Capitalism is a mode of production and social system characterized by private ownership of the means of production and exploitation of wage labor. In this system, most of the materials and equipment necessary for economic activity are owned and controlled by private companies and wealthy individuals, while the majority of people own little of such means of production, and must therefore sell their labour for the owners in order to make a living.
The rise of capitalism from the 16th century onward is associated with a decline in wages to below subsistence, a deterioration in human stature, and an upturn in premature mortality. Before capitalism, extreme poverty was very uncommon in world history, except perhaps in cases of natural disasters. Wherever capitalism developed, either through colonialism or through forced expropriation of land, it created mass poverty and general deterioration of working people's livelihoods.
The main aspects of capitalism are listed below:
- Most of the means of production are owned by a minority of the population, called capitalists (or the bourgeoisie)
- The majority of people are legally free but obligated to work for a wage or salary in order to buy commodities to fulfill their necessities
- Market hegemony: The majority of the products of people's labour are sold, and most of the things one consumes are obtained by buying them. This contrasts with earlier forms of economy, where most of the products of the individual or family were consumed within the same family; or where the product was distributed according to rules of custom, eg. feudal dues, or the tithe. In capitalism, besides the basic fact that products are now so often exchanged, there is also the feature that the exchange is usually for money: barter is now rare.
- Advantage of capitalists: Because of their greater wealth and social position, capitalists have a degree of power over the workers which enables them to:
- control the production process, including what is produced and how it is produced;
- take part of the product for themselves although they do not necessarily work (they appropriates surplus-value).
- Pervasiveness of competition: Individual capitalists operate in an environment of competition with other capitalists producing the same commodity or a substitute, and fighting for markets or loans. This forces capitalists to, among other things, adopt new techniques and practices which will cut costs, and to attempt to increase its size so that it can dominate its competitors as well as achieve economies of scale.
In the context of Marxist historical materialism, as serfdom and the small commodity production of artisans and craftsmen in feudal times was increasingly superseded by the emerging merchant class, increasing productive forces allowed for a change in property relations that led to the displacement of the feudal aristocracy as the dominant economic class in favor of the bourgeoisie. This occurred by means of several bourgeois revolutions. In this context, historical materialism considers capitalism to be a progressive development compared to feudalism.
The progressive historical role of capitalism may be summed up in two brief propositions: increase in the productive forces of social labour, and the socialisation of that labour.
— Lenin, The Development of Capitalism in Russia [note 1]
Differences of definition
The definition of capitalism in scientific socialism is different from the one used by its adherents themselves. Liberals and pro-capitalist ideologues define capitalism as a combination of free market systems, private property, free competition and voluntary exchange. This and similar definitions carry limitations that prevent capitalism's adherents from analyzing it in a holistic manner. The lengths taken by the bourgeoisie to justify the system and their profits include the denial of atrocities like the Bengal Famine or the Pinochet regime as 'not real capitalism'.
The fundamental contradiction of capitalism is that between the social character of production and the private capitalist form of appropriating the product of labor. [note 2] This contradiction expresses the profound antagonism between wage labor and capital, between the developing productive forces and the capitalist relations of production which shackle them. As the modern productive forces, based on large mechanized industry, develop, production becomes more and more concentrated, the social division of labor progresses, leading to a widening and intensification of the economic links between the various enterprises and branches of the economy.
There are also a number of secondary contradictions within the capitalist class and wage-earning class. Due to markets, there are Industrial Capitalists, Finance Capitalists, Merchant Capitalists and Rural capitalists. Each at odds with the other to appropriate as much surplus-value as possible. Whereas workers contradictions stem from false consciousness due to sexism and racism. These contradictions are exploited by the capitalist class to divide and conquer workers.
During the production of each commodity, there is, directly or indirectly, participation of enterprises of different branches of production and hundreds of thousands to millions of workers, grouped in the capitalist enterprises. The process of production and work, through the development of productive forces is increasingly socialized. However, both production and its results do not belong to those who are really its creators — the workers — but to private persons, to the capitalists, who use the social wealth for profit, and not in the interest of society as a whole.
Governments under capitalism
Under capitalism, the law is placed firmly "in the service of capital." As Professor of Comparative Law at Columbia Law School Katharina Pistor further elucidates: "Through its courts, bailiffs, and police forces, states enforce not only their own commands, but also private property rights and the binding commitments private parties make to one another. This does not mean that state power is omnipresent. As long as the threat of coercive law enforcement is sufficiently credible, voluntary compliance can be achieved without mobilizing it in every case."
