From Tom Bottomore, A Dictionary of Marxist Thought[p. 64]
Capitalism: A term denoting a mode of production in which capital in its various forms is the principal means of production. Capital can take the form of money or credit for the purchase of labour power and materials of production; of physical machinery (capital in the narrow sense); or of stocks of finished goods or work in progress. Whatever the form, it is the private ownership of capital in the hands of a class -the class of capitalists to the exclusion of the mass of the population -which is a central feature of capitalism as a mode of production.
The word `capitalism' is rarely used by nonMarxist schools of economics, as Tawney and Dobb were to point out. But even in Marxist writings it is a late arrival. Marx, while he uses the adjective `capitalistic' or talks of `capitalists', does not use capitalism as a noun either in the Communist Manifesto or in Capital I. Only in 1877 in his correspondence with Russian followers did he use it in a discussion of the problem of Russia's transition to capitalism. This reluctance to employ the word may have been due to its relative modernity in Marx's day. The OED cites its first use (by Thackeray) as late as 1854.
The suffix 'ism' can be used to denote a phase of history (Absolutism), a movement (Jacobinism), a system of ideas (millenarianism) or some combination of them. Thus, socialism is both a mode of production (a phase of history) and a system of ideas. The word capitalism however rarely denotes the system of ideas propagating a certain mode of production. It stands only for a phase of history. But this limited use does not lend clarity to the concept. As a phase of history, its lines of demarcation have always been a matter of controversy, its origins being pushed farther back or brought forward to suit particular theories of its origin; and especially in recent years its periodization has also been hotly disputed. There are also attempts to widen the concept by prefixing adjectives such as MONOPOLY CAPITALISM; STATE MONOPOLY CAPITALISM. (See also PERIODIZATION OF lines of demarcation have always been a matter of controversy, its origins being pushed farther back or brought forward to suit particular theories of its origin; and especially in recent years its periodization has also been hotly disputed. There are also attempts to widen the concept by prefixing adjectives such as MONOPOLY CAPITALISM; STATE MONOPOLY CAPITALISM. (See also PERIODIZATION OF CAPITALISM.)
Controversies concerning the origins and periodization of capitalism arise from the tendency to emphasize one out of many features which can be said to characterize this mode, and it will be useful therefore to list these features. As a mode of production, capitalism can be said to be characterized by:
(a) Production for sale rather than own use by numerous producers: this contrasts with simple commodity production.
(b) A market where LABOUR POWER is bought and sold, the mode of exchange being money wages for a period of time (time rate) or for a specified task (piece rate): the existence of a market with the implied contractual relation contrasts with earlier phases of slavery or serfdom.
(c) Predominant if not universal mediation of exchange by the use of money. In taking the money form, capital permits the maximum flexibility to its owner for redeployment. This aspect also gives a systemic role to banks and financial intermediaries. Pure barter is an idealized contrast to use of money, but the actual incidence of pure barter is limited. The contrast should be made with earlier phases where, while limited use of coins was made, the possibility of debt/credit instruments for purchase/sale was nonexistent except for examples of consumption loans to the feudal nobility advanced by nascent merchant capital (see MONEY; MERCHANT CAPITAL; FINANCE CAPITAL).
(d) The capitalist or his managerial agent controls the production (labour) process. This implies control not only over hiring and firing workers but also over the choice of techniques, the output mix, the work environment and the arrangements for selling the output: the contrast here is with the putting-out system or with alternative modern protosocialist forms such as the cooperative
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the worker-managed firm, worker-owned and/or state-owned firms.
(e) Control of financial decisions: the universal use of money and credit facilitates the use of other people's resources to finance accumulation. Under capitalism, this implies the power of the capitalist entrepreneur to incur debts or float shares or mortgage the factory buildings to raise finance. Workers are excluded from this decision but will suffer from miscalculation by the capitalist, e.g. default leading to bankruptcy. The capitalist however has to contest control with lenders and/or shareholders. Some writers (e.g. Berle and Means 1932) saw widespread shareholding, with passivity of the shareholders, as a sign of a new phase marked by a divorce between ownership and control (see JOINT-STOCK COMPANY), and another (Drucker 1976) has characterized share ownership by pension funds on behalf of workers participating in pension schemes as socialism. These intimations of the passing of capitalism are intended to suggest that the crucial element is control, whether accompanied by ownership or not. The contrast here would be with central financial control by a planning authority in socialism.
