Course Material for Kumarappa Online Study Programme

 Kumarappa Online Study Programme

Organized by Gandhian Collective & the Library and Research Centre for Gandhian Studies, Sevagram Ashram Pratishthan, Wardha, Maharashtra

Unit - 1 Evolution of Capitalist System

Economic System: A Brief Introduction

When we are talking about an economic system, first we have to understand what constitutes an economic system. We very often talk about Capitalism, Socialism, feudalism which represent distinct economic and social systems. What is an economic system? In a study of course like this or any serious reading of the subject matter, it is important to define what is an economic system. In an economic system, there are four traditional factors or means of production, viz., land, labour, capital, and entrepreneurship, which are needed for the creation of goods and services. The first one is land, which includes all-natural resources, such as land, water, minerals, etc. It is the physical space that is used for the production process and the raw materials derived from it. Then comes labour, which represents the human effort, both physical and mental, which includes the skills, knowledge, and experience of the workforce. Capital refers to the man-made resources used in production, such as tools, machinery, and infrastructure. It also encompasses financial capital, which is the money invested in production and operating businesses. Entrepreneurship refers to individuals who combine the other factors of production, viz., land, labour, capital, to produce goods and services. 

Who should control the means of production? Who controls the ownership of the means of production? With the help of these means of production, what kinds of goods are produced? One has to reflect on these pertinent questions when we discuss an economic system. It was Paul Samuelson who became popular for raising the concept of "Guns and Butter." It is also referred to as the "Guns vs. Butter" model. It illustrates the fundamental economic choice of allocating funds between military spending and consumer goods or social welfare spending before a government. What type of goods are produced is significant because production should cater to fulfilling the basic needs of people. This is what Gandhi talked about in another context about Mass production vs. Production by Masses. Mass production doesn’t take into consideration the real requirement of the consumer. Here, what Samuelson has raised was presented in a popular manner by Gandhi. Thus, the basic question before us is who owns and controls the means of production and what kind of goods are produced. Then comes how it is distributed. There is a general complaint that pharmaceutical companies of India and all over the globe are producing medicines prescribed by doctors, keeping in mind the rich and upper-middle class, and they are distributed among these classes purely guided by profit. Here, the whole production process is not geared towards fulfilling the health needs of the poor and middle-class people. Thus, to whom it should be distributed is determined by what kind of production business firms had undertaken. An arrangement for all these factors of production is described as an economic system, or more specifically, a mode of production. This term encompasses how society organizes the factors of production like land, labour, capital, and entrepreneurship to produce goods and services. The way these factors are organized and combined determines the specific economic system in place. For example, in a capitalist system, private individuals and businesses own and control the factors of production.

Karl Marx’s Critique of Capitalism

It was Karl Marx who gave an authoritative study of the economic system in his work Das Capital. It was the best critique of Capitalism. That is the reason why I am analysing the evolution of capitalism briefly from a Marxian perspective. I depend upon his critique of capitalism rather than the fact that he provided communism as an alternative system. He identified the inherent contradictions and exploitation inbuilt within the capitalist system. He argued that capitalism was basically exploitative, with the ruling class controlling the means of production and exploiting the working class. He was highly critical of the capitalist system for the concentration of wealth and widening the gap between the wealthy and working class. His critique went far beyond purely economic issues, encompassing social and political structures that he believed were intertwined with the capitalist system. Marx talks about the different types of social and economic systems that prevailed in history, ultimately leading to capitalism. The difference of opinion is basically about the future of human societies rather than his historical analysis. Perhaps all are in agreement with his historical analysis of the evolution of economic systems.

Evolution of Economic Systems

Primitive Communities

Primitive communities primarily relied on hunting and gathering for sustenance. About 10,000 years ago, human beings transitioned from nomadic hunter-gatherer lifestyles to settled agricultural communities. This transition was the result of the invention of agriculture, which facilitated the establishment of larger and more permanent settlements. Before this, humans lived as migrants, moving in search of food and resources. The present trend of international migration, which we witness today, is a modern form of traditional migration. In traditional hunter-gatherer communities, there were egalitarian social relations and common ownership. In such societies, there was no private or individual ownership. Nature was the real owner. 

The Gandhian philosophy also emphasizes that nature is the true owner, and human beings should only take from it what is necessary to meet basic needs, not for greed or excess. Gandhi said, “Earth provides enough to satisfy every man’s need but not for every man’s greed.” We have to differentiate between needs and wants. C.T. Kurien's perspective on needs and wants aligns with Mahatma Gandhi's philosophy. Kurien emphasized the importance of fulfilling basic needs while discouraging the pursuit of excessive or luxurious wants, advocating for a balanced and sustainable approach to consumption. Needs are basically for fulfilling our biological requirements, like food, clothing, shelter, etc. In modern times, we have to limit these to biological needs; this is a matter of debate. The problem is that wants are presented as needs. That is not the right approach. An economy based on needs produces only goods and services that are required for our biological existence and fulfilling our minimum comforts. When we opt for luxurious clothing and housing, we deviate from our definition of needs. With the demand for more and more consumer products and changes in lifestyle, wants become needs. This is the crisis we are facing in modern times.

