Capitalism: A very short introduction



  • Merchant capitalism – was the beginning of capitalism where merchants created corporations to split the risk of ship voyages to the indies to get spices to be sold in Europe. Wealth was created by exploiting a difference in cost between regions.
  • Capitalist production – is when the capitalist owns all the production material and tools and simply pays a wage labourer to process the goods, increasing their value.
  • Wage labour – changed everything because it meant that more people had disposable incomes which further stimulated capitalist production. This was the positive feedback loop needed to make capitalism thrive.
  • Managed capitalism – was when the state was highly involved in ensuring that within a nation, employment was available (by the government) and that large corporations could maintain the monopolies needed to remain profitable.
  • Unions play an important role in capitalism of balancing the capitalists desire to reduce production costs by decreasing wages or forcing up productivity. Without them, capitalism drives intense inequality.

Wage labour

  • Wage labour is so important in enabling production capitalism.
  • Without wage labour you just have a market of merchants. This market has little effect on the daily lives of the mass population.
  • When you introduce wage labour into the production of capital, then you dramatically increase the size of your market as every single person becomes a merchant, either selling their capital or labour.
  • When this happens you also create a reinforcing cycle because now everyone has capital to spend on the market. This creates needs for more capital enterprises to provide more types of goods and services.


  • "The secret of making high profits was to secure monopolies by one means or another, exclude competitors, and control markets in every way possible."
  • "Non-work activities were expelled from work time into leisure time and daily life was now sharply divided between work and leisure. Wage labour also meant, however, that workers had money to spend on their leisure life. The commercialization of leisure created new industries that fed back into the expansion of capitalist production."
  • "In capitalism proper the whole economy becomes dependent on the investment of capital and this occurs when it is not just trade that is financed in this way but production as well."
  • "Capitalist production is based on wage labour."
    Wage labour is both free and unfree. Unlike slaves, who are forced to work by their owners, wage labourers can decide whether they work and for whom. Unlike the serfs in feudal society, who were tied to their lord’s land, they can move freely and seek work wherever they choose. These freedoms are, on the other hand, somewhat illusory, since in a capitalist society it is difficult to survive without paid work and little choice of work or employer may be available. Wage labourers are also subject - "to tight control by the employer and, as we saw in the cotton mills, capitalist production meant a new kind of disciplined and continuous work. Workers had become, as Marx put it, ‘wage slaves’."
  • "As we saw earlier, capitalist production rapidly led to the creation of whole new industries based on the commercialization of leisure."
  • "This double role of wage labour, which enabled the dynamic interaction of production and consumption, explains why capitalist production expanded so very rapidly once it had got going."
  • "This competitiveness, which contrasts strongly with the monopolistic practices of merchant capitalism, makes capitalist production exceptionally dynamic."
  • "Furthermore, as we saw in Chapter 1, those organizing international trading ventures were not, in any case, concerned with reducing the costs of production so much as making money out of the huge differences between the prices paid for goods in the East and the prices at which they could be sold in Europe; they were more interested in manipulating markets than organizing labour."
  • "Wage labour was becoming increasingly common and over half the households in 16th-century England were at least partly dependent on wage labour. This meant that people increasingly had money to buy such goods and market relationships were becoming more important in their daily lives."
  • "If we are to understand the origins of the capitalist world that we live in, an understanding of the growth of large corporations is arguably as important as an understanding of the emergence of capitalist production itself. The great break with the past was not so much the rise of capitalist production, which emerged very gradually through a series of small steps, but the establishment of large, capital-intensive operations organized by great corporations."
  • "Increasing concentration has always been one of the main tendencies in capitalist organization and shows little sign of ceasing."
  • "Indeed, Alfred Chandler has argued convincingly that the 20th-century supremacy of the American corporation was due to the ‘organizational capabilities’ of American management."
  • "Employment is crucial to welfare and the experience of the 1930s depression made the maintenance of ‘full employment’ one of the highest priorities of postwar governments."
  • "There was a clear shift of priorities from the maintenance of employment to the control of inflation."
  • "Much of the redistributive egalitarianism that sought to use the state to transfer resources from the rich to the poor has been displaced by a more individualist provision of greater opportunities for the poor to realize their potential."
  • "Significantly, inequality is now discussed in terms not of differences in wealth or income but of access."
    The first transformation, from anarchic to managed capitalism, showed that it was possible to protect people from at least some of the worst consequences of the operation of market forces. The conditions of work could be regulated and through collective organization workers could limit the power of the employer and negotiate improvements in wages and conditions. Welfare became a matter for the state, which removed key services from the market-place so that they could be provided equally to all - "citizens. Governments tried to manage the economy by developing cooperation between the state and the organizations of unions and employers. Capitalism could be managed, even if those trying to manage it often got things wrong, sometimes gave in to pressure from the powerful owners of capital, or simply failed to deliver what they had promised."
