define capitalism essay

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What Is Capitalism?

Understanding capitalism, capitalism and the profit motive, precursors to capitalism: feudalism and mercantilism.

• Pros and Cons

Capitalism vs. Socialism

• Frequently Asked Questions

The Bottom Line

• Government & Policy

What Is Capitalism: Varieties, History, Pros & Cons, Socialism

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

Capitalism is an economic system in which private individuals or businesses own capital goods. At the same time, business owners (capitalists) employ workers (labor) who receive only wages; labor doesn't own the means of production but instead uses them on behalf of the owners of capital.

The production of goods and services under capitalism is based on supply and demand in the general market—known as a market economy —rather than through central planning—which is known as a planned economy or command economy .

The purest form of capitalism is free-market or laissez-faire capitalism. Here, private individuals are unrestrained. They may determine where to invest, what to produce or sell, and at which prices to exchange goods and services. The laissez-faire marketplace operates without checks or controls. Today, most countries practice a mixed capitalist system that includes some degree of government regulation of business and ownership of select industries.

Key Takeaways

• Capitalism is an economic system characterized by private ownership of the means of production, with labor solely paid wages.
• Capitalism depends on the enforcement of private property rights, which provide incentives for investment in and productive use of capital.
• Capitalism developed out of feudalism and mercantilism in Europe and dramatically expanded industrialization and the large-scale availability of mass-market consumer goods.
• Pure capitalism can be contrasted with pure socialism (where all means of production are collective or state-owned).

Functionally, capitalism is one system of economic production and resource distribution. Instead of planning economic decisions through centralized political methods, as with socialism or feudalism, economic planning under capitalism occurs via decentralized, competitive, and voluntary decisions.

Capitalism is essentially an economic system in which the means of production (i.e., factories, tools, machines, raw materials, etc.) are organized by one or more business owners (capitalists). Capitalists then hire workers to operate the means of production in return for wages. Workers have no claim on the means of production or on the profits generated from their labor—these belong to the capitalists.

As such, private property rights are fundamental to capitalism. Most modern concepts of private property stem from John Locke's theory of homesteading, in which human beings claim ownership by mixing their labor with unclaimed resources. Once owned, the only legitimate means of transferring property are through voluntary exchange, gifts, inheritance , or the re-homesteading of abandoned property.

Private property promotes efficiency by giving the owner of resources an incentive to maximize the value of their property. So the more valuable the resource is, the more trading power it provides the owner. In a capitalist system, the person who owns the property is entitled to any value associated with that property.

Why Private Property Rights Matter for Capitalism

For individuals or businesses to deploy their capital goods confidently, a system must exist that protects their legal right to own or transfer private property. A capitalist society relies on the use of contracts, fair dealing, and tort law to facilitate and enforce these private property rights.

When property isn't privately owned but rather is shared by the public, a problem known as the tragedy of the commons can emerge. With a common pool resource, which all people can use and none can limit access to, all individuals have an incentive to extract as much use-value as they can and no incentive to conserve or reinvest in the resource. Privatizing the resource is one possible solution to this problem, along with various voluntary or involuntary collective action approaches.  

Under capitalist production, the business owners (capitalists) retain ownership of the goods being produced. If a worker in a shoe factory were to take home a pair of shoes that they made, it would be theft. This concept is known as the alienation of workers from their labor.

Profits are closely associated with the concept of private property. By definition, an individual only enters into a voluntary exchange of private property when they believe the exchange benefits them in some psychic or material way. In such trades, each party gains extra subjective value, or profit, from the transaction.

The profit motive , or the desire to earn profits from business activity, is the driving force of capitalism. It creates a competitive environment in which businesses compete to be the low-cost producer of a certain good in order to gain market share. If it is more profitable to produce a different type of good, then a business is incentivized to switch.

Voluntary trade is another, related mechanism that drives activity in a capitalist system. The owners of resources compete with one another over consumers, who, in turn, compete with other consumers over goods and services. All this activity is built into the price system, which balances supply and demand to coordinate the distribution of resources.

A capitalist earns the highest profit by using capital goods (such as machinery, tools, etc.) most efficiently while producing the highest-value good or service. By contrast, the capitalist suffers losses when capital resources aren't used efficiently and instead create less-valuable outputs.

Capitalism vs. Markets

Capitalism is a system of economic production. Markets are systems of distribution and allocation of goods already produced. While they often go hand-in-hand, capitalism and free markets refer to two distinct systems.

Capitalism is a relatively new type of social arrangement for producing goods in an economy. It arose largely along with the advent of the Industrial Revolution , some time in the late 17th century. Before capitalism, other systems of production and social organization were prevalent.

Feudalism and the Roots of Capitalism

Capitalism grew out of European feudalism. Up until the 12th century, a very small percentage of the population of Europe lived in towns. Skilled workers lived in the city but received their keep from feudal lords rather than a real wage, and most workers were serfs for landed nobles. However, by the late Middle Ages, rising urbanism, with cities as centers of industry and trade, became more and more economically important.

Under feudalism, society was segmented into social classes based on birth or family lineage. Lords (nobility) were the landowners, while serfs (peasants and laborers) didn't own land but were under the employ of the landed nobility.

