From Wikipedia, the free encyclopedia (Capitalism article)
The Industrial Workers of the World poster "Pyramid of Capitalist System" (1911)
Critics of capitalism associate the economic system with social inequality; unfair distribution of wealth and power; materialism; repression of workers and trade unionists; social alienation; economic inequality; unemployment;
and economic instability. Many socialists consider capitalism to be
irrational in that production and the direction of the economy are
unplanned, creating many inconsistencies and internal contradictions. Capitalism and individual property rights have been associated with the tragedy of the anticommons where owners are unable to agree. Marxian economist Richard D. Wolff
postulates that capitalist economies prioritize profits and capital
accumulation over the social needs of communities and capitalist
enterprises rarely include the workers in the basic decisions of the
enterprise. Democratic socialists argue that the role of the state in a capitalist society is to defend the interests of the bourgeoisie. These states take actions to implement such things as unified national markets, national currencies and customs system. Capitalism and capitalist governments have also been criticized as oligarchic in nature due to the inevitable inequality characteristic of economic progress.
Some labor historians and scholars have argued that unfree labor—by slaves, indentured servants, prisoners or other coerced persons—is compatible with capitalist relations. Tom Brass argued that unfree labor is acceptable to capital. Historian Greg Grandin
argues that capitalism has its origins in slavery, saying that "[w]hen
historians talk about the Atlantic market revolution, they are talking
about capitalism. And when they are talking about capitalism, they are
talking about slavery." Some historians, including Edward E. Baptist and Sven Beckert, assert that slavery was an integral component in the violent development of American and global capitalism. The Slovenian continental philosopher Slavoj Žižek posits that the new era of global capitalism has ushered in new forms of contemporary slavery, including migrant workers deprived of basic civil rights on the Arabian Peninsula, the total control of workers in Asian sweatshops, and the use of forced labor in the exploitation of natural resources in Central Africa.
According to Immanuel Wallerstein,
institutional racism has been "one of the most significant pillars" of
the capitalist system and serves as "the ideological justification for
the hierarchization of the work-force and its highly unequal
distributions of reward".
Many aspects of capitalism have come under attack from the anti-globalization movement, which is primarily opposed to corporate capitalism. Environmentalists
have argued that capitalism requires continual economic growth and that
it will inevitably deplete the finite natural resources of Earth and
cause mass extinctions of animal and plant life. Such critics argue that while neoliberalism,
the ideological backbone of contemporary globalized capitalism, has
indeed increased global trade, it has also destroyed traditional ways of
life, exacerbated inequality and increased global poverty—with more living today in abject poverty than before neoliberalism and that environmental indicators indicate massive environmental degradation since the late 1970s.
Some scholars blame the financial crisis of 2007–2008 on the neoliberal capitalist model. Following the banking crisis of 2007, Alan Greenspan
told the United States Congress on 23 October 2008 that "[t]his modern
risk-management paradigm held sway for decades. The whole intellectual
edifice, however, collapsed in the summer of last year",
and that "I made a mistake in presuming that the self-interests of
organizations, specifically banks and others, were such that they were
best capable of protecting their own shareholders and their equity in
firms [...] I was shocked".
Many religions have criticized or opposed specific elements of capitalism. Traditional Judaism, Christianity, and Islam forbid lending money at interest, although alternative methods of banking have been developed. Some Christians have criticized capitalism for its materialist aspects and its inability to account for the wellbeing of all people.
Many of Jesus' parables deal with economic concerns: farming,
shepherding, being in debt, doing hard labor, being excluded from
banquets and the houses of the rich and have implications for wealth and
power distribution. Catholic scholars and clergy have often criticized capitalism because of its disenfranchisement of the poor, often promoting distributism as an alternative. In his 84-page apostolic exhortation Evangelii gaudium, Catholic Pope Francis described unfettered capitalism as "a new tyranny" and called on world leaders to fight rising poverty and inequality:
Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting.
Proponents of capitalism argue that it creates more prosperity than
any other economic system and that its benefits are mainly to the
ordinary person. Critics of capitalism variously associate it with economic instability, an inability to provide for the well-being of all people and an unsustainable danger to the natural environment. Socialists
maintain that although capitalism is superior to all previously
existing economic systems (such as feudalism or slavery), the
contradiction between class interests will only be resolved by advancing
into a completely new social system of production and distribution in
which all persons have an equal relationship to the means of production.
The term capitalism in its modern sense is often attributed to Karl Marx. In his Das Kapital, Marx analyzed the "capitalist mode of production" using a method of understanding today known as Marxism.
However, Marx himself rarely used the term "capitalism" while it was
used twice in the more political interpretations of his work, primarily
authored by his collaborator Friedrich Engels.
