CAPITALISM

Capitalism is both a special kind of self-organizing system for structuring economic activity and a historical movement in support of such a system. Its first full development is generally taken to have occurred in the late-eighteenth and early-nineteenth centuries in England, but its ideals of private property and open markets have been variously manifested and defended since. Capitalism is also coupled to a distinctive ethical view of the world, linked closely with developments in modern science and technology, and a source of challenges to other alternative ethical and political perspectives.

Historical Origins

The root of the abstract noun capitalism is the Latin capitalis, from caput, meaning head, from the hypothetical Indo-European qap-ut, by which cattle (another related term) are counted and thus in many preindustrial societies wealth measured. A popular but mistaken belief views capitalism as a transcultural phenomenon that "only needs to be released from its chains—for instance, from the fetters of feudalism—to be allowed to grow and mature" (Wood 2002). In reality, however, capitalism depends on special cultural conditions, including ethical commitments to the primacy of the individual and the importance of material welfare.

The political economist Adam Smith (1723–1790), who is often taken to be the father of modern capitalism, analyzes the accumulation of capital promoted by free markets and the productive efficiencies of increased divisions of labor. But the resulting economic order is what he calls a system of natural liberty. Even the extended critique of political economy found in the work of Karl Marx (1818–1883) prefers the more concrete das Kapital and der Kapitalist over der Kapitalismus; Marx's opposition is to the capitalist production system not capitalism. The English word capitalism first appears in print in British novelist William Makepeace Thackeray's The Newcomes (serial publication, 1854). It was left to later economists such as Werner Sombart (Modern Capitalism [1902]) and Max Weber (The Protestant Ethic and Spirit of Capitalism [1904]) to make capitalism as economic system and political ideology the center of debate.

As Weber, Sombart, and others make clear, capitalism as an economic system is closely associated with but not precisely the same as a market system. Free markets are possible on small scales, but capitalism presumes larger-scale industrial enterprises resting on both modern technology and a legal system that gives corporations the status of a person, thus creating a buffer between corporate and personal wealth and responsibility. Capitalism describes an economic system in which property resources are privately owned, but in a form not identical with individual wealth, with interactions between the supply and the demand for goods and services used to direct and coordinate economic activities. Once provided with a legal structure of private ownership enforced by the state and open markets, capitalism is self-organizing as if by means of what Smith once called an invisible hand. The result, it is claimed, is efficiency in two forms: technological (producing a given amount of goods with the minimum amount of resources) and allocative (distributing resources in the best way possible).

Science, Technology, and Capitalism

The role of science and technology in well-functioning capitalist economies is essential to their success. Continuing economic growth helps promote acceptance of inequalities, with such growth depending on increases in worker productivity, which is in turn supported by improvements in technology. Unfettered movement of capital, or access to capital, helps spur investment in research and development. This investment leads to scientific discovery and technological innovation, albeit sporadically.

It is also important to note that the free movement that is associated with capital and labor under capitalism has been more or less closely coupled with democratic politics. Indeed defenders of capitalism such as Michael Novak (1982) have argued that democratic capitalism must be distinguished from all attempts at centralized state control of science, technology, and capital.

However the relation between science, technology, and capitalism is two-sided. Not only does capitalism tend to promote science and technology, but science and technology have been argued to promote capitalism. Joel Mokyr's broad overview of economic and technological progress (1990) and of science and wealth (2002) place as much stress on how inventors and scientists have contributed to capitalism as how capitalists have funded technology and science. According to Mokyr, the development of systematic means for knowledge production and invention, and their institutionalization, went hand in hand with the development of systematic or industrial means of material production.

Scientists such as Michael Polanyi (1951) take this argument one step further and argue that the organization of science provides a model for democratic capitalism. It is in the scientific community that equality finds its strongest exemplar, and that the free flow of knowledge together with division of labor leads to an expansive production of knowledge that can serve as positive influence on and support for economics and politics.