  • "The latest stage, of remarketized capitalism, has in fact been characterized by a massive increase in state regulation, which has become more extensive than it ever was during the period of managed capitalism."
  • "The new world of remarketized capitalism provides greater choice and more freedom for the individual but also a less secure life, intensified work pressures, and greater inequality."
  • "As managed capitalism developed, the freedom of the individual was diminished in the name of greater equality, but in a remarketized capitalism, equality and security have been sacrificed to freedom and choice."
  • "Furthermore, the union-controlled labour market policy did not protect jobs but assisted workers to become mobile and retrain."
  • "The growth of industrial capitalism did result in the formation of unions, but these were mainly self-interested organizations of craft workers that were not concerned with class organization or the socialist transformation of society."
  • "The state had been drawn into economic life not by class conflict, as in Europe, but in defence of competition."
  • "According to the newly fashionable doctrine of ‘shareholder value’, the goal of management was no longer to invest in the future or build up a company or balance the needs of its various interests but only to maximize the value of its shares by increasing profits. Managers were given an incentive to do this through stock options which rewarded them for increases in their company’s share price."
  • "Managers had been to some extent separated from owners by the managerial revolution, but now they increasingly became owners."
  • "American capitalism has from its beginnings been characterized by strong beliefs in individualism and market forces,"
  • "At the ‘battle of Nissan’ in 1953 the company, backed by the Japanese Employers’ Association and with financial support from the banks, provoked the existing union into a strike, locked out its members, created its own Nissan union, and gave those who joined it their jobs back. Enterprise unions became the norm."
  • "High company employee integration gave Japanese companies the edge that enabled them to out-compete their Western rivals. The company provided the security of lifetime employment, wages that increased with seniority and length of service, welfare services, and often housing. In return employees had to work hard and long, giving up weekends and holidays if required by their company."
  • "Earnings differentials have been very much lower in Japanese companies than comparable Western ones."
  • "There was a sharp division in Japan between an integrated elite of permanent employees and a disposable periphery."
  • "Labour is cheap there not only because of its plentiful supply but also because it is unorganized and unregulated."
  • "This spread of wage labour has resulted in a global weakening of the power of labour. In the old industrial societies collective organization had enabled workers to reduce the power differential between capital and labour."
  • "Those living in the midst of an economic crisis may well feel that their world is collapsing. They may indeed think that the whole capitalist system is coming to an end. Crises of capitalism are not, however, exceptional events but rather a normal part of the functioning of a capitalist society."
    How did this happen? Initially, the trading season was short and lasted only a few months after the flowering and lifting of the bulbs. To meet expanding demand traders began buying and selling tulips that were still in the ground. They were now in effect buying and selling bulb futures. Promissory notes specified the details of the tulip bought and when it would be lifted, while a sign in the ground identified the owner. It was then but a small step to trade in the notes rather than the bulbs, - "for rapidly rising bulb prices gave the notes themselves an increasing value."
    Marx argued that capitalism was prone to crises because production was separated from consumption. In pre-capitalist societies they were closely related, since most production was for more or less immediate consumption. Under capitalism, goods were increasingly produced for sale in markets and this relationship became more distant. Goods were produced in the expectation that they could be sold, but the market might be unable to absorb them. Marx described capitalism as anarchic because - "production was no longer directly regulated by the needs of those consuming its products."
    It would come to an end only when overthrown by the workers it exploited. Certain tendencies in its development would facilitate this eventual overthrow. The advance of technology and the concentration of ownership would increase the size of units of production and workers would be concentrated in larger masses that would be easier to organize. Crises would certainly play a part in all this by radicalizing workers through their experience of them. They would also be radicalized by the widening - "gulf between the wealth of the increasingly small group of capitalists who enjoyed the profits of capital and the poverty of the frequently unemployed masses."
  • "Either way, the increasing scale of production and the growing numbers of people employed in it meant that a failure of consumption to keep pace with production could precipitate a rapid downward spiral of the economy, as workers, who were also consumers, lost their jobs."
  • "Those who wish to reform the world should focus on the potential for change within capitalism."


Sebastian Kade, Founder of Sumry and Author of Living Happiness, is a software designer and full-stack engineer. He writes thought-provoking articles every now and then on

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