CAPITALISM

(under Comparative Government and Politics Assignment)

Submitted to: Mr ​Gaurav Panwar

Created by: ​Natasha Singh
Roll No. : ​1917284
Class and Section: ​Section B; BA(H) Political Science (II Year)
Date: ​13/11/2020
1. Introduction 
Capitalism is a social-economic system where production and distribution are owned privately.
The emergence of the industrial revolution introduced capitalism as the new economic form.
The economic Revolution which took place in the Western world during the industrial
revolution coupled with the imperialist Ribbon, rainforest capitalism around the world in
subsequent centuries. Capitalism was synonymously used for economic individualism and was
viewed as a simple system of natural liberty. Economic Individualism recognizes the pursuit of
self-interest and the right to own private property which is moral and leaves in a legitimate use
and accepted within capitalist society. It can be explained as a system in which individuals
compete with each other to accumulate wealth while having the right to use the land labour and
capital to produce goods and services for selling them to gain profits. The intentional for profit
makes capitalist Enterprises to search for a new market, to develop new products and use new
machines and technologies which can reduce their cost of production.

The capitalist society remains the society where the social-economic system operates closely
with the political system where the laws, rules and governance operate in favour of the capitalist
endeavour and in tandem with capitalists. The state as a watchdog exists to secure and protect
individuals and their rights by making them free to decide where to invest, what to produce or
sell, and what prices to charge. the government may impose restricted or limited charges for
generating some revenue.

Diverse society usually possessed varied economic attitude and behaviour of people. When a
particular pattern of the economic system operated through the dominant mode of production, a
particular manner of the social relations also prevailed around the mode of production. The
particular socio-economic relation of production functioned within the larger society in
correspondence to the institutions or the set of rules and behaviours that governs production and
distribution of the society. Marx's argument was that when the society moves from the agrarian
mode of production (landlord versus serfs) to capitalism, not only does the mode of production
changes but also the production relations ( capitalist and labours including both intra and
interrelationship) also changes. Subsequently, the attitude of people and human behaviour are
accepted by the prevailing forces of production. Values of the life that prevailed during the
agrarian economy changed within capitalism. For example, within a capitalist society,
individual-centric, need-based and material list values became prominent.

 
 
Capitalism prevailed across centuries and spaces. the nature of capitalism in the 17th century is
different from capitalism from the 19th to 20th century. The connotation of capitalism is totally
different in the era of globalisation. capitalism may also vary across places which means it is
not the same in the United States as it is in China, not the same in Germany as intended
behaviour, Singapore or Thailand. capitalism that persisted in the 19th Century England is not
the same as it is continuing in the 21st century England.

An understanding of capitalism is essential to make a sense of the contemporary world. If the

market and individual economic liberty is the kernel of capitalism, then there are hardly one or
two countries on this earth that do not follow one or another form of capitalism. Interestingly
there is a great variation in the systems followed by different countries. Western Europe and the
USA had long been seen as the citadels of capitalism. But now, even a formerly communist
country like China follows the capitalist path of development. Today the juggernaut of
capitalism is pushed by the process of globalization. The process of globalization in turn
penetrates every region of this earth and affects human life in many ways. The ideology of
capitalism is based on the writings of many liberal economists. Most prominent among them
was Adam Smith, who propounded the idea of ‘invisible hand’, which says that if everyone
pursues his/her own good it will automatically lead to social good.

2. What is Capitalism?
Capitalism is a system of largely private ownership that is open to new ideas, new firms and
new owners—in short, to the new capital. Capitalism’s rationale to proponents and critics alike
has long been recognized to be its dynamism, that is, its innovations and, more subtly, its
selectiveness in the innovations it tries out. At the same time, capitalism is also known for its
tendency to generate instability, often associated with the existence of financial crises, job
insecurity and failures to include the disadvantaged.

It is argued that the ideology of capitalism is an ideology of crass profit and exploitation of
labour. This argument was propounded by the communists and the socialist. The post-second
world war world witnessed a cold war between the capitalist and communist ideologies.
However, the demise of communism in the Soviet Union led scholars to proclaim the victory of
capitalism over all other ideologies (End of History thesis by Francis Fukuyama.

