Capitalism

Introduction
Modern firms have been formed around 1750 and became one of the most important parts of functioning capitalist society. Capitalism itself although, a historical and very recent agreement how we organize everything, became a phenomena of is own making and flourishes in todays societies. In order to understand success of modern firm and capitalism itself, one must analyze features such as role and nature of modern firm and/in capitalist society. An attempt to indentify the key features will be followed by explanations of different theories and facts that influenced capitalism and firms through their development. Paper will also include Webers, Roberts, Hines and other scholars observations on this matter.

Creation
There have been many explanations, why capitalism rose and become a regular way of running most modern firms. By analyzing theories of Veblen1 and Marx2 on this topic we will understand how capitalism took place in society and modern firm. Regarding the rise of capitalism Veblen argued that changes in economical system happened, because the technology of producing goods became so complex that it was beneficial to own the machinery. Current rates of production required advanced technologies and were far beyond of what one man could compass or make use of. Furthermore, the growth of business enterprises in time caused small and old-fashioned businesses to be even more vulnerable. With the progress of capitalism it was obvious that the ones who owned the machinery would also eventually become the producers of goods, not just the owners of equipment. Nevertheless, to pursuit such path the accumulation of wealth was required, but before there could be any money with which to gain more (capital), an original accumulation must take place. This would be done by extraction of recourses, conquest, plunder, or enslavement. After initial accumulation he believed capital was increased within particular industrial field from the gains of enterprise. For that instance, accumulation of capital was increased from
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Veblen, Thorstein. 1908 Marx, Karl. 1867

bargaining between those who own industrial wealth and those whose work turns this wealth into account in productive industry. For Marx genesis of capitalist production gave an account of how did capitalist class arisen, and enjoyed private ownership, leaving working class with nothing, but their labor power. As Marx argues preconditions for capital accumulation, were born relatively because of uncontrolled market of production. There were two main causes leading to genesis of capitalism Marx explained. First consolidated from the cancellation of any kind of serfdom and capitalist exploitation: as mentioned before laborers owned only their power as commodity, but because capitalists owned means of production, what they exchanged for money were the products of their labor, not the labor power itself. The second precondition of capitalist mode of production was that the laborer instead of being in the position to sell commodities in which his labor is incorporated, must be obliged to offer for sale as a commodity that very labor-power, which exists only in his living self.3 This second condition is related as so-called primitive accumulation... It appears as primitive, because it forms the prehistoric stage of capital and of the mode of production corresponding with it.4 "The expropriation of the agricultural producer, of the peasant, from the soil is the basis of the whole process."5 We can make the assumption that capitalist mode of production rose, both because and quite independently of the productive forces. All of these concepts and theories are now implemented deep into modern firm of capitalist society.

Nature
In capitalism or to say in a capitalist society, capital is an essential concept around which modern firms are organized, and in firms, this capital is in the form of "assets". John Searle6 introduced us to institutional facts. Institutional fact being a fact of objectification i.e. such fact would be to say, that a piece of paper with a number on it is worth 10 dollars, although it is just a piece of paper. In other words, by believing that it has worth we make it so. As with all institutional facts, capital only exits if people think it exists, and accountants are the ones helping to create the illusion of capital as an objective fact. Hines7 is one of the
Marx, Karl. 1867 Marx, Karl. 1867 5 Marx, Karl. 1867 6 Searle, John. 1995 7 Hines, Ruth. 1988
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people who presented the theory of capital objectification. As Searle, he argued that capital or assets for that matter are only true if we realize them and in that sense, theoretically one can shift reality. Although, everyone has a capability to realize, not everyone has a power to change or shift the reality. Hines argued that people, whom report such as accountants, or the ones on whose opinion masses react upon, have the power to change reality. Hines focuses the most on accountants, because they are the ones who in certain way report reality to others. They are the ones to decide what an assets is and what is worth of it. They can choose an angle or perspective on which they write a report, they choose what to emphasize or disregard. In other words, they make a picture of a company (reality) and people react upon it. Nevertheless, the nature of firms has changed during the last 200 years and intangible assets being assets not of physical nature are forming a bigger and bigger part of firms' assets. According to Veblen, 8 modern firm consists mainly of corporate securities and these securities are regarded as intangible assets. However, the key problem is that IAS (International Accounting Standards) does not recognize most intangible assets, thus making it even more difficult for old school accounting to handle. This results in some companies reports not being completely true. I.e. consulting or design companies do not have huge amounts of tangible assets, they rather have a bulk of worthy ideas or concepts, and people might misjudge them after analyzing its reports. Thus, this observation adds to previous discussion that reality could be altered, though this time not by accountants themselves rather than by a faulty system of accounting. Another distinctive feature of modern firm is rationality. One of the most known scholars on this topic was Max Weber.9 He argued for rationality as being key characteristic for both the development and existence of modern firm and capitalism. Weber mentions how profit came to be seen as something one would desire and how this perspective lead to rational organization of a firm. While describing rationality, Weber introduces several aspects of rationality. Such as calculability, predictability, technology and control over uncertainties, these principles can be applied to many social structures as well as to different levels of economics. Weber thought of rationality as a necessity for any modern firm to operate efficiently. More to that, he believed that at some point it would overtake many more spheres of society. Neoclassical economic theory makes two assumptions on rationality: utility
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Veblen, Thorstein. 1908 Weber, Max. 1930