The advent of industrialization revolutionized the trades and encouraged more people to move into towns where they could earn more money working in a factory than existing at a subsistence level in exchange for labor.

Mercantilism

Mercantilism gradually replaced the feudal economic system in Western Europe and became the primary economic system of commerce during the 16th to 18th centuries. Mercantilism started as trade between towns, but it wasn't necessarily competitive trade. Initially, each town had vastly different products and services that were slowly homogenized over time by demand.

After the homogenization of goods, trade was carried out in broader and broader circles: town to town, county to county, province to province, and, finally, nation to nation. When too many nations were offering similar goods for trade, the trade took on a competitive edge that was sharpened by strong feelings of nationalism on a continent that was constantly embroiled in wars.

Colonialism flourished alongside mercantilism, but the nations seeding the world with settlements weren't trying to increase trade. Most colonies were set up with an economic system that smacked of feudalism, with their raw goods going back to the motherland and, in the case of the British colonies in North America, being forced to repurchase the finished product with a pseudo- currency that prevented them from trading with other nations.

It was economist Adam Smith who noticed that mercantilism was a regressive system that was creating trade imbalances between nations and keeping them from advancing. His ideas for a free market opened the world to capitalism.

The Growth of Industry

Adam Smith's ideas were well-timed, as the Industrial Revolution was starting to cause tremors that would soon shake the Western world. The (often-literal) gold mine of colonialism had brought new wealth and new demand for the products of domestic industries, which drove the expansion and mechanization of production.

As technology leaped ahead and factories no longer had to be built near waterways or windmills to function, industrialists began building in the cities where there were now thousands of people to supply labor.

Capitalism involved reorganizing society into social classes based not on ownership of land, but ownership of capital (in other words, businesses). Capitalists were able to earn profits from the surplus labor of the working class, who earned only wages. Thus, the two social classes defined by capitalism are the capitalists and the laboring classes.

Industrial tycoons were the first people to amass wealth, often outstripping both the landed nobles and many of the money-lending/banking families. For the first time in history, common people could have hopes of becoming wealthy. The new money crowd built more factories that required more labor, while also producing more goods for people to purchase.

During this period, the term "capitalism"—originating from the Latin word " capitalis ," which means "head of cattle"—rose to prominence. In 1850, French socialist Louis Blanc used the term to signify a system of exclusive ownership of industrial means of production by private individuals rather than shared ownership.

Pros and Cons of Capitalism

More efficient allocation of capital resources

Competition leads to lower consumer prices

Wages and general standards of living rise overall

Spurs innovation and invention

Creates inherent class conflict between capital and labor

Generates enormous wealth disparities and social inequalities

Can incentivize corruption and crony capitalism in the pursuit of profit

Produces negative effects such as pollution

Pros Explained

More efficient allocation of capital resources : Labor and means of production follow capital in this system because supply follows demand.

Competition leads to lower consumer prices : Capitalists are in competition against one another, and so will seek to increase their profits by cutting costs, including labor and materials costs. Mass production also usually benefits consumers.

Wages and general standards of living rise overall : Wages under capitalism increased, helped by the formation of unions. More and better goods became cheaply accessible to wide populations, raising standards of living in previously unthinkable ways.

Spurs innovation and invention : In capitalism, inequality is the driving force that encourages innovation, which then pushes economic development.

Cons Explained

Creates inherent class conflict between capital and labor : While capitalists enjoy the potential for high profits, workers may be exploited for their labor, with wages always kept lower than the true value of the work being done.

Generates enormous wealth disparities and social inequalities : Capitalism has created an immense gap between the wealthy and the poor, as well as social inequalities.

Can incentivize corruption and crony capitalism in the pursuit of profit : Capitalism can provide incentives for corruption emerging from favoritism and close relationships between business people and the state.

Produces negative effects such as pollution : Capitalism often leads to a host of negative externalities , such as air and noise pollution, and these costs paid for by society, rather than the producer of the effect.

In terms of political economy , capitalism is often contrasted with socialism . The fundamental difference between the two is the ownership and control of the means of production.

In a capitalist economy, property and businesses are owned and controlled by individuals. In a socialist economy, the state owns and manages the vital means of production. However, other differences also exist in the form of equity, efficiency, and employment.

The capitalist economy is unconcerned about equitable arrangements. The primary concern of the socialist model is the redistribution of wealth and resources from the rich to the poor, out of fairness, and to ensure equality in opportunity and equality of outcome. Equality is valued above high achievement, and the collective good is viewed above the opportunity for individuals to advance.

The capitalist argument is that the profit incentive drives corporations to develop innovative new products desired by the consumer and in demand in the marketplace. It is argued that the state ownership of the means of production leads to inefficiency because, without the motivation to earn more money, management, workers, and developers are less likely to put forth the extra effort to push new ideas or products.

In a capitalist economy, the state doesn't directly employ the workforce. This lack of government-run employment can lead to unemployment during economic recessions and depressions .

In a socialist economy, the state is the primary employer. During times of economic hardship, the socialist state can order hiring, so there is full employment. Also, there tends to be a stronger "safety net" in socialist systems for workers who are injured or permanently disabled. Those who can no longer work have fewer options available to help them in capitalist societies.

