Capitalism, economic system in which private individuals and business firms
carry on the production and exchange of goods and services through a complex
network of prices and markets. Although rooted in antiquity, capitalism is
primarily European in its origins; it evolved through a number of stages,
reaching its zenith in the 19th century. From Europe, and especially from
England, capitalism spread throughout the world, largely unchallenged as the
dominant economic and social system until World War I ushered in modern
communism (or Marxism) as a vigorous and hostile competing system.
The term capitalism was first introduced in the mid-19th century by Karl
Marx, the founder of communism. Free enterprise and market system are terms
also frequently employed to describe modern non-Communist economies.
Sometimes the term mixed economy is used to designate the kind of economic
system most often found in Western nations.
The individual who comes closest to being the originator of contemporary
capitalism is the Scottish philosopher Adam Smith, who first set forth the
essential economic principles that undergird this system. In his classic An
Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith
sought to show how it was possible to pursue private gain in ways that would
further not just the interests of the individual but those of society as a
whole. Society's interests are met by maximum production of the things that
people want. In a now famous phrase, Smith said that the combination of
self-interest, private property, and competition among sellers in markets
will lead producers "as by an invisible hand" to an end that they did not
intend, namely, the well-being of society.
Characteristics of Capitalism
Throughout its history, but especially during its ascendency in the 19th
century, capitalism has had certain key characteristics. First, basic
production facilities-land and capital-are privately owned. Capital in this
sense means the buildings, machines, and other equipment used to produce
goods and services that are ultimately consumed. Second, economic activity
is organized and coordinated through the interaction of buyers and sellers
(or producers) in markets. Third, owners of land and capital as well as the
workers they employ are free to pursue their own self-interests in seeking
maximum gain from the use of their resources and labor in production.
Consumers are free to spend their incomes in ways that they believe will
yield the greatest satisfaction. This principle, called consumer
sovereignty, reflects the idea that under capitalism producers will be
forced by competition to use their resources in ways that will best satisfy
the wants of consumers. Self-interest and the pursuit of gain lead them to
do this. Fourth, under this system a minimum of government supervision is
required; if competition is present, economic activity will be
self-regulating. Government will be necessary only to protect society from
foreign attack, uphold the rights of private property, and guarantee
contracts. This 19th-century view of government's role in the capitalist
system has been significantly modified by ideas and events of the 20th
century.
Socialism, economic and social doctrine, political movement inspired by this
doctrine, and system or order established when this doctrine is organized in
a society. The socialist doctrine demands state ownership and control of the
fundamental means of production and distribution of wealth, to be achieved
by reconstruction of the existing capitalist or other political system of a
country through peaceful, democratic, and parliamentary means. The doctrine
specifically advocates nationalization of natural resources, basic
industries, banking and credit facilities, and public utilities. It places
special emphasis on the nationalization of monopolized branches of industry
and trade, viewing monopolies as inimical to the public welfare. It also
advocates state ownership of corporations in which the ownership function
has passed from stockholders to managerial personnel. Smaller and less vital
enterprises would be left under private ownership, and privately held
cooperatives would be encouraged.
These are the tenets of the Socialist party of the U.S., the Labour party of
Great Britain, and labor or social democratic parties of various other
countries. Therefore they constitute the centrist position held by most
socialists. Some political movements calling themselves socialist, however,
insist on the complete abolition of the capitalist system and of private
profit, and at the other extreme are socialist programs having objectives
entailing even fewer changes in the social order than those outlined above.
The ultimate goal of all socialists, however, is a classless cooperative
commonwealth in every nation of the world.
Comparison with Communism
The terms socialism and communism were once used interchangeably. Today,
however, communism designates those theories and movements that, in
accordance with one view of the teachings of Karl Marx and Friedrich Engels,
advocate the abolition of capitalism and all private profit, by means of
violent revolution if necessary. Marx organized the International
Workingmen's Association, or First International; when this congress met at
Geneva in 1866, it was the first international forum for the promulgation of
Communist doctrine. This doctrine was later explained by Lenin, who defined
a socialist society as one in which the workers, free from capitalist
exploitation, receive the full product of their labor. Most socialists deny
the claim of Communists to have achieved socialism in the USSR, which they
regarded as an authoritarian tyranny. But after World War II, many
Communist-led political parties in the Soviet sphere of influence still used
the designation socialist in their names. In East Germany (now part of the
united Federal Republic of Germany), for example, the name adopted by the
merged Communist and Social Democratic parties was the Socialist Unity
party.
The modern socialist movement, as distinguished from communism, had its
origin largely in the revisionist movement of the late 19th century. The
worsening condition of the proletariat, or workers, and the class war
predicted by Marx for Western Europe had not come about. Many socialist
thinkers began to doubt the indispensability of revolution and to revise
other basic tenets of Marxism. Led by the German writer Eduard Bernstein,
they declared that socialism could best be attained by reformist,
parliamentary, and evolutionary methods, including the support of the
bourgeoisie.
