boost aggregate demand. Furthermore, Keynes suggested ‘pump-priming’ approach to save the economy from recession in the period of economic down-turn, which involved increase in government borrowing and spending as well as cutting-down taxes. In such a way, Keynes put forward his idea of cutting real wages through the system of their control from the state and deterring from holding money during inflation^[15]. This indicates that Keynes much favored state regulation as an effective tool to eliminate economic slowdown. Actually, Keynesian policies enabled the capitalism recovery afterwards the state of the Great Depression^[16].

The contemporary academic research on the concept of capitalism is largely grounded on neoclassical economics and the relevant approaches developed by the Chicago School. The modern perception of capitalism therefore favors neutral government regulation and coordination of markets with the focus being placed on property rights’ maintenance; deregulation of labor markets; promotion of corporate governance by private owners; development of transparent financial systems with capital market-based financing in their core. According to Milton Friedman, active follower of Adam Smith’s thinking, under the conditions of free competition social responsibility makes up an indispensable part of any business activity and profit-making. In such a way, Friedman shows how self-interest can benefit the entire society in the modern economic conditions^[17].

The major distinctive features of capitalist society were pointed out throughout the 20^th century while experts compared and contrasted due system with the centrally planned economic system. In due respect, capitalism has always enabled consumers with free choice, while producers were able to satisfy a consumer demand. By contrast, in the planned economies the production was entirely controlled and directed by a hierarchically-led state policy. Thus, capitalism alone has achieved sufficient delivery of goods and services through the privatization of previously state-owned means of production and infrastructural objects.

In addition to this, the notion of capitalism is closely associated with the abolishment of subsidies and free trade wherein capitalist society is prone to perform both rational and irrational actions that are often unpredictable. Namely the last quarter of the 20th century clearly indicated the increasing ability of people and capital to mobilize. Globalization alone has opened a new avenue for the development of both capitalist and non-capitalist models.

Today, capitalism is regarded by many as world system featured by all the peculiarities of capitalist trade. Analysts state that such perception of capitalism dates back to the early 20th century imperialism. Following the same fashion, imperialistic policies emphasized on the promotion of capitalistic principles of free trade among countries. Taking the abovementioned features of the contemporary capitalism into account, it is noteworthy that along with many positive effects global capitalism has caused the state of global inequality in income rates, social security, access to strategic resources, and redistribution of world capital. In due respect, since the times of the Industrial Revolution there have been considerable changes boosted by economic growth in such areas as life expectancy, access to educational resources and information and communication technologies, literacy, infant mortality, child labor etc. By and large, global capitalist economy has been dramatically shifted by the invention and fast application of telecommunications within the last thirty years. Information and communication technologies such as computers, Internet and cell phones have enabled most of the business transactions in virtually any part of the globe^[18].

Overall, capitalism promotes economic growth and social standard of living measured by Gross Domestic Product (GDP). According to Adam Smith, free market alone allocates necessary resources and controls production and price, which is particular to the contemporary world capitalist system. Furthermore, capitalist economy, if compared to conventional economic systems and feudal or socialist societies, provides vast opportunities to raise individual income while engaging in new professions or launching private business ventures, for example. As Milton Friedman puts it, competitive capitalism leads to economic freedom and subsequently to the political one where there is no place for the centralized control of economic activity or political repression from the state. Conversely, the variety of market economy transactions causes wide diversity of activities and/or their free choice. In accordance with John Maynard Keynes and Friedrich Hayek, capitalism is a reflection of economic freedom which is essential for social survival and development^[19]. Thus, many capitalism supporters claim that namely the decentralized system of coordination is the most powerful feature of capitalism. Particularly, the decentralization of economic processes leads to free competition and optimal solutions to the arising challenges. Even the slightest control from then state, according to the Austrian School thinkers, can potentially cause serious inefficiencies since economy then becomes unpredictable in the long-term perspective. One of the major causes of the Great Depression, for instance, was the immense interventionist policy led by the Federal Reserve.

Despite such positive views on capitalism, throughout its long evolution this economic concept was fiercely criticized by namely left-oriented proponents. 19th century conservatives, for instance, regarded particular characteristics of capitalism such as commodity production and free market exchange as potential threats to religious and cultural traditions. Other critics associated capitalism with the spread of negligence, corruption, and many other socio-economic problems. Socialists, for example, strived for the state regulation of capitalism rather than its abolishment. Throughout centuries, much of criticism has been received from religious leaders who fiercely opposed the materialist side of capitalism. From a religious viewpoint, it would rather be mixed economy that could meet the demands of society and ensure economic justice. For the most part, critics point out at negative features of capitalism including: inefficient and unfair distribution of power and wealth; monopolistic tendencies of businesses and corporations; signs of cultural and economic exploitation of cheap and unskilled labour force (including children and/or old people); social alienation, unemployment, economic instability, and inequality to name a few.

