capitalism

capitalism A system of wage-labour and commodity production for sale, exchange, and profit, rather than for the immediate need of the producers. Plentiful examples of capitalism in the pre-modern era exist but, typically, capitalist exchanges were restrained by political and religious control. What has impressed students of modernity is the huge and largely unregulated dominance of capitalist enterprise (with its related monetary and market networks) across political and cultural frontiers. Capitalism provided the principal, but not the only means of industrialization, and should not be confused with it.

The list of defining attributes of capitalism still derives largely from the pioneering writings of Karl Marx and Max Weber. Marx took the production relations of capitalism as its most essential feature. Following Adam Smith he distinguished the intrinsic use of commodities from their exchange value in the market. Capital is created by purchasing commodities (raw material, machinery, labour) and combining them into a new commodity with an exchange value higher than the sum of the original purchase. This is made possible by the use of labour-power which, under capitalism, has itself become a commodity. According to Marx, labour-power is used exploitatively: its exchange value, as reflected in the wage, is less than the value it produces for the capitalist. The difference, so-called surplus value, is retained by the capitalist and added to the stock of capital. The cycle recurs ad infinitum and is the basis of class conflict. But Marx's identification of capitalism with exploitation relies on the thesis that labour is the source of all value—and therefore profit. This is contested in mainstream economics and even by many Marxists.

Weber also recognized the importance of wage labour but considered market exchange as the defining characteristic of capitalism. Thus, in the modern West, capitalism typically means calculating rationality, accumulation of wealth through deferred gratification, and the separation of economic and social relations. The other institutions necessary to capitalism include: private property, formally free labour, a network of markets for raw materials, labour produce, and an extensive monetary system. Weber's critics argue that, unlike Marx, he fails to specify the underlying mechanisms which weld these institutional features into a functioning whole.

The concept of capitalism now has little analytic value by itself because of the extremely wide expanse of historical time over which it might be applied. The insight to be gained from describing both mid-Victorian and late twentieth-century Britain as capitalist is limited. The same applies to its wide geographical and cultural scope, since it is not self-evidently helpful to explain the momentum of contemporary societies as different as Japan, Sweden, and Australia, simply in terms of their possession of a capitalist system of production. More precision can be gained by specifying types of capitalism according to either qualitative or quantitative factors.

The aim of qualitative classification is to show that capital can be accumulated by several different methods. Thus mercantile capitalism is a system of trading for profit, typically in commodities produced by non-capitalist production methods. Agrarian capitalism is exemplified by the activities of the British landowning gentry during the seventeenth and eighteenth centuries. The agrarian revolution they oversaw transformed a system of production for subsistence into the production of cash crops for the market, the surplus being made possible by reformed and mechanized cultivation. Industrial capitalism is capitalism's classic or stereotypical form. It entails manufacture by means of a factory system with an intricate division of labour within and between work processes; the creation of designated workplaces and factories; de-skilling of traditional handicraft skills; and the routinization of work tasks. Financial or pecuniary capitalism subordinates the capitalist productive process to the circulation of money and monetary assets and hence to the accumulation of money profits as such. It presupposes a highly developed banking system, an equity market, and corporate holdings of wealth through share ownership. As Thorstein Veblen pointed out, whole industrial complexes as well as buildings and land, become the subject of speculative profit and loss. State capitalism occurs where some element of government-created or government-led enterprise has been necessary to initiate both industrialism and capitalism. Even in nominally communist economies, or in the developing world, state enterprise finds itself beholden to the pressures of international trade and finance, or the managerial constraints of capitalist production methods.

Quantitative classification aims to reflect the extensive variation in the scale of capital accumulation and in the concentration of the economic power of capital. Petty accumulation is a network of individual producers or artisans, typically found at the outset of capitalist history, but far from uncommon in the modern (especially the developing) world. Formally, it means that the owner of capital is also the worker, and the system is nominally classless. Entrepreneurial capitalism exists when capital accumulation makes possible a division between owners and employees. The entrepreneurial business class typical of this phase consists, in theory, of individuals who wholly or substantially own and also control (manage) their undertakings. Corporate or monopoly capitalism is the outgrowth of shareholding, limited individual liability, and the concentration of capital into large impersonally owned monopolistic or oligopolistic holdings through banks and finance houses. It is identified with the growth of corporations and a division of labour, supposedly through shareholding, between owners and managers.

Despite the long history of capitalism, it is often claimed that commodity production and unregulated exchange are inimical to social order, most notoriously in Marx's (unfulfilled) prediction that the antagonistic class relations of capitalism would eventuate in its political overthrow through violent revolution. But conservative critics, too, have argued that the calculating behaviour encouraged by the capitalist marketplace would cause disorder through the devaluation of moral traditions. Despite these views, instability would seem not to be a defining characteristic of capitalist systems, and the reason would seem to lie in the specifics of the wide range of cultures in which nominally capitalist production relations have been embedded.

Tom Bottomore's Theories of Modern Capitalism (1985) is a good introductory overview of this vast topic. For a provocative and detailed analysis of the contemporary international financial scene see Susan Strange , Casino Capitalism (1986)
. Strange's observations suggest that many sociological models of capitalist exchanges may in fact be rather selective, referring mainly to entrepreneurial or corporate industrial capitalism, and ignoring the vast speculative activity associated with modern money and commodity markets. See also ENTREPRENEUR; LABOUR THEORY OF VALUE.