What is Capitalism

The capitalism is an economic and social system based on private property and the accumulation of capital.

It emerged in the fifteenth century, from the Middle Ages to the Modern Age, from the decay of the feudal system and the birth of a new social class, the bourgeoisie.


Capitalism arose in Western Europe due to changes in the feudal system. With the centralization of power in the hands of the king and the rise of the bourgeoisie, society experienced a great transformation.

There were several changes in the mode of production, increased urbanization, the emergence of new manufacturing techniques that allowed the cheapening of goods.

The Banker and his Wife

The Banker and his Wife, by Marinus van Reymerswaele, 1539

We still have the improved communications and means of transport that have facilitated the arrival of these products to distant territories.

It is important to remember that capitalism, as we know it today, has undergone several modifications, but has always been based on profit.


The word capital comes from the Latin capitale and means “head”, in which it alludes to the heads of cattle, that is, one of the measures of wealth in ancient times.

It can also relate to the head in its rational sense, that is, the head as the upper body that thinks and commands the other parts.

There is another definition that refers to the capital of a state or country, that is, the city where the administration and direction of public affairs is concentrated.

Phases of Capitalism

We can say that capitalism is historically divided into three phases. Are they:

  • Commercial or Mercantile Capitalism (pre-capitalism)
  • Industrial Capitalism or Industrialism
  • Financial or Monopolistic Capitalism

Commercial Capitalism

Pre-capitalism or commercial capitalism, also called mercantilism, was in force from the 15th to the 18th centuries.

At this time, Europe is undergoing the transition from feudalism to capitalism. Land ceases to be the most important source of wealth to become a good that can be sold like any other.

Thus, the main purpose of commercial capitalism was the accumulation of capital through trade, the favorable trade balance and the conquest of colonies.

Industrial capitalism

Industrial Capitalism or Industrialism emerged with the Industrial Revolution in the eighteenth century, from the transformation of the production system.

In this case, there was a change in the way of manufacturing manufactured products. Previously, each product was handcrafted in small quantities. With the emergence of the steam engine and more elaborate machines, one moves to large production scales.

In this way, Industrial Capitalism focuses on the development of the manufacturing system of production. This will require more manpower and thus the working class will emerge.

Financial or Monopolistic Capitalism

Financial or Monopolistic Capitalism

Capitalism is based on the exploitation of the worker.

Finally, financial capitalism, which began in the twentieth century, consolidated with the First World War, is in force today.

Financial capitalism is founded on the laws of banks, corporations, and large corporations through the industrial and financial monopoly.

That is why this third phase of capitalism is known as monopolistic financial capitalism. Importantly, industries and businesses still profit, but are controlled by the economic strength of commercial banks and other financial institutions.

Few and large companies have come to dominate the market through trusts , holdings and cartels.

Based on the phenomenon of globalization, some scholars defend the theory that capitalism is already in a new phase of development, called informational capitalism.


In the eighteenth century, with the changes produced in the political and economic systems, there are several theorists who intend to explain the functioning of the economy and therefore of capitalism.

One of the most important, no doubt, was Adam Smith. The Scottish theorized about the role of the state in the economy which should be its function within the economic system.

In this way, two currents arise:

  • Liberalism : argues that state interference should be minimal, with the sole task of regulating the economy, collecting taxes and taking care of the welfare of citizens.
  • Anti-liberalism or interventionist : It understands that the economy must be planned from the state, which would set prices, establish monopolies and regulate.

Characteristics of Capitalism

These are the main characteristics of capitalism:

  • Private property;
  • Profit;
  • Accumulation of riches;
  • Salaried work;
  • Control of production systems by private and state owners.

Socialism x Capitalism

Socialism x Capitalism

As a way of counteracting capitalism, several ideas have emerged that contest this system such as socialism and anarchism.

For purposes of study, we will analyze only Socialism, which emerged in the eighteenth century. Socialist doctrine can be divided:

  • Utopian Socialism, by Robert Owen , Saint-Simon and Charles Fourier
  • Scientific Socialism, by Karl Marx and Friedrich Engels

Because communism and socialism are based on economic equality, concepts are often treated as synonyms.

The communism, however, is not really a system, but an ideology. The goal of communism is a society without the existence of social classes, when the working class will assume the preponderant role in social organization. Thus, through socialism is meant to achieve communism.

Criticisms of Capitalism

The main criticism leftist theorists make of capitalism is that of private property, as this would be the source of injustice in the world.

Likewise, socialism sees in exploitation of workers one of the greatest evils of capitalism. Demanding maximum output with minimal counterpart, investor profit would only increase and social inequality would deepen.

Socialists argue that a capitalist society will always be subject to crises like that of 1929. That is why only a system based on social equality would be able to end these problems.

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