CAPITALISM

Definition:
Capitalism is a mere political catchword.
Marx: Capitalism as a mode of production where the means of
production are owned by capitalists who form a distinctive
economic class.
A distinction between the owners of capital and workers with
capital.
Features of Capitalism:
1. Private property and ownership.
Private enterprise economy.
The right of an individual to acquire, lease and dispose of
something of economic value in any legitimate way the owner
wishes and the right to enjoy the economic rewards the result.
Property may be tangible or intangible.
It is not unrestricted.
It includes inheritance.
It provides incentive to save and invest.
2. Consumer’s sovereignty: Consumer can buy goods of his choice
consumer is the king. The producer produces the goods the
consumer chooses. His purchases are like money ballot.
3. Freedom of enterprises.
Freedom of saving and investment.
Freedom to choose one’s occupation.
As entrepreneur, he undertakes risk.
 4. Existence of competition.
Free market economy.
Price is determined by market forces.
Price remains at the equilibrium level.
Price indicates the commodities to be produced provides
incentive.
Competition among producers, consumers, and factors of
production.
Competition presumes – perfect knowledge.
Prefect mobility.
5. Self-interest and profit motive. One is the best judge for himself.
6. Harmony between social interest and individual interest.
7. laissez – faire
EVOLUTION OF CAPITALISM

Feudalism – Prior to the 16th century

 Feudalism was considered a self- sufficient economy.
 The producers were the subjects of the Feudal lord.
 They had no ownership right over land they cultivated.
 They were not free.
 The producer was made to fulfill the economic demands of the
Lord in the form of fee services, payments in money or kind,
gifts to the landlord.
 There was no freedom of contract.
The system died due to:
 1. The system failed to produce enough to meet the growing
requirements.
2. Emergence of exchange economy.
Growth of Towns:
 Towns had economic and political independence.
 Markets developed
 Dealings with money increased
 Provided employment to the rural people
So people fled to towns due:
a) Direct eviction
b) Impoverishment
c) Rising population pressure

MERCHANT CAPITALISM
 Towns and Cities became increasingly important.
 Trade flourished between countries.
 Discovery of gold.
 Use of money expanded.
 Growth of national states.
 Economic rivalry between them to expand colonies and
sphere of influence.
 State regulated exploitation.
 Production was on small-scale.
 Merchants played an important role between producers
and consumers.
  Mercantilist philosophy.
 New mode of production developed.
 Merchants stated to take up production directly-production
under one roof.
Two important features of capitalism developed.
1. accumulation of capital
2. Emergence of wage employment.

CLASSICAL CAPITALISM -1775-1875

Factors contributing
1. Industrial Revolution- Innovations
2. Existence of men with enterprise.
3. Merchant capitalists willing to provide credit
4. Huge market
5. Adequate supply of labour.
 MONOPOLY CAPITALISM (1875-1929)

Three Phases
First: 1875-1898
• Small Scale Technology
• Small Scale Production
• Free Market Capitalism
Under competition:
There was constant need to cut costs.
Innovation become the key.
Need for accumulation.
Labour saving innovation
Surplus supply of labour
Wages didn’t rise
Accumulation for innovation
Production units became large.
Larger scale productions
Dominance of large scale industries – in the sphere of iron and steel,
chemicals, coal
Mass production of goods

Monopolistic tactics started

Not the text book monopoly.
Oligopolistic production
Product differentiation

Monopoly took many forms:

1. Amalgamation/ merger.
2. Interlocking Directorates
3. Parent company with satellites
4. Cartels

Price was no more determined by demand and supply.

Price was determined by the producer.
And was influenced through advertisement.

For higher profit, production was restricted and so was investment.

Scope for investment at home got restricted and so did profit.
Surplus investment fund searched for outlet.

There was search for new markets. Export of capital to economically

underdeveloped parts of the world.
Profit in these markets was high-plentiful labour, cheap and abundant
raw materials.
This led to political penetration into the under-developed counties-
modern imperialism.

The new feature was direct investment, control of management and

exploitation not like government loans.

The features are:

Concentration of production
Export of capital
Formation of international capitalist monopolies.
Territorial division of regions between the capitalist powers.

Second Phase-(1899-1919)

Prosperity in Europe and USA was very high. Rising prices,

exploitation of colonies and armament race brought the prosperity.

Features:
 1. Expansion of business consolidation.
2. Weak Trade Union.
3. State Control.
22

Third Phase – (1920-1929)

Tremendous prosperity in the USA Real Per Capita income rose by

33%.
Wage rate rose by 25%.

Features:
1. Changes in property relationships. Big industrial houses
controlled capital merger of banks with industrial capital to
create financial capital. The share-holders became merge
suppliers of capital. Stock holding became from of property.
2. Change in the role of Govt.

Laissez-faire
Little interference by the govt.
The state of economy was normal and firmly established.
Prices were stable.
Unemployment was non-existent
Agriculture was depressed, but government did not take any firm step
to revive it as foodgrains and raw materials were available plentifully
from the colonies.