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Capitalism refers to a class of economic systems in which there is ownership over units of productive capacity. The units of productive capacity are commonly Corporations or Companies. In plain use, Capitalism generally implies that such ownership is often traded, that individuals can take part in that trading, and that new units of production can be created by individuals combining some of their property. Markets for this trading are usually refered to as a Stock Market or "Share Market", and in their current form, much of the trading takes place in auction systems known as a Stock Exchange.

In Capitalist economic systems, usually the inputs and outputs of the productive capacity are also owned and traded in free markets (or at least free-ish markets), and this is often implied by use of the word Capitalism. Although the operation of free markets in general is often associated with Capitalism, strictly speaking the prevalence of free markets in general is not a necessary part of Capitalism, and free markets can be prevalent in an economic system without the system being Capitalist in the slightest. Strictly, Capitalism refers to the ownership of productive capacity.

Under Capitalist systems, to a large degree, authority over the units of productive capacity resides with the owners. Within legal limits, the owners of each unit can decide how the unit will operate. This normally includes deciding the following things (among many others):

• which land production will take place on,
• how many people will be employed,
• what activities employees will do,
• which machines and tools will be used for production.

In larger produtive units, authority is usually delegated in a hierarchical system of management. Ownership may be shared among many people, and in such cases, the owners generally have votes in the excercise of authority in proportion to the size of their share of ownership.

Importantly, the owners receive any profits or proceeds generated by the productive capacity that they own. The price at which ownership of productive capacity can be sold is generally in rough proportion to the profits currently generated and/or expected to be generated by that productive capacity in the future. This provides a motivation for owners to excercise their authority in a way that increases the productive capacity of what they own rather than to use it for other purposes.

Capitalism became institutionalized in Europe between the 16th and 19th centuries, especially involving the right of individuals and groups of individuals to form and act as "legal persons" (or corporations) to buy and sell goods (including land and labor) in a free (meaning, free from state control) market; a set of theories developed in the 19th (in the context of the industrial revolution) and 20th (in the context of the Cold War) centuries meant to justify the private ownership of productive units, to explain the operation of such markets, and to guide the application or elimination of government regulation of property and markets; and a set of beliefs about the advantages of such practices.

Marxists and others criticize capitalism for enriching capitalists (owners of capital) at the expense of workers without necessarily working themselves("the rich get richer, and the poor get poorer"), and for the degree of control over the lives of workers enjoyed by owners. Supporters of capitalism counter this criticism by claiming that ownership of units of productive capacity provides motivation to owners to increase capacity of those units and so generally increase the average material wealth ("we all get richer").

Capitalism as an economic system

A typical definition of a capitalist economic system is a an economic system in which goods and services are traded in markets, and capital goods belong to non-state entities.

Proponents of capitalism tend to emphasise the role of free markets, which are seen as efficient and consistent with promoting individual freedom.

Marxists believe that the capitalism allows capitalists - the owners of capital - to exploit workers. The existence of private property is seen as a restriction on freedom. Marxists also argue that capitalism has inherent contradictions that will inevitably lead to its collapse. Capitalism is seen as just one stage in the evolution of the economy of a society.

Marxists also often argue that the structure of capitalism necessarily leads to unjust exploitation of workers, regardless of whether or not the political system is one of an elected democracy or not. For this reason Marxists typically emphasise the capitalist economic system of western countries rather than the democratic political system. A capitalist system is an economic system - although often associated with democratic systems, a capitalist system could also function under an unelected government.

In China differences in terminology sometimes confuse and complicate discussions of Chinese economic reform. Under Chinese Marxism, which is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bougeiosie. In the official Chinese ideology, China is currently in the primary stage of socialism with Chinese characteristics. However, because of Deng Xiaoping's dictum to seek truth from facts, this view does not prevent China from undertaking policies which in the West would be considered capitalistic including privatizing factories and encouraging the growth of the private sector.

Capitalism as an ideology

As with many common words, and most particularly ideologically laden words, "capitalism" has many meanings, and there is a lot confusion when using it as to whether it means any particular meaning, or whether it is just a slogan or insult used without particular meaning intended (or worse, with confusion intended).

"Capitalism" as a phenomenon (e.g., the system of the private ownership of capital) is certainly different from "capitalism" as an ideology (the philosophical advocacy of that system--not the same kind of notion at all).

Opponents of capitalism sometimes deny that these represent subtantially different things, or say they go hand-in-hand. Although it is arguable whether or not two meanings of the word "capitalism" of the same kind are somehow "equivalent" under someone's subjective notion of equivalence, for the sake of not making a straw man argument when accusing someone else to be a proponent of capitalism, these different concepts must be clearly distinguished.

Capitalism and political ideologies

There are many different and opposite ideologies that value capitalism:

• libertarianism (sometimes also called classical liberalism) defends a "pure" form of capitalism with minimal State intervention, e.g. Natural Capitalism which emphasizes the role of private business in seeking energy and material efficiency, and the role of government in making it difficult or expensive to reduce biodiversity or pollute the commons - but little else.
• conservatism varies depending on countries in its specific stances, but in western countries, usually defends something not unlike the status quo of current capitalist practices (see political conservatism).
• mercantilism defends state intervention to protect domestic commerce and industries against foreign competition (see protectionism).
• social democracy argues for extended state regulation and partial intervention in a capitalist background (see welfare state, political liberalism, liberal democracy, new liberalism).

Many different and opposite ideologies fight capitalism and argue for collectivism, including:

• socialism argues for partial State control of the economy, with tolerated areas of capitalism.
• fascism argues for extensive State control of economy, with delegation of its powers to complacent capitalists.
• communism argues for collective ownnership of the means of production, and the overthrow of the state.
• libertarian socialism argues for collective control of economy without the need for a State.