In the 20th century, defenders of the capitalist system often replaced
the term capitalism with phrases such as free enterprise and private
enterprise and replaced capitalist with rentier and investor in reaction to the negative connotations associated with capitalism.
The profit motive
The
majority of criticisms against the profit motive centre on the idea
that the profit motive encourages selfishness and greed, rather than
serve the public good or necessarily creating an increase in net wealth.
Critics of the profit motive contend that companies disregard morals or
public safety in the pursuit of profits.
Free market
economists counter that the profit motive, coupled with competition,
actually reduces the final price of an item for consumption, rather than
raising it. They argue that businesses profit by selling a good at a
lower price and at a greater volume than the competition. Economist Thomas Sowell
uses supermarkets as an example to illustrate this point: "It has been
estimated that a supermarket makes a clear profit of about a penny on a
dollar of sales. If that sounds pretty skimpy, remember that it is
collecting that penny on every dollar at several cash registers
simultaneously and, in many cases, around the clock".
American economist Milton Friedman has argued that greed and self-interest are universal human traits. On a 1979 episode of The Phil Donahue Show,
Friedman states: "The world runs on individuals pursuing their separate
interests". He continues by explaining that only in capitalist
countries, where individuals can pursue their own self-interest, people
have been able to escape from "grinding poverty".
Comparison to slavery
Pinkerton guards escort strikebreakers in Buchtel, Ohio, 1884
Wage labor has long been compared to slavery. As a result, the phrase "wage slavery" is often utilized as a pejorative for wage labor.
Similarly, advocates of slavery looked upon the "comparative evils of
Slave Society and of Free Society, of slavery to human Masters and
slavery to Capital" and proceeded to argue that wage slavery was actually worse than chattel slavery. Slavery apologists like George Fitzhugh
contended that workers only accepted wage labor with the passage of
time as they became "familiarised and inattentive to the infected social
atmosphere they continually inhale". Scholars have debated the exact relationship between wage labor, slavery, and capitalism at length, especially for the Antebellum South.
Similarities between wage labor and slavery were noted as early as Cicero in Ancient Rome, such as in De Officiis. With the advent of the Industrial Revolution, thinkers such as Pierre-Joseph Proudhon and Karl Marx
elaborated the comparison between wage labor and slavery in the context
of a critique of societal property not intended for active personal use while Luddites emphasized the dehumanisation brought about by machines. Before the American Civil War, Southern defenders of African American slavery invoked the concept of wage slavery to favorably compare the condition of their slaves to workers in the North. The United States abolished slavery during the Civil War, but labor union activists found the metaphor useful. According to Lawrence Glickman, in the Gilded Age "references abounded in the labor press, and it is hard to find a speech by a labour leader without the phrase".
The slave, together with his labour-power, was sold to his owner once for all. [...] The [wage] labourer, on the other hand, sells his very self, and that by fractions. [...] He [belongs] to the capitalist class; and it is for him [...] to find a buyer in this capitalist class.—Karl Marx
According to Noam Chomsky, analysis of the psychological implications of wage slavery goes back to the Enlightenment era. In his 1791 book On the Limits of State Action, liberal thinker Wilhelm von Humboldt
explained how "whatever does not spring from a man's free choice, or is
only the result of instruction and guidance, does not enter into his
very nature; he does not perform it with truly human energies, but
merely with mechanical exactness" and so when the laborer works under
external control, "we may admire what he does, but we despise what he
is". Both the Milgram and Stanford experiments have been found useful in the psychological study of wage-based workplace relations. Additionally, as per anthropologist David Graeber,
the earliest wage labor contracts we know about were in fact contracts
for the rental of chattel slaves (usually the owner would receive a
share of the money and the slave another, with which to maintain his or
her living expenses). According to Graeber, such arrangements were quite
common in New World slavery as well, whether in the United States or
Brazil. C. L. R. James argued in The Black Jacobins
that most of the techniques of human organisation employed on factory
workers during the Industrial Revolution were first developed on slave
plantations.
Girl pulling a coal tub in mine, from official report of the British parliamentary commission in the mid 19th century
Some anti-capitalist thinkers claim that the elite maintain wage slavery and a divided working class through their influence over the media and entertainment industry, educational institutions, unjust laws, nationalist and corporate propaganda, pressures and incentives to internalize values serviceable to the power structure, state violence, fear of unemployment
and a historical legacy of exploitation and profit
accumulation/transfer under prior systems, which shaped the development
of economic theory:
Adam Smith noted that employers often conspire together to keep wages low:
The interest of the dealers... in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public… [They] have generally an interest to deceive and even to oppress the public… We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms.
