Wants are a funny old thing, human beings all have something they want. You, me, a pauper or a billionaire- despite our differences in race, income or education- all have common ground in one thing, we all “want” something. This forms the premises of what economists call the basic economic problem, to sum it up in no more than a few words- Human wants are infinite, but resources are scarce.
“Scarcity” to me is the single most important word in economics and it forms the foundation of the discipline. Without scarcity, there would be no need for economics, whether that is a good or bad thing, I’ll leave that to the reader’s imagination.
The late Paul Sampson, America’s first Nobel Prize winner for economics is widely credited with providing the first clear and simple explanation of the economic problem- namely, that to solve the problem of scarcity all societies, no matter how big or small, developed or not, must endeavour to answer three basic questions. What to produce? How to produce? And for whom to produce? The debate on how to answer these three questions is one that rages on to this day, one that has brought about major moments in world history and radical changes -sometimes quite violently- to the political and socio-economic landscape.
Capitalism, in the West at least, is the preferred economic system to answer Sampson’s questions. This economic and political system based on the private ownership of trade and industry for profit rather than ownership by the state is acclaimed by many to be the most ideal solution to the basic economic problem. Undoubtedly since its emergence as the dominant system in western society, we have seen rapid increases in economic growth. Leading to the highest levels of prosperity humanity has ever experienced, but some would ask at what cost?
Capitalism has many detractors, determined to overthrow the system for a fairer more equitable one. However, from the early origins of capitalism, we have seen something incredible. Heavy criticism of the system has led to a cultural shift; an evolution of sorts of capitalism.
From the 16th century, Mercantilism was a significant economic force in Britain, where Merchants could amass huge fortunes from purchasing foreign goods cheaply and selling them at huge profits to markets where they are more expensive. Some would call this the earliest form of capitalism others, including myself, would disagree. It is a consensus amongst Marxists that capitalism derives the surplus value from labour. Late American Scholar and Marxist, Ellen Wood argued that commerce is not equivalent to capitalism and does not produce it because ‘the dominant principle of trade everywhere was not surplus value derived from production but “profit on alienation”, “buying cheap and selling dear” to word it more simply, although trade involves the seeking of profits, it does not in itself affect how goods are produced.
The concept of wage work was a key development in the history of capitalism, The natural progression from mercantilism. At first, the merchants were a link between the consumer and producer. However, they gradually began to dominate the production process, first by placing orders and paying in advance, then by supplying the raw materials and paying a wage for the work done in producing finished goods. The first example of this in modern Britain was the cottage industry, where workers would carry out manufacturing activities in their homes, whilst production was directed by the capitalist. This was the default method of production in Britain’s wool industry, which by the end of the 17th century became Britain’s most profitable industry.
The early 1770s saw the arrival of the industrial revolution. The ever-greater search for profits saw an evolution from the cottage industry to the manufacturing of goods in factories, which centralised production methods. For the capitalist further decreasing costs. As costs of production were at an all-time low, this led to price deductions on British Exports which stimulated worldwide demand. This saw the British economy flourish. British exports rose from £15million in 1760 to £59million in 1805. However, the wealth was not seen by the workers who had made it possible but concentrated in the hand of those who owned the means of production and bought the labour of workers.
Workers were often subject to terrible working conditions and long working hours but could not escape this as unlike in the cottage industry, a centralised production system means they are totally reliant on selling their labour for a wage.
German Philosopher Karl Marx and English writer Charles Dickens were some of the most high-profile critiques of Capitalism amid the industrial revolution.
Marx in the first volume of Marx Capital tells us that workers are only partially remunerated for their labour expended in doing a job. The unremunerated portion is the source of surplus value and ultimately profits which are either ploughed back into capital accumulation or distributed as dividends to shareholders. According to Marx ‘an endless dynamic process in which the extraction of surplus value depends upon the rate of exploitation. On the surface, the activities of the capitalist are reasonable and indeed rational, yet conceal a deeply unreasonable exploitation of human capacities and possibilities beneath the surface.’ Reformers that sided with Marx were only further backed up by the visibly dreadful conditions of employment.
In the early 20th century capitalism faced major threats to its status as the most dominant political system. The Russian revolution of 1917 saw the world’s first socialist state, whilst the great depression of the 1930s saw critics of capitalism increase pressure for reform. By the end of the 2nd world war, the birth-place of Capitalism, Great Britain, due to her war efforts was in financial difficulties. Austrian-born American economist and political scientist, Joseph Schumpeter, one of the great intellectuals of the era- when posed the question “Can capitalism survive” in January 1936, He bluntly answered, “No, ladies and gentlemen it cannot.” Schumpeter delved into the question again this time in his book, Capitalism, Socialism and Democracy, published in 1942 during the second world. His answer was again the same but justified at greater length.
Not only did capitalism survive but capitalism thrived by absorbing the unrest and criticism, creating a new ‘slicker’ version of itself. The arrival of credit and the instalment plan created a new age of consumerism, giving capitalism the right conditions to once again reign supreme. Even the lowest on the social class ladder now had consumer aspirations. Slick marketing campaigns now meant you could now wear the same products as your favourite celebrity. If we look around in today’s world we see the very people who capitalism disadvantages the most, further pushing the perpetual wheels of consumption. Take global shoe brand Nike- their ad campaigns are shot in tower block estates. appealing the most to a class who are amongst the lowest earning a class who should be amongst it’s fiercest critics. Not to say that today capitalism has completely rid itself of its detractors. The chameleon-like ability to mask’s its flaws may someday cause future generations of humanity to pay the ultimate price but the sheer adaptability of the system itself is one to marvel at.
Founder of JoeySpeaks LTD & Co-Owner of Scenera LTD