Karl Marx, Capitalism, and Socialism

Philosopher Karl Marx was famously critical of the capitalist system of production because he saw it as an engine for creating social ills, massive inequalities, and self-destructive tendencies. Marx argued that , over time, capitalist businesses would drive one another out of business through fierce competition, while, at the same time, the laboring class would swell and begin to resent their unfair conditions. His solution was socialism, through which the means of production would be handed over to the laboring class in an egalitarian fashion.

Varieties of Capitalism

Today, many countries operate with capitalist production, but this also exists along a spectrum . In reality, there are elements of pure capitalism that operate alongside otherwise-socialist institutions.

The standard spectrum of economic systems places laissez-faire capitalism at one extreme and a complete planned economy—such as communism —at the other. Everything in the middle could be said to be a mixed economy. The mixed economy has elements of both central planning and unplanned private business. By this definition, nearly every country in the world has a mixed economy.

Mixed Capitalism

When the government owns some but not all the means of production and may legally circumvent, replace, limit, or otherwise regulate private economic interests, it is said to be a mixed economy or mixed economic system . A mixed economy respects property rights, but places limits on them.

Property owners are restricted as to how they exchange with one another. These restrictions come in many forms, such as minimum wage laws, tariffs, quotas, windfall taxes, license restrictions, prohibited products or contracts, direct public expropriation , antitrust legislation, legal tender laws, subsidies, and eminent domain . Governments in mixed economies also fully or partly own and operate certain industries, especially those considered public goods .

Anarcho-Capitalism

In contrast, with pure capitalism, also known as laissez-faire capitalism or anarcho-capitalism , all industries are left up to private ownership and operation, including public goods, and no central government authority provides regulation or supervision of economic activity in general.

What Is an Example of Capitalism?

An example of capitalist production would be if an entrepreneur starts a new widget company and opens a factory. This individual uses available capital that they own (or from outside investors) and buys the land, builds the factory, orders the machinery, and sources the raw materials. Workers are then hired by the entrepreneur to operate the machines and produce widgets. Note that the workers don't own the machines they use or the widgets that they produce. Instead, they receive only wages in exchange for their labor. These wages represent a small fraction of what the entrepreneur earns from the venture.

Who Benefits From Capitalism?

Capitalism tends to benefit capitalists the most. These include business owners, investors, and other owners of capital. While capitalism has been praised for improving the standard of living for many people across the board, it has by far benefited those at the top.

Why Is Capitalism Harmful?

Because of how it is structured, capitalism will always pit business owners and investors (i.e., capitalists) against the working class. Capitalists are in competition against one another, and so will seek to increase their profits by cutting costs, including labor costs. At the same time, workers seek higher wages, fairer treatment, and better working conditions. These two incentives are fundamentally at odds, which creates class conflict.

Is Capitalism the Same as Free Enterprise?

Capitalism and free enterprise are often seen as synonymous. In truth, they are closely related yet distinct terms with overlapping features. It is possible to have a capitalist economy without complete free enterprise, and a free market without capitalism. Any economy is capitalist as long as private individuals control the factors of production . However, a capitalist system can still be regulated by government laws, and the profits of capitalist endeavors can still be taxed heavily. "Free enterprise" can roughly be understood to mean economic exchanges free of coercive government influence.

Capitalism is an economic and political system where trade and industry are controlled by private owners for profit. Its core principles are: accumulation, ownership, and profiting from capital. In its purest form, capitalism works best when these private owners have assurances that the wealth they generate will be kept in their own pocket. But giving the wealthy free rein to become even wealthier is controversial. Endorsing such behavior without some concessions is unlikely to get many politicians elected.

Capitalism is the dominant world economic system, although it often isn’t pure in form. In many countries, interventions from the state, a core trait of socialism, are frequent. Businesses are able to chase profit but within the boundaries set by the government. Most political theorists and nearly all economists argue that capitalism is the most efficient and productive system of exchange.

International Monetary Fund. " What Is Capitalism ?"

Nelson, Peter Lothian. " To Homestead a Nature Preserve: A Response to Block and Edelstein, 'Popsicle Sticks and Homesteading Land for Nature Preserves '. "  Review of Social and Economic Issues , vol. 2, no. 1, Spring 2019, pp. 71+. (Subscription required.)

Psychology Today. " Is Capitalism Fair ?"

Harvard Business School. " Tragedy of the Commons: What It Is and 5 Examples ."

Lester C. Thurow. " Profits ."

Michael Sonenscher. " Capitalism: The Word and the Thing ."

Carson-Newman University. " Feudalism ."

Laura LaHaye. " Mercantilism ."

Trinity University. " Adam Smith on Money, Mercantilism, and the System of Natural Liberty ."

Milios, John. " Social Classes in Classical and Marxist Political Economy ," The American Journal of Economics and Sociology, vol. 59, no. 2 (April 2000), pp. 283-302. (Subscription required.)

Cambridge University Press. " Cries of Pain: The Word 'Capitalism' ."

Columbia College. " Karl Marx ."

New World Encyclopedia. " Anarcho-Capitalism ."

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Definition of capitalism

Did you know.

