Elements of Capitalism

Chlodio · Mar 30, 2024

First a definition. I'm not using a binary definition where Capitalism is the opposite of Communism. I wish to compare Capitalism to all economic theories - Communism, socialism, merchantilism, feudalism, gift-giving economies, or any other form of economy. How do we distinguish capitalism from every other economy?

I know some of the following are present in other economies, but they are perhaps most strongly expressed in Capitalism:

1. Credit - Capitalism is all about creating personal wealth using other people's money.
2. Accounting - provides a way for entrepreneurs to assure their creditors or investors that the business is run in a profitable manner.
3. Corporations - a way for investors to supervise an entrepreneur via a board of directors.
4. Contract Law - a way of holding people to obligations.
5. Limited Liability - a way for investors to terminate unprofitable investments and for entrepreneurs to escape impossible obligations.
6. Bankruptcy - another way to terminate unprofitable investments and obligations.
7. Stock exchanges - a venue for investors and entrepreneurs to meet and form business relationships.
8. Insurance - a way for investors to hedge their bets against unforeseen events.
9. Profit - Capitalism's preferred measure of success.
10. Budgeting - Capitalism's preferred method of controlling managers by limiting how much money they can spend.

I'm sure I'm missing a lot of things. What else does a capitalist economy need or use more so than other economies?

DingBat · Mar 30, 2024

Chlodio said:
I'm sure I'm missing a lot of things. What else does a capitalist economy need or use more so than other economies?

Property rights, and the enforcement thereof.

Cynical me would also say the ability to foist negative externalities onto someone else, but yeah, that's cynical.

robto · Mar 30, 2024

Part 1 of 2

I'll define capitalism broadly as this:

- A socio-economic system by a combination of four different elements: "private property rights; contracts enforceable by third parties; markets with responsive prices; and supportive governments" (Neal and Williamson 2014: 2).

- As a specific historically defined system of "organizing the production of material wealth that entails distinctive asymmetrical relations between the classes engaged in economic activities. In a capitalist economy, individuals and groups who possess both circulating and fixed capital directly organize production by hiring laborers to turn out agricultural and/or industrial goods using the capitalists' land, labor, raw materials, plants, and equipment. Capitalists' profits consist of the difference between the costs of their capital inputs and the price their output receives in competitive markets. To gain or preserve an advantage in those markets, capitalists are under continuous pressure to innovate to cut production costs" (DuPlessis 2019: xiii).
Capitalism grew up within and shared components with the multiple non-hegemonic economic formations specific to early modern Europe and later expanded throughout the world and became the paramount system after the liberal and industrial revolutions.

This is the bare minimum of what is defined as capitalism, and with those definitions, the system should be understood as a broad concept that works within a spectrum.

- DuPlessis, R. (2019). Transitions to Capitalism in Early Modern Europe: Economies in the Era of Early Globalization, c. 1450 – c. 1820 (2nd ed., New Approaches to European History). Cambridge University Press: Cambridge, UK.

- Neal, L. and Williamson, J.G. (Eds.). The Cambridge History of Capitalism Volume I - The Rise of Capitalism: From Ancient Origins to 1848. Cambridge University Press & Fundación BBVA: Cambridge, UK.

robto · Mar 30, 2024

Part 2 of 2

In a more structural sense, one might define an 'ideal type' of modern capitalism as having eleven major features, which all capitalist countries share to a greater or lesser extent:

Source: Lane, D., & Myant, M. (eds.) (2007). Varieties of Capitalism in Post-Communist Countries (Studies in Economic Transition). Palgrave MacMillan: New York, NY.

Dalgonar · Mar 30, 2024

Freedom of enterprise
Free pricing
Free market

Alexander the Gay · Mar 30, 2024

A huge consumer base

robto · Mar 30, 2024

Alexander the ... said:
A huge consumer base

Yeah, although that only became materially possible after the Second Industrial Revolution in the early 20th century, and we can only speak of "consumerist societies" in places such as Europe and East Asia in the post-WWII era. Capitalism predates all of that.

Silesius Smithee · Mar 30, 2024

Chlodio said:
First a definition. I'm not using a binary definition where Capitalism is the opposite of Communism. I wish to compare Capitalism to all economic theories - Communism, socialism, merchantilism, feudalism, gift-giving economies, or any other form of economy. How do we distinguish capitalism from every other economy?

