3.2.1 Capitalism: definition and development
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 1.1.3 Degenerative economies, which explain the problems for people and planet with the way our current economies operate.
Section 1.2.1 Human-nature relationship, which explains the need to return to a worldview that sees humans as part of nature rather than separate from it.
Section 1.3.2 Values in the economy, which explains how values affect human behaviour, judgements, and the economic tools we choose to use in the economy
Section 3.1.1 The market as a system, which describes market parts and their relationships, and the connection between the household and the rest of the economy.
Section 3.1.2 Demand and supply, which explains the factors affecting supply and demand and the dynamic relationships and feedback between supply, demand and prices.
Section S.1 Systems thinking, which explains what a system is and why systems thinking is useful. (coming soon)
Section S.x Feedback loops and tipping points, which explains the roles of reinforcing and balancing feedback loops in amplifying or dampening change. (coming soon)
Learning objectives:
define capitalism and distinguish capitalism from markets
explain how capitalism developed through processes of enclosure and colonisation and the worldview of human-nature dualism
Ask 20 people on the street what capitalism is and you will likely get 20 different responses. People’s understanding of capitalism varies, but however they see it, trust in the system is fading fast.
According to the Edelman Trust Barometer, a majority of people around the world (56%) believe capitalism is “doing more harm than good.” Even in countries with strong economies, many feel uncertain about their future. Rising concerns about economic inequality and job security fuel this distrust. As faith in the system declines, in places as diverse as India, France, and Brazil (Figure 1), it’s clear that capitalism, in its current form, faces a serious crisis of confidence.
This is an important issue because capitalist forces today determine much of what happens on our planet. Many refer to the current era, in which human economies literally change the face of the planet, as the anthropocene, the age of man. However, research shows that the climate crisis is driven largely by the consumption of the wealthiest 10% people on this planet. Their consumption patterns, in turn, are driven by capitalists’ constant search for new ways to make profit, creating new desires. So others propose that we should instead call the current era the capitalocene.
Figure 1. Share agreeing that “capitalism as it exists today does more harm than good in the world”. Note: data not available every year in the Trust Barometer
(Credit: Edelman Trust Barometer, CC BY-SA 4.0)
But before we ask why people are disillusioned with capitalism, we need to understand what it is.
What is capitalism?
Capitalism is the dominant economic system in most countries today. Since people understand capitalism differently, it’s important to define it clearly.
In economics, the term capital refers to assets or valuable resources used to generate income. These assets are also known as the means of production:
financial capital: money that can be used in various ways to earn more money
physical capital: the human-made technologies that can be used to produce goods and services, like a machine or a factory
natural capital: Earth’s materials, energy, and processes that can be used to produce goods and services, like minerals, fossil fuels or wind
human capital: human energy, knowledge, skills and experience that can be used to produce goods and services. Social capital, professional capital, cultural capital are all forms of human capital.
Using the word ‘capital’ highlights the instrumental value of a thing. Money, technology, nature, and humans are valued for what they produce, rather than valued in-and-of themselves, called inherent value. So as you might imagine, using the term capital to refer to nature and humans is controversial.
Now that you have some idea what capital is, let’s turn to capitalism. Capitalism is an economic system with these characteristics:
function is to earn (maximum) profits for the owners of capital;
capital is mainly privately-owned, as opposed to state-owned, or managed in the commons;
markets (instead of states, households, or commons) are the dominant provisioning institution; and
businesses/firms compete with one another to sell products to consumers.
Capitalism and markets are not the same. To stay in business, firms need to break-even, where the revenue the business earns from selling its products equals the production costs. Most businesses aim to earn profits, where the revenue is greater than the production cost. Many small businesses, such as local stores or restaurants, earn enough to support themselves and their households and to maintain the stability of their business, but they don’t aim for endless growth or profit maximisation. In contrast, most large capitalist firms are focused mainly on maximising profit and growth, with little consideration for social and ecological impact.
Figure 2. Most small businesses would not be considered capitalistic
(Credit: Thach Tran, Pexels licence)
A society can be described as capitalist when capital owners have a lot of power over key decisions in society, driven by goals of business growth and profits. Capitalism is not just an economic system, but also a political system. As more things are sold in markets, money and power shifts to capital owners, who can increasingly shape legal and political forces in their favour. This can undermine democracy and is a force behind the rise of authoritarian political support around the world.
