Starting in England, simultaneous related processes of mechanization, and the enclosures of the commons, led to increases in wealth for the controllers of capital, and mass poverty, starvation, urbanization and pauperization for much of the population. This led some, such as Karl Marx (1818-1883) and the German industrialist and philosopher Friedrich Engels, (1820-1895) to describe economy as the "system of capitalism".
Capitalism is characterized by the division of labor between worker and capitalist, in which the means of production are separated from the direct producers and are instead owned by a parasitical capitalist class. Marx and Engels believed that under capitalism, the working class produces surplus value, of which only a small percentage is returned to workers in the form of wages to provide for their bare subsistence. The rest of the surplus value is kept as profit, and is reinvested into the commodity cycle by the capitalist. The competitive forces of the market will drive capital to constantly accumulate "for the sake of more accumulation", resulting in monopolies, economic crisis and imperialism.
Marx and Engels viewed capitalism as a historically-specific mode of production, as with feudalism and hunter-gatherer societies, embedded with its own internal contradictions. Capitalism is the first mode of production in which the direct producers have no control over their conditions of labour or the means of production.
The declining living conditions of the working class would drive workers to collectively fight back as part of a class struggle, eventually overthrowing the capitalist state in a proletarian revolution and establishing a democratically planned economy, in which production is controlled by the direct producers themselves - the proletariat - in order to satisfy human needs, not accumulation of profits. Thus in the Communist Manifesto, Marx and Engels state that capitalism, in bringing to existence an urbanized working class, has created its own "gravediggers", as well as the material conditions and abundance ripe for a classless socialist society.
The first centrally planned economy was established after the Russian Revolution of 1917, led by the Bolshevik Party, in which production was organized around workers' councils called soviets. Similar councils of democratically elected recallable worker delegates have existed in subsequent revolutions and revolutionary situations throughout the 20th Century, including the 1936 Spanish Revolution, the 1974 Carnation Revolution in Portugal, the 1979 Iranian Revolution and the 1980 Solidarity uprising in Poland.
After World War II
After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. This was explored and discussed by Friedrich August von Hayek (1899-1992) and Milton Friedman (1912-2006) who pleaded for a global free trade and are supposed to be the fathers of the so called neoliberalism. However, the prevailing view was that held by John Maynard Keynes (1883-1946), who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor. In the late 1950s the economic growth in
Postmodern economy
What economist Robert Reich terms, "the not quite golden age" (WW II to the mid-1970s) gave way to the current global economy, or supercapitalism.[6] This economic revolution took place in tandem with a radical transformation of Western cultures, and the growth of oligarchical/plutocratic tendencies within the polities of Western democracies. Together the political, economic and cultural developments in the Western World since c. 1963 constitute what Robert Struble has called "the postmodernist revolution."[7]
Discussion of such issues as the politics of the World Bank, the World Trade Organization and global players within the World Economic Forum, as well as global ecology and sustainability, have all influenced the definition of economy.
One body of post-capitalist economic thought is socialist economics, which covers a wide range of theories.
Joseph E. Stiglitz has defined economy to be a global public good. Economists like Peter Barnes and Alexander Dill are reclaiming the commons and providing definitions that embrace new phenomena like freeware. Game theorists such as Ernst Fehr and Klaus M. Schmidt are contradicting the notion of omnipresent economic self-interest. Under the gift economy extensive grassroot movements have arisen; also the credit programs of Nobel laureate Muhammed Yunus. In 2006 the World Bank started issuing its Wealth of Nations Report, tracking social and human capital.
Technocracy Incorporated proposes a non-monetary economic system based on Energy Accounting,[8] for a science-based social design.[9] This non-political governmental system based on thermoeconomics, uses energy accounting in a non-market economics method based on science principles.[10]
Economists Gibson-Graham, J.K. (2006) in A Postcapitalist Politics, University of Minnesota Press, pp. 181, ISBN 0816648042, describe a model of community capitalism described at E2m.org and designated as E2M [11] by founder Michael Garjian which creates the infrastructures that enable communities, as entities, to use the tool of capitalism to create significant amounts of community wealth. Under the E2M model, communities share in the equity of corporations which are then patronized by community members, thus creating income streams to the E2M Regional Economic Councils (E2M-REC) which act in the best interests of the regional community. Wealth earned by the community under E2M is then invested in additional business start-ups in which the E2M-REC owns even more equity. As the community wealth held by the E2M-REC grows, investments in businesses increase as well as social investments which can include, but are not limited to mortgages of 50 year terms and 1 percent interest rates, purchases of commercial and residential realty to be rented at stable rates over decades, and other investments based on the goal of achieving adequate profits and sustainable growth for the common good. This counterbalances the traditional investment goal of maximum profits and maximum growth for the private investor which is an unsustainable investment criteria that endangers the planet and those who inhabit it.
Economic sectors
The economy includes several sectors (also called industries), that evolved in successive phases.
- The ancient economy was mainly based on subsistence farming.
- The industrial revolution lessened the role of subsistence farming, converting it to more extensive and monocultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries.
- In the economies of modern consumer societies there is a growing part played by services, finance, and technology—the (knowledge economy).
In modern economies, there are four main sectors of economic activity:[citation needed]
- Primary sector of the economy: Involves the extraction and production of raw materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be workers in the primary sector.)
- Secondary sector of the economy: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A builder and a dressmaker would be workers in the secondary sector.)
- Tertiary sector of the economy: Involves the provision of services to consumers and businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary sector.)
- Quaternary sector of the economy: Involves the research and development needed to produce products from natural resources. (A logging company might research ways to use partially burnt wood to be processed so that the undamaged portions of it can be made into pulp for paper.) Note that education is sometimes included in this sector.
More details about the various phases of economic development belong to the history section on this article. As this process was far from being homogeneous geographically, the balance between these sectors differs widely among the various regions of the world.
Other sectors include the
- Public Sector or state sector
- Private Sector or privately-run businesses
- Social sector or Voluntary sector
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