Emergence of System of Slavery

With the development of agriculture and permanent settlements, people started living in treehouses and caves, which provided a degree of security from both wild animals and harsh weather conditions. The permanent settlements also became breeding grounds for personal conflicts and later group conflicts. In these circumstances, there was a need for a regulating system. Powerful individuals naturally assumed leadership roles, like tribal heads. Their decisions, over time, were formalized into rules and regulations. It was not exactly the law. This process resulted in the emergence of two distinct classes: a ruling class and a working class, the latter often a group of people reduced to slavery. That is how the second type of system, what Marx called slavery, emerged. This was true in the case of ancient Greece and Rome, where there was a clear-cut division based on a ruling class of citizens and a class of slaves. Even though Marx talked about the Asiatic system of production, his analysis was mainly based on the experience of Europe. This is one of the limitations of his analysis. However, we can depend on his analytical approach.

Feudalism

 The system of slavery commenced in Mesopotamia and  Greece and expanded to Rome. With the fall of the Roman Empire in the 3rd and 4th centuries, it became difficult to sustain the empire and maintain the administrative system. The system of slavery continued until the 5th century AD. The basic questions in this scenario were: who would protect the life and property of people? Land and labor were to primary means of production. The feudal lords or landlords offered protection to people if they agreed to surrender their properties. Thus, land was surrendered to local feudal lords, who held considerable authority over their territories. As a result, nation-states became weak and led to the control of feudal lords or nobles, and common people were reduced to serfs. Feudalism was basically based on the ownership of land. While slavery existed alongside feudalism, serfdom was a more common form of labor within the feudal system. Serfs were tied to the land and obligated to work for their lord, but they were not owned in the same way as slaves. Forts were integral to the feudal system, serving as defensive mechanisms for lords and protection for their territories. With the discovery of cannons and crude forms of missiles, forts were destroyed, leading to the rise of cities. This, in turn, played a crucial role in the decline of the feudal system, fostering a greater desire for freedom and individual rights among the population and providing opportunities for economic and social mobility.

Guild System

 Between the feudal system and capitalism, there was a system called the guild system. It could be described as a forerunner of Gandhi’s Khadi economic system, particularly in its emphasis on local production and community-based economies. However, there were also key differences, as guilds focused on regulating crafts and trades, while Gandhi's Khadi movement aimed to promote self-reliance, economic independence, and the revival of village industries. Though historically important, the guild system was not much discussed in academic discourses because it was a transitional phase between feudalism and capitalism and not a full-fledged system. In fact, the surplus produced by serfs was the backbone of the economy based on feudalism. The transition from feudalism saw the rise of employment-based systems like goldsmithing, blacksmithing, and tailoring in both India and Europe. In India, these occupational groups were later formalized into the caste system, a hierarchical social structure based on birth and profession. In contrast, Europe saw the development of production-based systems, which focused on the efficient organization of labor and resources for the creation of goods and services. The guild system greatly contributed to the development of cities and the growth of urban centers, which in turn resulted in the weakening of feudal power structures and led to the decline of feudalism. The desire for freedom is a fundamental aspect of human nature and has indeed been a driving force contributing to the end of feudalism and the development of both democratic systems and market economies.

Renaissance and Reformation: Foundation for Capitalism

 The Renaissance, Reformation, new discoveries, and advancements in science and technology undermined feudalism, paving the way for capitalism. The Renaissance and Reformation fostered individual freedom, challenged the Church's authority, laid the foundation for capitalism, and contributed to the development of modern capitalist ideas and values. Like the French Revolution, it led to popular movements. We have to consider all these factors in the evolution of the capitalistic market economy. The concept of freedom that we talk about in market systems, like freedom of consumption, employment, education, occupation, etc., was rooted in the concept of liberty in political philosophy.

Mercantilism and Physiocracy

In addition to the guild system, mercantilism and physiocracy emerged as distinct economic systems in Europe. Mercantilism, prominent from the 16th to 18th centuries in England, focused on government control of trade to build national wealth and power. Physiocracy, an 18th-century French school of thought, emphasized land and agriculture as the primary source of wealth. Both Physiocracy and Gandhian thought prioritize agriculture and rural development, but their approaches to economic development and social organization differ significantly. When we talk about the importance of agriculture in India, it should be remembered that the idea that agriculture should be strengthened developed in France through the economic theory of Physiocracy, not in Britain, where the Green Revolution later emerged.

Other than Marxian thinking on the capitalist economic system  Adam Smith's work “An Inquiry into the Nature and Causes of the Wealth of Nations,” published in 1776 was a landmark and it critically analysed both mercantilism and physiocracy. It was in this context that we can see the beginning of the capitalist system. Smith’s work contributed to the beginning of capitalism. As many of us think, Smith was not talking about a centralized capitalist economy. On the contrary, due to Adam Smith’s comprehensive account, the Wealth of Nations provides the earliest detailed description of market society as a decentralized system. Therefore, we can link at a certain level what Gandhi was talking about later regarding decentralized production systems, despite their sharp differences in economic vision. While Smith's work laid the foundation for capitalism, the highly centralized, monopolistic, and oligopolistic forms seen in modern capitalism were not explicitly envisioned or advocated by him. In modern times, Adam Smith’s thinking has been combined with the thoughts of others, which is not a proper approach to understanding the economic ideas of Adam Smith. The capitalist system, which was later seen by Marx as highly exploitative, was a deviation from Smith’s ideas to practical capitalism. This is a frame of reference for the evolution of capitalism. The present capitalist system is a continuation of feudalism, mercantilism, and physiocracy.

This draft note is an edited version of the talk delivered by Dr. S. Muraleedharan on the inaugural day of the online course on Kumarappa. It was prepared and edited by Dr. Siby K. Joseph, Director of the Library and Research Centre of Gandhian Studies of Sevagram Ashram Pratishthan, Wardha.