Theories “The Wealth of Nations” suggests that the

Theories on the Origin of Capitalism:

In order to
find out how Capitalism ends, one must first look into its beginnings.
According to Adam Smith in his book entitled: “The Wealth of Nations” suggests
that the human propensity to trade, barter, or otherwise conduct any form of
exchange of goods, naturally brings about an economic order wherein division of
labor is necessary.

Logically,
then, capitalism is something that comes about naturally; being, it needs no
external nor internal manipulation by man. Thus, then, does capitalism – given
any community whose inhabitants opt to exchange goods and services – arise out
of necessity.

Ergo, from
Adam Smith’s writings on the origins of Capitalism through the “Wealth of
Nations”, we come to understand one possibility – that is that Capitalism is
something that comes naturally from necessity. In short, division of labor is a
product of man’s natural propensity to seek efficiency in all his activities;
in capitalism, it is this division of labor that allows for efficiency in
conducting any largescale exchange of goods and services.

However,
in Werner Sombart’s “The Quintessence of Capitalism”, it is presupposed that
Capitalism is not a byproduct of nature as claimed by Adam Smith, but is
completely unnatural. But, that is
not to say that Capitalism – by Sombart – is any less good or evil as opposed
to Marx’s view – which we will visit in a few moments. Indeed, Sombart’s
capitalism emerged from what he called the ‘Capitalist Spirit’ that is the
manifestation of qualities that are inherent in man, and, since man collectively
forms the nation as a means to engage in social activities, these qualities are
absorbed by the nation in varying degrees.

So
from Sombart’s standpoint, we argue that capitalism – while not necessarily
natural – is something that will arrive with the passing of time. How it
differs from Smith’s perspective of capitalism, is that Sombart’s capitalism
does not emanate from man, but is a manifestation of a set of qualities
inherent in the person. That is, to say, artificial, but not completely cut off
from nature in the sense that capitalism is an entity that emerges from the
inherent qualities of man.

From
the two divided, and yet intertwining, standpoints, we are able to gather the
following points of great importance from the two theories:

–       
That
capitalism is something that emerges from within man over the course of time.

–       
That
capitalism emerges from man’s inherent qualities out of necessity.

–       
That
division of labor is necessary for efficiency in any market.

–       
That
firms emerge naturally from any community wherein the populace conducts any form
of exchange of goods.

–       
And
that the nation itself – meaning the collective populace – absorbs the
qualities inherent to man; with said qualities being the possible origin of
capitalism

It
is therefore, of utmost importance, to know the origins of capitalism as a
means to trace its evolution and changes. In accordance to Smith’s and Sombart’s
viewpoints, we can conclude that capitalism changes according to the state of
society and, in essence, the state of the individual – as capitalism emerges
from the individual.

Capitalism and the
economic order through the ages:

With
the end of the classical form of capitalism in an age of free merchants and
true free market systems, and the subsequent emergence of powerful
nation-states; comes the age of feudal-capitalism, which, according to Karl
Marx, was the form of capitalism that existed before the age of exploration and
colonization. There are several other authors who might contest this theory,
but for the sake of simplicity, we will be using Marxist view on capitalism before
the age of colonization, as well as after.

The
Labor Theory of Value:

Marx’s
idea holds that the value of any commodity can be traced back to the amount of
labor spent to create the commodity; that is time(t) and value(v), which
essentially equalizes into a simple t = v.

There
were three key general ideas:

–       
Value
is defined by socially necessary
labor, reflective of the general standards of productivity and technology
available in a given time and space.

–       
Indirect labor, which is the time and experience
needed to gain the necessary skills for the production of a commodity.

–       
The indirect labor expended in supervising or
managing the direct labor.

For Marx, the key take-away from the Labor Theory
of Value was that it implies that the price of labor is reflective of the
quantity of labor necessary to produce it. That is, a given wage is equivalent
to the cost of sustaining the ability to work a given job, and is not a direct
function of the value produced by that work.

The Paradox of Under-Consumption

Marx saw an employer’s primary goal as extracting
surplus value from the worker, surplus value being the product of labor above
what is returned to the worker as a wage. Conversely, he saw an employee’s
primary goal as wage maximization, which by nature hinders the employer’s
ability to extract surplus value.