Capitalism means the entrusting of the economic process of society to the guidance of the private businessman. It first developed in eighteenth century in Britain, later it was transplanted to north-western Europe and North America. From the very beginning of capitalism it has been characterized by a few basic traits.
What is Capitalism in Economics
In the first place ownership of the means of production (land, factories, machinery, natural resources) is in the capitalist system, held by individuals, not by the state. This does not exclude public ownership of natural monopolies or basis public services so that economic initiative is lodged with enterprises which are actuated by the quest for private gain. These enterprises subject to little regulation from outside assume the full risk of failure but enjoy also the unrestricted change of success. Their activity keeps the economic machinery of society in motion.
The structure of capitalist economy is aristocratic the number of economic agents is small as compared with the total number of persons participating in economic life with the result that a large majority is subject to the power of a few economic agents. In a regime of economic freedom the relation between the economic agent and the persons controlled by him takes appropriately the legal form a free contract. The dominance of minority is explained by the fact that because of the high standard of technical knowledge and organizational skill required under capitalism people of average abilities and fortunes are incapable of assumption the direction of production and can, therefore, no longer act as economic agents as they could under the handicrafts system.
Another essential characteristic of the capitalist economy is competition. In the recapitalize economy, custom and usage dictated what goods and services were worth and there were many persons occupations. In the capitalist economy everybody is free to chose whatever line of work he prefers and there is to be no artificial restriction or exclusion, such as on the basis of racial or religious prejudice from any occupation or profession. Similarly the capitalist market provides the place where goods and services are offered for sale the quantity and quality of which are regulated by free competition. The freedom to compete in the market result from four basic capitalist freedom freedom of trade and occupation freedom of contract freedom of property and freedom of profit making. To the extent that any of these four freedom is curbed free competition is reduced. The economic justification of competition is that it keeps everybody worker businessman, investor on his toes, constantly alert the changes in the market and constantly on the lookout for ways to increase his efficiency and thereby improve his chances on the market.
For about a hundred years after its introduction the capitalist system succeeded admirably. Karl Marx the greatest critic of capitalism, wrote in the Communist Manifesto, ''Capitalism, during its rule of scarce one hundred years has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature's forces to man, machinery application of chemistry to industry and agriculture steam navigation railways, electric telegraphs, clearing of whole continents by cultivation's canalization of rivers whole populations conjured out of the ground what earlier century had even a presentiment that such productive forced slumbered in the lap of social labour. Capitalism has accomplished wonder for surpassing, Egyptian pyramids, Roman aqueducts and Gothic cathedrals it has conducted expeditions that put in the shade all former migrations of actions and crusades.''
There is no doubt that the capitalist system has accomplished much. In the United States where the capitalist system prevails, the population increased thirty times. The Americans claim that the abolition of slavery education for all health facilities on an unprecedented level social security for everybody the doubling of longevity within a century the highest increase of population on record all coincide with the development of capitalism Moreover, in the field of education health and welfare more has been accomplished in capitalist societies in a spirit of service and disinterestedness that ever before in history. In the world today the great charitable foundations are to be found primarily in the capitalist nations. In the United States for example the Ford Foundations has assets of over 500 million dollars and it annually disburses between 40 and 50 million dollars for purpose of education human welfare world peace and the strengthening of freedom and democracy at home and abroad.
They further claim that capitalism has some describable political implications. The individual risk taking the desire and capacity to make decisions to assume responsibility to determine one's own life are an important motivation without which there can be no democracy. Persons who constantly faced danger risk and responsibility in their economic affairs were ultimately unwilling to accept authoritarian government from kinds and aristocracies and when the capitalist middle classes could not obtain their objectives peacefully they resorted to revolution the English civil war in the seventeenth century and the American and French Revolution in the eighteenth century. In fighting for itself the capitalist middle class appealed to the principles of universal human liberty the rights of ma and natural law. It is for this reason that democracy became an intrinsic part of capitalist civilization and for this reason also that greatest advances in democratic government and human liberty have so far been made in capitalist societies.
