Examples of contemporary welfare capitalism include the Nordic model of capitalism predominant in Northern Europe. Anglo-Saxon capitalism refers to the form of capitalism predominant in Anglophone countries and typified by the economy of the United States. It is contrasted with European models of capitalism such as the continental social market model and the Nordic model.
Anglo-Saxon capitalism refers to a macroeconomic policy regime and capital market structure common to the Anglophone economies. Among these characteristics are low rates of taxation, more open financial markets , lower labor market protections and a less generous welfare state eschewing collective bargaining schemes found in the continental and northern European models of capitalism.
The East Asian model of capitalism involves a strong role for state investment and in some instances involves state-owned enterprises.
The state takes an active role in promoting economic development through subsidies, the facilitation of "national champions" and an export-based model of growth. The actual practice of this model varies by country.
A related concept in political science is the developmental state. The social market economic model sometimes called Rhine capitalism is based upon the idea of realizing the benefits of a free-market economy, especially economic performance and high supply of goods while avoiding disadvantages such as market failure , destructive competition, concentration of economic power and the socially harmful effects of market processes.
The aim of the social market economy is to realize greatest prosperity combined with best possible social security. One difference from the free market economy is that the state is not passive, but instead takes active regulatory measures. Characteristics of social market economies are a strong competition policy and a contractionary monetary policy. The philosophical background is neoliberalism or ordoliberalism. Market socialism is a form of market economy where the means of production are socially owned.
In a market socialist economy, firms operate according to the rules of supply and demand and operate to maximize profit; the principal difference between market socialism and capitalism being that the profits accrue to society as a whole as opposed to private owners.
The distinguishing feature between non-market socialism and market socialism is the existence of a market for factors of production and the criteria of profitability for enterprises. Profits derived from publicly owned enterprises can variously be used to reinvest in further production, to directly finance government and social services, or be distributed to the public at large through a social dividend or basic income system.
Market socialism traces its roots to classical economics and the works of Adam Smith , the Ricardian socialists and mutualist philosophers. In the s, the economists Oskar Lange and Abba Lerner developed a model of socialism that posited that a public body dubbed the Central Planning Board could set prices through a trial-and-error approach until they equaled the marginal cost of production in order to achieve perfect competition and pareto optimality.
In this model of socialism, firms would be state-owned and managed by their employees and the profits would be disbursed among the population in a social dividend. This model came to be referred to as market socialism because it involved the use of money, a price system and simulated capital markets, all of which were absent from traditional of non-market socialism. A more contemporary model of market socialism is that put forth by the American economist John Roemer , referred to as economic democracy.
In this model, social ownership is achieved through public ownership of equity in a market economy. A Bureau of Public Ownership would own controlling shares in publicly listed firms, so that the profits generated would be used for public finance and the provision of a basic income. Some anarchists and libertarian socialists promote a form of market socialism in which enterprises are owned and managed cooperatively by their workforce so that the profits directly remunerate the employee-owners.
These cooperative enterprises would compete with each other in the same way private companies compete with each other in a capitalist market. The first major elaboration of this type of market socialism was made by Pierre-Joseph Proudhon and was called mutualism. Self-managed market socialism was promoted in Yugoslavia by economists Branko Horvat and Jaroslav Vanek.
In the self-managed model of socialism, firms would be directly owned by their employees and the management board would be elected by employees.
These cooperative firms would compete with each other in a market for both capital goods and for selling consumer goods. Following the reforms , China developed what it calls a socialist market economy in which most of the economy is under state ownership, with the state enterprises organized as joint-stock companies with various government agencies owning controlling shares through a shareholder system.
Prices are set by a largely free-price system and the state-owned enterprises are not subjected to micromanagement by a government planning agency. This system is frequently characterized as state capitalism instead of market socialism because there is no meaningful degree of employee self-management in firms, because the state enterprises retain their profits instead of distributing them to the workforce or government and because many function as de facto private enterprises.
The profits neither finance a social dividend to benefit the population at large, nor do they accrue to their employees. In China, this economic model is presented as a preliminary stage of socialism to explain the dominance of capitalistic management practices and forms of enterprise organization in both the state and non-state sectors.
