How Capitalism Works

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How Capitalism Works: An Economic Lecture on the Merits and Workings of American Capitalism:

In years 1000 - 1820 world economy grew sixfold, 50 % per person. After capitalism had started to spread more widely, in years 1820 - 1998 world economy grew 50-fold, i.e., 9-fold per person. In most capitalist economic regions such as Europe, the United States, Canada, Australia and New Zealand, the economy grew 19-fold per person even though these countries already had a higher starting level, and in Japan, which was poor in 1820, to 31-fold, whereas in the rest of the world the growth was only 5-fold per person.

Many theorists and policymakers in predominantly capitalist nations have emphasized capitalism's ability to promote economic growth, as measured by Gross Domestic Product (GDP), capacity utilization or standard of living. This argument was central, for example, to Adam Smith's advocacy of letting a free market control production and price, and allocate resources. Many theorists have noted that this increase in global GDP over time coincides with the emergence of the modern world capitalist system.

Proponents argue that increasing GDP (per capita) is empirically shown to bring about improved standards of living, such as better availability of food, housing, clothing, and health care. The decrease in the number of hours worked per week and the decreased participation of children and the elderly in the workforce have been attributed to capitalism.

Proponents also believe that a capitalist economy offers far more opportunities for individuals to raise their income through new professions or business ventures than do other economic forms. To their thinking, this potential is much greater than in either traditional feudal or tribal societies or in socialist societies.

Capitalism has been criticized from many perspectives during its history. Criticisms range from people who disagree with the principles of capitalism in its entirety, to those who disagree with particular outcomes of capitalism. Among those wishing to replace capitalism with a different method of production and social organization, a distinction can be made between those believing that capitalism can only be overcome with revolution (e.g., Revolutionary socialism) and those believing that structural change can come slowly through political reforms to capitalism (e.g., classic social democracy). Some critics recognize merits in capitalism and wish to balance capitalism with some form of social control, typically through government regulation (e.g., Social market movement and British Labour Party). Many aspects of capitalism have come under attack from the anti-globalization movement, which is primarily opposed to corporate capitalism and the economic policies of neoliberalism.

According to contemporary critics of capitalism, rapid industrialization in Europe created working conditions viewed as unfair, including: 14-hour work days, child labor, and shanty towns. Some popular novels arose during this time that took a critical view of the industrial revolution, such as some written by Charles Dickens. Some modern economists argue that average living standards did not improve, or only very slowly improved, before 1840.

Early socialist thinkers rejected capitalism altogether, attempting to create socialist communities free of the perceived injustices of early capitalism. Among these utopian socialists were Charles Fourier and Robert Owen. Other socialist thinkers argued that socialism could not be implemented before historical forces created the right conditions. They saw promise in the industrial revolution, viewing it as a new system that could potentially produce enough goods for the entire human population, but which was hampered by its inefficient method of distributing goods. In 1848, Karl Marx and Frederick Engels released the Communist Manifesto, which outlined a political and economic critique of capitalism based on the philiosophy of historical materialism. Pierre-Joseph Proudhon a contemporary of Marx was another notable critic of capitalism, and was one of the first to call himself an anarchist.