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Friday, January 30, 2026

Reality

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Reality
Hubble Ultra-Deep Field image of distant galaxies illustrates a challenge to understanding reality at any given instant: the light from these stars was emitted billions of years ago and many of these stars have moved, merged, or evolved since then.

Reality is the state of everything that exists, not how they might be imagined. Different cultures and academic disciplines conceptualize it in various ways.

Philosophical questions about the nature of reality, existence, or being are considered under the rubric of ontology, a major branch of metaphysics in the Western intellectual tradition. Ontological questions also feature in diverse branches of philosophy, including the philosophy of science, religion, mathematics, and logic. These include questions about whether only physical objects are real (e.g., physicalism), whether reality is fundamentally immaterial (e.g., idealism), whether hypothetical unobservable entities posited by scientific theories exist (e.g., scientific realism), whether God exists, whether numbers and other abstract objects exist, and whether possible worlds exist. Skeptics question whether any of those claims is true, and suggest more extreme postulates.

Meaning and etymology

The word "reality" means the state of things as they actually exist, not understood idealistically, as an unproven notional idea or ideas or via the imagination only. The word is a borrowing from the French realité and the Latin realitas. According to the Oxford English Dictionary, it first appeared in English at some time prior to 1513.

Western philosophy

Philosophy addresses two different aspects of the topic of reality: the nature of reality itself, and the relationship between the mind (as well as language and culture) and reality.

On the one hand, ontology is the study of being, and the central topic of the field is couched, variously, in terms of being, existence, "what is", and reality. The task in ontology is to describe the most general categories of reality and how they are interrelated. If a philosopher wanted to proffer a positive definition of the concept "reality", it would be done under this heading. As explained above, some philosophers draw a distinction between reality and existence. In fact, many analytic philosophers today tend to avoid the term "real" and "reality" in discussing ontological issues. But for those who would treat "is real" the same way they treat "exists", one of the leading questions of analytic philosophy has been whether existence (or reality) is a property of objects. It has been widely held by analytic philosophers that it is not a property at all, though this view has lost some ground in recent decades.

On the other hand, particularly in discussions of objectivity that have grounding in both metaphysics and epistemology, philosophical discussions of reality often concern the ways in which reality is or is not in some way dependent upon (or, to use fashionable jargon, "constructed" out of) mental and cultural factors such as perceptions, beliefs, and other mental states, as well as cultural artifacts—such as religions and political movements—on up to the vague notion of a common cultural world view (or Weltanschauung).

Realism

The view that there is a reality independent of any beliefs, perceptions, etc., is called realism. More specifically, philosophers are given to speaking about "realism about" this and that, such as realism about universals or realism about the external world. Generally, where one can identify any class of object, the existence or essential characteristics of which is said not to depend on perceptions, beliefs, language, or any other human artifact, one can speak of "realism about" that object.

A correspondence theory of knowledge about what exists claims that "true" knowledge of reality represents accurate correspondence of statements about and images of reality with the actual reality that the statements or images are attempting to represent. For example, the scientific method can verify that a statement is true based on the observable evidence that a thing exists. Many humans can point to the Rocky Mountains and say that this mountain range exists, and continues to exist even if no one is observing it or making statements about it.

Anti-realism

One can also speak of anti-realism about the same objects. Anti-realism is the latest in a long series of terms for views opposed to realism. Perhaps the first was idealism, so called because reality was said to be in the mind, or a product of our ideas. Berkeleyan idealism is the view, propounded by the Irish empiricist George Berkeley, that the objects of perception are actually ideas in the mind. In this view, one might be tempted to say that reality is a "mental construct"; this is not quite accurate, however, since, in Berkeley's view, perceptual ideas are created and coordinated by God. By the 20th century, views similar to Berkeley's were called phenomenalism. Phenomenalism differs from Berkeleyan idealism primarily in that Berkeley believed that minds, or souls, are not merely ideas nor made up of ideas, whereas varieties of phenomenalism, such as that advocated by Russell, tended to go farther to say that the mind itself is merely a collection of perceptions, memories, etc., and that there is no mind or soul over and above such mental events. Finally, anti-realism became a fashionable term for any view which held that the existence of some object depends upon the mind or cultural artifacts. The view that the so-called external world is really merely a social, or cultural, artifact, called social constructionism, is one variety of anti-realism. Cultural relativism is the view that social issues such as morality are not absolute, but at least partially cultural artifact. Potentially the most extreme form of anti-realism is solipsism — the belief that oneself is the only thing in existence.

Being

The nature of being is a perennial topic in metaphysics. For instance, Parmenides taught that reality was a single unchanging Being, whereas Heraclitus wrote that all things flow. The 20th-century philosopher Heidegger thought previous philosophers have lost sight of the question of Being (qua Being) in favour of the questions of beings (existing things), so he believed that a return to the Parmenidean approach was needed. An ontological catalogue is an attempt to list the fundamental constituents of reality. The question of whether existence is a predicate has been discussed since the Early Modern period, not least in relation to the ontological argument for the existence of God. Existence, that something is, has been contrasted with essence, the question of what something is. Since existence without essence seems blank, it associated with nothingness by philosophers such as Hegel. Existential nihilism represents an extremely negative view of being, the absolute a positive one.

Perception

The question of direct or "naïve" realism, as opposed to indirect or "representational" realism, arises in the philosophy of perception and of mind out of the debate over the nature of conscious experience; the epistemological question of whether the world we see around us is the real world itself or merely an internal perceptual copy of that world generated by neural processes in our brain. Naïve realism is known as direct realism when developed to counter indirect or representative realism, also known as epistemological dualism, the philosophical position that our conscious experience is not of the real world itself but of an internal representation, a miniature virtual-reality replica of the world.

Timothy Leary coined the influential term Reality Tunnel, by which he means a kind of representative realism. The theory states that, with a subconscious set of mental filters formed from their beliefs and experiences, every individual interprets the same world differently, hence "Truth is in the eye of the beholder". His ideas influenced the work of his friend Robert Anton Wilson.

Abstract objects and mathematics

The status of abstract entities, particularly numbers, is a topic of discussion in mathematics.

In the philosophy of mathematics, the best known form of realism about numbers is Platonic realism, which grants them abstract, immaterial existence. Other forms of realism identify mathematics with the concrete physical universe.

Anti-realist stances include formalism and fictionalism.

Some approaches are selectively realistic about some mathematical objects but not others. Finitism rejects infinite quantities. Ultra-finitism accepts finite quantities up to a certain amount. Constructivism and intuitionism are realistic about objects that can be explicitly constructed, but reject the use of the principle of the excluded middle to prove existence by reductio ad absurdum.

The traditional debate has focused on whether an abstract (immaterial, intelligible) realm of numbers has existed in addition to the physical (sensible, concrete) world. A recent development is the mathematical universe hypothesis, the theory that only a mathematical world exists, with the finite, physical world being an illusion within it.

An extreme form of realism about mathematics is the mathematical multiverse hypothesis advanced by Max Tegmark. Tegmark's sole postulate is: All structures that exist mathematically also exist physically. That is, in the sense that "in those [worlds] complex enough to contain self-aware substructures [they] will subjectively perceive themselves as existing in a physically 'real' world". The hypothesis suggests that worlds corresponding to different sets of initial conditions, physical constants, or altogether different equations should be considered real. The theory can be considered a form of Platonism in that it posits the existence of mathematical entities, but can also be considered a mathematical monism in that it denies that anything exists except mathematical objects.

Properties

The problem of universals is an ancient problem in metaphysics about whether universals exist. Universals are general or abstract qualities, characteristics, properties, kinds or relations, such as being male/female, solid/liquid/gas or a certain colour, that can be predicated of individuals or particulars or that individuals or particulars can be regarded as sharing or participating in. For example, Scott, Pat, and Chris have in common the universal quality of being human or humanity.

The realist school claims that universals are real – they exist and are distinct from the particulars that instantiate them. There are various forms of realism. Two major forms are Platonic realism and Aristotelian realismPlatonic realism is the view that universals are real entities and they exist independent of particulars. Aristotelian realism, on the other hand, is the view that universals are real entities, but their existence is dependent on the particulars that exemplify them.

Nominalism and conceptualism are the main forms of anti-realism about universals.