 
 
Capitalism is variously described as an economic system, a social system, an ideology, or even
a type of state/government. The liberal economists assume that Capitalism is an economic or
social system in which the means of production are owned privately and distribution happens
through the market mechanism. Many sociologists will argue that capitalism is a social system
where the social structures, institutions and relations are woven around the market. On the other
hand, there are some philosophers (like Marx) who see capitalism as an ideology of the ruling
bourgeois class, who owns the means of production. Today, in common newspaper language
the word capitalist state is frequently used to denote many western developed countries. Hence
the term capitalism is used in different senses by different people.

Interestingly the term capitalism was given to it by the opponents of capitalism as a term of
disparagement. Today a great number of countries follow the capitalist system. However, we
can observe a diversity among these countries about the capitalist policies followed by them.
Therefore it becomes difficult to say which country is a real capitalist country. Despite the
uncertainty surrounding the use of the word, we can safely identify some of the central ideas
inherent in any meaning of capitalism:
i) Investment of money to make a profit.
ii) Any type of assets can be converted to the capital with the help of various institutions and
mechanisms.
iii) Wage labour is central to the functioning of capitalism.
iv) Production and consumption are divorced, markets are central to human life.
V) The institution of private property is not violated. In addition to private property, the system
of inheritance is also very crucial in the capitalist system.
vi) Economic freedom translating in freedom of contract, freedom of choice, freedom of
enterprise and freedom to use one's property.
vii) Competition at every level is the key to efficiency in capitalism. A large number of
producers, buyers and sellers work in their self-interest.
viii) Limited role of government in the economic sphere. Absence of economic planning or
interference by the government.

Historically there is disagreement amongst scholars about the definition, nature, origin and
concept of capitalism. How a scholar defines capitalism becomes important for determining the
historical origin of capitalism too. The definition used, also indicates how the features of
modern capitalism are different from earlier existing systems. Maurice Dobb has identified

 
 
three separate meanings of capitalism that is used in writings.

First, some scholars like Werner Sombart and Max Weber understand capitalism in terms of a
special spirit of enterprise among human beings. They find that capitalism is a product of
rational human attitude. According to Max Weber, capitalism should be understood with
reference to the growth of Calvinist ideas and spirit. Weber defines the "Spirit of Capitalism" as
"that attitude which seeks profit rationally and systematically."

Second, this set of views differentiates between ‘natural economy’ and ‘money economy’ and
emphasizes that in the money economy the production and retail sale are separated by space and
time. This type of definition is closely linked to the ‘profit motive’ definition. Since there will
be people who will invest in production or trade to gain profit from this time-space distance.
Professor Nussbaum defines capitalism as a system of an exchange economy in which the
orienting principle of economic activity is unrestricted profit.
Third, this type of definition is attributed to Marx. In the Marxist definition, the focus is on the
ownership of means of production. In this system of commodity production, the labour-power
itself becomes a commodity. Hence there is an emergence of a bourgeois class (owners of
means of production) and proletariat class (property less and sellers of labour-power).

3. ORIGIN AND DEVELOPMENT OF CAPITALISM 

Some of the features of a capitalist system were present in many ancient societies. Trading
between societies, nations and empires is as old as human civilisation. There were private
individuals who used to do trading in every era. We can even say that there were people who
owned capital. But the economic system of capitalism is a modern system. One of the most
important distinguishing features of this system is the centrality of market and dependence of
people upon the system. Unlike the earlier trading system, capitalism envelops every sphere of
human activity and guides production, distribution and consumption in totality. In Marxist
terminology, the creation of surplus-value is the distinguishing feature of the modern capitalist
system which was not present in earlier systems. Further Marxists also emphasize the
emergence of a new type of class system as a distinguishing feature of the capitalist system.
There are disagreements about the origin and growth of capitalism. However, most of the
scholars of capitalism regard this as a modern phenomenon. Therefore an understanding of
modernity will be essential to comprehend the historical explanations of the origin of
capitalism.