(f) Competition between capitals: the control of individual capitalists over the labour process and over the financial structure is modified by its constant operation in an environment of COMPETITION with other capitals either producing the same commodity or a near substitute, or just fighting for markets or loans. This increasing competition operates as an impersonal law of value forcing the capitalist to adopt new techniques and practices which will cut costs, and to accumulate to make possible the purchase of improved machinery. This constant revolution in value is an important feature of the dynamics of capitalism. Competition is to be interpreted broadly, and not narrowly as the perfect competition of neo-classical economics which is more likely in simple commodity production. It is competition which strengthens the tendency towards concentration of capital in large firms. It is to neutralize competition that monopolies and cartels emerge. The constant revolution in technology imposes new forms such as the multi-product firm or even the multinational firm. But these various forms do not eliminate competition, they only modify the form in which the firm faces it. Some writers (e.g. Galbraith 1967) have argued that the modern large corporation can plan to insulate itself from the market, but recent experience of the US automobile and steel industries in the face of international competition points to the limitations of such a view.
The origins of capitalism are traced variously to the growth of merchant capital and external trade or to the spread of monetary transactions within feudalism via commuting of feudal rent and services. This debate concerns the TRANSITION FROM FEUDALISM TO CAPITALISM and pertains mainly to Western European experience where capitalism first emerged. Whatever the reasons for its origins, the period from about the fifteenth century to the eighteenth century is generally accepted as the merchant capital phase of capitalism.
Overseas trade and colonization carried out by the state-chartered monopolies played a pivotal role in this phase of capitalism in Holland, Spain, Portugal, England and France. Maritime trade became cheaper than overland trade on account of the invention of fast ships, and hitherto (by Europe) undiscovered areas were linked in a trade involving slaves, precious metals and simple manufactures.
The industrial phase opened with the upsurge in power-using machinery known as the Industrial Revolution. Starting in England in the cotton spinning industry, the revolution spread across different industries, mainly universalizing the use of the steam engine, and across different countries of Western Europe and North America. This phase saw the parallel growth of the science of POLITICAL. ECONOMY and the ideology of laissez-faire. It was marked by a struggle to curtail or eliminate the role of the state in the control of the labour market, of foreign trade and of domestic trade, and the theories of Adam Smith and Ricardo became powerful weapons in this battle (see VULGAR ECONOMICS). In England at least, the ideological battle for laissez-faire was won in the 1840s with the repeal of the Corn Laws, the passing of the Banking Act and the repeal of the Navigation Acts. The reform of the Poor Law rationalized
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state support of the poor and the indigent, in line with laissez-faire doctrines. The role of the state in capitalism, though minimized in the ideology of laissez-faire and modest in the English experience, remained substantial in the later development of the capitalist mode in France, Germany, Italy and Russia. The only other case paralleling the English experience is the United States of America. There is a tendency, however, to characterize this middle phase of capitalism industrial capitalism in a period of rapid growth and technical progress, consisting of individually owned small firms with minimal state participation and widespread competition - as somehow a natural phase. Subsequent phases have therefore been labelled monopoly capitalism, FINANCE CAPITAL, late capitalism etc. The monopoly (finance) capitalist phase is said to date from around the turn of this century when large scale industrial processes became possible with the advent of the Second Industrial Revolution. In so far as each of the characteristics listed above is considered an essential feature of capitalism, various authors have heralded the demise of capitalism. Laissezfaire ideologists (Friedman, Hayek) have pointed to the growth of collective bargaining, and of legislation to regulate the adverse consequences of economic activity, as a sign of departure from classicall capitalism. Marxist writers have seen the growing size of monopolies, or the dominant role of the state, as signs of the ill health or old age of capitalism. The role of the nation state in helping capital to seek markets overseas, often in politically controlled colonies, was seen by Lenin as marking the imperialist stage -the highest stage of capitalism. The role of the state internally, in alleviating the realization problem by public fending in the postKeynesian era, was regarded by liberal economists (Shonfield 1965, Galbraith 1967) as heralding a new era in capitalism, and some social democrats also took this view (e.g. Crosland 1956).
