CHAPTER 4 The Nature of Capitalism Learning Objectives After completing this chapter students should be able to:  Think critically about the ethical underpinnings of capitalism, its history and evolution, positive and negative aspects, and alternative economic systems.  Understand the mechanics and morality of each of the four features of capitalism—the existence of companies, profit, competition, and private property.  Review the political, economic, and philosophical challenges to the capitalist economic model especially with regard to the role of government.  Articulate and contrast the economic philosophies of Adam Smith and Karl Marx.  Apply moral philosophies prescriptively to some of the theoretical and operational challenges facing capitalism and capitalist economies today. Glossary 1. alienation: Becoming a stranger to humanity—one's own humanity and the humanity of others. Dehumanization and demonization can be considered to be forms of alienation when we no longer appreciate the reality of others being “humans” or “people.” Karl Marx argues that capitalism causes people to lose an understanding of what it means to be human and they no longer see themselves or others as being fully human. For example, exploitation is when a capitalist sees her workers as being a “means to her ends.” They are to be “used” by her to make a profit and their needs are not important to her. 2. capitalism: An economic system where people complete to make a profit and the ownership of the means of production (resources and machines) are mainly owned by “the private sector” rather than the government. 3. corporate welfare: Subsidies (money and resources) given to corporations from the government. 4. economic system: The way a society organizes business and money, such as capitalism, communism, socialism, and feudalism. Economic systems should be distinguished from systems of government. 5. free market: An economy without government interference (other than to protect people's property, contracts, and right to noninjury). 6. invisible hand: The force that moves a free market in mutually beneficial ways. Adam smith's invisible hand argument states that a free market among well-informed, profit-seeking individuals can lead to mutually-beneficial behavior—low prices for quality products. (The assumption is that the people involved are rational and informed.) People will be productive and enrich society as a result. 7. natural rights: Rights are moral entitlements that obligate others. If I have a right to life, then others are obligated not to kill me. Natural rights are rights we have regardless of our contracts or agreements. Some philosophers have argued that capitalism is justified because of our natural right to property—it's our right to own the world's resources and machines required for an industry. 8. socialism: An economic system where the means of production are primarily owned and controlled by the go ...

1. CHAPTER 4
The Nature of Capitalism
Learning Objectives
After completing this chapter students should be able to:
its history and evolution, positive and
negative aspects, and alternative economic systems.
features of capitalism—the existence of
companies, profit, competition, and private property.
to the capitalist economic model
especially with regard to the role of government.
Smith and Karl Marx.
theoretical and operational challenges facing
capitalism and capitalist economies today.
Glossary
1. alienation: Becoming a stranger to humanity—one's own
humanity and the humanity of others.
Dehumanization and demonization can be considered to be

2. forms of alienation when we no longer
appreciate the reality of others being “humans” or “people.”
Karl Marx argues that capitalism
causes people to lose an understanding of what it means to be
human and they no longer see
themselves or others as being fully human. For example,
exploitation is when a capitalist sees her
workers as being a “means to her ends.” They are to be “used”
by her to make a profit and their
needs are not important to her.
2. capitalism: An economic system where people complete to
make a profit and the ownership of the
means of production (resources and machines) are mainly
owned by “the private sector” rather than
the government.
3. corporate welfare: Subsidies (money and resources) given to
corporations from the government.
4. economic system: The way a society organizes business and
money, such as capitalism,
communism, socialism, and feudalism. Economic systems
should be distinguished from systems of
government.
5. free market: An economy without government interference
(other than to protect people's property,
contracts, and right to noninjury).
6. invisible hand: The force that moves a free market in
mutually beneficial ways. Adam smith's
invisible hand argument states that a free market among well -
informed, profit-seeking individuals
can lead to mutually-beneficial behavior—low prices for quality
products. (The assumption is that