Time and space

A traditional realist position in ontology is that time and space have existence apart from the human mind. Idealists deny or doubt the existence of objects independent of the mind. Some anti-realists whose ontological position is that objects outside the mind do exist, nevertheless doubt the independent existence of time and space.

Kant, in the Critique of Pure Reason, described time as an a priori notion that, together with other a priori notions such as space, allows us to comprehend sense experience. Kant denies that either space or time are substance, entities in themselves, or learned by experience; he holds rather that both are elements of a systematic framework we use to structure our experience. Spatial measurements are used to quantify how far apart objects are, and temporal measurements are used to quantitatively compare the interval between (or duration of) events. Although space and time are held to be transcendentally ideal in this sense, they are also empirically real, i.e. not mere illusions.

Idealist writers such as J. M. E. McTaggart in The Unreality of Time have argued that time is an illusion.

As well as differing about the reality of time as a whole, metaphysical theories of time can differ in their ascriptions of reality to the past, present and future separately.

  • Presentism holds that the past and future are unreal, and only an ever-changing present is real.
  • The block universe theory, also known as Eternalism, holds that past, present and future are all real, but the passage of time is an illusion. It is often said to have a scientific basis in relativity.
  • The growing block universe theory holds that past and present are real, but the future is not.

Time, and the related concepts of process and evolution are central to the system-building metaphysics of A. N. Whitehead and Charles Hartshorne.

Possible worlds

The term "possible world" goes back to Leibniz's theory of possible worlds, used to analyse necessity, possibility, and similar modal notions. Modal realism is the view, notably propounded by David Kellogg Lewis, that all possible worlds are as real as the actual world. In short: the actual world is regarded as merely one among an infinite set of logically possible worlds, some "nearer" to the actual world and some more remote. Other theorists may use the Possible World framework to express and explore problems without committing to it ontologically. Possible world theory is related to alethic modal logic: a proposition is necessary if it is true in all possible worlds, and possible if it is true in at least one. The many worlds interpretation of quantum mechanics is a similar idea in science.

Theories of everything (TOE) and philosophy

The philosophical implications of a physical TOE are frequently debated. For example, if philosophical physicalism is true, a physical TOE will coincide with a philosophical theory of everything.

The "system building" style of metaphysics attempts to answer all the important questions in a coherent way, providing a complete picture of the world. Plato and Aristotle could be said to be early examples of comprehensive systems. In the early modern period (17th and 18th centuries), the system-building scope of philosophy is often linked to the rationalist method of philosophy, that is the technique of deducing the nature of the world by pure a priori reason. Examples from the early modern period include the Leibniz's Monadology, Descartes's Dualism, Spinoza's Monism. Hegel's Absolute idealism and Whitehead's Process philosophy were later systems.

Other philosophers do not believe its techniques can aim so high. Some scientists think a more mathematical approach than philosophy is needed for a TOE, for instance Stephen Hawking wrote in A Brief History of Time that even if we had a TOE, it would necessarily be a set of equations. He wrote, "What is it that breathes fire into the equations and makes a universe for them to describe?"

Phenomenology

On a much broader and more subjective level, private experiences, curiosity, inquiry, and the selectivity involved in personal interpretation of events shapes reality as seen by one and only one person and hence is called phenomenological. While this form of reality might be common to others as well, it could at times also be so unique to oneself as to never be experienced or agreed upon by anyone else. Much of the kind of experience deemed spiritual occurs on this level of reality.

Phenomenology is a philosophical method developed in the early years of the twentieth century by Edmund Husserl (1859–1938) and a circle of followers at the universities of Göttingen and Munich in Germany. Subsequently, phenomenological themes were taken up by philosophers in France, the United States, and elsewhere, often in contexts far removed from Husserl's work.

The word phenomenology comes from the Greek phainómenon, meaning "that which appears", and lógos, meaning "study". In Husserl's conception, phenomenology is primarily concerned with making the structures of consciousness, and the phenomena which appear in acts of consciousness, objects of systematic reflection and analysis. Such reflection was to take place from a highly modified "first person" viewpoint, studying phenomena not as they appear to "my" consciousness, but to any consciousness whatsoever. Husserl believed that phenomenology could thus provide a firm basis for all human knowledge, including scientific knowledge, and could establish philosophy as a "rigorous science".

Husserl's conception of phenomenology has been criticised and developed by his student and assistant Martin Heidegger (1889–1976), by existentialists like Maurice Merleau-Ponty (1908–1961) and Jean-Paul Sartre (1905–1980), and by other philosophers, such as Paul Ricoeur (1913–2005), Emmanuel Levinas (1906–1995), and Dietrich von Hildebrand (1889–1977).

Skeptical hypotheses

A brain in a vat that believes it is walking

Skeptical hypotheses in philosophy suggest that reality could be very different from what we think it is; or at least that we cannot prove it is not. Examples include:

  • The "Brain in a vat" hypothesis is cast in scientific terms. It supposes that one might be a disembodied brain kept alive in a vat, and fed false sensory signals. This hypothesis is related to the Matrix hypothesis below.
  • The "Dream argument" of Descartes and Zhuangzi supposes reality to be indistinguishable from a dream.
  • Descartes' Evil demon is a being "as clever and deceitful as he is powerful, who has directed his entire effort to misleading me."
  • The five minute hypothesis (or omphalos hypothesis or Last Thursdayism) suggests that the world was created recently together with records and traces indicating a greater age.
  • Diminished reality refers to artificially diminished reality, not due to limitations of sensory systems but via artificial filters.
  • The Matrix hypothesis or Simulated reality hypothesis suggest that we might be inside a computer simulation or virtual reality. Related hypotheses may also involve simulations with signals that allow the inhabitant species in virtual or simulated reality to perceive the external reality.

Non-western philosophy

Hindu philosophy

Hindu philosophy, particularly the Vedic tradition, includes a number of subtly different and nuanced perspectives about the nature of reality and unified consciousness They are as follows (order irrelevant):

  1. Advaita – non-dualism
  2. Tattvavada (Dvaita) – dualism
  3. Dvaitadvaita – dualistic non-dualism
  4. Bhedabheda – difference and non-difference
  5. Vishishtadvaita – qualified non-dualism
  6. Suddhadvaita – pure non-dualism
  7. Achintya-Bheda-Abheda – inconceivable difference and non-difference
  8. Dvaitadvaita Vedanta - natural identity-in-difference
  9. Akshar Purushottam Darshan - multiple eternal realities

Jain philosophy

Jain philosophy postulates that seven tattva (truths or fundamental principles) constitute reality. These seven tattva are:

  1. Jīva – The soul which is characterized by consciousness.
  2. Ajīva – The non-soul.
  3. Asrava – Influx of karma.
  4. Bandha – The bondage of karma.
  5. Samvara – Obstruction of the inflow of karmic matter into the soul.
  6. Nirjara – Shedding of karmas.
  7. Moksha – Liberation or Salvation, i.e. the complete annihilation of all karmic matter (bound with any particular soul).

Science

Scientific method

Science is used to comprehend reality. The scientific method concerns three concepts: reality, observation, and understanding. To apply the method requires that reality be observable in some way, that the observations can be summarized in a comprehendible way, and that the resulting understanding can be compared to reality or falsified.

Scientific realism

Scientific realism is the view that reality exists externally to the mind, that this external world is what science describes, and that scientific theories constitute an understand of reality. By contrast, the scientific philosophy called instrumentalism rejects the reality of unobservable aspects of scientific theories. For example, in instrumentalism the electron is not an element of reality but the effect it creates in a cloud chamber is real.

Realism and locality in physics

Realism in the sense used by physicists does not equate to realism in metaphysics. The latter is the claim that the world is mind-independent: that even if the results of a measurement do not pre-exist the act of measurement, that does not require that they are the creation of the observer. Furthermore, a mind-independent property does not have to be the value of some physical variable such as position or momentum. A property can be dispositional (or potential), i.e. it can be a tendency: in the way that glass objects tend to break, or are disposed to break, even if they do not actually break. Likewise, the mind-independent properties of quantum systems could consist of a tendency to respond to particular measurements with particular values with ascertainable probability. Such an ontology would be metaphysically realistic, without being realistic in the physicist's sense of "local realism" (which would require that a single value be produced with certainty).

