Understanding Capitalism

In the modern world one of the biggest tragedies is understanding capitalism in general in America. There was no capitalist system existing in America at the time it was being founded. In USA, development of modern capitalism didn’t take place till the Civil War ended, at the time when the Industrial revolution began to shape in America. The father of modern economics was Adam Smith. The bastion of capitalism was America, a nation that took centre stage all over the globe.

Setting Up Of An Ideological Foundation

A war for independence was launched by America in the year 1776. To develop a form of capitalist economy, an ideological foundation work was set by Adam Smith. ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ was published by him in the year 1776. As of today the understanding of capitalism is quite different as compared to the teachings of the father of this economic ideology.

In a capitalist economy, it is important to understand how important the ownership of property is. Ownership of property is at the very core in a capitalist form of society. Productive property or property having certain economic value is termed as capital. If for example a TV set is used as a means to earn income, then it can be termed as capital, but by itself, the TV set used just for viewing cannot be termed as capital.

What Has Been Stated In The Wealth Of Nations By Adam Smith

So, the first thing to understand is that capitalism revolves around capital or property that is productive in nature. Anyone who gets money via capital ownership is termed as a capitalist. It is by owning the property that the capitalist is able to receive income. In other words, property ownership is the primary source of income. When property is purchased, used and sold, a capitalist can make income. Salaries are not earned by the capital and labour is not required for earning income. A person who invests in a professional manner or the owner of a factory can be termed as a capitalist.

Value Realization

Realization of value is ultimately attained on owning property in a capitalist system. The capitalist has complete right to all the property value. In a capitalist system, the owner of the property can also pay wages to a person who does work on the property hoping that the property value will increase with the work performed. In fact the capitalist could also offer a particular fee to a person performing work on the property and thus go public also. Only the wages are paid by the capitalist while the worker has no rights to the property value. Accordingly feature that defines capitalism include labour markets and wage labour.

Capitalist Class – A Minority Group

The kind of social system that people live in now is described as a capitalist system. Assumptions have been made that it had existed during a major part of human history. This government system is prevalent in most nations in the globe. In a capitalist society, people in a small minority have ownership of the transport system, technology, factories and land and have the means to produce and distribute goods. This minority group is referred to as the capitalist class. The working class is a group of people who have the ability to work and sell this ability for the sake of earning wages. Services and goods are produced by the working class and are sold with an aim of making profit. The capitalist class gains the profit since they are able to make more money by selling the goods at a higher price. The working class is exploited by the capitalist class, which lives off the profits earned. Some of the profits earned are then invested again so that more wealth is accumulated. In a capitalist society, there exist two classes of society, the capitalists and the workers. Division of classes is an essential feature of the capitalist system. To understand capitalism, only the two classes need to be discussed about.

The Motive Of Profit Making

The main motive in capitalism is to produce services and goods and then sell them at a profit. The purpose of satisfying needs of customers is not the main aim. A capitalist will always want to earn more, as compared to what had been invested.

Services and goods are produced in way that they can be sold at a profit only. The capitalist does not consider how much the consumer is willing to pay for the goods and services to satisfy their needs. Some of the goods may satisfy needs of humans but those who do not have money in sufficient amounts are not able to satisfy their needs. This is done so that capitalists are able to maintain their position and at the same time do not incur loss on investments. Besides this, they are also in competition with the rest of the capitalists due to which, profits earned are reinvested again. This helps in keeping the methods and means of production, up to date.

In a capitalist system Is The Market Economy Free

The main assumption is that capitalism is also a market economy that is free. It is possible not to have a free market in capitalism. This is demonstrated by the capitalist system prevailing now in Cuba, China and Russia. The societies in these economies are divided by class but are widely referred to as socialists. State capitalism has been followed in these nations. Production, purchasing, exchanging, selling, production of commodities and wages are within the purview of the state. But the state makes profits and the higher echelons get fat salaries. To protect economic interests, these countries especially Russia was ready to go for war too. The Soviet state thus controlled what was possible to produce or not to produce, targets were set for the purpose of production, and wage labour was exploited so that it could act as a functionary of capital. Such nations had nothing at all to do with socialism. Capitalism is supposed to be system of society that exists all over the world and most countries practice a
system of modified capitalism now.

In theory it is possible to have a free market economy which does not follow a capitalist system. In a free market economy the shopkeepers, artisans and farmers would be involved in the production of a particular product that could be exchanges via a monetary medium. In such a case there would be no division of class, no making profits but just producers who make goods independently and exchange those goods for the sake of mutual benefit. Whether or not such an economy existed, is a bit doubtful. A free market economy may have been followed in early North American colonial settlements probably. In a modern day society it is not considered viable to have a free market economy in capitalism.