Capitalism

Capitalism as a System of Production and Exchange

This famous passage from The Communist Manifesto by Karl Marx and Friedrich Engels is packed with recurrent themes in the analysis of capitalism: capitalism is a revolutionary force against tradition that destroys the old (feudal) order of society; capitalism is a continually revolutionary force that never rests and acknowledges no limits, whether geographical or normative, to its activities—what Josef Schumpeter would much later refer to as “creative destruction” (1942); capitalism is a force for secularization and for what Max Weber called the disenchantment (Entzauberung) of the world (our “sober senses”).

The claim that capitalism is a revolutionary force that both removes barriers to and finds mechanisms for ever-increasing efficiency and thus wealth (whether for some or for all has been a frequent matter of contention) was made in a no less well-known passage written some seventy years earlier:

This is Adam Smith's famous pin factory, in which “one man draws out the wire, another straights it, a third cuts it, a forth points it, a fifth grinds it at the top for receiving the head” (5). The passage identifies a further key component of capitalism: an advanced division of labor (specialization of tasks) within the production process that, as Émile Durkheim argued, generated and reflected a broader social division of labor.

The maximization of efficiency is, in turn, driven by the need to maximize profits. Weber, for example, [Page 130]draws a sharp distinction between the “old economic order” that asked “how can I give, on this piece of land, work and sustenance to the greatest possible number of men?” and the new capitalist economy, in which the question becomes “from this given piece of land how can I produce as many crops as possible for the market with as few men as possible?” (1906/1948, 367). He therefore distinguishes rent from profit. The rents drawn from the ownership of land are designed to maintain a specific lifestyle, say that of the riding and hunting country gentleman. Unlike profit, rent has no necessary drive to maximization.

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