A closely related term is counterfactual definiteness (CFD), used to refer to the claim that one can meaningfully speak of the definiteness of results of measurements that have not been performed (i.e. the ability to assume the existence of objects, and properties of objects, even when they have not been measured).

Local realism is a significant feature of classical mechanics, of general relativity, and of classical electrodynamics; but not quantum mechanics. In a work now called the EPR paradox, Einstein relied on local realism to suggest that hidden variables were missing in quantum mechanics. However, John S. Bell subsequently showed that the predictions of quantum mechanics are inconsistent with hidden variables, a result known as Bell's theorem. The predictions of quantum mechanics have been verified: Bell's inequalities are violated. This means either particles have no definite positions independent of observation (no realism) or distant measurements can affect each other (no locality) or both. Different interpretations of quantum mechanics violate different parts of local realism.

The transition from "possible" to "actual" is a major topic of quantum physics, with related theories including quantum darwinism.

Role of "observation" in quantum mechanics

The quantum mind–body problem refers to the philosophical discussions of the mind–body problem in the context of quantum mechanics. Since quantum mechanics involves quantum superpositions, which are not perceived by observers, some interpretations of quantum mechanics place conscious observers in a special position.

The founders of quantum mechanics debated the role of the observer, and of them, Wolfgang Pauli and Werner Heisenberg believed that quantum mechanics expressed the observers knowledge and when an experiment was completed the additional knowledge should be incorporated in the wave function, an effect that came to be called state reduction or collapse. This point of view, which was never fully endorsed by Niels Bohr, was denounced as mystical and anti-scientific by Albert Einstein. Pauli accepted the term, and described quantum mechanics as lucid mysticism.

Heisenberg and Bohr always described quantum mechanics in logical positivist terms. Bohr also took an active interest in the philosophical implications of quantum theories such as his complementarity, for example. He believed quantum theory offers a complete description of nature, albeit one that is simply ill-suited for everyday experiences – which are better described by classical mechanics and probability. Bohr famously avoided any characterization of "reality".

Eugene Wigner reformulated the "Schrödinger's cat" thought experiment as "Wigner's friend" and proposed that the consciousness of an observer is the demarcation line which precipitates collapse of the wave function, independent of any realist interpretation. Commonly known as "consciousness causes collapse", this controversial interpretation of quantum mechanics states that observation by a conscious observer is what makes the wave function collapse. However, this is a minority view among quantum philosophers, considering it a misunderstanding. There are other possible solutions to the "Wigner's friend" thought experiment, which do not require consciousness to be different from other physical processes. Moreover, Wigner shifted to those interpretations in his later years.

Multiverse

The multiverse is the hypothetical set of multiple possible universes (including the historical universe we consistently experience) that together comprise everything that exists: the entirety of space, time, matter, and energy as well as the physical laws and constants that describe them. The term was coined in 1895 by the American philosopher and psychologist William James. In the many-worlds interpretation (MWI), one of the mainstream interpretations of quantum mechanics, there are an infinite number of universes and every possible quantum outcome occurs in at least one universe, albeit there is a debate as to how real the (other) worlds are.

The structure of the multiverse, the nature of each universe within it and the relationship between the various constituent universes, depend on the specific multiverse hypothesis considered. Multiverses have been hypothesized in cosmology, physics, astronomy, religion, philosophy, transpersonal psychology and fiction, particularly in science fiction and fantasy. In these contexts, parallel universes are also called "alternative universes", "quantum universes", "interpenetrating dimensions", "parallel dimensions", "parallel worlds", "alternative realities", "alternative timelines", and "dimensional planes", among others.

Cyclic theories

In several theories, there is a series of, in some cases infinite, self-sustaining cycles – typically a series of Big Crunches (or Big Bounces). However, the respective universes do not exist at once but are forming or following in a logical order or sequence, with key natural constituents potentially varying between universes (see § Anthropic principle).

Some cyclic theories postulate continuous expansion of the universe across cycles to ensure entropy growth, but they have been shown not be truly cyclic in time. In any case these types of scientific hypotheses do not fundamentally alter concepts of the ultimate origin of reality such as the cosmological argument. A theist can argue for perpetual divine creation or for an unmoved mover responsible for the first universe in the sequence.

Anthropic principle

In cosmology and philosophy of science, the anthropic principle, also known as the observation selection effect, is the proposition that the range of possible observations that could be made about the universe is limited by the fact that observations are only possible in the type of universe that is capable of developing observers in the first place. Proponents of the anthropic principle argue that it explains why the universe has the age and the fundamental physical constants necessary to accommodate intelligent life. If either had been significantly different, no one would have been around to make observations. Anthropic reasoning has been used to address the question as to why certain measured physical constants take the values that they do, rather than some other arbitrary values, and to explain a perception that the universe appears to be finely tuned for the existence of life.

Personal and collective reality

White matter tracts within a human brain, as visualized by MRI tractography

Each individual has a different view of reality, with different memories and personal history, knowledge, personality traits and experience. This system, mostly referring to the human brain, affects cognition and behavior and into this complex new knowledge, memories, information, thoughts and experiences are continuously integrated. The connectomeneural networks/wirings in brains – is thought to be a key factor in human variability in terms of cognition or the way we perceive the world (as a context) and related features or processes. Sensemaking is the process by which people give meaning to their experiences and make sense of the world they live in. Personal identity is relating to questions like how a unique individual is persisting through time.

Sensemaking and determination of reality also occurs collectively, which is investigated in social epistemology and related approaches. From the collective intelligence perspective, the intelligence of the individual human (and potentially AI entities) is substantially limited and advanced intelligence emerges when multiple entities collaborate over time. Collective memory is an important component of the social construction of reality and communication and communication-related systems, such as media systems, may also be major components (see #Technology).

Philosophy of perception raises questions based on the evolutionary history of humans' perceptual apparatuses, particularly or especially individuals' physiological senses, described as "[w]e don't see reality—we only see what was useful to see in the past", partly suggesting that "[o]ur species has been so successful not in spite of our inability to see reality but because of it".

Scientific theories of everything

A theory of everything (TOE) is a putative theory of theoretical physics that fully explains and links together all known physical phenomena, and predicts the outcome of any experiment that could be carried out in principle. The theory of everything is also called the final theory. Many candidate theories of everything have been proposed by theoretical physicists during the twentieth century, but none have been confirmed experimentally. The primary problem in producing a TOE is that general relativity and quantum mechanics are hard to unify. This is one of the unsolved problems in physics.

Initially, the term "theory of everything" was used with an ironic connotation to refer to various overgeneralized theories. For example, a great-grandfather of Ijon Tichy, a character from a cycle of Stanisław Lem's science fiction stories of the 1960s, was known to work on the "General Theory of Everything". Physicist John Ellis claims to have introduced the term into the technical literature in an article in Nature in 1986. Over time, the term stuck in popularizations of quantum physics to describe a theory that would unify or explain through a single model the theories of all fundamental interactions and of all particles of nature: general relativity for gravitation, and the standard model of elementary particle physics – which includes quantum mechanics – for electromagnetism, the two nuclear interactions, and the known elementary particles.

Current candidates for a theory of everything include string theory, M theory, and loop quantum gravity.

Technology

Media

Media – such as news media, social media, websites including Wikipedia, and fiction – shape individuals' and society's perception of reality (including as part of belief and attitude formation) and are partly used intentionally as means to learn about reality. Various technologies have changed society's relationship with reality such as the advent of radio and TV technologies.

Research investigates interrelations and effects, for example aspects in the social construction of reality. A major component of this shaping and representation of perceived reality is agenda, selection and prioritization – not only (or primarily) the quality, tone and types of content – which influences, for instance, the public agenda. Disproportional news attention for low-probability incidents – such as high-consequence accidents – can distort audiences' risk perceptions with harmful consequences. Various biases such as false balance, public attention dependence reactions like sensationalism and domination by "current events", as well as various interest-driven uses of media such as marketing can also have major impacts on the perception of reality. Time-use studies found that e.g. in 2018 the average U.S. American "spent around eleven hours every day looking at screens".

Virtual reality and cyberspace

Virtual reality (VR) is a computer-simulated environment that can simulate physical presence in places in the real world, as well as in imaginary worlds.

