Theories on the Origin of Capitalism:In order tofind out how Capitalism ends, one must first look into its beginnings.
According to Adam Smith in his book entitled: “The Wealth of Nations” suggeststhat the human propensity to trade, barter, or otherwise conduct any form ofexchange of goods, naturally brings about an economic order wherein division oflabor is necessary. Logically,then, capitalism is something that comes about naturally; being, it needs noexternal nor internal manipulation by man. Thus, then, does capitalism – givenany community whose inhabitants opt to exchange goods and services – arise outof necessity. Ergo, fromAdam Smith’s writings on the origins of Capitalism through the “Wealth ofNations”, we come to understand one possibility – that is that Capitalism issomething that comes naturally from necessity. In short, division of labor is aproduct of man’s natural propensity to seek efficiency in all his activities;in capitalism, it is this division of labor that allows for efficiency inconducting any largescale exchange of goods and services. However,in Werner Sombart’s “The Quintessence of Capitalism”, it is presupposed thatCapitalism is not a byproduct of nature as claimed by Adam Smith, but iscompletely unnatural. But, that isnot to say that Capitalism – by Sombart – is any less good or evil as opposedto Marx’s view – which we will visit in a few moments. Indeed, Sombart’scapitalism emerged from what he called the ‘Capitalist Spirit’ that is themanifestation of qualities that are inherent in man, and, since man collectivelyforms the nation as a means to engage in social activities, these qualities areabsorbed by the nation in varying degrees.
Sofrom Sombart’s standpoint, we argue that capitalism – while not necessarilynatural – is something that will arrive with the passing of time. How itdiffers from Smith’s perspective of capitalism, is that Sombart’s capitalismdoes not emanate from man, but is a manifestation of a set of qualitiesinherent in the person. That is, to say, artificial, but not completely cut offfrom nature in the sense that capitalism is an entity that emerges from theinherent qualities of man. Fromthe two divided, and yet intertwining, standpoints, we are able to gather thefollowing points of great importance from the two theories: – Thatcapitalism is something that emerges from within man over the course of time.- Thatcapitalism emerges from man’s inherent qualities out of necessity.- Thatdivision of labor is necessary for efficiency in any market.- Thatfirms emerge naturally from any community wherein the populace conducts any formof exchange of goods.
– Andthat the nation itself – meaning the collective populace – absorbs thequalities inherent to man; with said qualities being the possible origin ofcapitalismItis therefore, of utmost importance, to know the origins of capitalism as ameans to trace its evolution and changes. In accordance to Smith’s and Sombart’sviewpoints, we can conclude that capitalism changes according to the state ofsociety and, in essence, the state of the individual – as capitalism emergesfrom the individual. Capitalism and theeconomic order through the ages: Withthe end of the classical form of capitalism in an age of free merchants andtrue free market systems, and the subsequent emergence of powerfulnation-states; comes the age of feudal-capitalism, which, according to KarlMarx, was the form of capitalism that existed before the age of exploration andcolonization. There are several other authors who might contest this theory,but for the sake of simplicity, we will be using Marxist view on capitalism beforethe age of colonization, as well as after. TheLabor Theory of Value:Marx’sidea holds that the value of any commodity can be traced back to the amount oflabor spent to create the commodity; that is time(t) and value(v), whichessentially equalizes into a simple t = v. Therewere three key general ideas: – Valueis defined by socially necessarylabor, reflective of the general standards of productivity and technologyavailable in a given time and space.- Indirect labor, which is the time and experienceneeded to gain the necessary skills for the production of a commodity.
– The indirect labor expended in supervising ormanaging the direct labor.For Marx, the key take-away from the Labor Theoryof Value was that it implies that the price of labor is reflective of thequantity of labor necessary to produce it. That is, a given wage is equivalentto the cost of sustaining the ability to work a given job, and is not a directfunction of the value produced by that work.
The Paradox of Under-ConsumptionMarx saw an employer’s primary goal as extractingsurplus value from the worker, surplus value being the product of labor abovewhat is returned to the worker as a wage. Conversely, he saw an employee’sprimary goal as wage maximization, which by nature hinders the employer’sability to extract surplus value.