(EPE, pp. 67-69)
The term used by political economists, mainly those on the
left wing, to designate the type of economic system extant in
most of the industrialized world today. Mainstream economists,
and most right wing political economists, usually prefer the more
benign "market system", but the two terms are not at
all synonymous.
If a "market economy" is one in which the allocation
and distribution of goods and services are organized principally
by exchanges in free MARKETS, then "capitalism" is only
one of a number of possible varieties of market economy. The slave-based
economy of the pre-Civil War American South was a market system,
and so too, on the other hand, was the worker self-managed economy
of Communist Yugoslavia, and neither of these would be called
capitalist. Hypothetical variations of market economy are easily
conceived that also differ greatly from what we usually mean by
"capitalism", for example, Oscar Lange's MARKET SOCIALISM.
"Capitalism" designates a market system in which (a)
the physical means of production are <privately owned>,
the legal rights to their use, profit and disposal lying in the
hands of private individuals; and (b) production is done by <wage
labor>, workers contracting with employers to allow the latter
discretion and command over their labor for a mutually agreed
portion of each day in return for a regularly paid wage until
either party declines to continue the contract (Schweikart, 1993).
This definition allows scope for much variation -- for example,
"private ownership" may be in the form of individuals'
shares of transferable stock, or membership in 'cooperative' ownership
arrangements (though in practice the latter have been relatively
rare); the wage "contract" may be explicitly detailed
(as in UNION contracts), or merely implicit; wages may be paid
hourly, as 'piece-rates' or as salaries; and so forth. Yet this
definition also helps differentiate related cases. For example,
if "owners" of the means of production have rights to
their profit, but control lies in the hands of the state, then
FASCISM may be a better descriptive term. Similarly, if "employers"
have control not only over workers' labor but also over their
lives outside the workplace, then SLAVERY, or perhaps FEUDALISM,
may be more appropriate.
Aside from its greater accuracy and usefulness, the term "capitalism"
is also preferred by critical heterodox economists because it
highlights the <systemic> sources of certain contemporaneous
social problems that might otherwise be overlooked. Foremost among
these are the ALIENATION and the CLASS
based EXPLOITATION that most left wing political economists have
associated with capitalism since Marx's time.
That the predominant economic system in the industrially advanced
world today is merely another in humankind's long history of class
systems is suggested immediately in the definition of "capitalism".
In principle, people would not willingly sell their daily life-activity
into wage employment, any more than they would sell themselves
into indentured servitude, unless <compelled> to do so (see
ECONOMIC POWER). In capitalism, if one lacks ownership of means
of production or the ability to employ others to produce goods
for sale in markets, then one <must> 'choose' wage employment
in order to subsist. That system therefore straightforwardly rests
upon an exploitative class relationship: those who produce do
not own the means of production but instead are employed by those
who do own them, while the latter need not produce, hence may
live off the labor of the rest.
Thus it is difficult to imagine overcoming those social ills fundamentally
associated with material INEQUALITY -- social apathy and cynicism
about the 'political power of money', competitive and predatory
emulation (Veblen, 1979), and so forth -- in a capitalist economic
system. And since in any class system people's activities are
subject to others' control and discretion instead of their own,
symptoms of alienation -- feelings of estrangement, meaninglessness,
impotence, indifference and social incompetence -- are fundamentally
characteristic of capitalism, not merely the consequence of INDUSTRIALIZATION
or the secular society, cultural MODERNISM OR POSTMODERNISM, or
whatever.
Critical questions therefore also arise about the connections
and interplay between capitalism and other oppressive structures
extant in modern capitalist societies, e.g., PATRIARCHY and RACISM.
While mainstream economists argue about whether markets tend to
erode racial and gender-based domination (Friedman, 1962), the
question for critical heterodox economists is whether capitalism
tends to replace these with its own form of domination, or instead
strengthens them as it accomodates and incorporates them into
the whole of capitalist society [see RACE, ETHNICITY, GENDER AND
CLASS].
All of this being immediately highlighted in the definition of
capitalism, mainstream and right-wing economists' avoidance of
the term in preference for the less accurate "market economy"
is telling. On the other hand, among critical heterodox economists
there has been much disagreement about whether specific historical
and hypothetical cases are actually "capitalist". Is
SWEDEN's economy, for example, merely a further variation on the
same basic form common to such diverse cases as the U.S., France,
and JAPAN, or is it something qualitatively different?
