Capitalism: Money That Make Money

Categories: CapitalismEconomics

A society is capitalist if most production is carried on by employees working with means of production (equipment and materials) belonging to their employer, producing commodities which belong to the employer. (Employees: those whose services are treated as commodities. ‘Labour is a commodity like any other’, ‘an article of trade’ – Edmund Burke, Thoughts on Scarcity, 1795.

Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the free market; profit is distributed to owners who invest in businesses, and wages are paid to workers employed by businesses and companies.

This is what we mean by the system of Capitalism. Thinking about Capitalism, one directly is taken to the period of Marx and Engels where a distinction between Capitalist and Labour class was firstly and soundly made.

Until then a capitalist continued to dominate the class hierarchy. Simple words suggest that a capitalist is a person in whose hands the entire power to production and the decision regarding the consumption vests.

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For ages capitalist class ruled the large part of the society. Even today, in several fields capitalists dominate other classes. Capitalism, as a deliberate economic system, developed incrementally from the 16th century in Europe, although proto-capitalist organizations existed in the ancient world, and early aspects of merchant capitalism flourished during the Late Middle Ages.

Capitalism became dominant in the Western world following the demise of feudalism. Capitalism gradually spread throughout Europe, and in the 19th and 20th centuries, it provided the main means of industrialization throughout much of the world.

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Today the capitalist system is the world’s most dominant form of economic model. The term capitalist refers to an owner of capital rather than an economic system, but shows earlier recorded use than the term capitalism, dating back to the mid-seventeenth century.

The Hollandische Mercurius uses it in 1633 and 1654 to refer to owners of capital. In French, Etienne Clavier referred to capitalistes in 1788, six years before its first recorded English usage by Arthur Young in his work Travels in France (1792). David Ricardo, in his Principles of Political Economy and Taxation (1817), referred to “the capitalist” many times. Karl Marx and Friedrich Engels, the great scholars of 18th century have continuously used the term ‘Bourgeois’ while talking about capitalist class.

They raised points concerning the exploitation of Proletariats by the Bourgeois and asked the proletariats to fight for their rights. The Communist manifesto given by these scholars shows the distinction they have made between the two classes and the domination of powerful capitalist class in the society. Marx on Capitalism; How explain the possibility of Capitalism? Capital is money used to make money – by buying commodities which are then to be sold to get an increased amount of money. How can money be used in this way?

One answer is: by buying cheap and selling dear as prices fluctuate. This may explain how this or that individual makes money for a while, but since every gain made this way is someone else’s loss, if those who gain that way now have an even chance of losing later, then it cannot explain the existence of a definite class of people who regularly make money. The explanation for the existence of such a class (capitalists) is that a limited set of people are in a position to buy a commodity which regularly yields an increase when they sell.

This commodity is the service of the worker, which may produce commodities which exceed that service in exchange value (and only when when it does will the worker’s services be bought). The service of a worker is a commodity which has the special use of producing other commodities, which may have more exchange value than it has itself. There are other commodities (e. g. machines) which produce commodities, but (on the labour theory of value, which makes human labour the sole source of value) the exchange value contributed by a machine is simply a fraction of the cost in labour terms of making and working the machine.

If over its whole working life it costs $3,000 and produces 3000 items, then it adds $1 to the value of each item. But the amount of labour a worker puts into what he produces over a lifetime may exceed the amount of labour needed to produce and maintain that worker. If some employer buys the worker’s services at their value – i. e. for the equivalent of the labour needed to produce the worker – then, since the worker’s product belongs to the employer, there will be an excess or ‘surplus’ value, additional to the value of the wage, that the employer appropriates.

Marx does not think that in the real world full value is always paid. But he conducts his argument on the hypothesis that full value is paid, for several reasons. First, he wants to make it clear that his analysis of capitalism does not rest on the assumptions that capitalists defraud the worker. Even if there were no cheating, capitalism could still exist. Second, he wants to show that even an idealized capitalism would be doomed to destruction (the argumentative strategy of proving the point for the hardest case: a fortiori it holds for other cases).

Third, he wants to make it clear that it is in production itself, and not merely in the distribution of the product, that the capitalists’ profits originate; it is not accidental that most (though not all) capitals are used to finance production (not, e. g. , for buying non-human commodities and selling them unmodified). To argue that capitalism is a system of inequality and class conflict, Marx takes as his point of departure the idea that the dominant class, the bourgeoisie, controls capital, property, the means of production, and hence by extension all those (far more numerous than the bourgeoisie) who make up the laboring class (i. . , labor).

Indeed, Marx sees an equivalence between capital, property, and the means of production, which are all concentrated in the bourgeoisie. More than this, Marx analyzes bourgeois power as aligned with fundamental forms of social organization and oppression: “Hitherto, every form of society has been based . . . on the antagonism of oppressing and oppressed classes. . . . Society can no longer live under this bourgeoisie . . . its existence is no longer compatible with society” (Marx, 2002, p. 209). Just as Marx links class power to political power, he links political power to industrial-economic power over the laboring classes.

