Capitalism is just the idea that capital is privately owned and the economy is loosely organized around that concept.
From the IMF
In a capitalist economy, capital assets—such as factories, mines, and railroads—can be privately owned and controlled, labor is purchased for money wages, capital gains accrue to private owners, and prices allocate capital and labor between competing uses
If you compare this to something like socialism which says that capital assets should be held by the society at large. There is no one guy that can own a mine but the mine is owned by society at large.
Capitalism often likes to wear the clothes of “free markets” because most people like the idea of freedom. Not a lot of people are super keen on the idea that “some rich guy should be allowed to own all the railroads if he wants” (unless you are a rich guy that owns a bunch of railroads) so capitalists like to conflate capitalism and the free market as though they are one inseparable idea.
Other economic systems can also have free markets with collective ownership. Worker cooperatives, for example, exist within capitalist economies.
The existence of a stock market is not actually needed for capitalism. The people that own the means of production don’t necessarily need to set up a system where people can purchase a share of their companies. It might be an emergent property of capitalism, if people don’t want to start their own profit generating enterprises but want to share in the gains of a profit generating enterprise they would be willing buyers. People with profit generating enterprises might be willing sellers if they think they could over time generate more profit by raising capital from the stock buyers. But if you didn’t have a stock market and private individuals controlled the capital assets of your society, by definition you’d still be capitalist since that’s the defining characteristic.
As an example you could outlaw all financial instruments in America and as long as I can still own a factory and sell my goods for a profit, it would still be capitalism.
I think economic systems are fascinating. We often colloquially conflate various things that tend to happen together but really aren’t related at all. Of course if I hold the capital assets I would want you to associate capitalism with the positive aspects of a free market and sorta ignore the part where I get to own the capital asset and charge everyone else to have access to it.
It’s interesting that capital assets are only defined through example in the IMF definition and when you use it later. I know what they mean intuitively but it’s interesting that it doesn’t seem like there’s any hard line for what counts. Even when I look it up the definition is pretty loose.
Yea a lot of economic thinkers have tried to define capital.
I tend to think of capital mostly in the terms of means of production. Capital comprises the things that make things. But different economic thinkers draw different boundaries.
I think regardless of where you draw the boundaries the idea of capitalism is an interesting one, one where you let private individuals own those things. There are definitely parts that become almost philosophical. Take for instance mining rights. The mountain sits there for millennia, completely unowned. Then one day some people show up. No one owns that mountain, if people need rocks from the mountain anyone can walk up there and take them. Then you get enough people together and they say “together we are a nation, our nation owns that mountain.” Then capitalism does this neat magic trick where the nation can sell the mountain to one of the people in the nation and then he owns the mountain. You need a rock from the mountain, too damn bad, Greg bought the mountain and now you have to buy your rocks from him.
When you strip away all the abstractions we put up, it’s kinda wild. I find capitalism’s frequent marriage to democracy to be kinda fascinating too because the systems are sorta in opposition. When no one owned the mountain, all were free to take rocks, one could argue they vote with their rock collecting hands, that’s quite democratic. Once the nation claims the mountain, if that nation were democratic, the people could vote on the best way to use the rocks and that’s quite democratic too. But once the nation sells it to Greg, the fate of the mountain is in Greg’s hands. The people have no further say in the mountain or how much rocks cost or anything really, it is the least democratic outcome.
Capitalism is just the idea that capital is privately owned and the economy is loosely organized around that concept.
From the IMF
If you compare this to something like socialism which says that capital assets should be held by the society at large. There is no one guy that can own a mine but the mine is owned by society at large.
Capitalism often likes to wear the clothes of “free markets” because most people like the idea of freedom. Not a lot of people are super keen on the idea that “some rich guy should be allowed to own all the railroads if he wants” (unless you are a rich guy that owns a bunch of railroads) so capitalists like to conflate capitalism and the free market as though they are one inseparable idea.
Other economic systems can also have free markets with collective ownership. Worker cooperatives, for example, exist within capitalist economies.
The existence of a stock market is not actually needed for capitalism. The people that own the means of production don’t necessarily need to set up a system where people can purchase a share of their companies. It might be an emergent property of capitalism, if people don’t want to start their own profit generating enterprises but want to share in the gains of a profit generating enterprise they would be willing buyers. People with profit generating enterprises might be willing sellers if they think they could over time generate more profit by raising capital from the stock buyers. But if you didn’t have a stock market and private individuals controlled the capital assets of your society, by definition you’d still be capitalist since that’s the defining characteristic.
As an example you could outlaw all financial instruments in America and as long as I can still own a factory and sell my goods for a profit, it would still be capitalism.
I think economic systems are fascinating. We often colloquially conflate various things that tend to happen together but really aren’t related at all. Of course if I hold the capital assets I would want you to associate capitalism with the positive aspects of a free market and sorta ignore the part where I get to own the capital asset and charge everyone else to have access to it.
Thank you for that detailed answer. I am all about learning new things!
That was very insightful, thanks.
It’s interesting that capital assets are only defined through example in the IMF definition and when you use it later. I know what they mean intuitively but it’s interesting that it doesn’t seem like there’s any hard line for what counts. Even when I look it up the definition is pretty loose.
Yea a lot of economic thinkers have tried to define capital.
I tend to think of capital mostly in the terms of means of production. Capital comprises the things that make things. But different economic thinkers draw different boundaries.
I think regardless of where you draw the boundaries the idea of capitalism is an interesting one, one where you let private individuals own those things. There are definitely parts that become almost philosophical. Take for instance mining rights. The mountain sits there for millennia, completely unowned. Then one day some people show up. No one owns that mountain, if people need rocks from the mountain anyone can walk up there and take them. Then you get enough people together and they say “together we are a nation, our nation owns that mountain.” Then capitalism does this neat magic trick where the nation can sell the mountain to one of the people in the nation and then he owns the mountain. You need a rock from the mountain, too damn bad, Greg bought the mountain and now you have to buy your rocks from him.
When you strip away all the abstractions we put up, it’s kinda wild. I find capitalism’s frequent marriage to democracy to be kinda fascinating too because the systems are sorta in opposition. When no one owned the mountain, all were free to take rocks, one could argue they vote with their rock collecting hands, that’s quite democratic. Once the nation claims the mountain, if that nation were democratic, the people could vote on the best way to use the rocks and that’s quite democratic too. But once the nation sells it to Greg, the fate of the mountain is in Greg’s hands. The people have no further say in the mountain or how much rocks cost or anything really, it is the least democratic outcome.