Communism , Socialism , Capitalism , and Democracy

Communism , socialism , capitalism , and democracy are all among our top all-time lookups, and user comments suggest that this is because they are complex, abstract terms often used in opaque ways. They're frequently compared and contrasted, with communism sometimes equated with socialism , and democracy and capitalism frequently linked.

Part of the confusion stems from the fact that the word communism has been applied to varying political systems over time. When it was first used in English prose in the mid-19th century, communism referred to an economic and political theory that advocated the elimination of private property and the common sharing of all resources among a group of people; in this use, it was often used interchangeably with the word socialism by 19th-century writers.

The differences between communism and socialism are still debated, but generally English speakers use communism to talk about the political and economic ideologies that find their origin in Karl Marx’s theory of revolutionary socialism, which advocates a proletariat overthrow of capitalist structures within a society; societal and communal ownership and governance of the means of production; and the eventual establishment of a classless society. The most well-known expression of Marx’s theories is the 20th-century Bolshevism of the U.S.S.R., in which the state, through a single authoritarian party, controlled a society’s economic and social activities with the goal of realizing Marx’s theories. Socialism , meanwhile, is most often used in modern English to refer to a system of social organization in which private property and the distribution of income are subject to social control. (The term is also often used in the phrase democratic socialism , which is discussed here .)

Communism and socialism are both frequently contrasted with capitalism and democracy , though these can be false equivalencies depending on the usage. Capitalism refers to an economic system in which a society’s means of production are held by private individuals or organizations, not the government, and where products, prices, and the distribution of goods are determined mainly by competition in a free market. As an economic system, it can be contrasted with the economic system of communism, though as we have noted, the word communism is used of both political and economic systems. Democracy refers not to an economic system but to a system of government in which supreme power is vested in the people and exercised through a system of direct or indirect representation which is decided through periodic free elections. (For discussion about whether the United States is accurately described as a democracy or as a republic, see the discussion here .)

Readers should consult the individual entries for a full treatment of the various ways in which each of these four words is used.

Examples of capitalism in a Sentence

These examples are programmatically compiled from various online sources to illustrate current usage of the word 'capitalism.' Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. Send us feedback about these examples.

Word History

capital entry 2 + -ism , after capitalist entry 1

1833, in the meaning defined above

Phrases Containing capitalism

• anti - capitalism
• crony capitalism
• state capitalism
• vulture capitalism
• Woke capitalism

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Cite this Entry

“Capitalism.” Merriam-Webster.com Dictionary , Merriam-Webster, https://www.merriam-webster.com/dictionary/capitalism. Accessed 7 May. 2024.

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1 (page 1) p. 1 What is capitalism?

• Published: June 2015
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‘What is capitalism?’ examines the different forms that capitalism has taken, from the merchant capitalism of the 17th-century, through capitalist production in the 19th , to the financial capitalism of the present day. As the investment of money to make more money, capitalism has long existed but it was when production was financed in this way that a transformative capitalism came into being. Capitalist production depends on the exploitation of wage labour, which also crucially fuels the consumption of the goods and services produced by capitalist enterprises. Production and consumption are linked by the markets that come to mediate all economic activities in a capitalist society.

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Browse Course Material

Course info.

• Prof. Christine Walley

Departments

• Anthropology

As Taught In

• Cultural Anthropology
• Ethnography
• Social Anthropology

Learning Resource Types

What is capitalism, introduction.

Session 1: Intro: What Is Capitalism? What Is Anthropology? How Can Understanding Capitalism Help Us Better Understand Our Current Historical Moment?

No readings assigned.

Session 2: Expanding Inequality and Contemporary Crises

Piketty, Thomas. “Introduction.” In  Capital in the Twenty-First Century . Translated by Arthur Goldhammer. Belknap Press, 2017. ISBN: ‎9780674979857. [Preview with  Google Books ]

Walley, Christine J. “Deindustrializing Chicago: A Daughter’s Story.” Chapter 6 in  The Insecure American: How We Got Here & What We Should Do About It . Edited by Hugh Gusterson & Catherine Besteman. University of California Press, 2009. ISBN: ‎9780520259713. [Preview with  Google Books ]

Explore website:  Southeast Chicago Archive & Storytelling Project .

Session 3: Thinking about Capitalism and Information Ecologies I

McIntosh, Janet. “ The Sinister Signs of QAnon: Interpretive Agency and Paranoid Truths in Alt-right Oracles .” Anthropology Today 38, no. 1 (2012): 8–12.

Rapacioli, Paul. “Christmas Lights, Riots, and the Fall of Utopia,” “Trump, Eisenhower, and the Values of Success,” “Refugees and the Alternative Media,” “Mutation,” “The Psychology and Economics of News,” and “Entering the Media of Post-Truth.” Chapters 1–6 in  Good Sweden, Bad Sweden: The Use and Abuse of Swedish Values in a Post-Truth World . Volante, 2018. ISBN: ‎9789188659231. 

Session 4: Thinking about Capitalism and Information Ecologies II

Otis, Cindy L. “How to Spot Fake News Articles,” “73% of People Say They Don’t Understand Polling, and Other Fake Stats,” “Your Eyes Are Lying: Spotting Fake Photos and Videos,” and “Memes Aren’t News and Other Social-Media Tips.” Chapters 17–20 in  True or False: A CIA Analyst’s Guide to Spotting Fake News . Feiwel & Friends, 2020. ISBN: ‎9781250239495. 