A wide range of philosophers and theologians have linked market economies to monotheistic values. Michael Novak described capitalism as being closely related to Catholicism, but Max Weber drew a connection between capitalism and Protestantism. The economist Jeffrey Sachs has stated that his work was inspired by the healing characteristics of Judaism.
In the Christian faith, the liberation theology movement advocated involving the church in labor market capitalism. Many priests and nuns integrated themselves into labor organizations while others moved into the slums to live among the poor.
The Holy Trinity was interpreted as a call for social equality and the elimination of poverty. 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. 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".
Theoretically [ according to whom? 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 Enclosure 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. 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". 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.
It is a condition where "buyers tend to compete with other buyers, and sellers tend to compete with other sellers". 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 —there is never enough to satisfy all conceivable human wants—and occurs "when people strive to meet the criteria that are being used to determine who gets what".
Historically, capitalism has an 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.
Between and , world economy grew fold, a much faster rate than the population growth, so individuals enjoyed on average a 9-fold increase in income. In the Third World , there was an increase, but only 5-fold per person. 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 capitalist mode of production proper based on wage-labour and private ownership of the means of production and on industrial technology began to grow rapidly in Western Europe from the Industrial Revolution , later extending to most of the world. 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 labour 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. 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.
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 four basic "laws" of supply and demand , as described by David Besanko and Ronald Braeutigam , are:  : Although it is normal to regard the quantity demanded and the quantity supplied as functions of the price of the goods, the standard graphical representation, usually attributed to Alfred Marshall , has price on the vertical axis and quantity on the horizontal axis, the opposite of the standard convention for the representation of a mathematical function.
Since determinants of supply and demand other than the price of the goods in question are not explicitly represented in the supply-demand diagram, changes in the values of these variables are represented by moving the supply and demand curves often described as "shifts" in the curves. By contrast, responses to changes in the price of the good are represented as movements along unchanged supply and demand curves.
A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition , supply is determined by marginal cost.
That is: firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive. A hike in the cost of raw goods would decrease supply and shift costs up, while a discount would increase supply and shift costs down, hurting producers as producer surplus decreases.
By its very nature, conceptualising a supply curve requires the firm to be a perfect competitor i. This is true because each point on the supply curve is the answer to the question "If this firm is faced with this potential price, how much output will it be able to and willing to sell?
If a firm has market power, its decision of how much output to provide to the market influences the market price, therefore the firm is not "faced with" any price and the question becomes less relevant. Economists distinguish between the supply curve of an individual firm and the market supply curve. The market supply curve is obtained by summing the quantities supplied by all suppliers at each potential price, thus in the graph of the supply curve individual firms' supply curves are added horizontally to obtain the market supply curve.
Economists also distinguish the short-run market supply curve from the long-run market supply curve. In this context, two things are assumed constant by definition of the short run: the availability of one or more fixed inputs typically physical capital and the number of firms in the industry. In the long-run, firms can adjust their holdings of physical capital, enabling them to better adjust their quantity supplied at any given price.
Furthermore, in the long-run potential competitors can enter or exit the industry in response to market conditions. For both of these reasons, long-run market supply curves are generally flatter than their short-run counterparts. 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. The demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time. While the aforementioned demand curve is generally downward-sloping, there may be rare examples of goods that have upward-sloping demand curves.
Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods an inferior, but staple good and Veblen goods goods made more fashionable by a higher price.
By its very nature, conceptualising a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is true because each point on the demand curve is the answer to the question "If this buyer is faced with this potential price, how much of the product will it purchase? If a buyer has market power, so its decision of how much to buy influences the market price, then the buyer is not "faced with" any price and the question is meaningless.
Like with supply curves, economists distinguish between the demand curve of an individual and the market demand curve. The market demand curve is obtained by summing the quantities demanded by all consumers at each potential price, thus in the graph of the demand curve individuals' demand curves are added horizontally to obtain the market demand curve.
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.
This price is often called the competitive price or market clearing price, and will tend not to change unless demand or supply changes.
The quantity is called "competitive quantity" or market clearing quantity. 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". The supply and demand model is a partial equilibrium model of economic equilibrium , where the clearance on the market of some specific goods is obtained independently from prices and quantities in other markets.
In other words, the prices of all substitutes and complements as well as income levels of consumers are constant. This makes analysis much simpler than in a general equilibrium model which includes an entire economy. Here the dynamic process is that prices adjust until supply equals demand.