No economy is 100% capitalist. All economies are mixed because markets can't handle all economic exchanges. As this course explains, households, the commons and the state play important roles even where markets dominate. Healthy human economies are diverse and have distributed power, like healthy ecosystems. This will be discussed in greater detail in Section 3.2.2.
How did capitalism develop?
Markets have existed for thousands of years, but capitalism is only about 500 years old. It emerged during Europe’s transition from feudalism and was shaped by major economic, political, and intellectual shifts. Three key changes were important: enclosure, colonisation, and human-nature dualism.
Enclosure
In mediaeval Europe (500-1500 AD), much land was held in the commons, used collectively by communities for grazing and farming. Most people worked for themselves and their household members. They could combine their labour with resources (soil and forests, water, wool, etc.) to meet their own and others’ needs.
But in the 16th century, as populations grew and markets expanded, wealthy landowners began enclosing these lands, turning them into private property with fences and later through laws (Section 3.2.3). This allowed landowners to grow cash crops for profit, increasing their wealth.
However, this enclosure movement displaced rural people who lost access to land, their means of production, and had to migrate to cities to sell their labour for wages in what we now call the labour market. Enclosure was a key step in capitalism’s rise, creating the wage labour needed by factory owners.
Figure 3. An anonymous poem from the 18th century about enclosure - what’s the message?
(Credit: Kreuzschnabel, CC BY-SA 3.0)
Colonisation
While enclosure changed how land was used in Europe, European capitalists exported the enclosure model to the rest of the world through the process of colonisation. Colonisation happens when one group takes control of another land and its people for their own benefit.
Starting in the 15th century, Europeans violently conquered vast territories in the Americas, Africa, and Asia. They weren’t just after land; they wanted to extract natural resources like gold, silver, spices, and other goods to sell in European markets for profit. The wealth from these ventures was invested in European businesses, fueling capitalist economic growth.
Colonisation was brutal, exploiting both people and land. As economic anthropologist Jason Hickel explains:
People were bulldozed off their land and into the capitalist labour system to work on European-owned mines, factories and plantations. In most cases we know that the income people earned from the new wage economy – pennies a day – didn’t come anywhere close to compensating for their loss of land and other resources, which were gobbled up by colonisers.
European colonists killed millions of indigenous people or enslaved them, using their unpaid labour to build profits. The transatlantic slave trade, part of the larger Triangle Trade system (Figure 4), was central to early capitalism. Enslaved Africans were forced to work on plantations in the Americas, producing sugar, cotton, and tobacco—highly demanded in Europe. The massive profits from these plantations helped fund the European Industrial Revolution. This exploitation of people and land laid the groundwork for modern capitalism, and still continues in new forms today.
Figure 4. The Triangle Trade of human and nature exploitation for profits that fueled European Industrial Revolution
(Credit: Isaac Pérez Bolado, CC BY-SA 3.0)
Human-nature dualism
For much of human history, humans viewed themselves as part of nature, with non-human elements of the world considered relatives and no real distinction between living and non-living things. This is still the case with indigenous communities around the world.
However, during the same time period as enclosure and colonisation, Europeans changed how they viewed humans and the rest of the world (Section 1.2.1). Enlightenment thinkers like René Descartes argued that humans were separate from other natural elements, a belief known as human-nature dualism. Nature was seen as something to study, control, and exploit for human benefit. Europeans also began to view non-Europeans as part of nature and inferior, creating a racial hierarchy that justified slavery. During this time, human and natural resources were treated as mere inputs for production, not as parts of a living ecosystem. This shift gave the moral and philosophical reasons to support European colonial expansion and the capitalist system built on exploiting land and people.
Enclosure, colonialism, and human-nature dualism were not the only factors leading to the development of capitalism, but they were three key pieces of the process. And just by understanding these historical developments, you already have a glimpse into the negative consequences of capitalism explored in the next Section 3.2.2.
Activity 3.2.1
Concept: Systems, power
Skills: Thinking skills (transfer)
Time: varies, depending on option
Type: Individual, pairs, group?
Option 1: How do people understand capitalism?