In most modern capitalist countries, however, the features listed above are still recognizable: predominant private ownership of means of production, use of debt-credit to finance accumulation, buying and selling of labour power, and capitalist control, more or less hindered, over hiring and firing and choice of techniques. Internationally, capitalist economies have become more open rather than less so, and the advanced capitalist countries have faced competition from countries previously underdeveloped or outside the Western European orbit. For all these economies, private profit remains the major impetus to entrepreneurial activity and the major signal and source for initiating and fulfilling accumulation plans.
This is not to deny that capitalism has changed and evolved. The major influences on its evolution have been both technological and social in the broad sense. Successive waves of innovation starting from the steam engine and the harnessing of steam power in the railways, steel-making and electrical products, the chemical revolution which affected agriculture as well as industry, steamships as well as the recent inventions of radar and electronics, have changed capitalism in terms of the requirements of individual capital, the possibilities of control and its extent and reach.
Simultaneously, political and social struggles for an extension of the franchise, for political rights of free speech and assembly, for freedom of conscience, have changed the legislative and administrative environment within which capitalism operates. There is of course a variety of political forms which the state in capitalist countries takes - fascist, authoritarian, republican, democratic, monarchical etc. - but the growth of communication and consciousness of international events has meant that everywhere there has been a democratic thrust which has forced states of whatever political colour to accommodate, or to counter with effective repression, popular demands for greater rights of control over the economic process. Marxist discussions of the capitalist STATE reflect these considerations (e.g. Miliband 1969, Poulantzas 1973).
Those who emphasize the worker's lack of control over the labour process as the crucial form of subordination of labour to external forces (see ALIENATION) characterize the economies of the Soviet Union, China and East European countries as forms of qualified capitalism.
Given the lack of private ownership (in non-agricultural activities at least), they affix the adjective `state' or `state monopoly' to capitalism in order to characterize these economies. There is also a much looser use of this label to denote ownership (in non-agricultural activities at least), they affix the adjective `state' or `state monopoly' to capitalism in order to characterize these economies. There is also a much looser use of this label to denote the growth of state involvement in private ownership capitalist economies (see STATE MONOPOLY CAPITALISM). Some writers thus call the US economy state monopoly capitalist. The term state capitalism was used by Lenin to denote an interim phase of the Soviet economy where some sectors were state owned but the capitalist mode prevailed in large parts of the economy. Lenin then cited the example of Germany during the first world war as a capitalist economy run by the state as a single trust. This was seen as the limit of the process of CENTRALIZATION AND CONCENTRATION OF CAPITAL, predicted by Marx. Lenin emphasized the different political context of Soviet Russia from that of Germany and therefore treated state capitalism as a progress beyond the capitalist phase. Subsequent writers, and especially Trotsky, have taken what others call state capitalism to be a degenerate phase of socialism or a sign of socialism not yet achieved.
The prevalence of scarcity and the persistent pressure to accumulate in these societies, as well as in the newly decolonized countries of Asia and Africa, have led some writers to propose that it is industrialization rather than capitalism that should be used to describe this phase of world history. The most prominent exponent of this view is W. W. Rostow (1960), who put forward a periodization scheme that consciously eschewed the Marxian categories of modes of production in favour of stages marked off by economic measures such as output per capita, savings ratio, etc. The common labelling of all societies as capitalist, with or without prefixes such as state or monopoly, encourages the notion of convergence of different societies towards a universal stage of high consumption and advanced technology. This is intended to contrast with Marx's view of capitalism as a specific and transitory historical phase on the way to socialism. While Rostow's schematization has been much criticized by Marxist as well as nonMarxist writers, it has endured as a catchphrase. The questions it raises for Marxists are: will capitalism prove to be a transitory phase? Can socialist forms go in parallel with capitalism? What is the nature of postcapitalist societies and what are the paths whereby such societies can achieve socialism? (see TRANSITION TO SOCIALISM).
MD
Reading
Berle A. and Means, G. C. 1932: The Modern Corporation and Private Property.
Crosland, C. A. R. 1956: The Future of Socialism.
Drucker P. 1976: The Unseen Revolution: How Pension Fund Socialism Came to America.
Galbraith, J. K. 1967: The New Industrial State.
Hilton R. ed. 1976: The Transition from Feudalism to Capitalism.
Miliband, R. 1969: The State in Capitalist Society.
Poulantzas, N. 1973: Political Power and Social Classes.
Rostow, W. W. 1960: The Stages of Economic Growth.