 
 
 ➢ Capitalism and Modernity
Since capitalism is a phenomenon of modern society, we need to understand the emergence and
features of modernity. The term modern is used in a wide array of meanings. Here we are
referring to a particular period of European history, which emerged after the medieval ‘dark
ages’ in Europe. The ideas, ideologies, institutions, politics, that emerge during this period and
the social and scientific changes that occurred can be said to make the background for the origin
and growth of capitalism and capitalist ideas.
There are important historical events, movements and phenomenons which led to the change in
society and people in Europe. Renaissance (rebirth) spanned from the 14th century to the 17th
century was an important period, which marked the beginning of modern times. The renaissance
scholars tried to break the shackles of religion, tradition and conformism. They stressed upon
inventive and innovative ideas.
The Enlightenment gave primacy of reason and rationality. It also contained other important
features: knowledge is based upon the empirical facts, the experimental method leads to
scientific knowledge, reason and science are universal, natural and social condition of human
beings could be improved by reason and science, an individual is the starting point of all
knowledge and action, the knowledge should be secular and free of religious orthodoxies, all
human beings are essentially the same and opposition to feudal and traditional constraints on
freedom of the individual.
The Reformation of Christianity brought the individual at the centre of society. The emphasis of
individual and freedom of will had long term and wider social implications too. Max Weber, a
German Sociologist had claimed that cultural values have the potential to affect economic
success. He argued that the value changes (values that drove people toward worldly
achievements, a hard work ethic, and saving to accumulate wealth for investment) brought by
the protestant reformation created the conditions for the growth of capitalism.

4. Emergence of Capitalism 
There are many factors which are important to explain the emergence of capitalism. They are as
follows:-
i) ​Prior growth of merchant capitalism​: Merchant capitalism grew significantly by the 16th
century in Europe. The main focus of the traders was to make money out of the price difference
of goods. Hence there was no investment in production rather the investment was done in
buying the goods at a lesser price and selling it at higher prices by manipulating the space and

 
 
time difference. The merchants were either individuals, groups or backed by small private
financiers. They will bring some goods from there and sell in Europe and the price difference
will lead to huge profits. However, merchant capitalism was different from modern industrial
and commercial capitalisms, as there was a lack of industrialization and commercial finance.
James Fulcher (A very Short Introduction to Capitalism) argues that Merchant capitalism
particularly in the shape of East India Company developed strongly in the 17th century.

ii) ​Disintegration of Feudalism​: Maurice Dobb in his seminal book (Studies in the
development of Capitalism) defines Feudalism as being virtually identical with what we usually
mean by serfdom: an obligation led by the producer by force and independently of his own
volition to fulfil certain economic demands of an overlord, whether these demands take the
form of services to be performed or of dues to be paid in money or in kind. Christopher Hill
(The English Revolution) says that by feudalism mean a form of society in which agriculture is
the basis of economy and in which political power is monopolised by a class of landowners.
The feudal social relationship existed between the 9th and 15th centuries in Europe. There are
many reasons for the decline of feudalism. However, it is very clear that the decline started in
England. First, sometimes the Black Death is given as an important reason for the decline of
feudalism. During 1348-50, more than 100 million people died in Europe due to various types
of plague. The population of England was reduced by more than one third and as consequence
labour became a valuable commodity.

Second, the hundred year’s war between France and England in the 14th and fifteenth century
strengthens the power of the monarchs and weakened the feudal lords. Further, the king can
manage his own standing army with the money provided by the emerging middle class and
traders.
Third, the emergence of many new towns provided the opportunity for serfs to leave rural areas
and work in towns. Fourth, it is argued that feudalism in England was never very solidly
established and hence a centralized state emerged in England. James Fulcher argues that in
feudal societies judicial and military authorities were dispersed to local lords, England been
however been a relatively unified, orderly and cohesive monarchy since the Norman Conquest
in 1066. By the 16th century, under the Tudors, it had become the least feudal and the most
unified and centralised of European states.
According to James Fulcher, the origins of capitalist production in Britain are to be found less
in merchant capitalism than in the earlier growth of production, consumption, and markets in
16th-century England. The 16th century England witnessed the growth of simple commodity