Reality-virtuality continuum

The virtuality continuum is a continuous scale ranging between the completely virtual, a virtuality, and the completely real: reality. The reality–virtuality continuum therefore encompasses all possible variations and compositions of real and virtual objects. It has been described as a concept in new media and computer science, but in fact it could be considered a matter of anthropology. The concept was first introduced by Paul Milgram.

The area between the two extremes, where both the real and the virtual are mixed, is the so-called mixed reality. This in turn is said to consist of both augmented reality, where the virtual augments the real, and augmented virtuality, where the real augments the virtual. Cyberspace, the world's computer systems considered as an interconnected whole, can be thought of as a virtual reality; for instance, it is portrayed as such in the cyberpunk fiction of William Gibson and others. Second Life and MMORPGs such as World of Warcraft are examples of artificial environments or virtual worlds (falling some way short of full virtual reality) in cyberspace.

"RL" in internet culture

On the Internet, "real life" refers to life in the real world. It generally references life or consensus reality, in contrast to an environment seen as fiction or fantasy, such as virtual reality, lifelike experience, dreams, novels, or movies. Online, the acronym "IRL" stands for "in real life", with the meaning "not on the Internet". Sociologists engaged in the study of the Internet have determined that someday, a distinction between online and real-life worlds may seem "quaint", noting that certain types of online activity, such as sexual intrigues, have already made a full transition to complete legitimacy and "reality". The abbreviation "RL" stands for "real life". For example, one can speak of "meeting in RL" someone whom one has met in a chat or on an Internet forum. It may also be used to express an inability to use the Internet for a time due to "RL problems". A related abbreviation is "AFK", which stands for "away from keyboard", signifying that one is (at least temporarily) choosing to disengage themselves from the virtual world so as to focus preferentially on the real one.

World views

A common colloquial usage would have reality mean "perceptions, beliefs, and attitudes toward reality", as in "My reality is not your reality." This is often used just as a colloquialism indicating that the parties to a conversation agree, or should agree, not to quibble over deeply different conceptions of what is real. For example, in a religious discussion between friends, one might say (attempting humor), "You might disagree, but in my reality, everyone goes to heaven."

Reality can be defined in a way that links it to worldviews or parts of them (conceptual frameworks): Reality is the totality of all things, structures (actual and conceptual), events (past and present) and phenomena, whether observable or not. It is what a world view (whether it be based on individual or shared human experience) ultimately attempts to describe or map.

A worldview (also world-view or world view) or Weltanschauung is the fundamental cognitive orientation of an individual or society encompassing the whole of the individual's or society's knowledge, culture, and point of view. When two parties view the same real world phenomenon, if their world views differ, one may include elements that the other does not leading to differing conclusions, despite the shared reference point.

A worldview can include natural philosophy; fundamental, existential, and normative postulates; or themes, values, emotions, and ethics.

Certain ideas from physics, philosophy, sociology, literary criticism, and other fields shape various theories of reality. One such theory is that there simply and literally is no reality beyond the perceptions or beliefs we each have about reality. Such attitudes are summarized in popular statements, such as "Perception is reality" or "Life is how you perceive reality" or "reality is what you can get away with" (Robert Anton Wilson), and they indicate anti-realism – that is, the view that there is no objective reality, whether acknowledged explicitly or not.

Many of the concepts of science and philosophy are often defined culturally and socially. This idea was elaborated by Thomas Kuhn in his book The Structure of Scientific Revolutions (1962). The Social Construction of Reality, a book about the sociology of knowledge written by Peter L. Berger and Thomas Luckmann, was published in 1966. It explained how knowledge is acquired and used for the comprehension of reality. Out of all the realities, the reality of everyday life is the most important one since our consciousness requires us to be completely aware and attentive to the experience of everyday life.

Capitalism

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Capitalism

Capitalism
is an economic system based on the private ownership of the means of production and its use for the purpose of obtaining profit. This socioeconomic system has developed historically in several stages, and is defined by a number of constituent elements: private property, profit motive, capital accumulation, competitive markets, commodification, wage labor, and an emphasis on innovation and economic growth. Capitalist economies may experience business cycles of economic growth followed by recessions.

Economists, historians, political economists, and sociologists have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include laissez-faire or free-market capitalism, state capitalism, and welfare capitalism. Different forms of capitalism feature varying degrees of free markets, public ownership, obstacles to free competition, and state-sanctioned social policies. The degree of competition in markets and the role of intervention and regulation, as well as the scope of state ownership, vary across different models of capitalism. The extent to which different markets are free and the rules defining private property are matters of politics and policy. Most of the existing capitalist economies are mixed economies that combine elements of free markets with state intervention and in some cases economic planning.

Capitalism in its modern form emerged from agrarianism in England, as well as mercantilist practices by European countries between the 16th and 18th centuries. The Industrial Revolution of the 18th century established capitalism as a dominant mode of production, characterized by factory work, and a complex division of labor. Through the process of globalization, capitalism spread across the world in the 19th and 20th centuries, especially before World War I and again after the end of the Cold War. During the 19th century, capitalism was largely unregulated by the state, but became more regulated in the post–World War II period through Keynesianism, followed by a return of more unregulated capitalism starting in the 1980s.

Etymology

The term "capitalist", meaning an owner of capital, appears earlier than the term "capitalism" and dates to the mid-17th century. "Capitalism" is derived from capital, which evolved from capitale, a late Latin word based on caput, meaning "head"—which is also the origin of "chattel" and "cattle" in the sense of movable property (only much later to refer only to livestock). Capitale emerged in the 12th to 13th centuries to refer to funds, stock of merchandise, sum of money or money carrying interest. By 1283, it was used in the sense of the capital assets of a trading firm and was often interchanged with other words—wealth, money, funds, goods, assets, property and so on.

The Hollantse Mercurius (1651-1691) uses "capitalists" in 1653 and 1654 to refer to owners of capital. In French, Étienne Clavier referred to capitalistes in 1788, four years before its first recorded English usage by Arthur Young in his work Travels in France (1792). In his Principles of Political Economy and Taxation (1817), David Ricardo referred to "the capitalist" many times. English poet Samuel Taylor Coleridge used "capitalist" in his work Table Talk (1823). Pierre-Joseph Proudhon used the term in his first work, What is Property? (1840), to refer to the owners of capital. Benjamin Disraeli used the term in his 1845 work SybilAlexander Hamilton used "capitalist" in his Report of Manufactures presented to the United States Congress in 1791.

The initial use of the term "capitalism" in its modern sense is attributed to Louis Blanc in 1850 ("What I call 'capitalism' that is to say the appropriation of capital by some to the exclusion of others") and Pierre-Joseph Proudhon in 1861 ("Economic and social regime in which capital, the source of income, does not generally belong to those who make it work through their labor"). Karl Marx frequently referred to the "capital" and to the "capitalist mode of production" in Das Kapital (1867). Marx did not use the form capitalism but instead used capital, capitalist and capitalist mode of production, which appear frequently. Due to the word being coined by socialist critics of capitalism, economist and historian Robert Hessen stated that the term "capitalism" itself is a term of disparagement and a misnomer for economic individualismBernard Harcourt agrees with the statement that the term is a misnomer, adding that it misleadingly suggests that there is such a thing as "capital" that inherently functions in certain ways and is governed by stable economic laws of its own.

In the English language, the term "capitalism" first appears, according to the Oxford English Dictionary (OED), in 1854, in the novel The Newcomes by novelist William Makepeace Thackeray, where the word meant "having ownership of capital". Also according to the OED, Carl Adolph Douai, a German American socialist and abolitionist, used the term "private capitalism" in 1863.

Other terms sometimes used for capitalism are:

Definition

There is no universally agreed upon definition of capitalism; it is unclear whether or not capitalism characterizes an entire society, a specific type of social order, or crucial components or elements of a society. Societies officially founded in opposition to capitalism, such as the Union of Soviet Socialist Republics (U.S.S.R), and the People's Republic of China, have sometimes been argued to actually exhibit characteristics of capitalism. Nancy Fraser describes usage of the term "capitalism" by many authors as "mainly rhetorical, functioning less as an actual concept than as a gesture toward the need for a concept". Scholars who are uncritical of capitalism rarely actually use the term "capitalism". Some doubt that the term "capitalism" possesses valid scientific dignity, and it is generally not discussed in mainstream economics, with economist Daron Acemoglu suggesting that the term "capitalism" should be abandoned entirely. Consequently, understanding of the concept of capitalism tends to be heavily influenced by opponents of capitalism and by the followers and critics of Karl Marx.

