The Capitalism

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The capitalism

Business Administration Industrial Sociology

Index 1. Introduction * Definition * Main characteristicts 2. Origin 3. Stages * Commercial Capitalism * Early Manifestations of Capitalism in Florence * Financial Capitalism and its Character * Technological Capitalism 4. Practical case

1. Introduction
Capitalism is an economic system founded on the private ownership of capital goods and the ways of production, with the formation of goods and services for profit. Elements central to capitalism take in capital accumulation, competitive markets, and a price system.
There are many variants of capitalism, counting laissez-faire, welfare capitalism and state capitalism. Capitalism is considered to have been applied in a diversity of chronological cases, varying in time, geography, politics, and culture. There is general agreement that capitalism became leading in the Western world following the demise of feudalism.
Economists and historians have taken dissimilar perspectives on the analysis of capitalism. Economists usually emphasize the degree to which government does not have control above markets (laissez-faire), as well as the importance of property rights. Most political economists emphasize private property as well, in addition to power relations, wage labor, class, and the uniqueness of capitalism as a historical formation. The extent to which different markets are free, as well as the rules defining private property, is a matter of politics and policy. Many states have what are termed mixed economies, referring to the varying degree of planned and market-driven elements in an economic system.
In the 20th century defenders of the capitalist system often replaced the terms capitalism and capitalist with phrases such as free enterpriseand private enterprise in reaction to the negative connotations sometimes associated with capitalism.
The term capitalism, in its modern sense, comes from the writings of Karl Marx. Before Marx, "capitalism" simply referred to the possession of capital.
The main characteristics would be: a) The means of productions are privately owned. In this context capital refers to building, machinery and other tools used to produce goods and services for consumption primarily b) Economic activity appears organized and coordinated by the interaction between buyers and sellers that takes place in the markets c) Both the owners of land and capital as workers, are free and looking to maximize their welfare, so try to get the most out of their resources and the work hat used to produce consumers can spend as they see their income to obtain the greatest possible satisfaction, this principle is called consumer sovereignty, shows that, in a capitalist system, producers are forced, due to competition, to use their resources so that they can meet the demand of consumers, self-interest and the pursuit of benefits leads them to follow the strategy. d) Under capitalism private sector control by the public should be minimal considering that competition exists, control economic activity itself, the activity of the government is only required to manage national defense, enforce property and enforce contracts this ancient vision of the role of the state in the capitalist system has changed a lot during the twentieth century. 2. Origin
Since the 16th Century, some European States such as England or Netherlands, favor the development of commercial activities with the aim of obtaining more precious metals such as silver or gold. People thought that having huge amounts of these metals meant wealthy. This was called Mercantilism. So, it appears substituting Feudalism. Mercantilism was based on the private property and the use of markets to organize the economic activity. This benefited some social strata; in particular bankers and bourgeois merchants. They accumulated massive amounts of capital which was invested in the creation of the first industries. This is known as mercantile capitalism.
One of the factors that led to Capitalism where the crusades made between the eleventh and thirteenth centuries, which promote commerce. This is due to the fact that they discovered America and all the precious metal they found there, which they brought to Europe.
During the Industrial Revolution of nineteenth century, production became important and left commerce behind (people weren’t just focused on trading goods, they wanted to produce it). By this time the figure of the entrepreneur had already appeared, this can be understood as one of the factors that also led to capitalism.
Another factor that allowed capitalism to appear was the appearance of the National States, which provide the conditions for the development and growth of capitalism. This growth was possible due to the capital produced by the entrepreneur and how he/she invested it to generate more goods.
The fact that there was a huge overpopulation in rural places that forced people to go to the cities looking for a job, and the revolution of the agricultural methods; led to the emergence of capitalism. 3. Stages
Commercial Capitalism It has its origin in the following examples that are going to be explained, at last till the 16th century, when the Industrial Revolution happens and changed the form of transactions and doing business. Capitalism in the Ancient World Landed property as economic regim in the Roman Empire, as in Greece and the Hellenic states . Manufacturing on any considerable scale proved incompatible with a system of house- hold economy in which slave labor played a large part. However, capital fund accumulated out from the farming taxes, from trading in landed property or from money lending as do by the republicans. Doubtless, also, there were financial societies in the Roman world, as well as the bankers and money changers who carried on large financial operations. They were unacquainted with an elaborate credit organization, including the use of bills of exchange or transferable securities.
