Editing Capitalism (section)

== Characteristics ==
{{further|Academic perspectives on capitalism}}
In general, capitalism as an economic system and mode of production can be summarized by the following:<ref>{{cite web|url=http://publishing.cdlib.org/ucpressebooks/view?docId=ft3n39n8x3&chunk.id=d0e1212&toc.id=&brand=ucpress |title=Althusser and the Renewal of Marxist Social Theory |access-date=24 March 2015 |archive-date=2 April 2015 |archive-url=https://web.archive.org/web/20150402094835/http://publishing.cdlib.org/ucpressebooks/view?docId=ft3n39n8x3&chunk.id=d0e1212&toc.id=&brand=ucpress |url-status=live}}</ref>
* [[Capital accumulation]]:<ref name=ch32>{{cite book|url=https://www.marxists.org/archive/marx/works/1867-c1/ch32.htm |title=Economic Manuscripts: Capital Vol. I |chapter=Thirty Two |first=Karl |last=Marx |author-link=Karl Marx |access-date=24 March 2015 |via=[[Marxists Internet Archive]] |archive-date=21 February 2015 |archive-url=https://web.archive.org/web/20150221104326/https://www.marxists.org/archive/marx/works/1867-c1/ch32.htm |url-status=live}}</ref> 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.<ref name=xxx31 />
* [[Production (economics)|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 [[contract]]s.<ref name="y015">{{cite book | last=Goldberg | first=Victor P. | title=The Oxford Handbook of Capitalism | chapter=Contracts | publisher=Oxford University Press | date=21 November 2012 | isbn=978-0-19-539117-6 | doi=10.1093/oxfordhb/9780195391176.013.0010 | pages=250–274}}</ref> Exchange of services can be in form of [[wage labor]].<ref name="Steinfeld 2009 3"/>
* [[Private ownership]] of the means of production:<ref name="Modern Economics 1986, p. 54" />
* The [[investment]] of money to make a profit.<ref>James Fulcher, ''Capitalism A Very Short Introduction'', "the investment of money in order to make a profit, the essential feature of capitalism", p. 14, Oxford, 2004, {{ISBN|978-0-19-280218-7}}.</ref>
* The use of the [[price mechanism]] to allocate resources between competing uses.<ref name="Modern Economics 1986, p. 54" />
* Economically efficient use of the [[factors of production]] and raw materials due to maximization of value added in the production process.<ref>{{cite book|title=Capitalism: A complete understanding of the nature and value of human economic life |last=Reisman |first=George |year=1998 |isbn=0-915463-73-3 |publisher=Jameson Books}}</ref><ref>{{cite book|title=History of Economic Thought: A Critical Perspective |last1=Hunt |first1=E.K. |last2=Lautzenheiser |first2=Mark |year=2014 |publisher=PHI Learning |isbn=978-0-7656-2599-1}}</ref>
* Freedom of capitalists to act in their self-interest in managing their business and investments.<ref>{{cite book|title=Capitalism: A complete understanding of the nature and value of human economic life |last=Reisman |first=George |year=1998 |isbn=978-0-915463-73-2 |publisher=Jameson Books}}</ref>
* Capital suppliance by "the single owner of a firm, or by [[shareholder]]s in the case of a [[joint-stock company]]."<ref name=":1">{{Cite book |title=The Desk Encyclopedia of World History |publisher=[[Oxford University Press]] |year=2006 |isbn=978-0-7394-7809-7 |editor-last=Wright |editor-first=Edmund |location=New York |pages=111–112}}</ref>

=== 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,<ref>James Fulcher, ''Capitalism A Very Short Introduction'', "...in the wake of the 1970 crisis, the neoliberal model of capitalism became intellectually and ideologically dominant", p. 58, Oxford, 2004, {{ISBN|978-0-19-280218-7}}.</ref> markets continue to play a dominant role, but they are regulated to some extent by the state in order to correct [[market failure]]s, promote [[social welfare]], conserve [[natural resource]]s, fund [[military|defense]] and [[public safety]] or other rationale. In [[State capitalism|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. [[Monopoly|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 of 1890|Sherman Antitrust Act]] became the first legislation passed by the United States Congress to limit monopolies.<ref>{{Cite news|url=http://www.investopedia.com/terms/m/monopoly.asp|title=Monopoly|author=<!--Staff writer(s); no by-line.-->|date=24 November 2003|work=Investopedia|access-date=2 March 2017|language=en-US|archive-date=22 February 2017|archive-url=https://web.archive.org/web/20170222204011/http://www.investopedia.com/terms/m/monopoly.asp|url-status=live}}</ref>