History

Cosimo de' Medici (pictured in a 16th-century portrait by Pontormo) built an international financial empire and was one of the first Medici bankers.
Augsburg, the centre of early capitalism

Capitalism, in its modern form, can be traced to the emergence of agrarian capitalism and mercantilism in the early Renaissance, in city-states like Florence. Capital has existed incipiently on a small scale for centuries in the form of merchant, renting and lending activities and occasionally as small-scale industry with some wage labor. Simple commodity exchange and consequently simple commodity production, which is the initial basis for the growth of capital from trade, have a very long history. During the Islamic Golden Age, Arabs promulgated capitalist economic policies such as free trade and banking. Their use of Indo-Arabic numerals facilitated bookkeeping. These innovations migrated to Europe through trade partners in cities such as Venice and Pisa. Italian mathematicians traveled the Mediterranean talking to Arab traders and returned to popularize the use of Indo-Arabic numerals in Europe.

Agrarianism

The economic foundations of the feudal agricultural system began to shift substantially in 16th-century England as the manorial system had broken down and land began to become concentrated in the hands of fewer landlords with increasingly large estates. Instead of a serf-based system of labor, workers were increasingly employed as part of a broader and expanding money-based economy. The system put pressure on both landlords and tenants to increase the productivity of agriculture to make profit; the weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try better methods, and the tenants also had incentive to improve their methods in order to flourish in a competitive labor market. Terms of rent for land were becoming subject to economic market forces rather than to the previous stagnant system of custom and feudal obligation.

Mercantilism

A painting of a French seaport from 1638 at the height of mercantilism
Robert Clive with the Nawabs of Bengal after the Battle of Plassey which began the British rule in Bengal

The economic doctrine prevailing from the 16th to the 18th centuries is commonly called mercantilism. This period, the Age of Discovery, was associated with the geographic exploration of foreign lands by merchant traders, especially from England and the Low Countries. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist methods. Most scholars consider the era of merchant capitalism and mercantilism as the origin of modern capitalism, although Karl Polanyi argued that the hallmark of capitalism is the establishment of generalized markets for what he called the "fictitious commodities", i.e. land, labor and money. Accordingly, he argued that "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date".

England began a large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). A systematic and coherent explanation of balance of trade was made public through Thomas Mun's argument England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure. It was written in the 1620s and published in 1664.

European merchants, backed by state controls, subsidies and monopolies, made most of their profits by buying and selling goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices...".

After the period of the proto-industrialization, the British East India Company and the Dutch East India Company, after massive contributions from the Mughal Bengal, inaugurated an expansive era of commerce and trade. These companies were characterized by their colonial and expansionary powers given to them by nation-states. During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a return on investment.

Industrial Revolution

The Watt steam engine, fuelled primarily by coal, propelled the Industrial Revolution in Britain.

In the mid-18th century a group of economic theorists, led by David Hume (1711–1776) and Adam Smith (1723–1790), challenged fundamental mercantilist doctrines—such as the belief that the world's wealth remained constant and that a state could only increase its wealth at the expense of another state.

During the Industrial Revolution, industrialists replaced merchants as a dominant factor in the capitalist system and effected the decline of the traditional handicraft skills of artisans, guilds, and journeymen. Industrial capitalism marked the development of the factory system of manufacturing, characterized by a complex division of labor between and within work process and the routine of work tasks; and eventually established the domination of the capitalist mode of production.

Industrial Britain eventually abandoned the protectionist policy formerly prescribed by mercantilism. In the 19th century, Richard Cobden (1804–1865) and John Bright (1811–1889), who based their beliefs on the Manchester School, initiated a movement to lower tariffs. In the 1840s Britain adopted a less protectionist policy, with the 1846 repeal of the Corn Laws and the 1849 repeal of the Navigation Acts. Britain reduced tariffs and quotas, in line with David Ricardo's advocacy of free trade.

Modernity

The gold standard formed the financial basis of the international economy from 1870 to 1914.

Broader processes of globalization carried capitalism across the world. By the beginning of the nineteenth century, a series of loosely connected market systems had come together as a relatively integrated global system, in turn intensifying processes of economic and other globalization. Late in the 20th century, capitalism overcame a challenge by centrally-planned economies and is now the encompassing system worldwide, with the mixed economy as its dominant form in the industrialized Western world.

Industrialization allowed cheap production of household items using economies of scale, while rapid population growth created sustained demand for commodities. The imperialism of the 18th-century decisively shaped globalization.

After the First and Second Opium Wars (1839–60) by Britain and France and the completion of the British conquest of India by 1858 and the French conquest of Africa, Polynesia and Indochina by 1887, vast populations of Asia became consumers of European exports. Europeans colonized areas of Africa and the Pacific islands. Colonisation by Europeans, notably of Africa by the British and French, yielded valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment between the European imperial powers, their colonies and the United States:

The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914.

From the 1870s to the early 1920s, the global financial system was mainly tied to the gold standard. The United Kingdom first formally adopted this standard in 1821. Soon to follow were Canada in 1853, Newfoundland in 1865, the United States and Germany (de jure) in 1873. New technologies such as the telegraph, transatlantic cable, radiotelephone, steamships, and railways allowed goods and information to move around the world to an unprecedented degree.

In the United States, until the 1920s, the term "capitalist" primarily referred to powerful businessmen due to widespread societal skepticism and criticism of capitalism and its most ardent supporters.

The New York stock exchange traders' floor (1963)

Contemporary capitalist societies developed in the West from 1950 to the present and this type of system continues throughout the world—relevant examples started in the United States after the 1950s, France after the 1960s, Spain after the 1970s, Poland after 2015, and others. At this stage most capitalist markets are considered developed and characterized by developed private and public markets for equity and debt, a high standard of living (as characterized by the World Bank and the IMF), large institutional investors and a well-funded banking system. A significant managerial class has emerged and decides on a significant proportion of investments and other decisions. A different future than that envisioned by Marx has started to emerge—explored and described by Anthony Crosland in the United Kingdom in his 1956 book The Future of Socialism and by John Kenneth Galbraith in North America in his 1958 book The Affluent Society, 90 years after Marx's research on the state of capitalism in 1867.

The postwar boom ended in the late 1960s and early 1970s and the economic situation grew worse with the rise of stagflationMonetarism, a modification of Keynesianism that is more compatible with laissez-faire analyses, gained increasing prominence in the capitalist world, especially under the years in office of Ronald Reagan in the United States (1981–1989) and of Margaret Thatcher in the United Kingdom (1979–1990). Public and political interest began shifting away from the so-called collectivist concerns of Keynes's managed capitalism to a focus on individual choice, called "remarketized capitalism".

The end of the Cold War and the dissolution of the Soviet Union allowed for capitalism to become a truly global system in a way not seen since before World War I. The development of the neoliberal global economy would have been impossible without the fall of communism.

Harvard Kennedy School economist Dani Rodrik distinguishes between three historical variants of capitalism:

  • Capitalism 1.0 during the 19th century entailed largely unregulated markets with a minimal role for the state (aside from national defense, and protecting property rights);
  • Capitalism 2.0 during the post-World War II years entailed Keynesianism, a substantial role for the state in regulating markets, and strong welfare states;
  • Capitalism 2.1 entailed a combination of unregulated markets, globalization, and various national obligations by states.

Relationship to democracy

The relationship between democracy and capitalism is a contentious area in theory and in popular political movements. The extension of adult-male suffrage in 19th-century Britain occurred along with the development of industrial capitalism and representative democracy became widespread at the same time as capitalism, leading capitalists to posit a causal or mutual relationship between them. However, according to some authors in the 20th-century, capitalism also accompanied a variety of political formations quite distinct from liberal democracies, including fascist regimes, absolute monarchies and single-party statesDemocratic peace theory asserts that democracies seldom fight other democracies, but others suggest this may be because of political similarity or stability, rather than because they are "democratic" or "capitalist". Critics argue that though economic growth under capitalism has led to democracy, it may not do so in the future as authoritarian régimes have been able to manage economic growth using some of capitalism's competitive principles without making concessions to greater political freedom.

