What is capitalism?
There are two key features that make an economy capitalist (capitalism).
- Most production of products and services is undertaken by privately-owned corporations, which manufacture and sell their output in hopes of creating a profit. This is called PRODUCTION FOR PROFIT.
- Most work in the economy is performed by people who do not own their company or their output but are hired by someone else to work in return for a money wage or salary. This is called WAGE LABOUR.
An economy in which private, profit-seeking companies undertake most production, and in which wage-earning employees do most of the work, is a capitalist economy. We will see that these twin features (profit-driven production and wage labour) create particular patterns and relationships, which in turn shape the overall functioning of capitalism as a system.
Any economy driven by these two features – production for profit and wage labour – tends to replicate the following trends and patterns, over and over again:
- Fierce competition between personal firms over markets and profit.
- Innovation, as companies constantly experiment with new technologies, new products, and new forms of organization in order to succeed in that competition.
- An inherent tendency to growth, resulting from the need of every individual company to form additional profit.
- Deep difference between those who own successful firms, and the remainder of society who don’t own firms.
- A general conflict of interest between those who work for wages, and the employers who hire them.
- Economic cycles or “rollercoasters,” with periods of strong growth followed by periods of stagnation or depression; sometimes these cycles even produce dramatic economic and social crises.
Some of these patterns and outcomes are positive and help to explain why capitalism has been so successful. But some of these patterns and outcomes are negative and explain why capitalism tends to be economically (and sometimes politically) unstable. The rest of this volume will make a case for why these patterns develop below capitalism, and what (if anything) can be done to form the economy work well.
Capitalism began in Europe in the mid-1700s. Until then, these twin features – production for profit and wage labour were rare. In pre-capitalist societies, most of the people worked for themselves, a way or another. Where people worked for someone else, that relationship was based on something other than monetary payment (like a sense of obligation, or the power of brute force). And most production occurred to meet some direct need or desire (for an individual, a community, or a government), not to generate a money profit.
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