 
 
exchange and production. One of the important characteristics of modern Capitalism is wage
labour. In the 16th century, the number of people dependent on wage labours roughly became
half of the total household of England. Fulcher points out that this meant that people
increasingly had money to buy such goods and market relationships were becoming more
important in their daily lives. The growth of wage labour also saw a rudimentary emergence of
labour unions by the 18th century. putting-out system’, was coming into existence. Use of
capital investment in production is a critical point in the development of capitalism. The use of
capital leading to a new form of production can be noticed in the clothing business. The
merchants used their capital to buy wool and put this out to spinners and weavers, before
collecting the cloth, distributing it to other crafts for finishing off, and finally selling it. This
was called ‘putting-out system’.
Fulcher argues that although this system was organized by merchants, they were much closer
than those engaged in international trading ventures to the production process and hence this
was a clear and important step on the road to capitalist production.

iii) ​Nation-states and capitalism:​ Many authors link the emergence of capitalism and the
emergence of nation-states. This set of the argument believes that a centralised and powerful
state removes the hurdles from the path of commercial activities of the bourgeois. A centralised
state was essential to create a national economy. The centralised state also helped in the
transition of the old feudal system to further free the labour to enter into industrial wage market.
Another type of argument which connects the nation-state in Europe to capitalism focuses on
the unique nature of the European state system. According to Immanuel Wallerstein, the
organization of Europe into multiple polities, instead of in one over-arching empire, permitted
the development of the trade-based division of labour, without the burden of massive
appropriation by an imperial state that syphoned off surpluses that could otherwise have been
invested. Further, the multistate character of Europe proved beneficial for commercial activities.

6. Growth and expansion of Capitalism:  

The above mentioned major factors coupled with the industrial revolution led to a remarkable
development of productive forces. And by the beginning of the 18th century, the capitalist mode
of production became widespread in England and gradually all over Europe. This created a
large consumer market for the products. By now capitalism has reached a phase where it has
replaced all other economic and social relations. From here we can trace the journey of
capitalism in two directions. One, capitalism passes through various stages in Europe,
(primarily in Britain, which is seen as the mother of capitalism). Two, capitalism expanded to
 
 
other parts of the world in search of raw materials, markets and labour. A very different type of
social relationship was established in these parts, which were called colonies.

James Fulcher divides the journey of capitalism between Britain in three stages. The first stage
is called the Anarchic capitalism. This was the stage in 18th and early 19th century when
industrial capitalism made it a breakthrough. The states legislation to manage the entrepreneurs
was non-existent and there was no organized labour to protest against the entrepreneurs. This
period also saw a rise in liberal ideas and consequently the state was seen as a mere night
watchman. The main function of the state was to remove the hurdles before the commercial
activities. The welfare functions of the state were non-existent. With the backing of liberal
ideas, the freedom of individual and market was taken as the supreme virtue. The second stage
of capitalism is called by Fulcher, the Managed capitalism. This stage roughly began in the
second half of the 19th century and lasted till the 1970s. On the level of ideas, the growth of
modern liberalism marked a rethinking about anarchic capitalism The industrial units became
bigger and bigger and the role of managers achieved a central place. The state tries to manage
the working-class dissent by increasing the representation of the working class and widening the
net of welfare activities. This period marked the provisions of free education and healthcare by
the state. Gradually the issues of equality were also becoming important in political discourse.

However, the increasing role of government in a market environment created problems and this
led to a crisis in the economy in the 1970s. Eventually, the market forces saw a revival in the
1970s. James Fulcher calls the period after the 1970s as remarketed capitalism. This period is
marked by the rise of neoliberal beliefs in freedom of individual and free operation of market
forces. The state was ‘rolling back’ and the welfare activities of the state were diminishing.