At the same time the costs of some scientific and technological projects have on occasion been beyond the means of private capital formations. Historically states, not private corporations, have been required to pioneer public water systems, nuclear energy, major advances in airplane propulsion and design, cancer research, space exploration, the Internet, and decoding of the human genome. But it is mostly democratic capitalist economies that have provided the tax base and public support for such large-scale, big science efforts without measurable costs in consumer welfare—in the hopes that such expensive research and development projects would eventually contribute to greater public benefit.

For Mokyr, the roots of twentieth-century prosperity were the capitalist industrial revolutions of the nineteenth century, which were precipitated in part by the scientific revolution and Enlightenment of the seventeenth and eighteenth centuries. "To create a world in which 'useful' knowledge was indeed used with an aggressiveness and single-mindedness that no other society had experienced before was the unique Western way that created the modern material world" (Mokyr 2002, p. 297). Moreover in an increasingly knowledge-driven economy, scientists and engineers are themselves more often becoming entrepreneurial capitalists. The opportunities not just for profit but for conflicts of interest and other failures in professional ethics are nevertheless not to be minimized.

An Ethical Kaleidoscope

One key question imposed on policymakers in capitalist systems concerns the justice of those inequalities that capitalism promotes, and whether there might be appropriate remedies for such inequalities or alternative, more equitable systems of production. Capitalists typically argue both that property rights are grounded in human rights and that some level of inequality is beneficial to all because it stimulates productivity. Beyond social justice are other issues of professional ethics and cultural conflict that also deserve acknowledgement.

SOCIAL JUSTICE. The historical development of social justice issues can be traced to the classic period of the Industrial Revolution in England (c. 1750–1850). Social critics of the associated economic individualism among capitalists argued for an alternative of social solidarity among the workers and for some degree of common ownership of the means of production. Although specific mechanisms varied, a general term for this alternative is socialism.

The ideal of socialism, like capitalism, is a theoretical construct—a fiction. The spectrum of economic systems is bracketed by capitalism and socialism, but all economies in the early twenty-first century are in fact mixed, that is, lie somewhere in between these two extremes. On the capitalist end, economic individualism and the right to property are paramount, leading sometimes to major social inequalities. On the socialist end, communal ownership and collectivist values play a significant role, often leading to bureaucratic inertia. The historical response to capitalist failures has been state intervention, and to socialist shortcomings privatization.

THREE CONTINUING CRITICISMS. The issue of social justice has led to three general criticisms of basic assumptions of capitalist systems. The first basic assumption is that profits serve as the driving force for social as well as economic actions. If profits are not present, individuals will not have any incentive to act. But this view of humans as calculating, optimizing individuals may promote morally objectionable behavior. Defenders of capitalism respond that the profit motive is simply a reality of human nature (although the scientific evidence for this is at best ambiguous), appeal to the virtues of freedom of choice, and express faith in the ability of nongovernmental institutions to develop ethical protocols for behavior among individuals.

A second basic assumption is the sanctity of individual property rights. The criticism is that property itself is a kind of social fiction that in too strong a form may easily undermine equity or the collective good. In response, property rights are defended as basic human rights. Strong property rights are further argued ultimately to promote a productivity that benefits all, even though it may selectively benefit some more than others. An expanding pie gives even those with small pieces more to eat.

A third basic assumption is the value of free markets in both goods and services (the output market) and in the factors of production (the input market). Insofar as the input market is focused on material resources, liquid capital (money), and fixed capital (plant and machinery), this assumption is challenged only by environmentalists who argue that some natural resources may be undervalued. But the free market in labor input has a tendency, others argue, to treat humans as commodities. An unregulated labor market may lead to the violation of basic human rights—rights that, in other contexts, capitalism purports best to serve. The degree to which a society protects workers from the vagaries of the labor market is one strong measure of the influence of the socialist end of the capitalism-socialism spectrum.

The second and third assumptions—that capitalist systems have well-defined private property rights and input-output distributions guided by free markets—depend on ideal conditions that are unlikely to obtain fully in the real world. When property rights are weak or prices provide unreliable signals to market participants, a capitalist system may fail to realize its potential for good. In this regard, economists have identified four types of market failures under capitalism: (a) excessive market power where individual buyers or sellers have significant control over output, price, or both; (b) externalities where one economic agent imposes costs or benefits on another without the latter's knowledge or consent; (c) public goods where markets are either non-existent or the good will be underproduced because there is little or no incentive for private property owners to provide a good that others can use without paying for it; and (d) asymmetric or incomplete information where either the buyer or the seller lacks sufficient information to make a free and rational decision.