Simonite, Tom. “ A New Tool Shows How Google Results Vary around the World .”  Wired , July 11, 2021.

Check out the comparative search engine  Search Atlas .

Theories of Capitalism

Session 5: Nineteenth-Century Political Economy

Smith, Adam. “Introduction and Plan of the Work,” “Of the Principle Which Gives Occasion to the Division of Labour,” “That the Division of Labour is Limited by the Extent of the Market,” “Of the Origin and Use of Money,” and “Of the Real and Nominal Price of Commodities, or of Their Price in Labour, and Their Price in Money.” Chapters 1–5 in  An Inquiry into the Nature and Causes of the Wealth of Nations: A Selected Edition . Edited with an introduction and commentary by Kathryn Sutherland. Oxford University Press, 1993. ISBN: 9780192817969.

Marx, Karl, and Friedrich Engels.  The Communist Manifesto . ‎ International Publishers Co., 2014. ISBN: ‎9780717802418.

Background reading (not required):

Smith, Adam. “Introduction.” In  An Inquiry into the Nature and Causes of the Wealth of Nations: A Selected Edition . Edited with an introduction and commentary by Kathryn Sutherland. Oxford University Press, 1993. ISBN: 9780192817969.

Session 6: Capitalism and “Culture”

Weber, Max. “Class, Status, Party.” Chapter 7 in  From Max Weber: Essays in Sociology. Translated, edited, with an Introduction by H.H. Gerth and C. Wright Mills. Routledge, 2009. ISBN: ‎9780415482691. [Preview with  Google Books ]

Bourdieu, Pierre. “The Forms of Capital.” Chapter 1 in  The Handbook of Theory and Research for the Sociology of Education . Edited by John G. Richardson. Greenwood, 1986. ISBN: 9780313235290.

Ortner, Sherry B. “Reading America: Preliminary Notes on Class and Culture.” Chapter 9 in  Recapturing Anthropology: Working in the Present . Edited by Richard G. Fox. School of American Research Press, 1991. ISBN: ‎9780933452787. (You can skip the section called “Point of Entry: Class and Culture in America.”)

Session 7: Debating Capitalism after World War II

Hayek, F.A. “Individualism: True or False.” Chapter 1 in  Individualism and Economic Order . University of Chicago Press,1996. ISBN: ‎9780226320939. [Preview with  Google Books ]

Polanyi, Karl. “Societies and Economic Systems,” “Evolution of the Market Pattern,” “The Self-Regulating Market and the Fictitious Commodities: Labor, Land, and Money,” “Market and Man,” and “Freedom in a Complex Society.” Chapters 4–6, 14, and 21 in  The Great Transformation . Beacon Press, 2001. ISBN: 9780807056424. 

Recommended:

Kuttner, Robert. “ The Man From Red Vienna .”  New York Review of Books , December 21, 2017.

Rand, Ayn. “What is Capitalism?” Chapter 1 in  Capitalism: The Unknown Ideal . Signet, 1986. ISBN: ‎9780451147950. [Preview with  Google Books ]

Nasar, Sylvia. “ Friedrich von Hayek Dies at 92; An Early Free-Market Economist ,”  New York Times , March 24, 1992.

Session 8: Globalized Capitalism and Racial Capitalism

Harvey, David. “Fordism” and “From Fordism to Flexible Accumulation.” Chapters 8 and 9 in  The Condition of Postmodernity . Wiley-Blackwell, 1991. ISBN: ‎9780631162940. 

Virdee, Satnam. “ Racialized Capitalism: An Account of Its Contested Origins and Consolidation .”  Sociological Review  67, no. 1 (2019): 3–27.

Harvey, David. “Theorizing the Transition.” Chapter 10 in  The Condition of Postmodernity . Wiley-Blackwell, 1991. ISBN: ‎9780631162940.

Session 9: How We Got to the Extremes: From the Precariat to the Superwealthy

Standing, Guy. “The Precariat.” Chapter 1 in  The Precariat: The New Dangerous Class . Bloomsbury Academic, 2016. ISBN: ‎9781474294164. [Preview with  Google Books ]

Ogle, Vanessa. “ Archipelago Capitalism: Tax Havens, Offshore Money, and the State, 1950s–1970s .”  American History Review  122, no. 5 (2017): 1431–58.

An Ethnographic Look: Capitalism and Everyday Life

Session 10: Exploring Social Class in High School

Bettie, Julie. “How Working-Class Chicas Get Working-Class Lives” and “Hard-Living Habitus, Settled-Living Resentment.” Chapters 3 and 4 in  Women without Class: Girls, Race, and Identity . University of California Press, 2014. ISBN: ‎9780520280014. [Preview with  Google Books ]

Session 11: From Old to New Money

Aldrich, Nelson W., Jr. “The Composition of Old Money” and “Class Acts.” Chapters 2 and 3 in  Old Money: The Mythology of Wealth in America . Allworth, 1997. ISBN: ‎9781880559642. 

Osnos, Evan. “ Doomsday Prep for the Super-Rich .”  New Yorker , January 30, 2017.

