CAPITALISM

Max Weber & Karl Marx

Marx on Capitalism

1. A Stage in Human History

2. Main Features of Capitalism
3. Capitalism and Class Conflict
Marx’s approach:
1. Capitalism as a stage in
human history
 The economic base or infrastructure
 (mode of production + relations of production)

 Mode of production changes in the course of history

 Mode of production shapes other sub-systems =

superstruction (politics, religion, values and culture)
Marx classification & today’s
historical classificaiton
 4 stages of history 1. hunters and gatherers
1. Primitive communal (foragers)
(hunters- gatherers 2. pastoralists looking
society) after livestock (camels,
cows sheep, goats) --
2. Ancient stage (and shifting cultivators
3. Feudal stage --
3. (d) intensive
4. Capitalist stage
agriculture –
permanent cultivation
4. Industrial society
5. Post-industrial society
 Capitalism is an economic system in which the means of
production are privately owned and operated for profit,
usually in competitive markets.

 In other words; An economic system in which investment in

and ownership of the means of production, distribution, and
exchange of wealth is made and maintained chiefly by
private individuals or corporations.
OR
 Capitalism is the social system which now exists in most
countries of the world. Under this system, the means for
producing and distributing goods (the land, factories,
technology, transport system etc) are owned by a small
minority of people. We refer to this group of people as the
capitalist class. The majority of people must sell their ability
to work in return for a wage or salary (who we refer to as
the working class.)
 ADAM SMITH called “the obvious and simple system of
natural liberty” (Book: Wealth of Nations).
Subject to certain restrictions, individuals (alone or with others) are
free to decide where to invest, what to produce or sell, and what prices
to charge. There is no natural limit to the range of their efforts in terms
of assets, sales, and profits; or the number of customers, employees,
and investors; or whether they operate in local, regional, national, or
international markets.
 Capitalist System
(Adam Smith)
• Centralized to Decentralized
system

Mercantile • Authoritarianism to representative

democracy
System
• Free flow of resources
• Production Factors
in Government • People strive for self interest in
hands free market

• Export emphasis • Beneficial for society

• Based on Demand & Supply Forces

• Monopoly to Competitiveness

• Self sufficiency to International

interdependence

• Producer interest to customer

power
 Capitalism, economic system in which
private individuals and business firms
carry on the production and exchange of
goods and services through a complex
network of prices and markets (Peterson,
2005).
 capitalism evolved through a number
of stages, reaching its zenith in the
19th century
 from England, capitalism spread
throughout the world
 Free enterprise and market system
are terms also frequently employed
to describe it.

 Sometimes the term mixed economy

is used to designate the kind of
economic system most often found in
Western nations.
 Scottish philosopher Adam Smith

 An Inquiry into the Nature and Causes of the Wealth of Nations

(1776)

 how it was possible to pursue private gain in ways that would

further not just the interests of the individual but those of society
as a whole?
 Capitalism has also
returned to its roots, in the
free market, and many
defenders contend that the
problems capitalism
encountered were due to a
loss of faith in the free
economy.
2. Main features of
Capitalism
Main features of capitalism,
according to Marx
1. Production for sale rather than for self-
use
2. The existence of a market where labour-
power is bought and sold
3. Exchange takes places through money
4. The capitalist controls the production
process
5. The capitalist controls the financial
decisions
6. Competition
 Go over the main features of capitalism
carefully. Can you observe these features
in Indian society? To what extent?
Capitalism and class conflict

 Marx: “human history is a history of class strugle”

