Capitalism

By Gilbert Pleuger

new perspective Vol 11,  No 1

THE ESSENCE OF CAPITALISM is the use productively of surplus (surplus of anything or its money equivalent) to provide goods or services that are sold to generate a profit, that is a further surplus. That further surplus then can be used productively. A society that has the capitalist economic form will acknowledge citizens’ rights to private property and the existence of a market that enables the sale and purchase of goods and services by individuals and companies. Societies in which a significant surplus cannot be produced, such as peasant subsistence-farming communities and nomadic tribes, can not be capitalist societies in a meaningful sense.

The growth of capitalism

The word capital is derived from the Latin, caput which meant relating to the head. The word capital began to be used in the early-modern era. In 1630 it was understood to refer to the use of accumulated wealth to create a profit and in 1709 to mean the first or main funds of a trader or company or institution such as the Bank of England (created 1694). Capitalism is the condition of possessing capital or using it for production. Other, but different, uses of capital from the early-modern period include reference to the first letter of a word, the capital letter and the more important, because stronger, ships in a navy.

Opportunities for Europeans to create surpluses, that is to create capital, were increased with the expansion of trade with the East from around the thirteenth century. Early instances of capitalist instruments were the issue of bills of exchange to ease the buying and selling of products for use in the trade fairs that were organised along the trading routes. Thereby casual encounter and barter between traders was gradually superseded. It was to discover a new trading sea route to the Indies that led Christopher Columbus to his voyage of 1494. Trade with India and the East Indies increased in the sixteenth, seventeenth and eighteenth centuries and financial and commercial capital procedures were refined and developed.

The concept of capital can be divided between capital goods, goods used to produce other goods, working capital, money used to enable day-to-day productive activity and human capital, the skills and knowledge of individuals that can be used to produce goods and services.

Capitalism and political ideology

Changes in agriculture and manufacture, initially slow, from the mid-eighteenth century, now termed the agricultural and industrial revolutions, led to a huge expansion of industrial and commercial capitalism and created the immediate foundation of the material world in which we live, a world with rising standards of living.

The agricultural and industrial changes were most marked in Britain and it was to this changing society, more particularly to the cotton cloth production area centred on Manchester, to which two German thinkers, Friedrich Engels and Karl Marx, were drawn. Of their publications the more notable, Manifesto of the Communist Party and Das Kapital, were published in 1848 and 1867 (Volume 1 of 3) respectively. These and other publications, and by other thinkers such as Proudhon and Georges Sorel, became the foundations of the ideological debate and competition, for around 100 years, as societies and political thinkers sought to come to terms with social change consequent to the transformation of life from a rural and local existence to urban and national machine-led life and employment.

It was the unexpected success of the Marxist-influenced Bolshevik seizure of power in (by western European standards) economically backward Russia in 1917 that propelled that country towards leadership of those societies and states that sought to limit capitalist’s pursuit of private profit.

The regulation of capitalist activity by the state had already begun. The growth in number and size of factories and the concentration of people in urban areas round places of manufacture in which capital was used promoted the need for regulation, factory acts and the Public Health Act, 1875, are examples from British History and the intervention of government increased, a trend hugely boosted by the two world wars of the last century. Some commentators, such as the Austrian F.A. Hayek, author of The Road to Serfdom, 1944, claim that this trend can undermine individual enterprise and the benefits of capitalist production.

Socialists, in the main, celebrate the interference of the state in individual and economic activity, liberals deplore it or, at least, seek to limit the onward march of state regulation and intervention in economic life.

The example of the USSR points to another economic form that has similarities to capitalism. When Stalin introduced collectivisation and the First Five-year Plan in 1928 the Soviet Socialist state on behalf of the community created a surplus and used it to create infrastructure and capital projects, power stations and steel mills for example. In this instance, it was not citizens but the state on behalf of the whole community that used, created and kept surplus. This is usually termed state capitalism.

Since the collapse of the Soviet empire, 1990, forms of capitalism have almost universal approval, current notable exceptions being Cuba and North Korea. The time of idelogical debate and competition, especially between the first and second world wars and the Cold War era have attached an emotional tone to what is no more than a description of an economic arrangement.