Part II: Building Blocks: Institutions of Society 03/25/2009 Chapter 10: Capitalism and the Economy Perceptions of rising job insecurity seem to be an underlying factor in motivating Americans to work longer hours. Creative class: A group of workers in multiple industries united by the fact that creativity is central to their productive work. Capitalism: An economic system in which property and goods are owned privately. Investments are determined by private decisions. Prices, production, and the distribution of goods are determined primarily by competition in a free market. Before capitalism in Europe, the dominant economic system was feudalism. Feudalism: An economic system characterized by the presence of lords, vassals, serfs, and fiefs. The evolution of capitalism was also heavily influenced by the development of technology. Agricultural revolution: The introduction of new farming technologies that increased food output in farm production. Monetization: The establishment of a widely accepted currency for exchange. Corporation: A legal entity unto itself, one that has a legal personhood distinct from that of all its members, namely its owners and shareholders. Limited liability: The practice of limiting individual financial liability to the holdings of a company, so that a shareholder or company owner is not personally responsible for any liabilities of the company in which he or she has invested beyond the value of the company itself. Adam Smith, the father of liberal economics, noted that individual self-interest in an environment of others acting similarly will lead to a situation of competition, as long as the basic laws and contracts are honored. The classical sociologist George Simmel saw the development of monetary payment systems as part of a historical evolution, the depersonalization of exchange. Payment per unit: A system of payment based on products produced, not hours worked. Wage labour: A system of payment whereby workers are compensated on the basis of a wage not tied to the quality of the raw materials, accidents, or other exigencies in the production process. Salary: A system of payment whereby workers are compensated for the sum of their services, not any particular performance or hours worked. Civil service salary: A system of payment under which compensation is not tied to the productive value of the worker, but rather what is deemed to be an appropriate standard of living. Honorarium: A form of payment that is completely separate from the product or service itself. Karl Marx considered capitalism both fundamentally flawed and inevitably doomed. Alienation: A condition in which people are dominated by forces of their own creations that then confronts them as alien powers. According to Marx, the basic state of being in a capitalist society. Socialism: An economic system in which most or all the needs of the population are provided for through nonmarket methods of distribution. Communism: A political ideology of a classless society, in which the means of production are shared through state ownership ad in which rewards are not tied to productivity but need. Max Weber believed that not just technology but also ideas in themselves generate social change. Family wage: A wage paid to male workers sufficient to support a dependent wife and children. Service sector: Economic activity that involves providing an intangible service. Globalization in capitalism means an increase in trade and economic exchanges among individuals, corporations, and states in different areas of the globe. Champagne-glass distribution: The shape of the unequal, global distribution of income. Juristic person: An entity that has all the legal rights, duties, and responsibilities of natural persons. Monopoly: Occurs when there is only one seller of a good or service in the market, leading to zero competition. Oligopoly: Occurs when only a handful of firms exist in a particular market. Political arbitrage: The use of insider political knowledge to earn profits. Offshoring: A business decision to move all or part of a company’s operations overseas to minimize costs. Union: The organization that forms when workers formally unite with the common aim of collective bargaining. Union busting: What happens when a company launches an assault on its workers’ union, such as refusing to negotiate or renew a union contract.