Wednesday 30 December 2020

Define Capitalism! - holiday homework for C@W

I've recently come across a book called The Ethics of Capitalism (Daniel Halliday and John Thrasher, OUP 2020).  Unsurprisingly, it starts by groping for a definition.

... Treating the relationship between markets and freedom as all or nothing tends to be a mistake of both the “purest” defenders and opponents of capitalism. It is better, then, to think of capitalism as a certain approach to harnessing and promoting markets, in part with the help of government and civil society, not a deference to markets as such... Market forces and markets are ubiquitous, and yet the existence and promotion of markets alone are not the “essence” of capitalism. What, then, is? ... In many respects, no two capitalist societies are entirely alike, so there is limited value in generating an exhaustive, philosophically precise definition of capitalism.  

... We need to make sure that any definition of capitalism, however flexible, at least captures most existing societies that are seen as more or less capitalist.  One crude way to do this is to use a proxy measure like the Economic Freedom of the World Index, which is produced annually by the Fraser Institute.  Their methodology measures size of government, legal system and security of property rights, sound money, freedom to trade internationally, and regulation.   

... A country’s economic freedom score is highly correlated with its per capita income.  Countries that are unfree, like Venezuela, have very low per capita incomes, while countries that are very free, like Hong Kong or Canada, have very high per capita incomes.  The ranking on the list also correlates well with where people around the world are trying to enter as immigrants and from where they are trying to escape. This gives us one way of arriving at an approximate and preliminary definition of capitalism. Although we will expand on this somewhat, we should think of capitalist societies as those that rank highly on most of the measures that the Economic Freedom of the World Index highlights.  In particular, capitalist societies will have: 

A. Strong legal protections for private property 

B. Wide dispersion of private property across their population 

C. Extensive international trade 

D. Consumer sovereignty (including competition in the provision of goods and services) 

E. Diversity of employment contracts 

Existing capitalist countries will have these features to greater or lesser degrees, but without at least meeting these (admittedly broad) conditions, it is unlikely that we would consider the society in question capitalist.

And that's as far as they go in their build-up.  Even if it's a useful background discussion (and there's plenty more of interesting stuff in the book), as regards essaying a definition of capitalism this is a pathetic cop-out.    

Eventually they get to this: 

...“pure” capitalism [is] the economic arrangement in which power is de-centralised, property is widespread and employment options are diverse.

Feeble.  I've occasionally shared a few definitional ideas of my own here in the past.  What do dedicated C@W readers say?   We want a definition in no more than a couple of sentences, even if you need to add an explanatory paragraph or two. 



Anonymous said...

Freedom of individual conscience and freely entered contract; freedoms to which the State (a nation’s collective dowry to compulsion) subordinates itself and its citizens via law and (in extremis) the sword. An enigma and ironic arrangement, fragile yet robust, needing constant tending and the ever-present knowledge of Man’s frailty and promise. An arrangement that protects the possibility of success and failure. Cacophonous at hand, glorious in prospect.

Old BE said...

Similar to Anon above:

Within a transparent and fairly predictable framework (i.e. not a total free for all) individuals and groups of individuals are free to decide how to allocate their own capital.

Andrew said...

A system whereby capital (property)is legally owned and may be used as per the owners will, contracts between parties are freely made and legally enforceable, markets are free... and the assumptions underlying all of this are stable and not arbitrarily changed.

Anonymous said...

The antithesis of socialism, in that any form of socialism that goes awry isn't true socialism, and any form of capitalism that doesn't enslave everyone isn't true capitalism.

Sorry, channelling Owen Jones there for a moment...

I don't think there is a simple definition beyond "a system where parties may exchange items directly, or via a medium of tokens, of mutually agreeable value"

There's no freely - try selling homemade crack and artisan AK47's from a market stall, see how long it takes dibble to drag you to the station by your topknot, or set up something selling something perfectly legal but requiring a permit of some sort.

No equitable or fair support from the state either - China and Russia are prime examples where you cannot expect those, yet still have capitalist activity. Germany hardly hobbles the home team either, for that matter.

Once you get past "swapsies" you mire yourself in complexities.

Matt said...

A condition would need to be that a country spends no more than 20% of GDP on government. Otherwise (and perhaps even then) it'll become beholden to special interests who will make arguments for meddling in markets. Once the dead hand of government tries to make decisions things become non-capitalist.

E-K said...

Free enterprise operating within a framework of light touch government, law, military protection and strategic infrastructure.

Those taking part in it able to make limitless personal gains without punitive taxation under a system of equality of opportunity for all.

Old BE said...

That sounds like Utopia EK!

Elby the Beserk said...


Increase and multiply.

As the good book advises. Simple. Straightforward.

dearieme said...

A system where chaps in top hats smoke cigars while trampling The Poor underfoot.

dearieme said...

Sorry that's socialism except that Lenin caps replace top hats.

andrew said...

What is Capitalism

Capitalism is rules

Rules that are defined on a limited basis

Rules that are clearly defined, apply to all, can be enforced by anyone through a defined process, do not change rapidly, most rulebreakers are caught

What those rules are in (reasonably) capitalist countries is a matter for the local culture.

jim said...

Capitalism is self interest. A capitalist decides what is in their best interests and does it.

Uncontrolled, one capitalist would dominate and supply everything. Human society contains many who want to be capitalists, we developed laws to allow some control of capitalists. Capitalists quite reasonably seek to influence controls on their activites. Quite rightly there is ongoing conflict/competition and debate.

An alternative is social interest. A social influencer (government?) decides what is in their best interests and makes/pays/persuades others to do it.

There is a great deal of ruin, social influence tends to be diffuse. Left to itself effort and interest is likely to evaporate. In the extreme conflict/competition is suppressed. But some things like railways and roads and health systems are useful to society but unattractive or too exploitative to be left to capitalists.