It is a powerfully simple technique that allows one to study equilibrium , efficiency and comparative statics. The stringency of the simplifying assumptions inherent in this approach make the model considerably more tractable, but it may produce results which while seemingly precise do not effectively model real world economic phenomena.
Partial equilibrium analysis examines the effects of policy action in creating equilibrium only in that particular sector or market which is directly affected, ignoring its effect in any other market or industry assuming that they being small will have little impact if any. Demand and supply relations in a market can be statistically estimated from price, quantity and other data with sufficient information in the model.
This can be done with simultaneous-equation methods of estimation in econometrics. Such methods allow solving for the model-relevant "structural coefficients", the estimated algebraic counterparts of the theory. The parameter identification problem is a common issue in "structural estimation". Typically, data on exogenous variables that is, variables other than price and quantity, both of which are endogenous variables are needed to perform such an estimation.
An alternative to "structural estimation" is reduced-form estimation, which regresses each of the endogenous variables on the respective exogenous variables. Demand and supply have also been generalised to explain macroeconomic variables in a market economy , including the quantity of total output and the general price level.
The Aggregate Demand—Aggregate Supply model may be the most direct application of supply and demand to macroeconomics, but other macroeconomic models also use supply and demand.
Compared to microeconomic uses of demand and supply, different and more controversial theoretical considerations apply to such macroeconomic counterparts as aggregate demand and aggregate supply.
Demand and supply are also used in macroeconomic theory to relate money supply and money demand to interest rates and to relate labor supply and labor demand to wage rates.
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".
John Locke 's 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 The phrase "supply and demand" was first used by James Denham-Steuart in his Inquiry into the Principles of Political Economy , published in Adam Smith used the phrase in his book The Wealth of Nations.
In The Wealth of Nations , Smith generally assumed that the supply price was fixed, but that its "merit" value would decrease as its "scarcity" increased, in effect what was later called the law of demand also. Antoine Augustin Cournot first developed a mathematical model of supply and demand in his Researches into the Mathematical Principles of Wealth , including diagrams.
During the late 19th century, the marginalist school of thought emerged. The key idea was that the price was set by the most expensive price—that is, the price at the margin.
This was a substantial change from Adam Smith's thoughts on determining the supply price. In his 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.
In a capitalist system, the government protects private property and guarantees the right of citizens to choose their job. In most cases, the government does not prevent firms from determining what wages they will pay and what prices they will charge for their products. However, many countries have minimum wage laws and minimum safety standards.
Under some versions of capitalism, the government carries out a number of economic functions, such as issuing money, supervising public utilities, and enforcing private contracts. Many countries have competition laws that prohibit monopolies and cartels.
Despite anti-monopoly laws, large corporations can form near-monopolies in some industries. Such firms can temporarily drop prices and accept losses to prevent competition from entering the market and then raise them again once the threat of competition is reduced.
In many countries, public utilities such as electricity, heating fuel and communications are able to operate as a monopoly under government regulation due to high economies of scale. 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. In his book The Road to Serfdom , Friedrich Hayek — 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.
Friedman claimed that centralized economic operations are always accompanied by political repression. In his view, transactions in a market economy are voluntary and that 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 is vital for freedom to survive and thrive.
There are many variants of capitalism in existence that differ according to country and region. The common features among all the different forms of capitalism is that they are predominantly based on:. They include advanced capitalism, corporate capitalism, finance capitalism, free-market capitalism, mercantilism, social capitalism, state capitalism and welfare capitalism. Other variants of capitalism include anarcho-capitalism , community capitalism , humanistic capitalism , neo-capitalism , state monopoly capitalism , supercapitalism and technocapitalism.
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.
Habermas observed four general features that characterise advanced capitalism:. Corporate capitalism is a free or mixed-market capitalist economy characterized by the dominance of hierarchical, bureaucratic corporations.
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 [ by whom? 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. 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. 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 utilized 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. Britain, 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. 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:.
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 capitalism is a capitalist market economy dominated by state-owned enterprises, where the state enterprises are organized as commercial, profit-seeking businesses.
The designation has been used broadly throughout the 20th century to designate a number of different economic forms, ranging from state-ownership in market economies to the command economies of the former Eastern Bloc.
