In a capitalist economy most of the capital is privately owned. Most of the factories, farms, shops and investable money are owned by a relatively few individuals, not by society as a whole. In a tribal society the land is not owned by individualls; it "belongs" to the society as a whole. Very very few people own most of the capital in the world. Even in the US a mere .5% of the people own half the capital.

The rest of us only own labour and have to work for those who own capital for wages. So in a capitalist society there are two basic classes. Of course many workers now own some capital, e.g., shares, but almost all of it is owned by a few very rich peple. Workers also own houses and cars, but this wealth is not capital. Also many workers do the managerial, legal etc work for corporations and are highly paid for this and have large shareholdings so they have a foot in the capitalist class even though they work for wages, and thus their interests align strongly with the capitalist class.

They decide this solely in terms of what purposes are most likely to maximise their profits. The claim is that they can only do this if they produce what peple want, but this is not true; they do it by focusing on what richer people want, and this causes huge problems of distribution, deprivation and inappropriate development (see below.)

So the factor that causes our society to go where it does is the drive to accumulate capital. That is, capitalists invest to make profits, and then they want to invest their increased caplital in order to make more profits, in an endless spiral of capital accumulation. Much more than any other factor this explains the changes that take place, why our society takes the form it does, and what its problems are.

In a capitalist economy the welfare of everyone else depends on how well capitalists are faring. If they can increase profitable investment rapidly there are more jobs and incomes, taxes for government to spend, and goods to buy. If those with capital can't make good profits they close factores and sack workers. Thus "capitalists come first in the queue." Governments take as their first priority doing what will help business prosper; ie., stimulating economic growth.

Capitalists have no choice about these things; they must try to maximise profits, sack unnecessary workers, ignore needs, invest in luxury production etc., or they will be beaten by others and put out of business. It is a system which drives everyone to do these things. It is a mistake to focus on the individuals who make the decisions which, for example produce flowers for export rather than food for hungry people. Our concern sould be to shift to an econmic system which enables desirable things to be done. (However, sometimes powerful monoplies and oligopolies can also develop, whose members do not compete with each other but will gang up to stop competitors challenging them.)

It is important to distinguish between big and small business. Many small firms just give their owners and workers a regular modest income through providing useful sevice to their locality. A sector involving such "private enterprise" might be acceptable in a good society, if it were kept under social control. The problems come mostly from big business, which is able to allocate large productive capacity to undesirable purposes, and deprive people of resources and desirable development.

Those who own capital don't have to work. They receive income from the investment of capital. The conventional argument here is that whereas wages are a reward for the contribution of labour to production, interest and dividends are rewards for making capital available to invest. However it is not morally satisfactory that most people have to work hard for their incomes while a few who consume goods others have produced do not have to work at all. In a satisfactory economy we would have a different way of making capital available to invest. Work should be able to earn money, but money should not.

A capitalist system has powerful forces for change built into it. The drive to accumulate capital in a competitive environment will lead to rapid innovation and new forms as the years go by, and the phasing out of other activities. Since 1980 we have seen the astounding emergence of globalisation, the sudden building of a new, more unified world econmy in which governments are becoming more or less irrelevant. (See Globalisation; A Summary.) Marx argued that these built-in forces will eventually destroy capitalism and this is increasingly plausible when we look at the alarming esclation of problems to do with social breakdown, polarisation, ecological damage and Third World deprivation.

Growth is crucial for captalism. Those with capital to invest have a very stong interest in constant increase in the volume of sales production, consumption, trade; i.e., constant increase in the opportunities or more business investment.

Capitalism has fundamental and insurmountable conflicts and contradictions built into it. For instance, the interests of the capitalist class clash with those of the working class. In general production for profit clashes with production to meet needs. Growh contradicts ecological sustainability. Capitalists want to automate to cut labour costs, but that means workers have less jobs and income and therefore less capacity to purchase products and keep the economy going.

Merits.

Capitalism has been enormously effective in creating productive capacity.

It provides very powerful incentives for effort and initiative, research and innovation. It makes people work hard (..far too hard!).

It settles many problems of supply and demand automatically. If people want to buy something new firms will arrange to supply it.

Unfortunately most of these "merits" are now probems, especially because there is now far too much producing and consuming going on for the ecosystms of the planet. It is now not a good thing that there is such a strong incentive to increase production and consumption.

The faults.

The most important fault is simply that profit contradicts need. If we allow profit maximisation to be he factor which determines what will be produced then inevitably those with capital will invest it in producing things for relativley rich people (on the world scene this includes the ordinary people who shop in supermarkets), and the needs of the majority of poor people will be ignored. This is the main reason why billions of people are very poor in the Third World, and why so many urgent needs go unmet in even the richest countries. Third world people can't pay as much as others and capitalists will sell for the highest price they can get. In Australia large numbers of people need housing, yet very cheap but adequate houses are not produced. It is much more profitable to supply houses that are probably 20 times more expensive than is necessary.

