What is Capitalism?

It is interesting that the definition of capitalism owes more to Marx than Smith.  Private ownership of the means of production comes of course from Marx.  Recent obsessions with markets is perhaps an attempt to return to Smith, though in practice Smith favored more government action (protectionism) than might be comfortable for today’s conservatives to accept.  On the face of it, there seems to be any number of quite different business approaches that all are being claimed as capitalism.  Let’s explore some of them.

Mercantilism represents perhaps the earliest form, and elements of this system still exist.  Most nations pay attention to money supply and balance of trades, though imperialism has morphed somewhat into less political and more economic forms—a distinction lost perhaps on the exploited areas.

Laissez-faire, free-market, capitalism is most closely associated with Smith and largely accepted as what we practice in the United States, though strictly speaking it isn’t even close to today’s  capitalism.

Social-market capitalism is largely associated with the Nordic and European countries.  As such it is bad, very, very bad; unless you live there.

State capitalism is the bastard child that is generally ignored by anyone who likes capitalism, except when it worked for Milton Friedman to use it to impose his economic theories.

Finance capitalism is sometimes invoked to distinguish the strange world of financial alchemists.  It still exists, independent (?) of the other forms.  Recently Matt Taibbi described Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”  So presumably this would be vampire squid capitalism.  Enron and Bernie Madoff have shown us that there can be Ponzi capitalism.  Certainly there seems to have a deep misunderstanding of the concept of spreading risk in finance capitalism.  It ought not to mean that everyone ends up with a lot of risk.  Actually it is now argued all capitalism is now finance capitalism—this is probably not a good thing.

Corporate capitalism is what we most often think of and talk about today, but historically this group has been as diverse as the previously types.  Early corporations were chartered by Kings, as today they are by governments. Most early ones were granted monopolies, and later when not explicitly set up as such, they pursued monopoly.  Then we in the U.S. decided that was bad and thus corporate capitalism agreed (under force of law) to only pursue market share.  At some point corporations decided to “influence” the political system that had prevented it from monopoly and we got bribery capitalism.  Recently they have been endowed with personhood and freedom of political speech by The Supreme Court.

A lot of types, but presumably they involve capital (mostly money) and often you will hear about capital flows determined by market forces.  Being who I am, I would prefer markets forces since tend to see multiples when others see unity.  We have a number of combinations of these types of capitalism.  For better or worse, we have them all and quite a bit of things that are not capitalist at all.

I have often wondered why the private vs. public distinction is so absolute an element for many when such clear distinctions have never existed.  (As mentioned earlier the government, whether King, totalitarian or democratic state have each played their role in close coordination with capital.)  I have never understood what kind of market would exclude a party that has always been present.  Of course, governments are never actually excluded as corporations have always simply tried to avoid what they deemed unhelpful, well unprofitable.  But then what exactly does profit mean??????


Externalities 2

Historically, capitalist externalities refer to costs that could not be counted because they were assumed to be minimal and thus ignored. This is similar to what occurs in calculus. In estimating volumes of round objects, the technique creates a situation in which the inaccuracies can be ignored–though present. The problem is economics ignores our new abilities to count and maintains the intent to ignore for less flattering reasons.
Also historically there have been a number of schools of capitalism (more on this later). Today I like to refer to “ideological” capitalism which uses externalities to generate profits by offloading costs to society. Thus where ecological costs were once ignored because it was assumed that nature had the ability to endlessly absorb pollution, we now this is not true but insist corporations simply cannot absorb these costs and be profitable. It is interesting to note this same claim ignores the implications of this claim and also calls for a minimalist government and regulation. This is not the capitalism of Adam Smith.


Capitalism uses the concept of externalities to ignore and/or hide the actual costs of any business project.  This posits those costs onto an outside (unstated) agent–usually to be discovered as costs to be born by the rest of the world.  It is time to stop this practice and require actual costs to be accounted for by the people who create them.  Environmental costs, health costs, stolen profits, political costs, job losses:  all are dismissed with impunity.  They are not minimal and thus ought not to be ignored.  They are not actually external to anything but the limited liability of the corporation that creates them.