Political scientists Torben Iversen and David Soskice see democracy and capitalism as mutually supportive. Robert Dahl argued in On Democracy that capitalism was beneficial for democracy because economic growth and a large middle class were good for democracy. He also argued that a market economy provided a substitute for government control of the economy, which reduces the risks of tyranny and authoritarianism.

In his book The Road to Serfdom (1944), Friedrich Hayek (1899–1992) asserted that the free-market understanding of economic freedom as present in capitalism is a requisite of political freedom. He argued that the market mechanism is the only way of deciding what to produce and how to distribute the items without using coercion. Milton Friedman and Ronald Reagan also promoted this view. Friedman claimed that centralized economic operations are always accompanied by political repression. In his view, transactions in a market economy are voluntary and the wide diversity that voluntary activity permits is a fundamental threat to repressive political leaders and greatly diminishes their power to coerce. Some of Friedman's views were shared by John Maynard Keynes, who believed that capitalism was vital for freedom to survive and thrive. Freedom House, an American think-tank that conducts international research on, and advocates for, democracy, political freedom and human rights, has argued that "there is a high and statistically significant correlation between the level of political freedom as measured by Freedom House and economic freedom as measured by the Wall Street Journal/Heritage Foundation survey".

In Capital in the Twenty-First Century (2013), Thomas Piketty of the Paris School of Economics asserted that inequality is the inevitable consequence of economic growth in a capitalist economy and the resulting concentration of wealth can destabilize democratic societies and undermine the ideals of social justice upon which they are built.

States with capitalistic economic systems have thrived under political regimes deemed to be authoritarian or oppressive. Singapore has a successful open market economy as a result of its competitive, business-friendly climate and robust rule of law. Nonetheless, it often comes under fire for its style of government which, though democratic and consistently one of the least corrupt, operates largely under a one-party rule. Furthermore, it does not vigorously defend freedom of expression as evidenced by its government-regulated press, and its penchant for upholding laws protecting ethnic and religious harmony, judicial dignity and personal reputation. The private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception, despite having an authoritarian government. Augusto Pinochet's rule in Chile led to economic growth and high levels of inequality by using authoritarian means to create a safe environment for investment and capitalism. Similarly, Suharto's authoritarian reign and extirpation of the Communist Party of Indonesia allowed for the expansion of capitalism in Indonesia.

The term "capitalism" in its modern sense is often attributed to Karl Marx. In Das Kapital, Marx analyzed the "capitalist mode of production" using a method of critique that later became known as Marxism. However, while Marx did discuss capitalism extensively, he used the term "capitalism" less frequently than "capitalist mode of production." His collaborator, Friedrich Engels, played a significant role in popularizing the term in more political interpretations of their work. In the 20th century, supporters of the capitalist system often replaced the term "capitalism" with phrases such as "free enterprise" or "private enterprise" to avoid its negative connotations. Similarly, the term "capitalist" was sometimes substituted with "investor" or "entrepreneur" to emphasize productive roles rather than passive wealth accumulation.

Characteristics

In general, capitalism as an economic system and mode of production can be summarized by the following:

  • Capital accumulation: production for profit and accumulation as the implicit purpose of all or most of production, constriction or elimination of production formerly carried out on a common social or private household basis.
  • Commodity production: production for exchange on a market; to maximize exchange-value instead of use-value.
  • Exchange of goods or services, can be enabled by contracts. Exchange of services can be in form of wage labor.
  • Private ownership of the means of production.
  • The investment of money to make a profit.
  • The use of the price mechanism to allocate resources between competing uses.
  • Economically efficient use of the factors of production and raw materials due to maximization of value added in the production process.
  • Freedom of capitalists to act in their self-interest in managing their business and investments.
  • Capital suppliance by "the single owner of a firm, or by shareholders in the case of a joint-stock company."

Market

In free market and laissez-faire forms of capitalism, markets are used most extensively with minimal or no regulation over the pricing mechanism. In mixed economies, which are almost universal today, markets continue to play a dominant role, but they are regulated to some extent by the state in order to correct market failures, promote social welfare, conserve natural resources, fund defense and public safety or other rationale. In state capitalist systems, markets are relied upon the least, with the state relying heavily on state-owned enterprises or indirect economic planning to accumulate capital.

Competition arises when more than one producer is trying to sell the same or similar products to the same buyers. Adherents of the capitalist theory believe that competition leads to innovation and more affordable prices. Monopolies or cartels can develop, especially if there is no competition. A monopoly occurs when a firm has exclusivity over a market. Hence, the firm can engage in rent seeking behaviors such as limiting output and raising prices because it has no fear of competition.

Governments have implemented legislation for the purpose of preventing the creation of monopolies and cartels. In 1890, the Sherman Antitrust Act became the first legislation passed by the United States Congress to limit monopolies.

Wage labor

Wage labor, usually referred to as paid work, paid employment, or paid labor, refers to the socioeconomic relationship between a worker and an employer in which the worker sells their labor power under a formal or informal employment contract. "All labor contracts were/are designed legally to bind a worker in one way or another to fulfill the labor obligations the worker has undertaken. That is one of the principal purposes of labor contracts." These transactions usually occur in a labor market where wages or salaries are market-determined.

In exchange for the money paid as wages (usual for short-term work-contracts) or salaries (in permanent employment contracts), the work product generally becomes the undifferentiated property of the employer. A wage laborer is a person whose primary means of income is from the selling of their labor in this way.

Profit motive

The profit motive, in the theory of capitalism, is the desire to earn income in the form of profit. Stated differently, the reason for a business's existence is to turn a profit. The profit motive functions according to rational choice theory, or the theory that individuals tend to pursue what is in their own best interests. Accordingly, businesses seek to benefit themselves and/or their shareholders by maximizing profit.

In capitalist theoretics, the profit motive is said to ensure that resources are being allocated efficiently. For instance, Austrian economist Henry Hazlitt explains: "If there is no profit in making an article, it is a sign that the labor and capital devoted to its production are misdirected: the value of the resources that must be used up in making the article is greater than the value of the article itself".

Socialist theorists note that, unlike mercantilists, capitalists accumulate their profits while expecting their profit rates to remain the same. This causes problems as earnings in the rest of society do not increase in the same proportion.

Private property

The relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. Hernando de Soto is a contemporary Peruvian economist who has argued that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded.

According to de Soto, this is the process by which physical assets are transformed into capital, which in turn may be used in many more ways and much more efficiently in the market economy. A number of Marxian economists have argued that the inclosure acts in England and similar legislation elsewhere were an integral part of capitalist primitive accumulation and that specific legal frameworks of private land ownership have been integral to the development of capitalism.

Private property rights are not absolute, as in many countries the state has the power to seize private property, typically for public use, under the powers of eminent domain.

Market competition

In capitalist economics, market competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share and sales volume by varying the elements of the marketing mix: price, product, distribution and promotion. Merriam-Webster defines competition in business as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms". It was described by Adam Smith in The Wealth of Nations (1776) and later economists as allocating productive resources to their most highly valued uses and encouraging efficiency. Smith and other classical economists before Antoine Augustine Cournot were referring to price and non-price rivalry among producers to sell their goods on best terms by bidding of buyers, not necessarily to a large number of sellers nor to a market in final equilibrium. Competition is widespread throughout the market process. It is a condition where "buyers tend to compete with other buyers, and sellers tend to compete with other sellers". In offering goods for exchange, buyers competitively bid to purchase specific quantities of specific goods which are available, or might be available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering goods on the market, competing for the attention and exchange resources of buyers. Competition results from scarcity, as it is not possible to satisfy all conceivable human wants, and occurs as people try to meet the criteria being used to determine allocation.

In the works of Adam Smith, the idea of capitalism is made possible through competition which creates growth. Although capitalism had not entered mainstream economics at the time of Smith, it is vital to the construction of his ideal society. One of the foundational blocks of capitalism is competition. Smith believed that a prosperous society is one where "everyone should be free to enter and leave the market and change trades as often as he pleases." He believed that the freedom to act in one's self-interest is essential for the success of a capitalist society. In response to the idea that if all participants focus on their own goals, society's well-being will be water under the bridge, Smith maintains that despite the concerns of intellectuals, "global trends will hardly be altered if they refrain from pursuing their personal ends." He insisted that the actions of a few participants cannot alter the course of society. Instead, Smith maintained that they should focus on personal progress instead and that this will result in overall growth to the whole.