3. the people involved are rational and informed.) People will be
productive and enrich society as a
result.
7. natural rights: Rights are moral entitlements that obligate
others. If I have a right to life, then
others are obligated not to kill me. Natural rights are rights we
have regardless of our contracts or
agreements. Some philosophers have argued that capitalism is
justified because of our natural right
to property—it's our right to own the world's resources and
machines required for an industry.
8. socialism: An economic system where the means of
production are primarily owned and controlled
by the government (or communities) rather than by private
interests.
9. subsidies: Tax breaks, resources, and money given by the
government (or other organization). Both
social welfare and corporate welfare are forms of subsidies.
10. systems of government: The way a society organizes justice,
redistributes wealth, and provides
nonprofit services for citizens, such as democracy, aristocracy,
monarchy, and oligarchy.
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scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in
part.
4-1

4. Chapter Summary Points
1. Capitalism is an economic system in which the major portion
of production and distribution is in
private hands, operating under a profit or market system.
Socialism is an economic system
characterized by mainly having public ownership of property
and a planned economy.
2. Capitalism has gone through several stages: mercantile,
industrial, financial, state welfare, and
globalized.
3. Four key features of capitalism are the existence of
companies, profit motive, competition, and
private property. In particular, natural resources and means of
production are owned by the private
sector.
4. One basic defense of capitalism rests on a supposed natural
moral right to property. Utilitarians
deny the existence of such rights; other critics doubt that this
right entitles one to have a system of
property rules and regulations identical to the one we now have
in the United States.
5. A common utilitarian defense of capitalism is associated with
the classical economic arguments of
Adam Smith. Smith believed that human beings are acquisitive
and that they have a natural
propensity for trading. He insisted that when people are left
free to pursue their own economic
interests in a free market, they will, without intending it,
produce the greatest good for all.
6. Critics question the basic assumptions of capitalism

5. (theoretical challenges) and whether it has
delivered on its promises (operational challenges). Specifically,
they raise the following
questions: Can capitalism eliminate poverty and reduce
inequality? Are humans basically
economic creatures? Does capitalism breed oligopolies that
thwart competition? Is competition
valuable? Does capitalism exploit and alienate people?
7. As the twenty-first century begins, our capitalist
socioeconomic system faces a number of
challenges. These include the decline of American
manufacturing and the related problems of job
outsourcing and our growing trade deficit, as well as an
excessive concern with short-term
performance. In addition, we must come to grips with our
society’s changing attitudes toward
work.
Additional Resources for Exploring Chapter Content
Further Reading
by in America by Barbara
Ehrenreich
Internet Resources
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agraphID=idu

6. Other Resources
Film
-Mart: The High Cost of Low Price, 2005
http://www.walmartmovie.com/
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website, in whole or in
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CHAPTER 4 The Nature of Capitalism Learning Objectives
Glossary Chapter Summary Points Additional Resources for
Exploring Chapter Content
Part II: American Business and
Its Basis
Chapter 4: The Nature of Capitalism
Chapter 5: Corporations
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Chapter Four:
The Nature of Capitalism
Overview
(1) Historical stages and implications of capitalism
(2) Key features of capitalism, including competition,
companies, profit, and property
(3) Two classical justifications of capitalism
(4) Fundamental criticisms of capitalism, including
inequality, poverty, and worker exploitation
(5) Economic challenges, including the decline of
manufacturing, outsourcing, and work attitudes
Introduction
for understanding the socioeconomic framework within
which business transactions occur and moral issues
arise
capitalism are identified

8. moral issues?
Capitalism
portion of production and distribution is in private hands,
operating under what is termed a “profit” or “market”
system
system characterized by public ownership of property
and a planned economy
arket-oriented
socialism
Capitalism
through several stages – mercantile, industrial, financial,
and state welfare.
capitalism, involving reliance upon foreign labor and
services, joint ventures in overseas companies,
outsourcing, etc.
-
economic and political conditions arise.

9. Key Features of Capitalism
s the creation of
companies or business organizations that exist
separately from the people associated with them.
assumption about human nature – that human beings
are economic creatures who recognize and are
motivated by their own monetary interests.
Key Features of Capitalism
An Inquiry into the Nature and Causes of the Wealth of
Nations (1776), Adam Smith explained how free
competition makes individual pursuit of self-interest
socially beneficial.
of the major means of production (factories, warehouses,
offices, machines, trucking fleets, land, etc.)
Moral Justifications of Capitalism
capitalism rests on a supposed natural moral right to
property.