The bourgeoisie’s ability to control industry and economy had as its consequence bourgeois control of the political system. This dominance, according to Marx’s logic, implies oppression of the majority of persons in society because capital will always seek to maximize its benefit. Marx’s solution: revolution and dictatorship of labor, which Marx terms the proletariat. He does not deal with the result of such a dictatorship and seems to simply assume that the proletariat will exercise its own power in a just way.

Capitalism and India; my viewpoint! (Socio-Economic) I am totally tuned in to the incentives, rewards, labour and profit motives of capitalism. It is not perfect. But it is historically absurd to deny that price and profit signals under capitalism have done a far better job of allocating scarce resources and sustaining long periods of economic growth than any other alternative. Communism proved itself to be a disaster wherever and in whatever name practiced. Remember the USSR? East Germany? Bulgaria? Romania? Albania?

And the devastation of Cuba under Fidel Castro that his ageing brother Raul cannot fix? Socialism, too, has had its innings in the west as well as in the east, and failed. State-sponsored capitalism — once the hot East-Asian model — saw too much of the state, and relatively less of private capital, resulting in overarching ambitions, needlessly grandiose projects and poor long-term returns. Go to Dubai and see for yourself. And the mixed economy with the state occupying the ‘commanding heights’ meant one thing: too much of command with little or no height worth the name.

So, if you were to closely observe the dirty, disordered canvas of economic progress during the 20th and 21st century, you should conclude that, for all its warts, capitalism has been the winner. It has sometimes caused pain; suffered from serious cycles; and often needed the clout of the state — such as we have seen from September 2008. It has also been quite resistant to sensible regulation. Even so, the basic institutions of capitalism have worked, not just in the US and the OECD (Organization for Economic Co-operation and development) nations, but also many developing countries, of which India is one.

And worked better than alternative mechanisms. That brings me to India. As we move on to the second decade of the 21st century, here’s my core hypothesis: India is geared to have significantly more of capitalism than what we have had up to now. And the more the better. Let us begin with agriculture. Nowhere is there a more intensely capitalistic venture than farmers choosing the crops that they sow, water, weed, harvest and sell. Since the late 1960s, economists have run thousands of regressions called supply response functions, which quantitatively determine what best explains crop acreage and output over long periods.

What are the results? From the turn of the 20th century right up to now, crops were planted according to expected prices and/or profits — surrogated by the price signals of the previous few years. Of course, other variables mattered such as rainfall, irrigation and fertiliser use. But the driving force was profits. Capitalism, therefore, defines 17 per cent of India’s GDP, namely agriculture. Now to services, which accounts for 55 per cent of GDP. If you deduct the share of government services, there is still some 40 per cent of GDP, much of it in the private sector. This is huge. And many of the activities are driven largely by profits.

Whether it be mobile telephony, retail trade, restaurants, real estate, storage, hotels, road transport or finance, each service — big, medium, small or holes in the wall — rises, shrinks, falls, re-grows or disappears according to supply, demand, costs and pricing. Even earlier anti-market behemoths such as public sector banks and insurance companies have become more attuned to prices and profits than anyone could have imagined in the mid-1990s. Thus, 57 per cent of India’s GDP is tuned to capitalism. What about industry, which accounts for 28 per cent of GDP? Some two-thirds of it is purely private.

That is another 18 per cent approximately. Moreover, most public sector undertakings are more price-and-profit oriented than ever before. So, hello capitalism! It accounts for at least three-quarters of our GDP. It may be higher still. But 75 per cent will do for now. Contrary to what the CPI, CPI(M) and some ‘don’t confuse me with facts’ professors tell you, India is awash with capitalism. Like China, you turn any corner, and you will meet someone who wants to start some business or the other: a photocopying shop, an STD booth, a local agency for Dabur, Godrej or Hindustan Unilever, automobile spare parts — the list is endless.

The state must allow these millions of capitalists to thrive. By creating essential infrastructure such as roads and power; by fostering basic facilities for education and training; by encouraging entrepreneurship through clean governance; and by creating level playing fields. These are tough tasks, but if the state succeeds in some fair measure, you can be sure that India’s millions of capitalists will make 9 per cent GDP growth look silly. We have it in us. In spades.


Over the centuries, capitalism and capitalist class has changed with time. It is worth adding that the impact of Capitalism on Society, economy, polity is huge. This has made it a multi-disciplinary subject of discussion. Domination of other classes of a society by a particular section of the society can never be justified and hence capitalism has been largely criticized by various scholars all over the world. The work of Marx on Capitalism is praiseworthy and is still followed today when issues regarding capitalism arise.

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Capitalism: Money That Make Money. (2017, Feb 15). Retrieved from

Capitalism: Money That Make Money

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