Time: 40+ minutes (depends on how long students have to question adults, and how long is allocated for them to discuss what they found)
This section points out that people’s understanding of capitalism is often very different. This matters, because it is hard to have a good discussion about the pros and cons of capitalistic economic systems unless we share a common understanding of what the term means. You can get a sense of how differently people understand capitalism by doing some short research of adults in your community, such as your school:
With some paper and pen, or something to audio record, ask the following two questions to 1-3 adults and note their responses (note: the second question is from the Edelman Trust Barometer mentioned at the start of this section):
What is capitalism?
In its current form, is capitalism doing more harm or more good in the world?
Bring the responses you recorded back to your class and compare and discuss the results in a small group or as a whole class. What insights do people’s responses give you about how we understand capitalism and its role in our current economic conditions?
Option 2: Reflecting on capitalism
Time: 30-40 minutes
On a piece of paper or digital document, write the definition of capitalism and also the three key historical developments that supported the expansion of capitalism: enclosure, colonisation and human-nature dualism.
What connections do you see between the historical development of capitalism and the way it is defined? Make those connections on your document
Option 3: Reflection/discussion - Marketisation of human labour
Time: 20 minutes
Today, working for a wage seems natural, but it was not always the case that humans worked for others in exchange for payment. As this section points out:
Before the enclosure of lands, most people worked for themselves and their household members. They could combine their labour with resources (soil and forests, water, wool, etc.) to meet their own and others’ needs. It was only when they lost access to the commons that people were forced to sell their labour to others to survive in what we now call a labour market.
How, if at all, does this information or framing of how wage labour came about affect the way you think about working?
Two interesting proposals to promote regenerative economies could change this:
universal basic income, a certain guaranteed minimum income for all
universal basic services, such as healthcare, education, food, mobility, energy, etc.
If people had more free access to the basic necessities of life, why and how might that change the power relationships between workers and business?
Ideas for longer activities and projects are listed in Subtopic 3.5 Taking action
Checking for understanding
Further exploration
Capitalism: Scene on Radio, Season 7 - A fascinating podcast series tracing the origins and history of capitalism, its impacts and alternatives. All the episodes are well worth listening to and making space for in your course, but the ones most relevant to this text section are (Difficulty level: medium):
Monopoly was invented to demonstrate the evils of capitalism - an article in Aeon, tracing the origins of the game Monopoly. Most people do not know that it was originally created to criticise capitalist use of property to build wealth. Difficulty level: easy
Wealth: what it is & how it differs from Income and Why rich people get richer - In these two short videos Gary Stevenson explains the difference between income and wealth, and the resulting dynamics of accumulation. Difficulty level: easy
Is it time to reassess our relationship with nature? - a short video from the BBC about the human-nature relationship and the need to see ourselves as a part of nature, not separate from it. Difficulty level: easy
Save the Planet? In THIS Economy? Pffft - A Public Broadcasting Services (PBS, USA) video about the socially and ecologically damaging impacts of current growth and profit maximising business behaviour. It makes the case that the economy was designed this way and we can redesign it. Difficulty level: easy
Sources
Biewen, J. and McGirt, E. (Hosts). (2024). Capitalism. Scene on Radio, Season 7. Kenan Institute for Ethics, Duke University. https://sceneonradio.org/capitalism/.
Chang, H. (2010). 23 Things They Don’t Tell You About Capitalism. London: London: Allen Lane.
Ortiz-Ospina, E. (2017). “Historical poverty reductions: more than a story about 'free-market capitalism'” OurWorldInData.org. https://ourworldindata.org/historical-poverty-reductions-more-than-a-story-about-free-market-capitalism.
Edelman. Edelman Trust Barometer 2020. https://cdn2.hubspot.net/hubfs/440941/Trust%20Barometer%202020/2020%20Edelman%20Trust%20Barometer%20Global%20Report.pdf?utm_campaign=Global:%20Trust%20Barometer%202020&utm_source=Website
Hickel, J. (2020). Less is More. London: William Heinemann.
Hickel, J. et al (2022). “Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015”. Global Environmental Change, Vol. 73. https://www.sciencedirect.com/science/article/pii/S095937802200005X
Macrodose. (July 31, 2024). “The Future of Global Capitalism – Macrodose – Podcast.” Podtail. podtail.com/en/podcast/macrodose/-live-the-future-of-global-capitalism/
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House
Streeck, W. (2012). How to Study Contemporary Capitalism?. European Journal of Sociology, 53, pp 128 doi:10.1017/S000397561200001X
van Bavel, B. (2016). The Invisible Hand. Oxford: Oxford University Press.