Similarly, capitalism inevitably generates highly inappropriate development. It will not devote the available productive resources to developing those industries that are most needed. This is most painfully obvious in the Third World. Capitalism will only develop those industries in those locations that maximise profits, and this means that many regions within the world are ignored. Transnational corprations will not set up many factories and create many jobs in Tuvalu.

The welfare of most peple in a capitalist econmy depends on trickle down, from the development that suits those with capital. At times there is significant trickle down, as in the rich countries in the 1945-75 period. But in the Third World most people have received very little trickle down benefit from the great deal of development that has taken place, and now about half of all Third World people are actually getting poorer while rapid capitalist development proceeds.

Capitalism is now having increasingly damaging effects on social cohesion and the quality of life. Measures of the quality of life show that it is falling significantly. As the economy dumps more people into unemployment and stresses workers and reduces government spending on welfare, polarisaion increases, more people break down, the emphasis is on surviving as an individual, and social cohesion is damaged.

The most alarming consequences of the capitalist economy are to do with the environment. The environment problem is simply due to the fact that far too much production and consumption is going on, yet this economy must have constant increase in the volume of production for sale.

Unemployment is another inevitable consequence of a capitalist economy (although it also occurs in other economies.) Whether or not people have work is determined by whether or not the owners of capital can make profits employing them. In a satisfactory economy anyone who wanted work would be able to have a share of the work that was necessary to produce the things we all need. It is easy to organise production so that there is no unemployment. (There is none on the Israeli Kibbutz settlements.)

Those with capital have most influence on government. Governments take as their top priority increasing the amount of businss going on, via the free market procdures corporations want. People with a lot of capital have the power to buy influence, e.g., by donations to political parties.

Capitalist priorities and world view come to be the dominant ideology. Capitalists have great wealth and power to get society in general to accept the legitimacy of captalism (for instance they own all the media).

A capitalist system must have growth, and this is incompatible with ecological sustainability.

Many would say, "But the system works pretty well; most people in Australia are doing OK." This overlooks two extremely important points. Firstly it is a global economy in which most people are seriously deprived of necessities while the scarce resources are delivered to rich few like us in Australia. Secondly it is a grossly ecologically unsustainable system, providing high "living standards" to a few like us in ways that are rapidly depleting resources and destroying the environment.

Is there any alternative?

It is often assumed that we must have a capitalist economy because there is no viable alternative available, especially since the collapse of communism and the loss of interest in socialism. The acceptance of capitalism as inevitable, and indeed as satisfactory, has never been so unquestioned as it is now.

Here are sme basic principles for the design of a satisfactory economic system, deriving from the above criticisms.

It must be a system in which what people need for a satisfying quality of life, and what is best for the environment, are the considerations that determine what is produced and how it is distributed and what is developed. This sounds obvious, but it is not how our present economy operates.

This economy allows what is most profitable to the few who own capital to be the overwlmingly important determinant of what is produced, how it is distributed and what is develoed. In a satisfactory economy the most important determinants would be morality, justice, social cohesion, welfare and the environment. It would therefore not leave many important decisions to be made by market forces.

How these priorities would best be decided is a difficult question. The decisions must be under the control of society as a whole...somehow. Much could be left to market forces and private enterprise, but we must always be able to come in and regulate or change what is happening. Cooperative public institutions (not necesslarily the state) must run many key things in the public interest. Obviously very few of us would want the economy to be controlled by massive, secretive, arrogant state bureaucracies, as was typical of the USSR and other "socialist" economies. Some key tasks might have to be dealt with by centralised agencies, such as running the railways, but these decisions could be made through open, highly participatory and democratic decision making arrangements. However a sustainable world will have to be made up mostly of small highly self-sufficient communities, and in these it will be much more easy to have open and participatory procedures for making decisions about those aspects of the economy that are collective problems.

Many operations would be maintained even though they run at a loss, because they are important services to people, e.g., country railways. These would be paid for by profits from other sectors, and by taxes. Taxes would be relatively high, because there are many things society should provide and that will not be satisfactorily provided by private enterprise, especially things poorer people need. Many sectors would be heavily regulated: e.g., banks would be obliged to keep a proportion of their funds for low interest home loans.

Above all, a sustainable world order cannot have economic growth. The new economy must be organised to provide us with the goods and services we all need for a high quality of life with more or less the same minimum amount of resource use and output all the time. (This does not mean there can be no innovation or improvements over time.)

Much of the economy would be located in the non-monetary sector. Much production, distribution and development would be carried out via gifts (e.g., of surpluses), voluntary working bees, access to the commons (e.g., free fruit from neighbourhood forests), helping and mutual aid. These non-monetary transactions reinforce social cohesion.

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See Our Economic System; Why It Must Be Scrapped, and Is a humane capitalism posible?