 Private property on the means of production leads to
the polarisation of classess
 Marx viewed capitalism as one of the stages in histroy,
emerging out of contradictions of the previous stage
 He claimed in the 19th century that capitalism leads to
revolution due to class polarisation and that capitalism
is exhausted as a historical stage.
Today’s concept: Post-
industrial society
 A post-industrial society is a stage in a society's
development during which the economy transitions from
one that primarily provides goods to one that primarily
provides services
 Shift from manufacturing to service sector
 Information society
 USA: more than 50% of workers are employed in service
sector jobs
 Daniel Bell The Coming of post-industrial society
What about Marx’s prediction
of the end of capitalism
about 150 years ago?
 Growth of the middle class / spectrum of social
classess instead of polarisation
 Financial Intermediation and the Dispersion of
Wealth
 The Diversity of Labor Rather than Its
Homogenization
 Are capital and labor conflicting or Complementary?
 Is there any separate “Economic” History
Determining Human Events?
 Can “Productive Forces” Dictate Ideas?
Class Analysis
Relationship to Location within Differential
economic production control voer
assets (to the relations of labour effect
means of domination and (exploitaion)
production) exploitation
 Marxist class analysis
 Linking exchange and production
 Conflict as generated by inherent properties of class
relations
 Power: class realations generate antagonistic interests.
 Coercion and concent
Basic Causal Structure of
Weber’s Class Analysis
a. Private
Ownership
Private ownership of
property
 “…human beings are most
effectively motivated by self
interest (Sargent)”

 Ineconomics, this means that

individuals should be free
(free market) to pursue their
interest (profit).
 Private ownership of the means of
production is the most fundamental of
the institutions of capitalism, along with
freedom and the pursuit of material self –
interest.
 It underlies the division of labor on
private ownership of the means of
production is based on the very nature of
the gains provided on the division of
labor (Reisman,1990).
“In order for a person to act
and produce on any
significant scale… they must
hold wealth separately and
independently from one
another (Reisman, 1990)…”
The Effects of a Free
Market (by AdamSmith)

 Goods will be sold cheaply as

possible
 Jobs will be created
 The entire economy will be
stimulated and grow,
producing a higher a higher
standard of living to
everyone.
2. No legal limit on
the accumulation of
Property
No legal limit on the
accumulation of property
 For capitalist, liberty is
founded on private property.
 The right to hold and use
property is the key to
functioning in the free
market, and thus any
attempt to limit property
holding hits of the whole
system (Sargent).
The amount of property
and money held by
individuals directly
affects the amount of
money they spend
(Sargent).
 Theamount of individuals spend
directly affects the amount of industry
can produce; the amount of industry it
can produce affects the amount of
number of people it can hire; the
amount the industry can hire again
affects the amount of money available
to be spent by individuals for the
products of the company.
3. Free Market –
No government
intervention in
the economy
The Free Market – no
government intervention in the
economy
No government
intervention/regulation
in the economy because
it destroy the capitalist
system, and, hence,
individualism and liberty.
 Economicfreedom promotes political
freedom because it separates economic
power from political power and in this
way enables the one to offset the other.

 With economic freedom, the

relationship between the government
and centers of economic power is rather
like the checks and balances system
within the government.
There is a free market toward
the establishment of a uniform
rate of profit on capital invested
in all different branches of
industry
The uniformity-of-profit principle
is what keeps the production of
all the different items directly or
indirectly necessary to our
survival in proper balance.
In a free market there is a
tendency toward the
establishment of a uniform price
for the same good throughout
the world.
 In a free market there is a tendency
toward the equalization of the price
of a good in the present with the
expected price in that good in the
future.
 In a free market there is a tendency
toward an equalization of wage
rates for workers of the same
degree of ability.
4. What is The Role
of the Government?
Government is a social institution
whose proper function is to protect
individual from initiation of force.
it exists to make possible an organized,
effective defense and deterrent against
the initiation of force (Reisman,
1990).
The Profit motive
The profit motives provides
powerful incentives for the
steady expansion and
improvement of production and,
at the same time operates to
keep the relative size of all the
various industries and
occupations in proper balance
(Reisman, 1990).
 The profit motive is what balances
the demand and supply of each
product and ensures the most
rational and efficient distribution of
each product over space and time –
among all markets that compete for
it- and its delivery into the hands of
those individuals who, within the
limits of their wealth and income,
need or desire most (Reisman 1990).
 The profit motive ensures the most
rational and efficient allocation of
capital and of every type of labor
and material among its possible
alternative uses, and makes the
economic system respond to changes
in economic conditions in the most
rational and efficient manner
possible (Reisman, 1990).
 Thus,the profit motive is
what prevents any sort of
“anarchy of production”
and, instead creates
economic order and
harmony who comprise the
economic system
Thus, Capitalist believes
that the profit motive drives
people to succeed and create
wealth (Sargent).
 Benefits of Capitalism
 In years 1000–1820 world economy
grew six-fold, in years 1820–1998
world economy grew 50-fold
 Provides Choice to customers
 Provides valuable goods and services
 Capitalism actively rewards positive
traits like hard work
 Similarly, it punishes negative traits
such as laziness and theft
 Narrows the gap between common
person and wealthy
 Provides opportunity to realize
dreams and desires
 Capitalist societies usually do not
have large black markets
 Build on democracy
 Social Good
Critics of Capitalism
 Major limitations/ Criticism:
 Downfall of work ethics
 Free Market + Self Interest
 Accumulation of wealth
 Encourages inequality in a society
 Business lobbying with government
 Monopolistic tendency
 Human resource exploitation
 Results in great disparities between income of people owning the capital resources
and others
Result of Capitalism…