Competition between participants, "who are all endeavoring to justle one another out of employment, obliges every man to endeavor to execute his work" through competition towards growth.

Economic growth

Economic growth is a characteristic tendency of economies. However, capitalist economies may experience fluctuations in growth that cannot be accounted for by demographic or technological changes. These fluctuations, which involve sustained periods of economic growth and recession, are referred to as business cycles in macroeconomics. Economic growth is measured as growth in investment, economic output, and economic consumption per capita. Changes in hours of employment on their own are not considered as a factor of economic growth.

As a mode of production

The capitalist mode of production refers to the systems of organising production and distribution within capitalist societies. Private money-making in various forms (renting, banking, merchant trade, production for profit and so on) preceded the development of the capitalist mode of production as such.

The term capitalist mode of production is defined by private ownership of the means of production, extraction of surplus value by the owning class for the purpose of capital accumulation, wage-based labor and, at least as far as commodities are concerned, being market-based.

Capitalism in the form of money-making activity has existed in the shape of merchants and money-lenders who acted as intermediaries between consumers and producers engaging in simple commodity production (hence the reference to "merchant capitalism") since the beginnings of civilisation. What is specific about the "capitalist mode of production" is that most of the inputs and outputs of production are supplied through the market (i.e. they are commodities) and essentially all production is in this mode. By contrast, in flourishing feudalism most or all of the factors of production, including labor, are owned by the feudal ruling class outright and the products may also be consumed without a market of any kind, it is production for use within the feudal social unit and for limited trade. This has the important consequence that, under capitalism, the whole organisation of the production process is reshaped and re-organised to conform with economic rationality as bounded by capitalism, which is expressed in price relationships between inputs and outputs (wages, non-labor factor costs, sales and profits) rather than the larger rational context faced by society overall—that is, the whole process is organised and re-shaped in order to conform to "commercial logic". Essentially, capital accumulation comes to define economic rationality in capitalist production.

A society, region or nation is capitalist if the predominant source of incomes and products being distributed is capitalist activity, but even so this does not yet mean necessarily that the capitalist mode of production is dominant in that society.

Mixed economies rely on the nation they are in to provide some goods or services, while the free market produces and maintains the rest.

Role of government

Government agencies regulate the standards of service in many industries, such as airlines and broadcasting, as well as financing a wide range of programs. In addition, the government regulates the flow of capital and uses financial tools such as the interest rate to control such factors as inflation and unemployment.

Supply and demand

The economic model of supply and demand states that the price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D): the diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product.

In capitalist economic structures, supply and demand is an economic model of price determination in a market. It postulates that in a perfectly competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at the current price) will equal the quantity supplied by producers (at the current price), resulting in an economic equilibrium for price and quantity.

The "basic laws" of supply and demand, as described by David Besanko and Ronald Braeutigam, are the following four:

  1. If demand increases (demand curve shifts to the right) and supply remains unchanged, then a shortage occurs, leading to a higher equilibrium price.
  2. If demand decreases (demand curve shifts to the left) and supply remains unchanged, then a surplus occurs, leading to a lower equilibrium price.
  3. If demand remains unchanged and supply increases (supply curve shifts to the right), then a surplus occurs, leading to a lower equilibrium price.
  4. If demand remains unchanged and supply decreases (supply curve shifts to the left), then a shortage occurs, leading to a higher equilibrium price.

Supply schedule

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.

Demand schedule

A demand schedule, depicted graphically as the demand curve, represents the amount of some goods that buyers are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, tastes and preferences, the price of substitute goods and the price of complementary goods, remain the same. According to the law of demand, the demand curve is almost always represented as downward sloping, meaning that as price decreases, consumers will buy more of the good.

Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves.

Equilibrium

In the context of supply and demand, economic equilibrium refers to a state where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium, in this case, refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or market clearing price and will tend not to change unless demand or supply changes.

Partial equilibrium

Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium. Jain proposes (attributed to George Stigler): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis".

History

According to Hamid S. Hosseini, the "power of supply and demand" was discussed to some extent by several early Muslim scholars, such as fourteenth century Mamluk scholar Ibn Taymiyyah, who wrote: "If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down".

Adam Smith

John Locke's 1691 work Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money includes an early and clear description of supply and demand and their relationship. In this description, demand is rent: "The price of any commodity rises or falls by the proportion of the number of buyer and sellers" and "that which regulates the price... [of goods] is nothing else but their quantity in proportion to their rent".

David Ricardo titled one chapter of his 1817 work Principles of Political Economy and Taxation "On the Influence of Demand and Supply on Price". In Principles of Political Economy and Taxation, Ricardo more rigorously laid down the idea of the assumptions that were used to build his ideas of supply and demand.

In his 1870 essay "On the Graphical Representation of Supply and Demand", Fleeming Jenkin in the course of "introduc[ing] the diagrammatic method into the English economic literature" published the first drawing of supply and demand curves therein, including comparative statics from a shift of supply or demand and application to the labor market. The model was further developed and popularized by Alfred Marshall in the 1890 textbook Principles of Economics.

Types

There are many variants of capitalism in existence that differ according to country and region. They vary in their institutional makeup and by their economic policies. The common features among all the different forms of capitalism are that they are predominantly based on the private ownership of the means of production and the production of goods and services for profit; the market-based allocation of resources; and the accumulation of capital.

They include advanced capitalism, corporate capitalism, finance capitalism, free-market capitalism, mercantilism, state capitalism and welfare capitalism. Other theoretical variants of capitalism include anarcho-capitalism, community capitalism, humanistic capitalism, neo-capitalism, state monopoly capitalism, and technocapitalism.

Advanced

Advanced capitalism is the situation that pertains to a society in which the capitalist model has been integrated and developed deeply and extensively for a prolonged period. Various writers identify Antonio Gramsci as an influential early theorist of advanced capitalism, even if he did not use the term himself. In his writings, Gramsci sought to explain how capitalism had adapted to avoid the revolutionary overthrow that had seemed inevitable in the 19th century. At the heart of his explanation was the decline of raw coercion as a tool of class power, replaced by use of civil society institutions to manipulate public ideology in the capitalists' favour.

Jürgen Habermas has been a major contributor to the analysis of advanced-capitalistic societies. Habermas observed four general features that characterise advanced capitalism:

  1. Concentration of industrial activity in a few large firms.
  2. Constant reliance on the state to stabilise the economic system.
  3. A formally democratic government that legitimises the activities of the state and dissipates opposition to the system.
  4. The use of nominal wage increases to pacify the most restless segments of the work force.

Corporate

Corporate capitalism is a free or mixed-market capitalist economy characterized by the dominance of hierarchical and bureaucratic corporations.

Finance

Finance capitalism is the subordination of processes of production to the accumulation of money profits in a financial system. In their critique of capitalism, Marxism and Leninism both emphasise the role of finance capital as the determining and ruling-class interest in capitalist society, particularly in the latter stages.

Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence through Finance Capital, his 1910 study of the links between German trusts, banks and monopolies—a study subsumed by Vladimir Lenin into Imperialism, the Highest Stage of Capitalism (1917), his analysis of the imperialist relations of the great world powers. Lenin concluded that the banks at that time operated as "the chief nerve centres of the whole capitalist system of national economy". For the Comintern (founded in 1919), the phrase "dictatorship of finance capitalism" became a regular one.

Fernand Braudel would later point to two earlier periods when finance capitalism had emerged in human history—with the Genoese in the 16th century and with the Dutch in the 17th and 18th centuries—although at those points it developed from commercial capitalism. Giovanni Arrighi extended Braudel's analysis to suggest that a predominance of finance capitalism is a recurring, long-term phenomenon, whenever a previous phase of commercial/industrial capitalist expansion reaches a plateau.

Free market

A capitalist free-market economy is an economic system where prices for goods and services are set entirely by the forces of supply and demand and are expected, by its adherents, to reach their point of equilibrium without intervention by government policy. It typically entails support for highly competitive markets and private ownership of the means of production. Laissez-faire capitalism is a more extensive form of this free-market economy, but one in which the role of the state is limited to protecting property rights. In anarcho-capitalist theory, property rights are protected by private firms and market-generated law. According to anarcho-capitalists, this entails property rights without statutory law through market-generated tort, contract and property law, and self-sustaining private industry.

