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Understanding How Capitalism Works.docx

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McMaster University
Labour Studies
David Bush

Understanding How Capitalism Works Jan 22/13 The Idea of Capitalism  Adam Smith was one of the one the many who are in favour of capitalism  Capitalism is an economic system based on the generation of profits from the private ownership of the means of production  Capitalism doesn’t develop as a theory until the 18 century (Adam Smith)  The development of capitalist theory is tied to the rise of the merchant class in the Mercantilist era Standard Capitalism  A capitalist buys land, labour and the means of production and then sells their product to buyers in the market place  Those who buy low and sell high make a profit. Selling goods profitably allows for capitalists to expand their operations, grow their firm innovate, make their goods more cheaply and enrich the investors  Capitalist firms compete against each other in a free market. Those firms that provide profitable goods and services expand. Those that do not are destroyed The Basics of Capitalism  Capitalism is a system based on production in exchange and alienated labour  Most people exchange money to get a product (C MC) o C=Commodity o M=Money o C=Commodity  The point of capitalism is not producing a good or service but to gain money. (MCC) Profits  Where do profits come from?  Buy low  Sell high doesn’t explain the source of profits Labour Theory of Value  This is a theory that places human labour as the source of all economic value in society  Profits are derived from the value produced by workers  Without human labour even natural wealth can not be utilized o Natural wealth are consists of, gold, oil in the ground, apples in the apple trees. But you need people to pick those apples or mine those gold in order gain profit Understanding How Capitalism Works 1 Workers  Workers are separated from the means of production. Thus the only way workers can make a living is to sell their labour  In capitalism labour is a commodity. However, it is also the sole source of wealth  Workers do not sell a specific amount of their labour, rather they
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