Ankie Hoogvelt in his book ‘Globalization and Post-Colonial World’ traces the expansion of
capitalism outside Europe. Hoogevelt distinguishes four periods of European expansion:
i) 1500-1800; Mercantile Phase: The characteristic feature of this phase is that in the name of
trading relations the European merchants transferred the economic surplus from Africa, Asia
and South America to Europe.
ii) 1800-1950; Colonial period: colonialism not only involves the transfer of resource but it is
subjugation and domination. The colonialism linked all other parts of the world with Europe in
a relationship of economic exchange through a direct rule. The colonial powers imposed
unequal terms of trade and depleted the colonies by transferring economic resources.
iii) 1950- 1970; neo-colonial period: after the political independence the newly independent
 
 
countries adopted a development model which resulted in the transfer of economic surplus
through ‘developmentalism’ and technological rent.
iv) 1970 - Post imperialism: In this period the transfer of economic surplus occurs through debt
patronage (an undefined pledge to do service in repayment of the debt).

➢ Types of Capitalist systems in the contemporary world​:

We can observe that there are various types of capitalist regimes around the world. Andrew
Heywood in his textbook on ‘Politics’ identifies three types of capitalist systems in the modern
world:
i)​ Enterprise Capitalism​: Enterprise capitalism is the purest form of capitalism as it is based
on the ideas of classical economists like Adam Smith. This type of capitalism is prevalent in the
United States of America. This system is based on the idea of the free market and minimal state
interference. Enterprise capitalism promotes marketization and is a driving force behind
economic globalisation.
ii)​ Social Capitalism: ​this type of capitalism is present in western and central Europe.
According to Heywood, the central theme of this model is the idea of a social market; that is an
attempt to marry the disciplines of market competition with the need for social cohesion and
solidarity. In this system, the state undertakes a number of welfare activities and the trade
unions are very strong. A good example of this type of system in Germany. In Germany, a form
of ‘stakeholder capitalism’ has developed that takes in to account the interest of workers and
those of the wider community. This contrast with the shareholder capitalism found in the USA.
In crux, the market remains largely free of governmental interference and the government
actively takes part in welfare activities to maintain social cohesion.
iii) Collective Capitalism​: According to Heywood, this type of capitalism is based on the
example of post-1945 Japan. Later this model was adopted by South Korea, Taiwan and
Singapore and other East Asian countries. Even it has influenced the current Chinese capitalism.
This type of capitalism mainly takes account of the social factors and weaves capitalism around
the indigenous ways of life. The workers give their loyalty commitment and hard work and they
are rewarded with lifetime employment, pension and social protection. Particular stress is
placed on teamwork and the building up of collective identity, which is underpinned by
relatively narrow income differentials between managers and workers. 

7. A critical analysis of Capitalism 

Capitalism is the most dominant economic system in the last three centuries. But its dominance
 
 
is not unchallenged. Thinkers, philosophers, rulers, activists, societies, communities, tribal,
locals, workers, humanists, religious and spiritual people- almost all types of people have
criticised capitalism. However, we can put the criticisms of capitalism in four categories:
Marxist criticism, socialist criticism, religious criticism and others (including anarchists,
environmentalists, feminists etc). Why people criticise capitalism? The criticism of capitalism
mainly involves these issues: private property, exploitation of labour, leads to fascism,
imperialism, colonialism and neo-colonialism, dehumanization of human beings, destruction of
community and society, distortion of democracy, growing inequality, market failures and
unsustainability, putting material pursuit as an ultimate goal, etc.

The most trenchant critic of Capitalism comes from Karl Marx and other Marxist thinkers.
Marx’s criticism of capitalism can be said to be of two types: scientific criticism of capitalism
and humanistic criticism of capitalism. Marx argues that capitalism is the last stage in the
exploitation of human beings by human beings. This last but most advanced stage is the
culmination of the institution of private property. Where the bourgeois (the capitalist) owns the
private property and exploits the proletariat. Value Addition: Did you know a Marxist critique

