Capitalism As A System 

Introduction

To the social scientist, nothing could be more important than an understanding of the nature of capitalism.  All major contemporary social change involves, essentially, processes of the capitalist system—a system so pervasive that, by the opening of the twentieth century, the life of practically every individual on earth had been brought within its purview.  Mankind has known no comparable culture; and, most remarkable, it probably cannot be shown that the system originated and became viable as a “natural” consequence of historical evolution.  Feudalism did not produce it.

Because capitalism is centered in cities, its expansion has been directly associated with universal urbanization.  It roams abroad in quest of commercial opportunities; and, in the process, subordinates backward areas and garners a fabulous living.  No earlier social system proved so pervasively and consistently effective in motivating individuals to ambitious achievement (as I attempted to show in Foundations of Capitalism).  Indeed, unless one is clear about the origins of the system, he may not escape the pitfalls that await him when problems of modern social transition call for explanation.

In this book I want to show that capitalism, as a system of societies, is characterized by a definable order and structure which not only differentiates it from other social systems, but also determines and limits interactions of persons within its reach.  It is an illusion that capitalism gives businessmen unlimited freedom to plan and dispose of resources at will.

We shall see, in due course, that it is only on the assumption of a peculiar pattern of societal organization that the economic self-interest of individuals can be realized as the interest of the society as a whole.  In non-capitalist societies there can be no such thing as the businessman as we know him today; he can emerge only within the economic, political, and social structure of capitalism.  (Werner Sombart, arguing from a premise of inborn personality traits, disagrees; so do others, as we shall see.)

I have found it useful to distinguish between capitalist societies and the universal system which these societies constitute. The term “system,” it is true, may refer to any functional ordering of related parts and thus to the internal social organization of any capitalist nation or territory.  Indeed, this has been the more common usage.  But since I seek to emphasize the importance of the constellation of nations and territories which has come to function as an entity under the influences of capitalism, I use “system” mainly to denote the international order, and “society” to refer to the internal organization of the national units.  It should be clear that there can be no capitalist nation outside the capitalist system.  And the sequence of motivation has been predominantly from system to society: the internal societal organization seems to depend upon demands and imperatives arising chiefly from a play of circumstances peculiar to the system.  Furthermore, historically, the system has, on the whole, preceded its component societies, which were gradually included as the system expanded.

The national units of the system tend to be of unequal economic weight and significance.  Even those powerful enough to control minor territories as dependencies tend to cluster, in turn, around a dominant nation which sets the standard for all.  Thus, the capitalist system comprises, functionally, a gradient of nations and territories with a recognized leader at the top.  At all times, however, the internal organization of the leader nation tends to be reciprocally affected by the circumstances of the led.

One obvious, though vital, conclusion to be drawn from this relationship is that capitalism does not and cannot mean the same thing to all nations and territories included in the system.  At one extreme it may mean for whole peoples a higher standard of living, greater freedom, and a more complete existence than mankind has ever before enjoyed; at the other it may mean, for great masses of people, grinding poverty, forced labor, racial humiliation, and the lash.

Research on the structure of capitalism, then, may be directed initially either to the attributes of the system or to the societal characteristics of its components.  It goes without saying that neither of these aspects of capitalism can be understood in exclusion of the other; but it seems to me that to approach the study of capitalism as a closed national system, as has been commonly done in classical economics and other derivative formulations, is to prepare the way to fallacious conclusions.

In Foundations of Capitalism, I discussed the unique social situation in Venice , which nurtured the first capitalist society.  As this society became self-sustaining, it drew into its orbit larger and larger areas of the world.  The system, I indicated, had only one origin.  Previously non-capitalist communities became capitalist as their internal organizations, especially their economic structures, became critically meshed with the imperious functions of the system.  A remarkable trait of the system is its cohesive strength.  As noted above, it succeeded, at least up to 1914, in integrating the peoples of virtually the entire globe.  Although military force has been, and continues to be, a factor in this achievement, the abiding ties have been forged essentially by capitalist economics, world market relations, diplomacy, and religion.

Certain traits of capitalism are peculiar to the system as distinguished from its national units.  For example, leadership, historically, has shifted functionally from one nation to another—from Venice and the Hanseatic League to Holland, to England, and thence to the United States; interunit market operations may be distinguished from those which are intra-unit; business cycles are peculiarly a phenomenon of the system; there is both an international and a domestic morality; development of the system as a whole has been distinct from the internal development of its units; and so on.  In general, economic or political changes in any of the backward areas—assuming that the area remains within the system—do not noticeably affect the operations of the international order.  Backward countries may even go to war without provoking important repercussions.  But any change within the leader nation, even a minor one, may have more or less serious consequences throughout the system.

More so, perhaps, than any earlier system, capitalism is based upon economic relations.  All other relations tend to become dependent upon the vicissitudes of the economic order.  The system itself may be likened to a global institution devised for production and distribution of goods; hence, the hallmark of leadership within it is dominance of international trade and production.  And since this position yields superior economic advantages, the leader naturally finds itself obliged to maintain the system which makes its leadership possible.  Traditionally it has accepted the responsibility.

As capitalism spread its influence over the globe, all other forms of social organization lost ground: none has ever been able to withstand the system, and none has ever recovered once laid low.  In an appropriate place, I shall try to show that, strictly speaking, there has never been a societal renaissance in Europe .  The ancient civilizations never did revive; and the system, from its fifth-century origins, experienced no “Dark Ages.”  And yet capitalism embodies its own social logic and evolution—an evolution which, paradoxically enough, has been moving toward a fundamental transformation of the system itself.

While the nature of the capitalist transformation is beyond the scope of this book, 1 shall nevertheless suggest the nature of the forces involved.  The economies of leading capitalist nations can develop and prosper only insofar as the system can expand.  “Stationary capitalism,” as Joseph A. Schumpeter remarks in point, “is impossible.”  The more these nations increase their potentialities, however, the greater the pressure for lebensraum, which must be found mainly in the world’s underdeveloped areas.  Barring organizational and technological innovation, it is in the backward countries that the dynamics of capitalism center; they constitute the critical open end of the system.  But since 1917, when the Russian Revolution eliminated a vast area of the world from the operations of capitalism, this critical space has been actually contracting.  Moreover, the remaining backward countries have been showing increasing resistance to normal capitalist expansion.  The result of this twofold countermovement has been the aggravation of economic stagnation within the system.

The essential culture of capitalism tends characteristically to be most highly developed in the leader nation.  Thus the latter ordinarily becomes the model of perfection of capitalist organization.  During the period of its ascendancy, the leader surpasses all others not only in the magnitude of its commerce and industry but also in the felicitous accommodation of its political and religious institutions.  There are also reasons why the leader’s science and technology always tend to be superior.  It shall be my purpose to relate these vital aspects of capitalist society to the dominant phenomena of the system as a whole.

The study of capitalism, I need hardly say, has been a long-time preoccupation of both social scientists and practical men of affairs.  In deriving his provocative doctrines on government, Machiavelli assumed its existence; the physiocrats and mercantilists were primarily involved with arguments about and explanations of its processes; Adam Smith thought he understood these processes better than the mercantilists; indeed, all social theories about modem non-socialist society, at least, take capitalism for granted.  In Part II, I shall attempt to review the pertinent contributions to the subject of some leading students.

An analysis of these conclusions will, no doubt, help to define more clearly my own point of view.  My primary concern in the following pages will thus be to analyze and characterize the significant economic and social phenomena of the capitalist system as they manifest themselves in its economic structure, its societal matrix, and its dynamics.

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