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Capitalism

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Capitalism generally refers to

  • a belief in the advantages of such practices.

Etymology

The lexical roots of the word capital reveal roots in the trade and ownership of animals. The Latin root of the word capital is capitalis, from the proto-Indo-European kaput, which means "head", this being how wealth was measured. The more heads of cattle, the better. The terms chattel (meaning goods, animals, or slaves) and even cattle itself also derive from this same origin.

The lexical connections between animal trade and economics can also be seen in the names of many currencies and words about money: fee (faihu), rupee (rupya), buck (a deerskin), pecuniary (pecu), stock (livestock), and peso (pecu or pashu) all derive from animal-trade origins.

The first use of the word "capitalism" in English is by Thackeray in 1854, by which he meant having ownership of capital. In 1867 Proudhon used the term "capitalist" to refer to owners of capital, and Marx and Engels refer to the "Capitalist production system" and in Das Kapital to "Kapitalisten", "capitalists" (meaning the private owners of the means of production). By the early 20th century the term had become widespread, as evidenced by Max Weber's use of the term in his The Protestant Ethic and the Spirit of Capitalism in 1904, and Werner Sombart's 1906 Modern Capitalism. The OED cites the use of the term "private Capitalism" by Karl Daniel Adolf Douai, German-American Socialist and Abolitionist in the late 19th century, in an 1877 work entitled "Better Times", and a citation by an unknown author in 1884 in the pages of Pall Mall magazine.

History of theory of capitalism

Main article: History of theory of capitalism

The conception of what constitutes capitalism has changed significantly over time, as well as varying depending on the political perspective and analytical approach taken. Adam Smith focussed on the role of enlightened self-interest (the "invisible hand") and the role of specialisation in making capital accumulation efficient. Some proponents of capitalism (like Milton Friedman) emphasize the role of free markets, which they claim promote cooperation between individuals, innovation, economic growth, and liberty. For many (like Immanuel Wallerstein), capitalism hinges on the elaboration of an economic system in which goods and services are traded in markets, and capital goods belong to non-state entities, onto a global scale. For others (like Karl Marx), it is defined by the creation of a labor market in which most people have to sell their labor-power in order to survive. As Marx argued (see also Hilaire Belloc), capitalism is also distinguished from other market economies with private ownership by the concentration of the means of production in the hands of a few.

How capitalism works

Example of Starting a Business

The following example introduces many of the ideas involved in capitalism. When starting a business, the initial owners or investors typically provide some money (the Capital) which is used by the business to buy or rent some means of production. For example, the enterprise may buy or rent a piece of land and a building; it may buy machinery and hire workers (labor-power). The commodities produced by the workers become the property of the capitalist ("capitalist" in this context refers to a person who has capital, rather than a person who favors capitalism), and are sold by the workers on behalf of the capitalist. The money from sales also becomes the property of the capitalist. The workers deposit the money into the capitalist's bank account. Once the capitalist receives this money, he or she pays the workers a portion for their labor, pays other overhead costs, and keeps the rest as profit. If more money is needed than the initial owners are willing or able to provide, the business may need to borrow a limited amount of extra money with a promise to pay it back with interest -- in effect it may rent more capital. The business is granted a degree of legal authority, and control, over a set of factors of production (as economists call them). The business can register as a corporate entity, meaning that it can act as a type of virtual person in many matters before the law (see Companies for listing of such entities). The owners can pay themselves some of the income derived from the business (Dividends), sell shares of stock in the company, or they can sell all of the equipment, land, and other assets, and split the proceeds between them.