According to Aldo Musacchio, a professor at Harvard Business School, state capitalism is a system in which governments, whether democratic or autocratic, exercise a widespread influence on the economy either through direct ownership or various subsidies. Musacchio notes a number of differences between today's state capitalism and its predecessors. In his opinion, gone are the days when governments appointed bureaucrats to run companies: the world's largest state-owned enterprises are now traded on the public markets and kept in good health by large institutional investors.
Contemporary state capitalism is associated with the East Asian model of capitalism , dirigisme and the economy of Norway. In Socialism: Utopian and Scientific , Friedrich Engels argued that state-owned enterprises would characterize the final stage of capitalism, consisting of ownership and management of large-scale production and communication by the bourgeois state.
Some economists and left-wing academics including Richard D. 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 simply a new label for the old labels of state socialism and planned economy and differed only in non-essentials from these earlier designations.
The debate between proponents of private versus state capitalism is centered around questions of managerial efficacy, productive efficiency and fair distribution of wealth.
Welfare capitalism is capitalism that includes social welfare policies. Today, welfare capitalism is most often associated with the models of capitalism found in Central Mainland 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. 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 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.
Using company balance sheets , tax data and direct surveys as a basis, government statisticians estimate total investments and assets for the purpose of national accounts , national balance of payments and flow of funds statistics. The Reserve Banks and the Treasury usually provide interpretations and analysis of this data. Standard indicators include capital formation , gross fixed capital formation , fixed capital , household asset wealth and foreign direct investment.
Other useful sources of investment information are business magazines such as Fortune , Forbes , The Economist , Business Week and so on as well as various corporate " watchdog " organisations and non-governmental organisation publications. In the case of the United States, the "Analytical Perspectives" document an annex to the yearly budget provides useful wealth and capital estimates applying to the whole country.
In Karl Marx ' economic theory, capital accumulation refers to the operation whereby profits are reinvested increasing the total quantity of capital. Capital is viewed by Marx as expanding value, that is, in other terms, as a sum of capital, usually expressed in money, that is transformed through human labor into a larger value, extracted as profits and expressed as money. Here, capital is defined essentially as economic or commercial asset value in search of additional value or surplus-value.
This requires property relations which enable objects of value to be appropriated and owned, and trading rights to be established. Capital accumulation has a double origin, namely in trade and in expropriation , both of a legal or illegal kind. The reason is that a stock of capital can be increased through a process of exchange or "trading up", but also through directly taking an asset or resource from someone else without compensation.
David Harvey calls this accumulation by dispossession. The continuation and progress of capital accumulation depends on the removal of obstacles to the expansion of trade and this has historically often been a violent process. As markets expand, more and more new opportunities develop for accumulating capital because more and more types of goods and services can be traded in. However, capital accumulation may also confront resistance when people refuse to sell, or refuse to buy for example a strike by investors or workers, or consumer resistance.
According to Marx, capital has the tendency for concentration and centralization in the hands of the wealthy. Marx explains: "It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. The cheapness of commodities demands, caeteris paribus , on the productiveness of labour, and this again on the scale of production.
Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions.
The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages [ In Marxian economics , the rate of accumulation is defined as:. This rate can be expressed by means of various ratios between the original capital outlay, the realised turnover, surplus-value or profit and reinvestments e.
Other things being equal, the greater the amount of profit-income that is disbursed as personal earnings and used for consumptive purposes, the lower the savings rate and the lower the rate of accumulation is likely to be. However, earnings spent on consumption can also stimulate market demand and higher investment. This is the cause of endless controversies in economic theory about "how much to spend, and how much to save". In a boom period of capitalism, the growth of investments is cumulative, i.
In a stagnating, decadent capitalism, the accumulation process is increasingly oriented towards investment on military and security forces, real estate, financial speculation and luxury consumption. In that case, income from value-adding production will decline in favour of interest, rent and tax income, with as a corollary an increase in the level of permanent unemployment.
The more capital one owns, the more capital one can also borrow. The inverse is also true and this is one factor in the widening gap between the rich and the poor. Ernest Mandel emphasised that the rhythm of capital accumulation and growth depended critically on:. In turn, this allocation pattern reflected the outcome of competition among capitalists, competition between capitalists and workers and competition between workers.