Aristotle
made the statement that "the citizens must not live a mechanic or a
mercantile life (for such a life is ignoble and inimical to virtue), nor
yet must those who are to be citizens in the best state be tillers of
the soil (for leisure is needed both for the development of virtue and
for active participation in politics)", often paraphrased as "all paid jobs absorb and degrade the mind".
Cicero wrote in 44 BC that "vulgar are the means of livelihood of all
hired workmen whom we pay for mere manual labour, not for artistic
skill; for in their case the very wage they receive is a pledge of their
slavery". Somewhat similar criticisms have also been expressed by some proponents of liberalism, like Henry George, Silvio Gesell, and Thomas Paine as well as the Distributist school of thought within the Roman Catholic Church.
To Marxist and anarchist thinkers like Mikhail Bakunin and Peter Kropotkin, wage slavery was a class condition in place due to the existence of private property and the state. This class situation rested primarily on:
- The existence of property not intended for active use.
- The concentration of ownership in few hands.
- The lack of direct access by workers to the means of production and consumption goods.
- The perpetuation of a reserve army of unemployed workers.
For Marxists, labor as commodity, which is how they regard wage labor, provides a fundamental point of attack against capitalism.
"It can be persuasively argued", noted one concerned philosopher, "that
the conception of the worker's labour as a commodity confirms Marx's
stigmatization of the wage system of private capitalism as
'wage-slavery;' that is, as an instrument of the capitalist's for
reducing the worker's condition to that of a slave, if not below it".
That this objection is fundamental follows immediately from Marx's
conclusion that wage labor is the very foundation of capitalism:
"Without a class dependent on wages, the moment individuals confront
each other as free persons, there can be no production of surplus value;
without the production of surplus-value there can be no capitalist
production, and hence no capital and no capitalist!".
Marxian responses
Marx considered capitalism to be a historically specific mode of production (the way in which the productive property is owned and controlled, combined with the corresponding social relations between individuals based on their connection with the process of production).
The "capitalistic era" according to Karl Marx dates from 16th-century merchants and small urban workshops.
Marx knew that wage labour existed on a modest scale for centuries
before capitalist industry. For Marx, the capitalist stage of
development or "bourgeois
society" represented the most advanced form of social organization to
date, but he also thought that the working classes would come to power
in a worldwide socialist or communist
transformation of human society as the end of the series of first
aristocratic, then capitalist and finally working class rule was
reached.
Following Adam Smith, Marx distinguished the use value of commodities from their exchange value
in the market. According to Marx, capital is created with the purchase
of commodities for the purpose of creating new commodities with an
exchange value higher than the sum of the original purchases. For Marx,
the use of labor power
had itself become a commodity under capitalism and the exchange value
of labor power, as reflected in the wage, is less than the value it
produces for the capitalist.
This difference in values, he argues, constitutes surplus value, which the capitalists extract and accumulate. In his book Capital, Marx argues that the capitalist mode of production is distinguished by how the owners of capital extract this surplus from workers—all prior class societies had extracted surplus labor, but capitalism was new in doing so via the sale-value of produced commodities.
He argues that a core requirement of a capitalist society is that a
large portion of the population must not possess sources of
self-sustenance that would allow them to be independent and are instead
forced to sell their labor for a wage.
In conjunction with his criticism of capitalism was Marx's belief
that the working class, due to its relationship to the means of
production and numerical superiority under capitalism, would be the
driving force behind the socialist revolution. This argument is intertwined with Marx' version of the labor theory of value arguing that labor is the source of all value and thus of profit.
In Imperialism, the Highest Stage of Capitalism (1916), Vladimir Lenin further developed Marxist theory and argued that capitalism necessarily led to monopoly capitalism
and the export of capital—which he also called "imperialism"—to find
new markets and resources, representing the last and highest stage of
capitalism. Some 20th century Marxian economists consider capitalism to be a social formation where capitalist class processes dominate, but are not exclusive.
To these thinkers, capitalist class processes are simply those in
which surplus labor takes the form of surplus value, usable as capital;
other tendencies for utilization of labor nonetheless exist
simultaneously in existing societies where capitalist processes
predominate. However, other late Marxian thinkers argue that a social
formation as a whole may be classed as capitalist if capitalism is the
mode by which a surplus is extracted, even if this surplus is not
produced by capitalist activity as when an absolute majority of the
population is engaged in non-capitalist economic activity.
In Limits to Capital (1982), David Harvey outlines an overdetermined, "spatially restless" capitalism coupled with the spatiality of crisis formation and resolution.
Harvey used Marx's theory of crisis to aid his argument that capitalism
must have its "fixes", but that we cannot predetermine what fixes will
be implemented, nor in what form they will be. His work on contractions
of capital accumulation and international movements of capitalist modes
of production and money flows has been influential. According to Harvey, capitalism creates the conditions for volatile and geographically uneven development.