Nowadays, however, we understand capitalism as an economic system that assumes private ownership and control of wealth and the means of its production. In due respect, state ownership bears limited relation to the essence of capitalism. Both private individuals (entrepreneurs) and companies (corporations and small and medium-sized enterprises) own, operate, and trade capital and labor, as well as other resources for the sake of profit-making. In the contemporary conditions, capitalism is an indispensable component of market economy which entirely excludes any government intervention in the transactions that involve investments, income, distribution, production, pricing and supply of goods and services etc. Furthermore, labour as such is a distinguishing feature that characterizes capitalism in the contemporary conditions of fierce competition. Based on appropriate knowledge and skills, human resources are viewed as the most valuable asset by the majority of employers. Herewith, market rules make up a regulatory framework that determines economic developments in the contemporary capitalist state. In most instances, the role of a state is limited to the provision of relevant infrastructure and public goods. This indicates that economic developments are predominantly grounded on the so-called ‘laissez-faire’ principle envisaging a minimum state intervention into the economy. Consequently, the contemporary notion of capitalism highlights the ultimate importance of the control over the means of production by private owners wherein the state role is mainly limited to the protection of property rights. However, such conclusion would be correct only from the pure capitalism viewpoint. By and large, the well-developed contemporary economies present a mixture of public and private ownership and therefore are reasonably referred to as the capitalist mixed economies, where both private capital and state serve their particular roles. In its essence, classical political economy has been strongly interrelated with classical liberal doctrine assuming minimum economic intervention on the part of government. At that economic and social realms were clearly distinguished, wherein state could provide necessary public goods and services^[20].

Reference list

Bellamy, R. 2003, The Cambridge History of Twentieth-Century Political Thought. Cambridge University Press

Burnham, P. 2003, Capitalism: The Concise Oxford Dictionary of Politics. Oxford University Press.

Calhoun, C. 2002. Capitalism: Dictionary of the Social Sciences. Oxford University Press.

Edgell, S. 2006, The Sociology of Work: Continuity and Change in Paid and Unpaid Work. London: Sage, Ch 1.

Erhardt, E. History of Economic Development, Lindner Center Auditorium, Cincinnati.

Evans, P. 1997, The Eclipse of the State? Reflections on Stateness in an Era of Globalization. World Politics 50 (1): 62–87.

Friedman, M. 1970, The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine.

Hunt, E. 2002, History of Economic Thought: A Critical Perspective. M.E. Sharpe

Kumar, K. 1978, Prophecy and Progress, London Penguin. Ch. 3.

Lane J. & Ersson, S. 2002, Government and the Economy: A Global Perspective. Continuum International Publishing Group.

Saunders, P. 1995, Capitalism. University of Minnesota Press.

Skousen, M, 2001, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. M.E. Sharpe

Wheen, F. 2006, Books That Shook the World: Marx’s Das Kapital1st ed. London: Atlantic Books

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Footnotes

^[1] K Kumar 1978, Prophecy and Progress, London Penguin. Ch. 3.

^[2] P Saunders, 1995. Capitalism. University of Minnesota Press. p. 1

^[3] M Skousen 2001, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. M.E. Sharpe

^[4] S Edgell 2006, The Sociology of Work: Continuity and Change in Paid and Unpaid Work. London: Sage, Ch 1.

^[5] M Skousen 2001, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. M.E. Sharpe

^[6] E Hunt 2002, History of Economic Thought: A Critical Perspective. M.E. Sharpe

^[7] P Burnham 2003, Capitalism: The Concise Oxford Dictionary of Politics. Oxford University Press.

^[8] M Skousen 2001, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. M.E. Sharpe

^[9] C Calhoun 2002. Capitalism: Dictionary of the Social Sciences. Oxford University Press.

^[10] F Wheen 2006, Books That Shook the World: Marx’s Das Kapital1st ed. London: Atlantic Books

^[11] E Erhardt, History of Economic Development, Lindner Center Auditorium, Cincinnati.

^[12] Erhardt (Ibid).

^[13] Erhardt (Ibid).

^[14] Erhardt (Ibid).

^[15] Erhardt (Ibid).

^[16] M Friedman 1970, The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine.

^[17] Friedman (Ibid).

^[18] P Evans 1997, The Eclipse of the State? Reflections on Stateness in an Era of Globalization. World Politics 50 (1): 62–87.

^[19] R Bellamy 2003, The Cambridge History of Twentieth-Century Political Thought. Cambridge University Press

^[20] J Lane & S Ersson, 2002, Government and the Economy: A Global Perspective. Continuum International Publishing Group.