Arguments for and against capitalism

Since there are so many divergent ideologies backing or fighting capitalism, there is no possible agreed upon argument list for or against it. Each of the above ideologies makes very different claims for or about capitalism. Some ideologies refuse to use the word at all.

There seem to be four separate and distinct questions about capitalism which have clearly survived the 20th century and remain hotly debated today. Certain thinkers claim or claimed to have simple answers to these questions, but political science generally sees them as scales or shades of grey:

Is capitalism moral? Does it actually encourage traits we find useful or appealing in human beings? Yes: Ludwig von Mises, Ayn Rand, Robin Hanson No: John McMurty, Karl Marx

Is capitalism ethical? Can its rules and contracts and enforcement systems be made wholly objective of the people administering them, to a greater degree than other systems? Yes: Buckminster Fuller, John McMurty, Friedrich Hayek No: Karl Marx, Peter Kropotkin

Is capitalism efficient? Given whatever moral purposes or ethical standards it might serve, can it be said to allocate energy, material resources, or human creativity better than any of the alternatives? Yes: Ludwig von Mises, Paul Hawken, Joseph Schumpeter No: Peter Kropotkin

Is capitalism sustainable? Can it persist as a means of organizing human affairs, under any conceivable set of reforms as per the above? Yes: Buckminster Fuller, Paul Hawken No: Joseph Schumpeter, Karl Marx

Why does no one agree what capitalism is?

It's hard to answer this objectively. Apparently there has never been a clear agreement about the linguistic, economic, ethical and moral implications, that is, the "political economy" of capitalism itself.

Rather like a governing political party that everyone seeks to control, regardless of ideology, the definition of "capitalism" at any given time tends to reflect the current conflicts between interest groups.

The non-obvious combinations demonstrate the complexity of the debate. For instance, Joseph Schumpeter claimed in 1962 that capitalism was more efficient than any alternative, but doomed due to its complex and abstract rationale which the ordinary citizen would not ultimately defend.

Also, the overlapping claims confuse most debaters. Ayn Rand made an original defense of capitalism as a moral code, but her arguments for its efficiency were not original, and selected to support her moral claims. Karl Marx believed capitalism efficient but unfair at the administration of an immoral purpose, and thus ultimately unsustainable. John McMurty, a current commentator within the anti-globalization movement, believes it has become increasingly fair at the administration of this immoral purpose. Robin Hanson, another current commentator, asks if fitness and fairness and morality can ever really be separated by other than electoral political means?

In whose interest is capitalism ?

Finally, the arguments appeal strongly to different interest groups, and often support their positions as "rights".

Currently recognized property owners, especially corporate shareholders and holders of deeds in land or rights to exploit natural capital, are generally recognized as advocating extremely strong property rights.

However, the definition of capital has broadened in recent years to recognize and include the rationales of other major interest groups: artists or other creators who rely on copyright law, legal patent and trademark holders who improve what they call intellectual capital, workers who are largely trading in their own less creative labor guided by a body of shared and imitative instructional capital - the trades themselves, all have reasons to prefer status quo property law over any given set of proposed reforms.

Even judges, mediators or administrators charged with fair execution of some ethical code and the maintenance of some relationship between human capital and financial capital within a capitalist representative democracy, tend to have strong self-interest reasons to argue for one view or another - typically, that view that assigns them a meaningful role in the capitalist economy.

Karl Marx made the strong claim that this role actually affects their cognition, and leads them inexorably to irreconcilable points of view, i.e. that no agreement about capitalism was possible by "class collaboration", and "class struggle" between these defined it. This view was advocated by many revolutionary movements of the 20th century, but was often abandoned in practice as it seemed to lead to "class war", endless violence between those with irreconcilable points of view.

Today, even those parties traditionally opposed to capitalism, e.g. the Chinese Communist Party of Mao Zedong, see some role for it in the development of their society. Debate focuses on incentive systems, not on the overall moral structure or ethical clarity of "capitalism".

What is capitalism good for?

One important modern argument is that capitalism simply isn't a system, merely a set of questions, challenges, and assertions regarding human behavior. Similar to biology or ecology and its relationship to animal behavior, made complex by human language, culture and ideas. Jane Jacobs and George Lakoff argued separately that there was a Guardian Ethic which was fundamentally related to nurturing and protection of life, and a Trader Ethic more related to the unique primate practice of trade. Jacobs thought that the two were made and kept separate in history, and that any collaboration between them was corruption, i.e. any unifying system that claimed to make assertions regarding both, would simply be serving itself.

Other doctrines focus narrowly on the application of capitalist means to natural capital (Paul Hawken) or individual capital (Ayn Rand) - assuming a more general moral and legal framework which discourages these same mechanisms when applied to non-living beings coercively, e.g. "creative accounting" combining individual creativity with the complex instructional base of accounting itself.

Aside from the very narrow arguments advancing specific mechanisms, it is quite difficult or pointless to distinguish critiques of capitalism from critiques of Western European civilization, colonialism or imperialism. These arguments often recur interchangeably within the context of the extremely complex anti-globalization movement, which is often (but not universally) described as "anti-capitalist".

See also

• Related topics: History of Economic Thought, Emergence of early capitalism.
• Related words: capitalist.
• Related ideologies: classical liberalism (libertarianism, minarchism, anarcho-capitalism), conservatism (political conservatism), mercantilism, protectionism, social democracy (welfare state, liberalism, political liberalism, liberal democracy), state interventionism, state capitalism, socialism, fascism, communism, libertarian socialism.