Sociologists such as Ulrich Beck envisioned the society of risk
as a new cultural value which saw risk as a commodity to be exchanged in
globalized economies. This theory suggested that disasters and
capitalist economy were inevitably entwined. Disasters allow the
introduction of economic programs which otherwise would be rejected as
well as decentralizing the class structure in production.
Criticisms on the environmental sustainability of capitalism
Scholars
argue that the capitalist approach to environmental economics does not
take into consideration the preserving of natural resources. Capitalism creates three ecological problems: growth, technology, and consumption. The growth problem results from the nature of capitalism, as it focuses around the accumulation of Capital.
The innovation of new technologies has an impact on the environmental
future as they serve as a capitalist tool in which environmental
technologies can result in the expansion of the system. Consumption is focused around the capital accumulation of commodities and neglects the use-value of production.
Supply and demand
At
least two assumptions are necessary for the validity of the standard
model: first, that supply and demand are independent; and second, that
supply is "constrained by a fixed resource". If these conditions do not
hold, then the Marshallian model cannot be sustained. Sraffa's
critique focused on the inconsistency (except in implausible
circumstances) of partial equilibrium analysis and the rationale for the
upward slope of the supply curve in a market for a produced consumption
good. The notability of Sraffa's critique is also demonstrated by Paul A. Samuelson's comments and engagements with it over many years, for example:
What a cleaned-up version of Sraffa (1926) establishes is how nearly empty are all of Marshall's partial equilibrium boxes. To a logical purist of Wittgenstein and Sraffa class, the Marshallian partial equilibrium box of constant cost is even more empty than the box of increasing cost.
Aggregate excess demand in a market is the difference between the
quantity demanded and the quantity supplied as a function of price. In
the model with an upward-sloping supply curve and downward-sloping
demand curve, the aggregate excess demand function only intersects the
axis at one point, namely at the point where the supply and demand
curves intersect. The Sonnenschein–Mantel–Debreu theorem shows that the standard model cannot be rigorously derived in general from general equilibrium theory.
The model of prices being determined by supply and demand assumes perfect competition.
However, "economists have no adequate model of how individuals and
firms adjust prices in a competitive model. If all participants are
price-takers by definition, then the actor who adjusts prices to
eliminate excess demand is not specified". Goodwin, Nelson, Ackerman and Weisskopf write:
If we mistakenly confuse precision with accuracy, then we might be misled into thinking that an explanation expressed in precise mathematical or graphical terms is somehow more rigorous or useful than one that takes into account particulars of history, institutions or business strategy. This is not the case. Therefore, it is important not to put too much confidence in the apparent precision of supply and demand graphs. Supply and demand analysis is a useful precisely formulated conceptual tool that clever people have devised to help us gain an abstract understanding of a complex world. It does not—nor should it be expected to—give us in addition an accurate and complete description of any particular real world market.
Externalities
Market failure occurs when an externality
is present and a market will often either under-produce a product with a
positive externalisation or overproduce a product that generates a
negative externalisation.
Air pollution, for instance, is a negative externalisation that cannot
be easily incorporated into markets as the world's air is not owned and
then sold for use to polluters.
So too much pollution could be emitted and people not involved in the
production pay the cost of the pollution instead of the firm that
initially emitted the air pollution. Critics of market failure theory, like Ronald Coase, Harold Demsetz and James M. Buchanan, argue that government programs and policies also fall short of absolute perfection. While all nations currently have some kind of market regulations, the desirable degree of regulation is disputed.
Counter-criticisms
Austrian School
Austrian School
economists have argued that capitalism can organize itself into a
complex system without an external guidance or central planning
mechanism. Friedrich Hayek considered the phenomenon of self-organisation
as underpinning capitalism. Prices serve as a signal as to the urgent
and unfilled wants of people and the opportunity to earn profits if
successful, or absorb losses if resources are used poorly or left idle,
gives entrepreneurs incentive to use their knowledge
and resources to satisfy those wants. Thus the activities of millions
of people, each seeking his own interest, are coordinated.
Ayn Rand
The novelist and philosopher Ayn Rand made positive moral defenses of laissez-faire capitalism, most notably in her 1957 novel Atlas Shrugged and in her 1966 collection of essays Capitalism: The Unknown Ideal. She argued that capitalism should be supported on moral grounds, not just on the basis of practical benefits.
Her ideas have had significant influence over conservative and
libertarian supporters of capitalism, especially within the American Tea Party movement.
Rand defined capitalism as "a social system based on the recognition of
individual rights, including property rights, in which all property is
privately owned".
According to Rand, the role of government in a capitalist state has
three broad categories of proper functions: first, the police "to
protect men from criminals"; second, the armed services "to protect men
from foreign invaders"; and third, the law courts "to settle disputes
among men according to objective laws".