Levels of analysis
Capitalism can be thought about using three levels of abstraction:
- Highly abstract. This can be called the theory of a purely capitalist mode of production, or of the `inner logic of capital', `capital's deep structures', etc. One assumes that all goods and services are exchanged in markets; there is no mixture with other modes of production such as feudalism, independent artisanal production, or socialism; and there is no government intervention into the economy. Here one attempts to understand the most basic tendencies of the system, looking at categories such as commodity, value, surplus-value, etc. and their interrelations in a somewhat mathematical fashion.
- Mid-level analysis. Here one considers the effects of incomplete commodification (that is, not all goods and services are exchanged in markets), mixture of modes, and political and ideological practices. This can produce theories of different sub-types of capitalism. These are sometimes regarded as occupying different eras, for example the following series is sometimes given: merchant capitalism (ca. 1500-1800); liberalism or industrial capitalism (ca. 1800-1900); recent capitalism, variously called imperialism, monopoly capitalism, or finance capitalism (ca. 1900-now). Examples of things which can distinguish sub-types from one another are: the growth of productive power through leading industries, the forms of leading capital, social position of workers, and the economic policies and structure of the world market at a given time.
- Concrete (non-abstract). Sometimes called `empirical' or `conjunctural' analysis. Looks at actual events. Here a broad range of non-economic factors may be brought into consideration. The consequences of history's many accidents comes into view.
The Japanese school of Marxist economics founded by Kozo Uno has been particularly concerned to elaborate the middle level of analysis, which is nascent but not much developed in Marx's own works.
According to the Marxist economist Makoto Itoh,
The fundamental aims of the revolutionary socialist movement, which are usually expressed in the basic programmes, must be grounded on the basic principles of a capitalist economy, whereas the more concrete strategies and tactics must utilise the more concrete studies of world capitalism and individual countries at the levels of stages [mid-level] theory and of empirical analyses. (Basic Theory ..., p 66)
- Dylan Sullivan & Jason Hickel (2023). Capitalism and extreme poverty: A global analysis of real wages, human height, and mortality since the long 16th century. World Development, vol.161. doi: 10.1016/j.worlddev.2022.106026
- David Schweickart, Capitalism or Worker Control?, pp 4-5:
`But first a word about the key term. What is this "capitalism" about which our discussion will pivot? I shall understand capitalism to be a socioeconomic system characterized by three sets of institutions. First, the means of production are for the most part privately owned – by individuals directly or through the mediation of corporations. Secondly, the bulk of the economic activity is directed toward the production of goods and services for sale on a free market. Prices are determined largely without governmental interference by producer-consumer interaction. Third, labor-power is a commodity. That is, a large percentage of the workforce sell their capacity to labour to those who can provide them with tools, raw materials, and a place to work.
`To be capitalist, a society must feature all three sets of institutions: private property,* a market, and wage-labor. Many societies have existed, and do exist, which exhibit one or two of these characteristics, but not all three. For example, a feudal society consisting of self-sufficient estates worked by serfs has private property, but neither a market nor wage-labor. A society of small farmers and artisans – Colonial New England, say – is not capitalist, for despite private property and a market, there is little wage-labor. On the other hand, all noncommunist industrial nations today are capitalist. The presence of an elaborate welfare apparatus, a number of nationalized industries, and/or a ruling party self-labelled socialist does not render a society noncapitalist. So long as the bulk of the enterprises are privately owned, worked by hired labor, and produce goods for sale on the market, a society is capitalist.'
( * `I shall adopt the Marxian terminology, which distinguishes between private property – factories, farmland, productive machinery – and personal property – consumer goodsd purchased for their own sake, not for the sake of making money.')
- https://en.wikipedia.org/wiki/Capitalism#Characteristics (Retrieved 25 December 2020)
- Pistor 2019, p. xi
- Pistor 2019, pp. 17 - 18
- Robert Albritton, Economics Transformed, footnote, p 5.
- Makoto Itoh, Basic Theory," p. 66.
- Gingrich, "Marx on Social Class". University professor's handout.
- Itoh, Makoto, 1988. The Basic Theory of Capitalism. Makoto Itoh is a Marxian economist belonging to the Japanese Uno school.
- Marx, Karl, and Fredereick Engels, 1848. The Communist Manifesto. Available free at Marxist Internet Archive and http://www.marx2mao.com
- Meiksins Wood, Ellen, 1995. Democracy Against Capitalism.
- Pistor, Katharina (2019). The Code of Capital: How the Law Creates Wealth and Inequality. Princeton University Press. ISBN 0691189439.
- Schweickart, David, 1980. Capitalism or Worker Control?. A point-by-point exposition of the advantages of a worker self-managed economy with market exchange and governmental control of new investment, over capitalism. Not Marxist-Leninist, but still a useful anticapitalist text.