 extremes of wealth and

power, the power such wealth
gives its owners over the
political processes,

 andthe extreme inequality

between employer and
employee (Sargent).
COMPARISON..
BASIS OF DIFFERENCE CAPITALIST ECONOMY
Resources Ownership Privately owned
Foundation belief competition brings out the best
in people
Earning of wealth everyone works for his own
wealth
Market Scenario Level playing field
Govt. interference Only in situations where laws
have been broken
Employees motivation Highly motivated on account of
proportional benefits
Merit Perception of better economic
growth because of competition
Demerit Few individuals/groups attain
powers, rest are exploited
SOCIALIST ECONOMY
State owned
cooperation is the best way
for people to coexist
everyone works for wealth
which is distributed equally
to everyone
Protection to PSUs, Private
enterprises are permitted
in few businesses only
Fully involved
Rarely motivated as
performance is not
rewarded
Equal distribution of
income results in welfare
of all
Hard work is not rewarded,
lazy employees also enjoy
Mixed Economy

• Any economy in which private corporate

enterprises and public sector enterprises exist
side-by-side, and decisions taken through
market mechanism are supplemented by some
form of partial planning, is to be described as
a mixed economy.

• This system overcomes the disadvantages of

both the market and planned economic
systems.
 Provides a clear demarcation of the boundaries of
public sector and private sector so that the core sector
and strategic sectors are invariably in the public
sector.

 The government intervenes to prevent undue

concentration of economic power, and monopolistic and
restrictive trade practices

 The rights of the individual are respected and

protected subject only to the requirements of public
law and order and morality
 Features
 Resources are owned both by the government as well as private individuals. i.e. co-
existence of both public sector and private sector.

 Market forces prevail but are closely monitored by the government.

 Monopolies may be existing but under close supervision of the government.

 Advantages

 Producers and consumer have sovereignty to

choose what to produce and what to consume but
production and consumption of harmful goods and
services may be stopped by the government.

 As compared to Market economy, a mixed

economy may have less income inequality due to
the role played by the government.

 A mixed economy represents an achievable balance

between individual initiative and social goals.
Mauriti factory violence

 The case: the July 2012 violence in Maruti’s Manesar

plant
 Senior HR executive dead
 Nealy 100 other officials injured
 Convicted – 31 worker
 What ‘s the cause of the cause of the conflict, in your
view?
 Weber and the
Protestant Work Ethic
 Weber on Rationality
 Rationality is a product of scientific specialisation
Protests against disenchantment of
the world
 Nature is not as you imagine her:
She's not a mold, nor yet a soulless mask-
She is made up of soul and freedom
She is made up of love and speech . . .
 They do not see and do not hear
They live in this world as if in darkness,
For them, it seems, the stars don't breathe
And ocean waves are not alive.
The sun's rays have not reached their soul,
Spring's never bloomed within their breast,
The forest does not speak to them
And starry nights are always mute!
And, roiling woods and rivers
With unearthly speech,
No storm's engaged them in the night
In friendly conversation!
They're not to blame: how can the deaf
Perceive an organ's sound!
Alas, their souls can not be touched
Not even by a mother's voice!
 Fyodor Ivanovich Tyutchev
 Critique of the
disenchantment of the world
 By philosophers
 Romantics, Ken Wilber, Solovyov,
Max Sheller, Heidegger, Jaspers,
 “The death of the great Pan” =
The Rigvedic god Pushan
 (Pashupati ) Lord of all animals"
 The re-enchantment of the world
 Holistic and ecological new world
view, grounded in the connection
between humans and nature.
Origin