Early Manifestations of Capitalism in Florence The town life of the Middle Ages furnished the favorable environment in which the first manifestations of capitalism appeared—at least in its purely commercial form; and it was principally in the city republics of Italy and in the Low Countries—two regions especially favored by economic conditions It was because the maritime commerce with the Orient, following the Crusades, endowed the Italian republics with a great store of capital. It was because the Low Countries served as the principal entrepot in the commerce between the Orient and the North of Europe. Florence Industrial Capitalism By the end of the Middle Ages, however, the first signs of commercial capitalism appear in England. The wealth of certain urban trades—notably the mercers, grocers, and drapers —soon causes these merchant trades to stand out from the rest. Commercial capitalism gains greater strength as the woolen or cloth industry develops during the fifteenth century. During the course of the fifteenth and sixteenth centuries, the textile industry pretty generally abandons the towns for the country. During this phase of the economic evolution, the Merchant Adventurers, those precursors of the great maritime expansion of England, seized upon their opportunity. Instead of contenting themselves with relatively limited markets like the Staplers, the Merchant Adventurers looked far afield. Here was a striking example of the reciprocal influences which commercial activity and industrial activity exercised upon each other.
Commercial Capitalism as the Source of Financial Capitalism
Yet however great the influence of the money trade and speculation upon the genesis of capitalism, they clearly did not constitute its most fruitful source. By themselves, they could not have founded a solid and durable economic power. This is well shown by Ehrenberg when he compares the fairs of Genoa with those of Frankfort.
The fairs of Genoa acquired great importance after the downfall of Antwerp, and continued to flourish for half a century. Their outstanding characteristic was that no trading in merchandise took place; the Genoa fairs were the seat of financial transactions. Such trading was particularly active, however, since there was opportunity to effect ex- change operations with the principal commercial centers of Europe. The Spanish Crown often did business at the Genoa fairs in order to meet its financial requirements. Moreover, since there was opportunity for carrying on all sorts of speculative transactions, the fairs favored the concentration of very considerable capitals. On the other hand, the fact that these fairs did not constitute permanent commercial centers meant that they harked back to the past rather than announced the future. They were the last brilliant flash of the economic life of the Middle Ages,
On the other hand, the downfall of Antwerp greatly increased the power of Frankfort, which had attained the most important place in Western Germany by the end of the Middle Ages. The fairs held there were not of a purely financial character, however; some very active trading in merchandise and actual transfers of goods took place. The growth in importance of the Frankfort fair was slower than that of the Genoese fair; but, on the other hand, the former became better established and had a more lasting success. Even during the Thirty Years’ War, the fair was held; and Frankfort continued to play a great part as late as the eighteenth century, even though coming to depend more and more upon Amsterdam. The proof of this prosperity is that the interest rate was never very high there; it rarely exceeded 5 or 6 per cent and went even lower.
A glance at England in the sixteenth century shows that financial capitalism was coming to life there. This change was singularly favored by the development of industry and the progress of commercial capitalism. The output of the cloth industry more than doubled in value during the second half of the century; and this expansion created a need for capital, a need met by the merchants engaged in the export trade. Exploitation of the mining resources, which was steadily progressing, also called for capital.
Development of the export trade also brought the foreign exchange problem into a position of greater importance. London doubtless did not possess the financial organization of Antwerp or Lyons; but, thanks to its commerce, London found itself possessing direct relations with the great foreign markets, especially with Antwerp, Hamburg, Lyons, and Rouen.
Moreover, since the value of money often differed quite considerably from place to place, operations in foreign exchange produced great profits and gave rise to active speculation. Such operations should not be confused with the mere changing of money, because two elements enter into the exchange operations: the interest rate and the daily variation of the exchange rates themselves.
That many English merchants, grown rich through the cloth business, found it more advantageous to carry on speculation on the exchanges than to continue their old trade is shown by the great merchant, Sir Thomas Gresham, who wrote in the time of Henry VIII. These English merchants traded mainly on the Antwerp bourse, and their operations often brought in as much as 16 per cent without involving them in great risks. This fact alone would explain the development of what has been called “dry exchange,” the busi- ness of speculation, which the Church condemned as usurious. The situation in England is a striking example of the close connections which obtained between commercial trans- actions and banking operations during the sixteenth century.
Financial Capitalism and its Character It extends from the last quarter of the nineteenth century until 1945. Large masses of money in the hands of a few that monopolize the international market is the result of the accumulation of capital. A second industrial revolution brewing adds new technological innovations made by a technological paradigm: the area of transport, railways, steamships. Area of communication: telephone and telegraph. A new European expansion in search of new markets that would provide raw materials for further manufacture produces a change in the form of domination: imperialism.
Technological Capitalism This current stage, is based on a new scale of oportunities to do business and transactions all over the world by the means of the new technologies. Stock exchanges around the world are connected, as well as moves billions of money travels from corporations to governments, to small investors or big venture capital firms that finance and feed the entrepreneurs and its business