Fernand Braudel argued that free market exchange and capitalism are to some degree opposed; free market exchange involves transparent public transactions and a large number of equal competitors, while capitalism involves a small number of participants using their capital to control the market via private transactions, control of information, and limitation of competition.

Mercantile

The subscription room at Lloyd's of London in the early 19th century

Mercantilism is a nationalist form of early capitalism that came into existence approximately in the late 16th century. It is characterized by the intertwining of national business interests with state-interest and imperialism. Consequently, the state apparatus is used to advance national business interests abroad. An example of this is colonists living in America who were only allowed to trade with and purchase goods from their respective mother countries (e.g., United Kingdom, France and Portugal). Mercantilism was driven by the belief that the wealth of a nation is increased through a positive balance of trade with other nations—it corresponds to the phase of capitalist development sometimes called the primitive accumulation of capital.

Social

A social market economy is a free-market or mixed-market capitalist system, sometimes classified as a coordinated market economy, where government intervention in price formation is kept to a minimum, but the state provides significant services in areas such as social security, health care, unemployment benefits and the recognition of labor rights through national collective bargaining arrangements.

This model is prominent in Western and Northern European countries as well as Japan, albeit in slightly different configurations. The vast majority of enterprises are privately owned in this economic model. Rhine capitalism is the contemporary model of capitalism and adaptation of the social market model that exists in continental Western Europe today.

State

State capitalism is a market economy dominated by state-owned enterprises, where the state enterprises are organized as commercial, profit-seeking businesses. The designation has been used broadly during parts of the 20th and 21st centuries, especially in a few of the former Eastern Bloc countries such as Yugoslavia. According to Aldo Musacchio, a professor at Harvard Business School, state capitalism is a system in which governments exercise a widespread influence on the economy either through direct ownership or subsidies. Contemporary state capitalism is associated with the East Asian model of capitalism, dirigisme, and the economy of Norway. Alternatively, Merriam-Webster defines state capitalism as "an economic system in which private capitalism is modified by a varying degree of government ownership and control".

In his writings, Vladimir Lenin characterized the economy of Soviet Russia as state capitalist, believing state capitalism to be an early step toward the development of socialism.

Some economists and left-wing academics including Richard D. Wolff and some Marxist philosophers such as Raya Dunayevskaya and C. L. R. James, argue that the economies of the former Soviet Union and Eastern Bloc represented a form of state capitalism because their internal organization within enterprises and the system of wage labor remained intact.

The term is not used by Austrian School economists to describe state ownership of the means of production. The economist Ludwig von Mises argued that the designation of state capitalism was a new label for the old labels of state socialism and planned economy and differed only in non-essentials from these earlier designations.

Political

Political capitalism or Politically oriented capitalism is a term coined by Max Weber in his 1921 book Economy and Society to describe monetary profit-making through non-market means. In 2015 Randall G. Holcombe described political capitalism as an economic system in which the sharp distinction between states and markets is blurred.

Welfare

Welfare capitalism is capitalism that includes social welfare policies. Today, welfare capitalism is most often associated with the models of capitalism found in Central and Northern Europe such as the Nordic model, social market economy and Rhine capitalism. In some cases, welfare capitalism exists within a mixed economy, but welfare states can and do exist independently of policies common to mixed economies such as state interventionism and extensive regulation.

A mixed economy is a largely market-based capitalist economy consisting of both private and public ownership of the means of production and economic interventionism through macroeconomic policies intended to correct market failures, reduce unemployment and keep inflation low. The degree of intervention in markets varies among different countries. Some mixed economies such as France under dirigisme also featured a degree of indirect economic planning over a largely capitalist-based economy.

Most modern capitalist economies are defined as mixed economies to some degree, however French economist Thomas Piketty stated in 2013 that capitalist economies might shift to a much more laissez-faire approach in the near future.

Eco-capitalism

Eco-capitalism, also known as "environmental capitalism" or (sometimes) "green capitalism", is the view that capital exists in nature as "natural capital" (ecosystems that have ecological yield) on which all wealth depends. Therefore, governments should use market-based policy instruments (such as a carbon tax) to resolve environmental problems.

Sustainable capitalism

Sustainable capitalism is a conceptual form of capitalism based upon sustainable practices that seek to preserve humanity and the planet, while reducing externalities and bearing a resemblance of capitalist economic policy. A capitalistic economy must expand to survive and find new markets to support this expansion. Capitalist systems are often destructive to the environment as well as certain individuals without access to proper representation. However, sustainability provides quite the opposite; it implies not only a continuation, but a replenishing of resources. Sustainability is often thought of to be related to environmentalism, and sustainable capitalism applies sustainable principles to economic governance and social aspects of capitalism as well.

The importance of sustainable capitalism has been more recently recognized, but the concept is not new. Changes to the current economic model would have heavy social environmental and economic implications and require the efforts of individuals, as well as compliance of local, state and federal governments. Controversy surrounds the concept as it requires an increase in sustainable practices and a marked decrease in current consumptive behaviors.

This is a concept of capitalism described in Al Gore and David Blood's manifesto for the Generation Investment Management to describe a long-term political, economic and social structure which would mitigate current threats to the planet and society. According to their manifesto, sustainable capitalism would integrate the environmental, social and governance (ESG) aspects into risk assessment in attempt to limit externalities. Most of the ideas they list are related to economic changes, and social aspects, but strikingly few are explicitly related to any environmental policy change.

Capital accumulation

The accumulation of capital is the process of "making money" or growing an initial sum of money through investment in production. Capitalism is based on the accumulation of capital, whereby financial capital is invested in order to make a profit and then reinvested into further production in a continuous process of accumulation. In Marxian economic theory, this dynamic is called the law of value. Capital accumulation forms the basis of capitalism, where economic activity is structured around the accumulation of capital, defined as investment in order to realize a financial profit. In this context, "capital" is defined as money or a financial asset invested for the purpose of making more money (whether in the form of profit, rent, interest, royalties, capital gain or some other kind of return).

In mainstream economics, accounting and Marxian economics, capital accumulation is often equated with investment of profit income or savings, especially in real capital goods. The concentration and centralisation of capital are two of the results of such accumulation. In modern macroeconomics and econometrics, the phrase "capital formation" is often used in preference to "accumulation", though the United Nations Conference on Trade and Development (UNCTAD) refers nowadays to "accumulation". The term "accumulation" is occasionally used in national accounts.

Wage labor

An industrial worker among heavy steel machine parts (Kinex Bearings, Bytča, Slovakia, c. 1995–2000)

Wage labor refers to the sale of labor under a formal or informal employment contract to an employer. These transactions usually occur in a labor market where wages are market determined. In Marxist economics, these owners of the means of production and suppliers of capital are generally called capitalists. The description of the role of the capitalist has shifted, first referring to a useless intermediary between producers, then to an employer of producers, and finally to the owners of the means of production. Labor includes all physical and mental human resources, including entrepreneurial capacity and management skills, which are required to produce products and services. Production is the act of making goods or services by applying labor power.

Criticism

The Industrial Workers of the World poster "Pyramid of Capitalist System" (1911)

Criticism of capitalism comes from various political and philosophical approaches, including anarchist, socialist, religious and nationalist viewpoints. Of those who oppose it or want to modify it, some believe that capitalism should be removed through revolution while others believe that it should be changed slowly through political reforms.

Critiques of capitalism allege that it is inherently exploitative of labor, alienating, unsustainable, and economically inefficient—and that it creates massive economic inequality, commodifies people, degrades the environment, is undemocratic, is incapable of providing full employment, embeds uneven and underdevelopment between nation states, and leads to an erosion of human rights because of its incentivization of imperialist expansion and war.

Other critics argue that inequities are not due to the ethic-neutral construct of the economic system commonly known as capitalism, but to the ethics of those who shape and execute the system. For example, some contend that Milton Friedman's ethic of 'maximizing shareholder value' creates a harmful form of capitalism, while Millard Fuller's or John Bogle's ethic of 'enough' creates a sustainable form. Equitable ethics and unified ethical decision-making is theorized to create a less damaging form of capitalism.

Inheritance has been argued to not be a fundamental part of capitalism, instead part of nepotism.

Evolutionary neuroscience

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