Session 12: Race, Class, and Status

Lacy, Karyn. “Public Identities: Managing Race in Public Spaces” and “Status-Based Identities: Protecting and Reproducing Middle-Class Status.” Chapters 3 and 4 in  Blue Chip Black: Race, Class, and Status in the New Black Middle Class . [Preview with  Google Books ]

Session 13: Losing Industrial Jobs

Walley, Christine J. “It All Came Tumbling Down: My Father and the Demise of Chicago’s Steel Industry.” Chapter 2 in  Exit Zero: Family and Class in Postindustrial Chicago . University of Chicago Press, 2013. ISBN: ‎9780226871806. [Preview with  Google Books ]

Dudley, Kathryn Marie. “Badges of Ability.” Chapter 8 in  The End of the Line: Lost Jobs, New Lives in Postindustrial America . University of Chicago Press, 1997. ISBN: ‎9780226169101. [Preview with  Google Books ]

Explore website:  Southeast Chicago Archive & Storytelling Project  (in particular the storyline on the Memorial Day Massacre).

Session 14: The Rise of the “Fissured Workplace”

Weil, David. “Vignettes from the Modern Workplace.” Part 1 in  The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It . Harvard University Press, 2017, pp. 1–28. ISBN: ‎9780674975446. [Preview with  Google Books ]

Genoways, Ted. “ The Spam Factory’s Dirty Secret .”  Mother Jones , July/August 2011.

Finnegan, William. “ Dignity: Fast Food Workers and a New Form of Labor Activism .”  New Yorker , September 8, 2014.

Session 15: Chasing an Innovation Economy: Gig Work, Robots, and Artificial Intelligence

Gray, Mary L., and Siddarth Suri. “Introduction: Ghosts in the Machine” and “Humans in the Loop.” In  Ghost Work: How to Stop Silicon Valley from Building a New Global Underclass . Harper Business, 2019. ISBN: ‎9781328566249. [Preview with  Google Books ]

Irani, Lilly. “ Justice for ‘Data Janitors’ .”  Public Books , January 15, 2015.

Rosenblat, Alex. “Introduction: Using an App to Go to Work—Uber as a Symbol of the New Economy,” “Driving as Glamorous Labor: How Uber Uses the Myths of the Sharing Economy,” “Motivations to Drive: How Uber’s System Rewards Full-Time and Recreational Drivers Differently,” and “The Technology Pitch: How Uber Creates Entrepreneurship for the Masses.” In  Uberland: How Algorithms Are Rewriting the Rules of Work . University of California Press, 2019. ISBN: 9780520324800. [Preview with  Google Books ]

Capitalism and Its Others

Session 16: Soviet-Style State Socialism

Verdery, Katherine. “What Was Socialism, and Why Did It Fall?” and “A Transition from Socialism to Feudalism? Thoughts on the Postsocialist State.” Chapters 1 and 8 in  What Was Socialism, and What Comes Next?  Princeton University Press,1996. ISBN: ‎9780691011325. [Preview with  Google Books ]

Session 17: The Nordic Model

Partanen, Anu. “In the Land of the Free: Becoming American.” Chapter 1 in  The Nordic Theory of Everything: In Search of a Better Life . Harper Paperbacks, 2017. ISBN: ‎9780062316554. [Preview with  Google Books ]

Read two other chapters (your choice) from  The Nordic Theory of Everything: In Search of a Better Life .

Session 18: The View from Post-Colonial Regions

Donham, Donald L. “The Metanarrative of Modernity in Ethiopia: 1974,” “Revolution within a Revolution: Divine Kings and Zemecha Students in Maale,” and “Marxist Modernism at the Ethiopian Center: Cold War Deterritorializations.” Chapters 1, 2, and 6 in  Marxist Modern: An Ethnographic History of the Ethiopian Revolution . University of California Press, 1999. ISBN: ‎9780520213296. [Preview with  Google Books ]

Session 19: Varieties of “Welfare” States

Allison, Anne. “From Lifelong to Liquid Japan” and “Ordinary Refugeeism: Poverty, Precarity, Youth.” Chapters 2 and 3 in  Precarious Japan . Duke University Press Books, 2013. ISBN: ‎9780822355625. [Preview with  Google Books ]

Capitalism On the Front Lines

Session 20: Wall Street and Finance Capitalism

Ho, Karen.“Biographies of Hegemony: The Culture of Smartness and the Recruitment and Construction of Investment Bankers,” “Wall Street’s Orientation: Exploitation, Empowerment, and the Politics of Hard Work,” and “Liquid Lives, Compensation Schemes, and the Making of (Unsustainable) Financial Markets.” Chapters 1, 2, and 6 in  Liquidated: An Ethnography of Wall Street . Duke University Press Books, 2009. ISBN: ‎9780822345992. [Preview with  Google Books ]

Session 21: The Financial Crisis of 2008

Tett, Gillian. “Preface,” “Preface to the Paperback Edition,” “The Derivatives Dream,” “Dangling Around the Regulators,” “The Dream Team,” “The Cuffs Come Off,” and “Merger Mania.” In Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe . Free Press, 2009. ISBN: ‎9781439100752. [Preview with  Google Books ]

Watch: Frontline: Money, Power and Wall Street, Part 1 . Directed by Michael Kirk. Color, 59 min. 2012.