4. Practical case: Capitalism seen by Adam Smith
Adam Smith, 18th-century philosopher and political economist, was born in Kirkcaldy, Scotland, in 1723. Best known for his classic treatise An Inquiry Into the Nature and Causes of the Wealth of Nations, he is credited with establishing the discipline of political economics. The ideas put forward in his work represented a radical departure from the then-dominant economic policy and philosophy of mercantilism, which had held sway in Europe for three centuries.
So profound was the impact of Wealth of Nations that it is generally considered the most important economic work ever written. Terms that are commonly used today, such as “invisible hand” and “division of labor,” had their origin in Smith’s treatise.
After his studies, Smith became a lecturer and professor, but more importantly, he was exposed to the intellectual public and began to attract the attention of opinion makers. In 1759 he published Theory of Moral Sentiments. Its focus was man’s ability to make moral judgments considering his natural propensity toward self-interest and self-preservation—ideas that would later resurface in Wealth of Nations.
Through this experience Smith gained important contacts with French intellectuals, including Voltaire, as well as firsthand exposure to the French economic policy of mercantilism. The policy advocated government control over industry and trade based on the theory that the nation would be strong as long as exports exceeded imports. France was not oblivious to the economic influence exerted by the comparatively small maritime powers of England and Holland. Realizing that wealth was power, and that wealth was made in trade and manufacture, France sought to secure advantages for its domestic market through laws designed to protect its manufacturers.
Smith objected to the French government’s interference in free trade through prohibitive duties on foreign goods. Many of his ideas in Wealth of Nations no doubt began to coalesce during this period.
The philosopher returned to Scotland in 1766 and set about completing the work that would earn him enduring fame. Ten years in the making, Wealth of Nations was published in 1776 and is considered the first great work in political economics—the science of rules for the production, accumulation, distribution and consumption of wealth.
One of Smith’s initial observations was that production was enhanced by the assigning of specific tasks to individual workers. This division of labor would maximize production by allowing workers to specialize in discrete aspects of the production process. He saw in the division of labor and in expanding markets virtually limitless possibilities for the expansion of wealth through manufacture and trade.
Smith also argued that capital for the production and distribution of wealth could work most effectively in the absence of government interference. Such a laissez-faire—that is, “leave alone” or “allow to be”—policy (a term popularized by Wealth of Nations) would, in his opinion, encourage the most efficient operation of private and commercial enterprises. He was not against government involvement in public projects too large for private investment, but rather objected to its meddling in the market mechanism.
He also held that individuals acting in their own self-interest would naturally seek out economic activities that provided the greatest financial rewards. Smith was convinced that this self-interest would in turn maximize the economic well-being of society as a whole (“The Achilles Heel of Capitalism”).
One particularly radical view in Wealth of Nations was that wealth lay not in gold but in the productive capacity of all people, each seeking to benefit from his or her own labors. This democratic view flew in the face of royal treasuries, privileges of the aristocracy, or prerogatives doled out to merchants, farmers and working guilds. It is not coincidental that such democratic, egalitarian views arose simultaneously with the American Revolution and only just preceded the French Revolution of 1789. Smith believed that the true wealth of a nation came from the labor of all people and that the flow of goods and services constituted the ultimate aim and end of economic life.
Modern capitalism traces its roots to Adam Smith and his Wealth of Nations, which has served, perhaps more than any other economic work, as a guide to the formulation of nations’ economic policies. Subsequent theories have altered governments’ role in economic policy, particularly the Keynesian ideas of the 20th century. Notwithstanding, Smith and his theories continue to occupy an important position in the development of economic, and we can see him as a practical analyst of instalation of capitalism.