The existing democracy in the capitalist countries is only a bourgeois democracy and there is no
democracy for the majority of people. Ultimately the proletariat will rise in revolution and
demolish capitalism. The humanistic criticism of capitalism is based on the idea that Capitalism
dehumanizes human beings and uses the proletariat merely like tools. Here Marx provides his
theory of alienation and says that in a capitalist system the worker is alienated on four counts:
Alienation of the worker from the work — from the product of his labour, Alienation of the
worker from working — from the act of producing, Alienation of the worker from himself, as a
producer, Alienation of the worker from other workers. This imperialism leads to the
exploitation of people and the economy of the colonies. In the last century, various Marxist
thinkers have analysed and criticised every minute process of the capitalist economy. The
Marxist critic like Immanuel Wallerstein sees a terminal crisis in the capitalist world economy,
which will eventually lead to a transition from this world-system to some another world system.

Apart from the Marxists, the anarchists and the socialists criticise the institution of private
property. Some thinkers even equate private property to theft. There is also a general criticism
of wage labour. Some anarchist thinkers say that wage labour is like wage slavery. Most of the
religious traditions are critical of capitalism due to its high materialist orientations. The Islamic
philosophy does not believe in interest in money, which is an essential feature of capitalism.

 
 
The Hindu and Buddhist philosophy despise the overindulgence of the capitalist society and
believes that capitalism degenerates the human beings and human civilisation.

The criticism of capitalism and struggle against capitalism is fought not only through the
writings but also in various ways by waging small and big struggles. The struggles of the Latin
American countries against capitalism attracts special attention. The iconic figure of Fidel
Castro is projected as a thorn in the foot of capitalism. Castro says “I find capitalism repugnant.
It is filthy, it is gross, it is alienating... because it causes war, hypocrisy and competition”. In
recent times there is an upsurge of movements against capitalism in Latin America, which has
brought many anti-capitalist regimes to power. One of the recent celebrities in this list is Evo
Morales of Bolivia.

8. Conclusion: 
In human history, people have always endeavoured to earn an income whether in form of kind
of money. The business and trading are as old as human civilisation. It is said that people have
always invested money to earn a profit. So capitalist was always there. But the phenomenon of
capitalism is modern. We might find trading activities in a historical period but the institutions
and processes of modern capitalism arose in Europe after the medieval period. The renaissance,
reformation, enlightenment and scientific revolution had prepared the ground for the beginning
and growth of capitalism. Specific historical institutions and process in England in particular
and in Europe, in general, has shaped the nature and character of modern industrial capitalism.
The decline of feudalism, the growth of mercantile capitalism, the emergence of the
nation-state, has played a critical role in the development of capitalism in Europe. With
scientific discoveries the European capitalism travelled from Europe to the Americas, Australia,
Asia and Africa, it colonised and bound the colonies in a relationship of unequal trade, where
the transfer of surplus occurred. In its long journey, many new institutions have evolved to
make capitalism stronger. The role of the state has always been a contentious issue in capitalist
economies. The 20th century saw an increased role of state after the middle of the century.
However, the state once again started rolling back by the end of the millennium. The adoption
of neoliberal policies by many nations has accelerated the process of the economic integration
of the world, which is also called the process of globalisation. The globalisation has been
criticised by many scholars and thinker at various points of time. Marxism is built around
criticism of capitalism. Capitalism has tried to reinvent itself after every crisis and with every
criticism. There is no linear growth pattern and no homogenous type of capitalism. Capitalism
is found of many varieties in different parts of the world. At the one hand we see enterprise
 
 
capitalism of the USA and on the other a more welfare variant of capitalism in northern
European countries. Despite the frequent economic crisis and virulent attack from the critics,
capitalism survives in different parts of the world and claims to create prosperity and benefits
for ordinary people.

 
 
References: 
● https://www.investopedia.com/terms/c/capitalism.asp 
● Political Theory by OP Gauba 
● Political Theory (Class 12th NCERT) 
● https://drive.google.com/file/d/1EpGgZ9oRravDWgnUr0lqSl2317LC7tNG/view?usp=sh
aring 
● Comparative Government and Politics by Pushpa Singh and Chetna Sharma