What is Capitalism, Exactly?

Let's Define This Widely Used Yet Little Understood Term

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Capitalism is a term that we are all familiar with. We have a capitalist economy in the U.S., and most of us could probably answer that a capitalist system is premised on competition between private businesses that seek to make profit and grow. But, there’s actually quite a bit more to this economic system, and it’s worth understanding the nuances, considering the fundamental and important role it plays in our lives.

So, let’s dig in to it a bit, from a sociological perspective.

Private property and ownership of resources are key aspects of a capitalist economy. Within this system, private persons or corporations own and control the mechanisms of trade, industries, and the means of production (the factories, machines, materials, etc., required for production). In the ideal vision of capitalism, businesses compete to produce increasingly better products, and their competition for the greatest share of the market serves to keep prices from climbing.

Within this system, workers sell their labor to the owners of the means of production for a wage. Thus, labor is treated like a commodity by this system, making workers interchangeable, just as other commodities are (in an apples to apples sort of way). Also, fundamental to this system is the exploitation of labor. This means, in the most basic sense, that those who own the means of production extract more value from those who labor than they pay for that labor (this is the essence of profit in capitalism).

Thus, capitalism is also marked by an economically stratified labor force, because the differing valuation of the various kinds of labor involved in producing something leads to some earning far more money than others. Historically and still today, capitalism has flourished also off of a racially stratified labor force.

In short, the owners of the means of production have accumulated a lot of wealth thanks to racism (you can read more about this in Part 2 of this post). And, one last thing. It’s important to recognize that a capitalist economy does not function without a consumer society. People must do the work of consuming what is produced by the system in order for it to function.

Now that we’ve got a working definition of capitalism, let’s broaden it by looking at this economic system from a sociological lens. Specifically, let’s look at it as a part of greater social system that allows society to function. From this standpoint, capitalism, as an economic system, does not operate as its own distinct or detached entity in society, but instead is directly connected to, and thus influential of, culture, ideology (how people see the world and understand their position in it), values, beliefs, and norms, relationships between people, social institutions like media, education, and family, the way we talk about society and ourselves, and the political and legal structure of our nation. Karl Marx elaborated on this relationship between the capitalist economy and all other aspects of society in his theory of base and superstructure, which you can read about here.

Simply put, Marx argued that the superstructure does the work of legitimating the base, meaning the government, our culture, our world views and values, all of these things (among other social forces), make the capitalist economy seem natural, inevitable, and right. We think of it as normal, which allows the system to persist.

“Great,” you’re probably thinking. “Now I have a quick and dirty understanding of how sociologists define capitalism.”

Not so fast. This system, “capitalism,” has actually gone through four very different epochs dating all the way back to the 14th century. Continue reading Part 2 of this series to learn what capitalism looked like when it began in the Middle Ages in Europe, and how it evolved to be the global capitalism that we know today.