Session 22: An Anthropology of Supply Chains

Tsing, Anna Lowenhaupt. Selections from  The Mushroom at the End of the World: On the Possibility of Life in Capitalist Ruins . Princeton University Press, 2021. ISBN: ‎9780691220550. [Preview with  Google Books ]

Session 23: Concluding Conversation: Life out of the Ruins

Sessions 24 and 25: Final Project Oral Presentations

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What Is Capitalism?

In this 1967 lecture, Ayn Rand argues that capitalism is the only moral social system — the only system which is consistent with man’s nature as a rational being and therefore the only system that protects his ability to engage in the kinds of productive activities that his life and happiness require. Rand covers such topics as the nature of man and the role of reason in his life, individual rights and freedom, differing views of “the good” and the social systems that they produce, the purpose and proper functions of government, her definition of “capitalism,” and why only capitalism — a system of voluntary interaction among free people — is the system of human flourishing.

An edited version of this talk is available in Capitalism: The Unknown Ideal , a collection of essays by Rand and others. This recording is 47 minutes long.

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15.5: Reading: Capitalism and Socialism

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Scholars don’t always agree on a single definition of capitalism. For our purposes, we will define capitalism as an economic system in which there is private ownership (as opposed to state ownership) and where there is an impetus to produce profit, and thereby wealth. This is the type of economy in place in the United States today. Under capitalism, people invest capital (money or property invested in a business venture) in a business to produce a product or service that can be sold in a market to consumers. The investors in the company are generally entitled to a share of any profit made on sales after the costs of production and distribution are taken out. These investors often reinvest their profits to improve and expand the business or acquire new ones. To illustrate how this works, consider this example. Sarah, Antonio, and Chris each invest $250,000 into a start-up company that offers an innovative baby product. When the company nets $1 million in profits its first year, a portion of that profit goes back to Sarah, Antonio, and Chris as a return on their investment. Sarah reinvests with the same company to fund the development of a second product line, Antonio uses his return to help another start-up in the technology sector, and Chris buys a small yacht for vacations.

To provide their product or service, owners hire workers to whom they pay wages. The cost of raw materials, the retail price they charge consumers, and the amount they pay in wages are determined through the law of supply and demand and by competition. When demand exceeds supply, prices tend to rise. When supply exceeds demand, prices tend to fall. When multiple businesses market similar products and services to the same buyers, there is competition. Competition can be good for consumers because it can lead to lower prices and higher quality as businesses try to get consumers to buy from them rather than from their competitors.

Wages tend to be set in a similar way. People who have talents, skills, education, or training that is in short supply and is needed by businesses tend to earn more than people without comparable skills. Competition in the workforce helps determine how much people will be paid. In times when many people are unemployed and jobs are scarce, people are often willing to accept less than they would when their services are in high demand. In this scenario, businesses are able to maintain or increase profits by not increasing workers’ wages.

Capitalism in Practice

As capitalists began to dominate the economies of many countries during the Industrial Revolution, the rapid growth of businesses and their tremendous profitability gave some owners the capital they needed to create enormous corporations that could monopolize an entire industry. Many companies controlled all aspects of the production cycle for their industry, from the raw materials, to the production, to the stores in which they were sold. These companies were able to use their wealth to buy out or stifle any competition.

In the United States, the predatory tactics used by these large monopolies caused the government to take action. Starting in the late 1800s, the government passed a series of laws that broke up monopolies and regulated how key industries—such as transportation, steel production, and oil and gas exploration and refining—could conduct business.

The United States is considered a capitalist country. However, the U.S. government has a great deal of influence on private companies through the laws it passes and the regulations enforced by government agencies. Through taxes, regulations on wages, guidelines to protect worker safety and the environment, plus financial rules for banks and investment firms, the government exerts a certain amount of control over how all companies do business. State and federal governments also own, operate, or control large parts of certain industries, such as the post office, schools, hospitals, highways and railroads, and many water, sewer, and power utilities. Debate over the extent to which the government should be involved in the economy remains an issue of contention today. Some criticize such involvements as socialism (a type of state-run economy), while others believe intervention is necessary to protect the rights of workers and the well-being of the general population.

Supplemental Material

One alternative to traditional capitalism is to have the workers own the company for which they work. To learn more about company-owned businesses check out The National Center for Employee Ownership .

Socialism is an economic system in which there is government ownership (often referred to as “state run”) of goods and their production, with an impetus to share work and wealth equally among the members of a society. Under socialism, everything that people produce, including services, is considered a social product. Everyone who contributes to the production of a good or to providing a service is entitled to a share in any benefits that come from its sale or use. To make sure all members of society get their fair share, governments must be able to control property, production, and distribution.

The focus in socialism is on benefitting society, whereas capitalism seeks to benefit the individual. Socialists claim that a capitalistic economy leads to inequality, with unfair distribution of wealth and individuals who use their power at the expense of society. Socialism strives, ideally, to control the economy to avoid the problems inherent in capitalism.

Within socialism, there are diverging views on the extent to which the economy should be controlled. One extreme believes all but the most personal items are public property. Other socialists believe only essential services such as healthcare, education, and utilities (electrical power, telecommunications, and sewage) need direct control. Under this form of socialism, farms, small shops, and businesses can be privately owned but are subject to government regulation.