The pattern of capital accumulation can therefore never be simply explained by commercial factors as it also involved social factors and power relationships. Strictly speaking, capital has accumulated only when realised profit income has been reinvested in capital assets. As suggested in the first volume of Marx' Das Kapital , the process of capital accumulation in production has at least seven distinct but linked moments:.
All of these moments do not refer simply to an "economic" or commercial process. Rather, they assume the existence of legal, social, cultural and economic power conditions, without which creation, distribution and circulation of the new wealth could not occur.
This becomes especially clear when the attempt is made to create a market where none exists, or where people refuse to trade. In the second volume of Das Kapital , Marx continues the story and shows that with the aid of bank credit capital in search of growth can more or less smoothly mutate from one form to another, alternately taking the form of:.
His discussion of the simple and expanded reproduction of the conditions of production offers a more sophisticated model of the parameters of the accumulation process as a whole. At simple reproduction, a sufficient amount is produced to sustain society at the given living standard ; the stock of capital stays constant. At expanded reproduction, more product-value is produced than is necessary to sustain society at a given living standard a surplus product ; the additional product-value is available for investments which enlarge the scale and variety of production.
The bourgeois [ who? Such statements only explain the subjective experiences of investors and ignore the objective realities which would influence such opinions. As Marx states in the second volume of Das Kapital , simple reproduction only exists if the variable and surplus capital realised by Dept.
Such equilibrium rests on various assumptions, such as a constant labor supply no population growth. Accumulation does not imply a necessary change in total magnitude of value produced, but can simply refer to a change in the composition of an industry p. Ernest Mandel introduced the additional concept of contracted economic reproduction, i.
Balanced economic growth requires that different factors in the accumulation process expand in appropriate proportions. However, markets themselves cannot spontaneously create that balance and in fact what drives business activity is precisely the imbalances between supply and demand : inequality is the motor of growth.
This partly explains why the worldwide pattern of economic growth is very uneven and unequal, even although markets have existed almost everywhere for a very long-time. Some people argue that it also explains government regulation of market trade and protectionism. This interpretation emphasises that capital ownership, predicated on command over labor, is a social relation: the growth of capital implies the growth of the working class a " law of accumulation ".
In the first volume of Das Kapital , Marx had illustrated this idea with reference to Edward Gibbon Wakefield 's theory of colonisation:. Wakefield discovered that in the Colonies, property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative—the wage-worker, the other man who is compelled to sell himself of his own free-will.
He discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things. Peel had the foresight to bring with him, besides, 3, persons of the working-class, men, women, and children. Once arrived at his destination, 'Mr.
Peel was left without a servant to make his bed or fetch him water from the river. Peel, who provided for everything except the export of English modes of production to Swan River! In the third volume of Das Kapital , Marx refers to the "fetishism of capital" reaching its highest point with interest-bearing capital because now capital seems to grow of its own accord without anybody doing anything:.
The relations of capital assume their most externalised and most fetish-like form in interest-bearing capital. The result of the entire process of reproduction appears as a property inherent in the thing itself. It depends on the owner of the money, i. In interest-bearing capital, therefore, this automatic fetish, self-expanding value, money generating money, are brought out in their pure state and in this form it no longer bears the birth-marks of its origin.
Then came about the Dutch East India Company, which was founded in This was the first public company and marked a shift toward capitalism. Adam Smith theorizes that capitalism is part of natural human behavior that is aligned in trade and commerce. Marxism says that capitalism is an unusual system that could be replaced with a superior system.
Marx believes that capitalism is essentially powerful people taking control. Free markets are all around us, relatively speaking. Each country has free market aspects, although there is no perfect free market. Many consider the U. However, according to the Heritage Foundation ranking, the U. The most repressed according to the rankings is North Korea ranked th , with Venezuela th and Cuba th also had the bottom of the rankings. Georgia, the small country in Eurasia, has made great strides over the years when it comes to becoming more of a free market.
The country was previously part of the Soviet Union and has focused on flat tax rates and privatization. The country ranks as 12th when it comes to economic freedoms with an overall freedom score of Meanwhile, its score in was Hong Kong has small government involvement and almost no tariffs. He must similarly compete with all other goat sellers when trading his goat. The reason humans are willing to compete with each other in voluntary trade is because laws exist which protect private property.