Capitalism
Capitalist theory was first posited as a free enterprise system by
Scottish economist Adam Smith in his 1776 treatise An Inquiry into the
Nature and Causes of the Wealth of Nations. He envisioned a system in
which individuals could pursue private gain to further their own interests
as well as the rest of society through the production of goods and
services for the larger population. Smith coined the term "the invisible
hand" which referred to the unseen market forces of competition and self-
interest that were supposed to create a better society. Smith also
believed that this system, which he felt to be a "natural economic order"
would work best with a minimum of governmental intervention. A
capitalistic system with little or no governmental regulation is called
"laissez-faire" capitalism.
Capitalism began to take root in England in the 18th century as a result
of the Industrial Revolution and the Enclosure Movement. The Industrial
Revolution was brought on by mechanical power, steam engines in
particular, replacing humans in the production of products. Factories were
created to centralize the production of goods. The Enclosure Movement came
about in order to turn the public commons into privately-owned land in
accordance with the emerging theory of private-property. The Enclosure
Movement -- literally the enclosure of lands that had been available for
public grazing and farming -- created a class of poor landless peasants
with no goods to sell besides their own labor. These peasants became a
ready source of labor at the newly created factories. With peasants as a
source of cheap labor and machines doing a good deal of the production
work, goods and services became available in surplus and at low prices,
raising the standard of living for many.
At about this time, capitalism began to come under fire for being
exploitative of workers and benefiting a wealthy few at the expense of
many. In the late 18th century, Karl Marx published his large indictment
of capitalism, Das Kapital. His other works, including The Communist
Manifesto -- which became the basis for Communist economic systems in
China and Russia -- argues that land and the means of production should be
owned collectively and distributed to the population on the basis of need.
Simultaneously, workers' unions were being organized within some of the
major industries. Unions are associations of workers that are collectively
organized in order to campaign for better working conditions. Early unions
in England included textile workers and miners. While these unions were a
boon to workers -- allowing them some control over the terms of their
labor such as shorter hours and higher pay rates -- factory owners saw
unions as an impediment to a completely free market. This was one of the
major dichotomies of the free market invisible hand concept: in a labor
market with low job availability, workers needing jobs were not free to
determine the prices at which they could sell their labor. Hence high
unemployment would be detrimental to the working class because they would
be out of work or forced to work at low wages, and a boon to the owning or
ruling class because they could more easily set low wages and increase
profits. A market with low unemployment, a benefit for workers, would be
bad for factory owners because it would allow workers too much leverage in
bargaining for more favorable working conditions.
In the late 19th century capitalism had spread to the US and corporations
-- business organizations with limited liability and large financial
powers -- began to dominate entire industries. These corporate entities
were thus immune to the market forces of competition and consumer
preference. Public outcry over these new conglomerates caused Congress to
pass anti-trust legislation such as the Sherman Antitrust Act of 1890 and
the Clayton Antitrust Act of 1914, making monopoly business practices
illegal and forcing at least a minimum of competition. Despite these new
limits, by the 20th century capitalism had become the dominant economic
and social system.
Capitalism received another major blow in the Great Depression of the
1930's. The speculative excesses of the wealthy in the stock market and
the resultant stock market crash had created vast unemployment and
President Franklin Delano Roosevelt stepped in with his economic
restructuring plan known as the New Deal, a series of economic reforms
which included strengthening labor unions in order to minimize the power
inequalities caused by large centralized corporations. It also created the
social safety net which evolved into the modern welfare system including
social security and unemployment insurance.
These actions represented a departure from the previous capitalist ideal
of laissez-faire in which the government stayed out of economics as much
as possible. In 1936, the publication of John Maynard Keynes' General
Theory of Employment, Interest and Money provided a model of capitalism in
which it is possible and even acceptable for a modern government to use
its powers to control the money supply through taxation and spending in
order to provide a more stable economy. This model would call for
increased governmental spending in times of depression or unstable economy
and a tightening of the reigns if a booming economy is getting out of
hand. In 1946, Congress passed the Employment Act of 1946 guaranteeing
high employment and production and officially ending official acceptance
of the laissez-faire policies.
Other examples of governmental intervention into the economic system in
the U.S include import and export tariffs, subsidies to farmers
corporations and others and various tax exemptions. While some of these
programs such as welfare and the social security system are intended to
benefit the workers and citizens, other benefits and subsidies are
provided to businesses specifically, creating incentives for the creation
of jobs as well as the creation of further capital to increase profits.
Critics of these governmental perks call the financial benefits "corporate
welfare" and argue that the favorable business climate and stock boom of
the mid to late nineties is a direct result of preferential treatment of
the corporation over the citizen. In other industrialized nations such as
Germany and Japan, the governments have policies in place created at a
national level in which the various members of the economy including
bankers, businessmen, and labor unions all meet to arbitrate wage policies
and interest rates. This has an end result of not letting their
capitalistic economic system of corporations and profits determine their
social system of retirement benefits, health care and working conditions.
Jessamyn Charity West
Bell, Daniel and Irving Kristol, Eds. Capitalism Today. New York: Basic
Books, 1971.
Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago
Press, 1963.
Galbraith, John K. American Capitalism: The Concept of Countervailing
Powers. Cambridge: Houghton Mifflin Company, 1956.
Harrington, Michael. Decade of Decision. New York: Simon & Schuster,
1981.
Heilbroner, Robert L. The Nature and Logic of Capitalism. New York:
Norton, 1986.
Lekachman, Robert and Borin Van Loon. Capitalism for Beginners. New York:
Pantheon Books, 1981.