maximization on the side of the consumer and profit maximization on the side of the producer.10 Yet, that might or might not lead the economic theories to be too unrealistic for the real world. Because people do not always have the information they need to maximize their utility/profit or want to do that. Nevertheless, he had a fear that this trend could result in limitation on individual actions leaving people with very few alternatives. To emphasize, he feared that the popularity of formal rationality was affecting substantive rationality making it decline. Formal rationality rose next to developing capitalist society, therefore it is closely link to modern firms and their methods. Thus, Weber saw such rationality as force, which would keep reducing freedom of individuals.

Role
Capitalism by nature is ever changing economic phenomena, it is not and nor it can ever be stationary. Joseph Schumpeter11 introduced us with theory of Creative Destruction which best describes the nature of modern firm and capitalism itself. This theory claims that capitalism is self-destructive or in Schumpeters words: process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying old one, incessantly creating a new one.12 By this theory, Schumpeter claims that modern firms in capitalist society tend to destroy one another, but at same time introduce something new. For example corporation drove out partnership, which drove out sole proprietorship or for that matter cars drove out horse carriages, Internet overtaken newspapers and so on. In other cases bad things might drive out good ones: I.e. clean money can be easily replaced, or compromised. From the perspective of neoclassical economic theory in the long run and perfect competition the price of product, ones company produce might settle at level where there are no profits.13 However, they can change situation through innovation: either by finding a way to produce same product at lower costs or by introducing completely new product, for which people would pay more. By cutting production costs to lower price than the one people are willing to pay for that product, company can disrupt the equilibrium and become profitable again. Everything that was mentioned in this essay is best embodied by U.S.
Sandelin, Bo. 2002 McCraw, Thomas. 1997 12 McCraw, Thomas. 1997 13 Frank, Robert. 2008
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capitalism. There is not a single country, which managed to make capitalism work for them as Americans did. Of course, one could argue that Americans had certain advantages, for example that they had almost free hand on taking control of a country unimaginably rich with natural recourses or that in the U.S. entrepreneurs and companies had more freedom than the ones in other countries. On the other hand, there are capitalist countries like Germany where firms do not have that much freedom, or power and influence over politics. Germany has so called German model14 a hybrid between socialism and capitalism, an institutionalized welfare economy with capitalistic competitiveness and strong social cohesion to add more a really small gap of inequality. Nevertheless, capitalism is very competitive economical structure and the success of a company depends on the character of the nation or to say people working at that firm. Fortunately, Americans have extreme tolerance for grueling competition and this is why they have succeeded in implementing and sustaining capitalism in their country. On the other hand, their success came with huge social costs as for example huge rates of violence and tremendous gap between rich and poor. Moreover, their current position is not as exceptional as it was. Dysfunctional politics and huge debts of the U.S. make it highly vulnerable to any economical turmoil. In the end, everyday labor workers are the ones to pay for all the losses and mistakes.

Conclusion
To conclude, modern firm has become a driver of economical growth, benefiting the whole society. On the other hand, it seems that in modern days companies growth became a goal in itself, even though it does not create any more of wellbeing. There are plenty of examples in the U.S., companies are getting bigger every year, and disappointingly inequality grows as well. Currently one can easily point out strengths and weaknesses of capitalism. Hence, its main strength is that it has not yet failed and still serves as viable way of organizing modern firm and society.

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Crouch, Colin and Streeck, Wolfgang. 1995

Bibliography
Crouch, Colin and Streeck, Wolfgang. Eds. 1995. Modern Capitalism or Modern Capitalisms? London: Francis Pinter. Frank, Robert. 2008. Microeconomics and Behavior. Seventh edition. New York: McGraw-Hill Hines, Ruth. 1988. "Financial accounting: in communicating reality, we construct reality", Accounting, Organizations and Society. Vol. 13, Issue 3, 251-261. Marx, Karl. 1867. Capital, Volume I. London: Penguin Books. McCraw, Thomas. 1997. "Creating Modern Capitalism: How Entrepreneurs, Companies, and Countries Triumphed in Three Industrial Revolutions", 301-348 Sandelin, Bo. 2002. A Short History of Economic Thought. Stockholm: SNS: 27-43 Searle, John. 1995. "The Construction of Social Reality". London: Penguin Books, 157-160. Veblen, Thorstein. 1908. On the Nature of Capital The Quarterly Journal of Economics, Vol. 22, Issue 4, 517-542 Weber, Max. 1930. "The Protestant ethic and the spirit of capitalism"