But in spite of these achievements which go to the credit of capitalism there are certain inherent defects in these system which are condemned by all right minded social thinkers. The main drawback in the capitalistic system is that business processes are carried on in terms of wealth' value' price' and cost.' These concepts are pecuniary and in individual instances have little or no necessary relationship to human welfare whereas the ultimate purpose to be served by economic activity is the generation of human well being. Since money has no consistent and inherent relationship to human welfare decisions made on pecuniary basis may and in a substantial number of cases do differ widely from decisions which would be dictated by considerations of human welfare. The emphasis which the system places upon pecuniary values undoubtedly affects our personal and social evaluations of no business phenomena. The successful citizen is likely to be the man who is the most successful financially friendships many follow patterns of pecuniary success art music and literature may be threatened by tests of the pecuniary worth of their products a college education may come to be judged largely in terms of its effects upon the prospective money earning of its recipients and so forth.
Another defect of the capitalist system is that it has given rise to unearned incomes. An unearned income is the acquisition of economic goods or purchasing power from any source other than the sale of personal productive effort on a competitive market. Capitalism has permitted income of this type to exist and in certain cases has unavoidably created them. Their existence means that certain individuals are thereby enabled to live and in many cases to live well, without working. It means that some are overpaid for their efforts and hence others are underpaid for the total national product is the sole source of individual incomes. If certain citizens consume without helping to produce the total heap of consumable goods, others must obtain from the heap less than they have added to it. Resultant potentialities of class antagonism may interfere with the harmony and cooperation that are essential to the most efficient operation of a complex economy.
Another weakness in capitalism is that on numerous occasions and i many ways it has offered business units powerful inducements to reduce productions and restrict supply of goods. It has permitted a perversion of the profit motive motive to ends just the opposite of those it is supposed to serve. Whereas profit normally is expected to be realized through production and the expansion of productive facilities it can also result from restricting output and obtaining a relatively high profit per unit of sales. Business enterprises have no failed to respond to such opportunities.
Capitalist system also result in waste of productive effort. Since no economic organization can achieve perfect efficiency in the utilization of resources some waste is inherent in all economic activity. Under the capitalist system, however, wastes of gross proportions are persistently resulted from the existence of competition. Competition has created a tendency for industrial equipment and staffs of workers to be unnecessarily duplicated. Each competitor in a given industry, needing to be fully equipped with machinery and labour to carry on production acquires them without considering the possibility that the market may not absorb all the potential output of all the available productive facilities. The result is idle equipment and waste.
Capitalism emphasizes the acquisitive and combative elements in human nature thereby suppressing altruistic and cooperative potentialities. Under such institutions as private property and the profit motive individuals place great emphasis upon acquiring and owning things they contrive to exclude other persons from the use of as large a portion of the world's goods as they can. This is often done in a spirit of combat and under the assumption that the other person must be an enemy. The institution of competition and the existence of the free market induce struggle and spirit of opposition. Each person assuming that the other is actuated by self interest finds it necessary to up this own interest uppermost. Acquisition self seeking and conflict thus become predominant environmental influences that help to shape the psychological development of people. Potential cooperative and altruistic tendencies whither for lack of stimulus while combative urges are developed and expanded.
Just as individualism was the element giving strength to capitalism and according for its many successes so the individualistic nature of capitalist institution is largely responsible for capitalism's failure. Being free to make his decisions without regard to the decision of others the individual or corporate entity establishes a new business unit when it appears profitable to him despite the duplication and social waste it may occasion. He or it makes choose its own extermination as the preferable alternative. The choice will be made of course by persuading ourselves that it is not being made since (so militarists on both sides will say) the victory of the right is certain without risk of universal if so it is to science that we will own its extinction.
''If however the human race decides to let itself go on living it will have to make very drastic changes in its way of thinking feeling and behaving. We must learn not to say. Never better death than dishonor hate and despise and whom e believe to be blind to all considerations of righteousness.
''If human life is to continue in spite of science mankind will have to learn a discipline of the passions which in the past has not been necessary. Men will have to submit to the law even when they think the law unjust and iniquitous. Nations which are persuaded that they are only demanding the barest will have to acquiesce when this demand is denied them by neutral authority do not say that this is easy' I do not prophesy that it will happen, I only say that if it does not happen the human race will perish and will perish as a result of science.''