The other area on which socialists disagree is on what level society should exert its control. In communist countries like the former Soviet Union, China, Vietnam, and North Korea, the national government exerts control over the economy centrally. They had the power to tell all businesses what to produce, how much to produce, and what to charge for it. Other socialists believe control should be decentralized so it can be exerted by those most affected by the industries being controlled. An example of this would be a town collectively owning and managing the businesses on which its residents depend.

Because of challenges in their economies, several of these communist countries have moved from central planning to letting market forces help determine many production and pricing decisions. Market socialism describes a subtype of socialism that adopts certain traits of capitalism, like allowing limited private ownership or consulting market demands. This could involve situations like profits generated by a company going directly to the employees of the company or being used as public funds (Gregory and Stuart 2003). Many Eastern European and some South American countries have mixed economies. Key industries are nationalized and directly controlled by the government; however, most businesses are privately owned and regulated by the government.

Organized socialism never became powerful in the United States. The success of labor unions and the government in securing workers’ rights, joined with the high standard of living enjoyed by most of the workforce, made socialism less appealing than the controlled capitalism practiced here.

Socialism in Practice

As with capitalism, the basic ideas behind socialism go far back in history. Plato, in ancient Greece, suggested a republic in which people shared their material goods. Early Christian communities believed in common ownership, as did the systems of monasteries set up by various religious orders. Many of the leaders of the French Revolution called for the abolition of all private property, not just the estates of the aristocracy they had overthrown. Thomas More’s Utopia , published in 1516, imagined a society with little private property and mandatory labor on a communal farm. A utopia has since come to mean an imagined place or situation in which everything is perfect. Most experimental utopian communities had the abolition of private property as a founding principle.

Modern socialism really began as a reaction to the excesses of uncontrolled industrial capitalism in the 1800s and 1900s. The enormous wealth and lavish lifestyles enjoyed by owners contrasted sharply with the miserable conditions of the workers.

Some of the first great sociological thinkers studied the rise of socialism. Max Weber admired some aspects of socialism, especially its rationalism and how it could help social reform, but he worried that letting the government have complete control could result in an “iron cage of future bondage” from which there is no escape (Greisman and Ritzer 1981).

Pierre-Joseph Proudon (1809−1865) was another early socialist who thought socialism could be used to create utopian communities. In his 1840 book, What Is Property? , he famously stated that “property is theft” (Proudon 1840). By this he meant that if an owner did not work to produce or earn the property, then the owner was stealing it from those who did. Proudon believed economies could work using a principle called mutualism , under which individuals and cooperative groups would exchange products with one another on the basis of mutually satisfactory contracts (Proudon 1840).

By far the most important influential thinker on socialism is Karl Marx. Through his own writings and those with his collaborator, industrialist Friedrich Engels, Marx used a scientific analytical process to show that throughout history, the resolution of class struggles caused changes in economies. He saw the relationships evolving from slave and owner, to serf and lord, to journeyman and master, to worker and owner. Neither Marx nor Engels thought socialism could be used to set up small utopian communities. Rather, they believed a socialist society would be created after workers rebelled against capitalistic owners and seized the means of production. They felt industrial capitalism was a necessary step that raised the level of production in society to a point it could progress to a socialist and then communist state (Marx and Engels 1848). These ideas form the basis of the sociological perspective of social conflict theory.

Obama and Socialism: A Few Definitions

In the 2008 presidential election, the Republican Party latched onto what is often considered a dirty word to describe then-Senator Barack Obama’s politics: socialist. It may have been because the president was campaigning by telling workers it’s good for everybody when wealth gets spread around. But whatever the reason, the label became a weapon of choice for Republicans during and after the campaign. In 2012, Republican presidential contender Rick Perry continued this battle cry. A New York Times article quotes him as telling a group of Republicans in Texas that President Obama is “hell bent on taking America towards a socialist country” (Wheaton 2011). Meanwhile, during the first few years of his presidency, Obama worked to create universal healthcare coverage and pushed forth a partial takeover of the nation’s failing automotive industry. So does this make him a socialist? What does that really mean, anyway?

There is more than one definition of socialism, but it generally refers to an economic or political theory that advocates for shared or governmental ownership and administration of production and distribution of goods. Often held up in counterpoint to capitalism, which encourages private ownership and production, socialism is not typically an all-or-nothing plan. For example, both the United Kingdom and France, as well as other European countries, have socialized medicine, meaning that medical services are run nationally to reach as many people as possible. These nations are, of course, still essentially capitalist countries with free-market economies.

So is Obama a socialist because he wants universal healthcare? Or is the word a lightning rod for conservatives who associate it with a lack of personal freedom? By almost any measure, the answer is more the latter.

Short Answer

• Explain the difference between state socialism with central planning and market socialism.
• In what ways can capitalistic and socialistic economies converge?
• Heidimarie Schwermer
• Émile Durkheim
• centrally planned
• secured workers’ rights
• guaranteed health care
• broke up monopolies
• diversified the workforce

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a form of socialism under which individuals and cooperative groups exchange products with one another on the basis of mutually satisfactory contracts

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