One important issue in such disagreements has been whether an
economy's development is mainly determined by processes of ACCUMULATION
of CAPITAL. Capital, as the private ownership of physical means
of production in the form financial instruments such as stock
and MONEY, is subject to powerful compulsions of accumulation,
or growth in its value or quantity, due to personal income-maximizing
behavior and competition in capitalist markets. This compulsion
acts as the 'engine' of economic development in capitalism, directing
investment in an insatiable pursuit of profit rather than other
social or private concerns. Even if the specific social decisions
that appear to determine the broad directions of an economy's
development are purely political -- reflecting concerns other
than private profit, for example, in public legislative bodies
-- in a capitalist economy these decision-making processes must
nonetheless tend to be in accord with the pursuit of profit, since
capital owners are the ruling classes in such societies [see STATE,
POLITICAL ECONOMIC THEORIES OF]. On these grounds Sweden and other
similar cases are arguably capitalist.
In fact, on the basis of the primacy of the accumulation of capital,
even economies as apparently different from capitalism as those
of Communist Yugoslavia and the former USSR have been called "capitalist".
In Yugoslavia, even though the country's physical means of production
were constitutionally 'publicly owned', they were subject to <private>
control (by worker-managed firms) in the context of competitive
markets within which the acccumlation dynamic was quite strong.
And while the accumulation dynamic in the centrally planned USSR
was not impelled by market competition, a powerful dynamic of
some sort clearly existed in that country, judging from its growth
record. If top-level state planners and Party leaders were seen
as self-interest seeking maximizers of personal 'income' (or 'power'
or 'control'), and if they were decisively in control of the economy's
major investments, then the latter may be understood to have been
their capital, and the USSR was arguably subject to a capital
accumulation process. Since, moreover, major similarities existed
between Soviet administrative structures and the CENTRALIZED PRIVATE
SECTOR PLANNING appearing in modern capitalism, the case that
the USSR was ('state' or 'bureaucratic') "capitalist"
is perhaps not farfetched (Munkirs, 1985).
Yet the accumulation dynamic of both PRECAPITALIST and capitalist
market competition has been uniquely prodigious. The restless
spread of trade throughout Europe in the Middle Ages, and its
continuation into the New World that was critical for the historic
PRIMARY ACCUMULATION of capital, were direct manifestations of
market competition. And it was the competitive cost-cutting behavior
arising with the spreading web of markets that underlay the 'putting-out'
system, the enclosure movement, and the decline of the guilds
which were so crucial for feeding the RESERVE ARMY OF UNEMPLOYED
that was destined to be bound up with the growing accumulations
of capital (Braudel, 1981; Polanyi, 1944). Once all of this had
gone far enough, the 'take-off' of capitalism into economic and
political dominance, and then into cultural dominance as well,
appears to have been inevitable, as older, non-capitalist modes
and regions of production, along with the societies constructed
upon them, succumbed before the 'heavy artillery' of an incessantly
vigorous and technologically innovative market competition --
a process that has continued relentlessly down to the present
(Marx & Engels, 1988) [see CAPITALISM, PHASES OF EVOLUTION
AND FORMS].
Ironically, from this viewpoint the mainstream and right-wing
economists' term "market economy" may be accurate enough
after all, for it may be that <whatever particular form>
of market economy is in place at a point in time, it will soon
enough evolve into or be supplanted by capitalism. Whether it
be 'petty commodity producers', worker self-managed firms, or
'relatively autonomous' state-owned enterprises, if they are subject
to market competition then both a 'concentration of capital' and
a 'proletarianization of labor' may be expected gradually to occur.
Since the final outcome is roughly the same, one may as well call
it a "market economy" as some other, momentarily more
accurate designation -- although, of course, such a bland and
neutral term can convey but little of the momentousness of the
issues at hand.
REFERENCES & ADDITIONAL READINGS
Braudel, Fernand (1981). Capitalism & Civilization, 15th - 18th Century (Vols. I - III). Harper & Row, N.Y.
Edwards, Richard C.;Reich, Michael and Weisskopf, Thomas E. (1986). The Capitalist System (3rd Ed). Prentice-Hall, N.J.
Friedman, Milton (1962). Capitalism and Freedom. Univ. of Chicago Press.
Marx, Karl and Engels, Frederick (1988). The Communist Manifesto (Editor: Frederic L. Bender). W.W. Norton, N.Y.
Munkirs, John R. (1985). The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning. M.E. Sharpe, N.Y.
Peterson, Janice & Doug Brown (1994). The Economic Status of Women under Capitalism. Edward Elgar, Vermont.
Polanyi, Karl (1944). The Great Transformation. Beacon Press, Boston.
Schweickart, David (1993). Against Capitalism. Cambridge Univ. Press, N.Y.
Sweezy, Paul (1942). The Theory of Capitalist Development. Monthly Review Press, N.Y.
Veblen, Thorstein (1979). The Theory of the Leisure Class. Penguin Books, N.Y.