Failures (b), (c), and (d) offer special challenges for science and technology in capitalist economic systems. Scientists and engineers almost always know more than others about what they may be providing by way of productive inputs or outputs. In many instances scientific research and technological development take place at the leading edge of economic activity where there is not yet and may never be any market sufficient to support it. And certainly the requirements of free and informed consent in human subject research can dramatically illustrate asymmetries in information between scientists and nonscientist participants.

CULTURAL CONTRADICTIONS. Finally there are ethical issues associated with what sociologist Daniel Bell has termed The Cultural Contradictions of Capitalism (1976). According to Bell, contemporary society can be organized into three distinct realms: the technoeconomic structure, the polity, and culture. The technoeconomic order is concerned with the production of material goods and services; the polity with social justice, the proper use of force, and the regulation of conflict; and culture with the meaning of human existence as expressed in various imaginative forms. At any one historical period each further exhibits distinctive norms and follows its own rhythm of change, with complex interactions that may be mutually reinforcing or subtly undermining. From the perspective of this framework, one of the general challenges of capitalist modernity is the way in which drives for change in the technoeconomic structure threaten to undermine traditions of cultural meaning on which all social orders ultimately rest.

In the contemporary capitalist world the three realms are ruled by antagonistic principles: competitive efficiency for the capitalist economy, liberty and equality in the polity, and self-realization or self-expression in culture. Bell's particular argument is that not only are there tensions between the contemporary norms (which he interprets somewhat differently) operative in each of these three realms, but also within the modernist, self-expressive culture itself. Together such antagonisms may destabilize the whole social order or particular regions within it. Certainly between the special cultures of science and technology and the general culture of self-expression yoked to capitalist productivity there are tensions that threaten the stability of science, for example, when scientists hype their results or shape them to fit economic interests. The globalization of capitalism, as a carrier of science, technology, and particular cultural values, no doubt provides further opportunities for cultural conflicts.

WILLARD DELAVAN
CARL MITCHAM

SEE ALSO Conservatism;Critical Social Theory;Economics and Ethics;Market Theory;Marx, Karl;Smith, Adam;Work.

BIBLIOGRAPHY

Bell, Daniel. (1996). The Cultural Contradictions of Capitalism, 20th anniversary edition. New York: Basic Books. First published in 1976.

Berger, Peter L. (1986). The Capitalist Revolution. New York: Basic Books. Sociologist Peter Berger maintains that capitalism transforms all aspects of social being and that capitalism provides the most successful mechanism yet devised for improving the material wealth of humankind. He provides a provocative set of testable hypotheses about the relationship between the new capitalism and human values.

Heilbronner, Robert. (1993). Twenty-First Century Capitalism. New York: W. W. Norton. A fascinating extension of lectures examining the relationship between capitalism and the notion of progress encompassing capitalism as both political and social system and its future potential for fostering economic growth.

Hutton, William, and Anthony Giddens, eds. (2000). Global Capitalism. New York: Free Press. Explores the impact of globalization on capitalism. It is a rich source of new perspectives on the new capitalism, its connection to social cohesion and justice, and comparative economic and political systems.

Mokyr, Joel. (1990). The Lever of Riches: Technological Creativity and Economic Progress. New York: Oxford University Press.

Mokyr, Joel. (2002). The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton, NJ: Princeton University Press.

Novak, Michael. (1982). The Spirit of Democratic Capitalism. New York: Simon and Schuster.

Polanyi, Michael. (1951). The Logic of Liberty: Reflections and Rejoinders. Chicago: University of Chicago Press.

Schumpeter, Joseph A. (1950). Capitalism, Socialism, and Democracy. New York: Harper & Row.

Soto, Hernando de. (2000). The Mystery of Capital. New York: Basic Books.

Wood, Ellen Meiksins. (2002). The Origin of Capitalism: A Longer View. New York: Verso.