Terminology
Link to Quizlet interactive flashcards and terminology games for Section 3.2.1 Capitalism: definition and development - in order of appearance
capitalism: an economic system where capital is privately owned, markets dominate, there is competition between businesses and the function is to earn maximum profits for owners of capital
economic inequality: unequal distribution of income and opportunity between different groups in society
anthropocene: a period in which human influence is the dominant source of change on Earth
profit: total revenue minus total cost
capitalocene: a term used to highlight the main role of capitalism in environmental crises
economy: all the human-made systems that transfer and transform energy and matter to meet human needs and wants
system: a set of interdependent parts that organise to create a functional whole
capital: assets or valuable resources used to generate income
asset: something that is useful or valuable
income: money received from work or investments
means of production: assets and resources that enable a society to produce things
financial capital: money that can be used in various ways to earn more money
physical capital: the human-made technologies that can be used to produce goods and services, like a machine or a factory
natural capital: Earth’s materials, energy, and processes that can be used to produce goods and services
human capital: human energy, knowledge, skills and experience that can be used to produce goods and services
instrumental value: when something has value for its use for human beings
inherent value: anything that is valuable on its own
market: a system where people buy and sell goods and services for a price.
state: a system that provides essential public services, and also governs and regulates other economic institutions
household: a system where people living together care for each other and do domestic work, often termed the 'core economy'
commons: a system where people self-organise to co-produce and manage shared resources.
provisioning institution: a group of people and their relationships as they try to meet human needs and wants
firm: another word for a business, an organisation that produces and/or sells products
consumer: someone who buys and uses resources and products ot meet needs
break-even: when the revenue earned from selling a product equals the cost of producing the product
revenue: the money earned from selling a product
power: the ability to influence events or the behaviour of other people
democracy: a system of governing which depends on the will of the people
authoritarian: favouring or enforcing strict obedience to authority at the expense of personal freedom
ecosystem: the interaction of groups of organisms with each other and their physical environment
feudalism: a social system that existed in Europe during the Middle Ages in which people worked and fought for nobles who gave them protection and the use of land in return
enclosure: the process that ended traditional rights on common land formerly held in the open field system and restricted the use of land to the owner
colonisation: a process of establishing foreign control over a land area and/or peoples for the purpose of resource use and extraction
human-nature dualism: the worldview that human society is fundamentally separate from and superior to the rest of the living world
labour: work to achieve some goal
private property: the ownership of property by private individuals and groups
cash crop: any plant grown for sale instead of consumption by the farmers and their household
wealth: the total value (stock) of someone’s assets such as money, house, or investments
enclosure movement: the process that ended traditional rights on common land formerly held in the open field system and restricted the use of land to the owner
migration: the movement of people from one place to settle in another
wage: payment for work
labour market: the market where household members sell their labour to firms who pay a wage
wage labour: the exchange of work for a set wage in the labour market
natural resource: material created in nature that are used by humans
investment: money spent for the enhancement of human or physical capabilities
economic growth: an increase in the total value of goods and services produced in a period of time
exploitation: using and benefiting from natural resources or humans; the term is often used negatively to imply using power to take advantage of a situation
indigenous community: the original settlers of an area (pre-invasion/colonialism) who have retained their culture apart from colonisers
Triangle Trade: trade in the 18th and 19th centuries that involved shipping goods from Britain to West Africa to be exchanged for slaves which were shipped to the West Indies and exchanged for sugar, rum, and other commodities which were in turn shipped back to Britain
plantation: on which crops such as coffee, sugar, and tobacco are grown
demand: the quantity of a product that consumers are willing and able to purchase at various prices
Industrial Revolution: the period during the 18th and 19th centuries in which work began to be done more by machines in factories than by hand at home
Enlightenment: a philosophical movement of the 18th century marked by a rejection of traditional social, religious, and political ideas and an emphasis on rationalism
hierarchy: a system in which members of an organization or society are ranked according to relative status or authority
universal basic income: financial support from the state in the form of recurring payments to everyone to meet basic needs
universal basic service: a form of social welfare where all people receive access to free, basic services, like education and health care, funded by taxes and provided by the state