 Weber proposed a theory to help

explain the development of capitalism
in Western Europe.
 First proposed his theory in a two part
paper published in 1904 & 1905.
 Stressed the role of ascetic
Protestantism in the development of
modern captialism and the growth
seen in parts of Western Europe during
the 1500 ’s and beyond.
 The Romantics echoed Plutarch's line that “Great Pan is
dead!” with a tone of mourning for those gods recorded
in mythology who had fled this world.
 Friedrich Schlegel's (1772—1829) call for a ...
 Theory
 Weber stated that Protestantism, specifically
Calvinism, played a large role in the development
of capitalism. However, it had no part in
sustaining it, rather capitalism grew on its own
once in place.
 Protestantism was singled out as the catalyst,
however Weber believed that it could potentially
be another force. His only criteria was that it be
a radical cultural force that broke through
traditional beliefs and attitudes.
 This was of course contingent on other factors
being present, such as economic, technical and
political factors.
 ‘Spirit of Capitalism’ and the growing
accumulation of wealth.
 Cultural shift under capitalist
rationalization. Capitalism becoming the
culture.
 Weber was curious about the source of this
culture. He did not accept a purely
materialistic view.
 Led him to the connection between the
Protestant Ethic and the Spirit of
Capitalism.‘
Protestantism

 Why the Protestants?

 Salvation, doctrinal shifts and the
growth of personal wealth.
 Calvinists as the first.
 Opposite of Catholics.
 The blending of Protestand Ethic
and Spirit of Capitalism into one.
Criticism

 Weber’s incomplete theory helped fuel criticism.

 Two main criticisms.
 Middle ground?
Catholicism

 Catholic community vs. Protestant community.

 One’s path to salvation.
 Charity and poverty.
Present Day

 Weber’s theory in present day economics.

 Reluctance by economists to blend disciplines.

 Source: Howard, Michael C. One Hundred Years From

Today: Max Weber’s the Protestant Ethic and the
Spirit of Capitalism. History of Economics Review,
vol. 0, no. 42, Summer 2005, pp. 100-103.
 Max Weber
 Roman Catholics are assured of their salvation from their
belief in the sacraments and by following the authority of
the Church’s hierarchy.

 He believed that the protestant ethic had removed such

assurances of salvation.
 Salvation
 By lacking their assurance of salvation, protestants were
led abroad for new answers

 Success as a new medium to salvation

 Out of this emerges Calvinism

 Calvinism
Calvinism is a theological system and an approach to Christian
life that emphasizes God’s sovereignty in all things. It falls
within the realm of Protestant Christianity and is sometimes
called the Reformed tradition or Reformed theology.
 Reformation

 Rising importance of Reformed Churches belongs to the second

phase of the Protestant Reformation

 Evangelical churches began to form

 A spread across Europe
 His ideas about the reformed church across Europe and began to
emerge in countries such as Germany, France, Hungary…
 Calvinism Continued…
 Concept of Predestination

 No longer can good/faithful acts automatically lead to the path of

heaven

 Either among the ‘elect’ or not

 Wealth taken as a sign of the ‘elect’

 Continued Some more…

 A clear incentive for acquiring wealth

 Thus, Calvinism (so also, the protestant ethic) led to a religious

outlook that placed emphasis on discipline that encouraged men to
acquire wealth
 Why is this important?

 I don’t know…

 Just kidding

 Weber’s intention was to demonstrate a relationship

between Calvinism and a form of capitalism, deeming it
important.
Barro and McCleary

 Costs include not only time but resources expended on

buildings, precious objects and so on.
 Believing (values) relative to belonging (or attending) is
the main channel through which religion matters for
economic and other outcomes
Europe Today
Economic Networks

 Protestant Europe created a distributed economic

network that spread across state borders.
 new arbitrage opportunities available in cities bordering
on the Atlantic
 Information available from Protestant printing centers-
Catholic ones were censored
Divergence Between
North/South
 Growth of real wage and population
 Urban population growth
 5x greater in protestant regions than Catholic ones
 Literacy
 Protestant now (1750) more literate
 English males 60% vs. French males 40%
Catholic Urban Literacy
Network (1750)
 The Protestant Urban
Literacy Network (1750)