=== Wage labor ===
{{Main|Wage labor}}
Wage labor, usually referred to as paid work, paid employment, or paid labor, refers to the [[socioeconomics|socioeconomic]] relationship between a [[workforce|worker]] and an [[employment|employer]] in which the worker sells their labor power under a formal or informal [[employment contract]].<ref name="Steinfeld 2009 3">{{Harvnb|Steinfeld|2009|p=3}}: "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."</ref> These transactions usually occur in a [[labour economics|labor market]] where [[wage]]s or [[salary|salaries]] are [[market economy|market-determined]].<ref>{{Harvnb|Deakin|Wilkinson|2005}}</ref>

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 [[work for hire|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.<ref>{{cite book|page=278|title=Concise Dictionary of Economics|isbn=978-93-5057-032-6|publisher=V&S Publishers|year=2013|author=Editorial Board|chapter=W}}</ref>

=== Profit motive ===
{{Main|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.<ref>
Compare:
{{cite book
 | last1 = Duska
 | first1 = Ronald F.
 | year = 1997
 | chapter = The Why's of Business Revisited
 | title = Contemporary Reflections on Business Ethics
 | url = https://books.google.com/books?id=dANmdJHsqu0C
 | series = Issues in Business Ethics
 | volume = 23
 | location = Dordrecht
 | publisher = Springer Science & Business Media
 | publication-date = 2007
 | page = 41
 | isbn = 978-1-4020-4984-2
 | access-date = 8 July 2019
| quote = In microeconomics courses, profit maximization is frequently given as the goal of the firm. ... In microeconomics, profit maximization functions largely as a theoretical goal, with economists using it to prove how firms behave rationally to increase profit. Unfortunately, it ignores many real-world complexities.
}}
</ref> 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".<ref>Hazlitt, Henry. "The Function of Profits". ''Economics in One Lesson''. Ludwig Von Mises Institute. Web. 22 April 2013.</ref>

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.<ref>"What is capitalism" ''Australian Socialist'' https://search.informit.org/doi/10.3316/informit.818838886883514</ref>

=== Private property ===
{{Main|Private property}}
The relationship between the [[State (polity)|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 (economist)|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.<ref>{{cite web|url=http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm|title=The mystery of capital|author=Hernando de Soto|access-date=26 February 2008|archive-date=8 February 2008|archive-url=https://web.archive.org/web/20080208180121/http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm|url-status=live}}</ref>

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 act]]s 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.<ref>{{cite web|url=http://www.marxists.org/archive/marx/works/1867-c1/ch27.htm|title=Capital, v. 1. Part VIII: primitive accumulation|author=Karl Marx|access-date=26 February 2008|archive-date=3 March 2008|archive-url=https://web.archive.org/web/20080303162047/http://www.marxists.org/archive/marx/works/1867-c1/ch27.htm|url-status=live}}</ref><ref>{{cite journal |author=N.F.R. Crafts |title=Enclosure and labor supply revisited |journal=Explorations in Economic History |issue=2 |date=April 1978 |pages=172–183 |doi=10.1016/0014-4983(78)90019-0 |volume=15}}</ref>