10. system of property rules and regulations identical to the
one we now have in the U.S.
Moral Justifications of Capitalism
his Wealth of Nations, Smith argues that when
people are free to pursue their own economic
interests, they will, without intending it, produce
the greatest good for all.
beings are acquisitive and have a natural
propensity for trading.
Moral Justifications of Capitalism
ith’s concept of the invisible hand – the law of
supply and demand: Smith argued that a market left to
itself is regulated by the mechanism of supply and
demand.
of the market will eventually by offset by supply in
another area.
the standard of wages.

11. Criticisms of Capitalism
operational objections to capitalism.
(1) Theoretical criticisms challenge capitalism’s
fundamental values, basic assumptions, or inherent
economic tendencies.
(2) Operational criticisms focus more on capitalism’s failure
to live up to its own economic ideals.
Criticisms of Capitalism
lity: Critics argue that poverty and inequality
challenge the fairness of capitalism and its claim to
advance the interests of all.
(1) By blaming government for interfering with the market
(2) By arguing that the capitalist system can be internally
modified by political action
(3) By arguing that the benefits of the system outweigh its
weak points
Criticisms of Capitalism
(1) Capitalism wrongly assumes that human beings are

12. rational economic maximizers.
(2) Capitalism offers us no higher sense of human
purpose.
(3) Capitalism operates on the assumption that human
beings find increased well-being through ever greater
material consumption.
Criticisms of Capitalism
(1) Capitalism breeds oligopolies – concentrations of
property and resources (and thus economic power) in
the hands of a few
(2) Corporate welfare programs often shelter businesses
from competition.
(3) Critics contend that cooperation, rather than
competition, leads to better individual and group
performance.
Criticisms of Capitalism
means of production become concentrated in the hands
of the few, the balance of power between capitalists
(bourgeoisie) and laborers (proletariat) tips further in
favor of the bourgeoisie.

13. bourgeoisie is able to exploit them by paying them less
than the true value created by their labor.
Criticisms of Capitalism
Philosophic Manuscripts” (1944), Marx explains the
notion of alienation as the separation of individuals from
the objects of their creativity.
other people, from oneself, and ultimately from one’s
human nature.
Today’s Economic Challenges
manufacturing accounted for 27 percent of GDP in the
mid-1960s, it has fallen to about half that.
manufacturing employs less than 10 percent of the U.S.
workforce.
-seven-year
low.
strong manufacturing base.

14. “As a percentage of gross domestic product, manufacturing in
the United States has declined by more than 50 percent since
the 1960s.”
Today’s Economic Challenges
manufacturers have closed or curtailed their operations
and becoming marketing organizations for other
producers, usually foreign.
one that does little or no manufacturing.
-making functions,
but lacks its own production base.
from other producers, both at home and abroad.
Today’s Economic Challenges
have moved abroad since 1992.
-collar jobs.
outsourcing or planning to outsource white-collar jobs.
-collar jobs may flow overseas

15. every year through 2015.
Today’s Economic Challenges
America overall.
ome economists argue that the economy is hurt by the
massive job losses that result.
for the world market those goods in which it has a
competitive advantage.
Today’s Economic Challenges
U.S. trade deficit: America today imports twice as
much merchandise as it exports.
billion annually, equivalent to almost 6 percent of GDP.
n
borrowing has increased, and foreign creditors now
provide two-thirds of America’s net domestic investment.
—
twice what we owed in 2000.

16. Today’s Economic Challenges
d work: Americans now work
20 percent more than in 1970.
(1) Only one in three persons believes that hard work pays
off in the end.
(2) People are less interested in work than in looking out
for themselves.
(3) With increased education, we are rearranging our
ideas about what we want from life.
(4) People want meaningful and challenging work that
offers us autonomy and self-development.
Part II: American Business and Its BasisPowerPoint
PresentationOverviewIntroductionCapitalismSlide 6Key
Features of CapitalismKey Features of CapitalismMoral
Justifications of CapitalismMoral Justifications of
CapitalismSlide 11Criticisms of CapitalismSlide 13Criticisms
of CapitalismSlide 15Slide 16Slide 17Today’s Economic
ChallengesSlide 19Slide 20Slide 21Slide 22Slide 23Today’s
Economic Challenges