Neither system is wholly good or wholly bad and the struggle to be in charge can get vicious. Hence never ending conflict and debate.

Elby the Beserk said...


Easy. May I refer you to the Good Book

"Go forth and multiply"

Anonymous said...

Well your response is certainly multiplying, Elby.

Elby the Beserk said...

Anonymous dearieme said...
A system where chaps in top hats smoke cigars while trampling The Poor underfoot.

10:53 pm

Uh? Global poverty halved in under two decades, as a result of

a) Socialism? - or

b) Capitalism and its ally, free trade?

Oddly Socialism ALWAYS makes matters worse for the poor.

Devil's Kitchen said...

So, capitalism is a system whereby outside investors can provide capital in exchange for partial ownership in order to enable companies to start and to grow.

Capitalism is a system of ownership — it is separate from the market mechanism (as we can see — in John Lewis, for instance — socialist companies can operate within free markets).

Capitalism requires property rights — you can’t have a system of ownership without a legal concept of ownership — but not necessarily free markets.


Bill Quango MP said...

Socialism: You have two cows. The government takes one and gives it to your neighbour.

Communism: You have two cows. The government takes both but gives you free milk.

Fascism: You have two cows. You bribe the government to give you a contract to supply only them with the milk.

Capitalism: You have two cows. You borrow heavily to buy them. You sell one and buy a bull. Put the bull and cow into your wife’s name. You Declare bankruptcy and retire to Monaco.

Don Cox said...

"So, capitalism is a system whereby outside investors can provide capital in exchange for partial ownership in order to enable companies to start and to grow.
Why outside investors ? A person who builds up a business with his own capital Is even more a capitalist than the one who uses borrowed money. Likewise a pair of people in partnership using their own money.

If a business depends on outsiders for its capital, the outsiders (banks or whoever) are the bosses and any managers are just employees, even if they delude themselves into thinking they own the business.


I don't think the stock market, bond market, commodities futures, etc are capitalism: they are just forms of gambling. Capitalism involves trading in real goods and services, not just putting money on horses.

Don Cox

Devil's Kitchen said...

Buying shares is capitalism: you are providing capital in exchange for ownership.


Nick Drew said...

private equity is certainly capitalism: ownership typically means something quite real in most such cases

some buying of equity on-exchange is, too - but I suggest that plenty is just gambling (see any share-price comments board) - the ownership in question is fairly derivative: punters certainly hope to be able to exercise the right of disposal in due course (and to a lesser extent, to receive div) but how many of them propose to vote at the AGM, e.g.?

Graeme said...

So many votes at Agms are about disallowing pre-emption rights! I always vote against

Anonymous said...

People happy with capitalism seem to praise the aspects I would attribute to Free Markets.

People critical of capitalism usually seem to be angry with behaviour or the externalities caused by limited liability companies.

A great deal of talking past each other, over this badly defined word.

jim said...

Happy New Year everyone.

Are we conflating capitalists and markets? Which came first, the Smithian butchers and bakers or the kings with cash to spend or the agora where all can mingle and higgle.

Has our definition shifted to 'a person who borrows money/goods/services to fund their self interest'. That would imply a pre existing money/goods/services market, so how did it all go before the ability to borrow - were there no 'capitalists' then?

Perhaps the first 'borrowing' was at the pointy end of a sharp stick.

Don Cox said...

Kings with cash to spend generally waste it on wars, ceremonies, and over-elaborate buildings.

I think the Smithian butchers and bakers are the people who invest their capital (from the profits from their bread and meat) in goods for trading world wide. A group of local tradesmen form a company, pool their free capital, and outfit a ship or a camel train with saleable goods. If all goes well their agents return with plenty of valuables, such as gold or spices.

The Silk Road traders ae one example, and the numerous trading voyages and journeys recounted by those involved and collected by Hackluyt are another.

Capitalism is basically trade. But I think the word "capitalism" has been so over-used that its meaning is now almost faded away.

(A complete set of "Hackluyt's Voyages" will keep you interested for years.)

Don Cox

Anonymous said...

@jim - pretty much everything started with a pointy stick or suitably hard rock.

Roll back to the stone age...

Ug: "Hey guys, we've decided to create this thing called 'government', this is where *we* stay in the village, and *you* go forage and hunt. To thank us for doing this, we'll take a 25% cut of what you find"

Urg: "That... Sounds unfair. We've usually rotated between foraging and looking after the village. How about we keep doing that?"

Ug: "Sure, sure, sure. But we also invented 'police' and 'military'"

*Gruh and Hur step forward, hulking with large rocks*

Ug: "You all have a great day now, and if you find some bison, I've a real hankering for some... Hey, Yugrh, why aren't you going?"

Yugrh: "I invented 'religion', don't hate the playa bruh"

The fundament of civilisation is the codification of who can use violence, when, and the justification for that separation.

From that flow laws, rights and institutions, as they need to be backed up by force.

andrew said...


Sort of. I would say it is the codification of some small limited agreements between individuals.

Back then the land was a lot more empty and if there was a disagreement, you could always (literally) walk away.

One could say capitalism is mostly the rules we use to share limited resources.

Anonymous said...

@andrew - what scaffolding supports the enforcement of those agreements?

It all boils down to force, and to the belief it will be used to enforce laws, rules and rights.

Most people will behave honestly and work together, but you always have those who feel they gain an advantage by not doing do, they are (theoretically) stopped from doing so by having state-backed institutions authorised to use force, if necessary, to halt them.

It's the primal social contract from which everything else is built upon - you work within these boundaries, and we'll protect you from those who don't, and we'll protect others when you don't.