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 ===
{{Main|Competition (economics)}}
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".<ref>{{cite web |url=http://m-w.com/dictionary/competition |title=Definition of COMPETITION |access-date=24 March 2015 |archive-date=4 July 2008 |archive-url=https://web.archive.org/web/20080704114809/http://m-w.com/dictionary/competition |url-status=dead}}</ref> It was described by [[Adam Smith]] in ''[[The Wealth of Nations]]'' (1776) and later economists as allocating productive [[resource]]s to their most highly valued uses<ref>{{cite encyclopedia |first=George J. |last=Stigler |author-link=George J. Stigler |date=2008 |title=competition |dictionary=[[The New Palgrave Dictionary of Economics]] |edition=2nd |url=http://www.dictionaryofeconomics.com/article?id=pde2008_C000261&q=competition&topicid=&result_number=6 |archive-url=https://web.archive.org/web/20150215032134/http://www.dictionaryofeconomics.com/article?id=pde2008_C000261&q=competition&topicid=&result_number=6 |archive-date=15 February 2015}}</ref> and encouraging [[x-efficiency|efficiency]]. Smith and other [[classical economist]]s before [[Antoine Augustin Cournot|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 [[Economic equilibrium|equilibrium]].<ref>{{cite encyclopedia |first=Mark |last=Blaug |author-link=Mark Blaug |date=2008 |title=Invisible hand |dictionary=[[The New Palgrave Dictionary of Economics]] |edition=2nd |volume=4 |page=565 |url=http://www.dictionaryofeconomics.com/article?id=pde2008_I000220&edition=current&q=Invisible%20hand&topicid=&result_number=1  |archive-url=https://web.archive.org/web/20130605204024/http://www.dictionaryofeconomics.com/article?id=pde2008_I000220&edition=current&q=Invisible%20hand&topicid=&result_number=1 |archive-date=5 June 2013}}</ref> 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".<ref name=ewot2014 /><!-- p. 102 --> 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.<ref name=ewot2014>{{cite book |last1=Heyne |first1=Paul |last2=Boettke |first2=Peter J. |last3=Prychitko |first3=David L. |title=The Economic Way of Thinking |date=2014 |publisher=Pearson |isbn=978-0-13-299129-2 |pages=102–106 |edition=13th}}<!--|access-date=24 December 2014 --></ref>{{rp|105}}

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."<ref name="W.W. Norton">{{cite book |last1=Warsh |first1=David |title=Knowledge and the Wealth of Nations |date=2007 |publisher=[[W.W. Norton]] |page=42}}</ref> 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."<ref>{{cite book |last1=Lippit |first1=Victor |title=Capitalism |date=2005 |publisher=[[Taylor & Francis]] |location=ProQuest |page=2}}</ref> 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.<ref name="W.W. Norton"/>

=== Economic growth ===
{{further|Economic growth}}
{{expand section|date=January 2021}}

[[Economic growth]] is a characteristic tendency of capitalist economies.<ref name=joff>{{cite journal|title=The root cause of economic growth under capitalism |journal=[[Cambridge Journal of Economics]] |year=2011 |issue=5 |pages=873–896 |first=Michael |last=Joff |volume=35 |quote=The tendency for capitalist economies to grow is one of their most characteristic properties. |doi=10.1093/cje/beq054}}</ref><ref>{{cite book |last1=Baumol |first1=William J. |title=The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism |date=2004 |publisher=[[Princeton University Press]] |location=Princeton |isbn=9780691116303}}</ref> 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.<ref name = "HP"/>

=== As a mode of production ===
{{further|Mode of production}}
The capitalist mode of production refers to the systems of organising production and distribution within capitalist [[society|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 property|private ownership]] of the [[means of production]], extraction of [[surplus value]] by the owning class for the purpose of [[capital accumulation]], [[Wage labour|wage-based labor]] and, at least as far as [[Commodity|commodities]] are concerned, being [[Market economy|market-based]].<ref>{{cite web |url=http://www.marxists.org/glossary/terms/c/a.htm#capitalism |title=Capitalism |publisher=[[Marxists Internet Archive]] |access-date=8 July 2011 |author=Encyclopedia of Marxism at marxism.org |archive-date=7 May 2019 |archive-url=https://web.archive.org/web/20190507154837/https://www.marxists.org/glossary/terms/c/a.htm#capitalism |url-status=live}}</ref>

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.<ref name="Modern Economics 1986, p. 54" /> 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.<ref name=ch32 /> This has the important consequence that, under capitalism, the whole organisation of the production process is reshaped and re-organised to conform with economic [[bounded rationality|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.<ref name=xxx31>{{cite web|url=http://www.dsp.org.au/node/31 |title=The contradictions of capitalism – Democratic Socialist Perspective |publisher=dsp.org.au |url-status=dead |archive-url=https://web.archive.org/web/20150406094810/http://www.dsp.org.au/node/31 |archive-date=6 April 2015}}</ref>

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.<ref>{{Cite web|title=Capitalism|url=https://www.investopedia.com/terms/c/capitalism.asp|access-date=14 February 2022|website=Investopedia|language=en}}</ref>

[[Mixed economy|Mixed economies]] rely on the nation they are in to provide some goods or services, while the free market produces and maintains the rest.<ref name=":1" />

=== 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.<ref>"Capitalism." World Book Encyclopedia. 1988. p. 194.</ref>