I know some of the following are present in other economies, but they are perhaps most strongly expressed in Capitalism:

1. Credit - Capitalism is all about creating personal wealth using other people's money.
2. Accounting - provides a way for entrepreneurs to assure their creditors or investors that the business is run in a profitable manner.
3. Corporations - a way for investors to supervise an entrepreneur via a board of directors.
4. Contract Law - a way of holding people to obligations.
5. Limited Liability - a way for investors to terminate unprofitable investments and for entrepreneurs to escape impossible obligations.
6. Bankruptcy - another way to terminate unprofitable investments and obligations.
7. Stock exchanges - a venue for investors and entrepreneurs to meet and form business relationships.
8. Insurance - a way for investors to hedge their bets against unforeseen events.
9. Profit - Capitalism's preferred measure of success.
10. Budgeting - Capitalism's preferred method of controlling managers by limiting how much money they can spend.

I'm sure I'm missing a lot of things. What else does a capitalist economy need or use more so than other economies?

Scratch #1. As a small-biz owner, Small engineering firm though I contract with multinationals, for ME it is all about the "freedom" to run the business as I see fit AND be both accountable for any losses AND gain from any profit. My "Capital" was my own; in '08 I basically "flipped" my 401K into funding my business (There's a specific term for this in the accounting world, but it escapes me at the moment) Basically, my "retirement plant" is now my business. I eschew "credit" except for lines-of-credit with certain vendors.

YouLoveMeYouKnowIt · Mar 30, 2024

A person's worth among peers and in society is determined by their income

Silesius Smithee · Mar 30, 2024

YouLoveMeYouKnowIt said:
A person's worth among peers and in society is determined by their income

As a small-biz owner, I do what I do for the love of doing it, and of course I need to make a profit. But making a maximum profit is not *WHY* I'm in business - Believe me, there are myriad more ways to "get rich" than running a small Engineering firm.

AlpinLuke · Mar 30, 2024

Maybe there is a point to remember ...

By definition Capitalism is the economic system where the Capital rules.

This requires the existence of "legal persons" [legal entities].
What does this mean? That it's the corporation the legal subject, not this or that shareholder.

This is also the legal base for the existence of the limited liability.

In fact, a corporation can be limited or not. A "society of persons" [a form of corporation which exists in Italy], being of persons and not of capitals, has got an unlimited liability.
That is to say that if the corporation goes bankruptcy the business partners have to pay also with their own personal private capital [so, personally].

In that case the liability is not limited to the legal entity, it's expanded to all the business partners.

It's evident that without the existence of "legal entities" proper Capitalism wouldn't exist: it would be too risky to be a member of a corporation.

Silesius Smithee · Mar 30, 2024

AlpinLuke said:
In fact, a corporation can be limited or not. A "society of persons" [a form of corporation which exists in Italy], being of persons and not of capitals, has got an unlimited liability.
That is to say that if the corporation goes bankruptcy the business partners have to pay also with their own personal private capital [so, personally].

In that case the liability is not limited to the legal entity, it's expanded to all the business partners.

It's evident that without the existence of "legal entities" proper Capitalism wouldn't exist: it would be too risky to be a member of a corporation.

I like the Euro way of Societe Anonyme (SA), tho I think in might be SpA in Italy.

AlpinLuke · Mar 30, 2024

Silesius Smithee said:
I like the Euro way of Societe Anonyme (SA), tho I think in might be SpA in Italy.

Yes, in Italy it's a SPA. But the Italian stock exchange in Milan is not so rich as you could expect.
Italy is a country where little business dominates the market and Italians love an intermediate kind of corporation: the SRL. Limited liability for sure, but no shares for the stock exchange, only capital shares which are not on the financial market.

Leftyhunter · Mar 30, 2024

Chlodio said:
First a definition. I'm not using a binary definition where Capitalism is the opposite of Communism. I wish to compare Capitalism to all economic theories - Communism, socialism, merchantilism, feudalism, gift-giving economies, or any other form of economy. How do we distinguish capitalism from every other economy?

I know some of the following are present in other economies, but they are perhaps most strongly expressed in Capitalism:

1. Credit - Capitalism is all about creating personal wealth using other people's money.
2. Accounting - provides a way for entrepreneurs to assure their creditors or investors that the business is run in a profitable manner.
3. Corporations - a way for investors to supervise an entrepreneur via a board of directors.
4. Contract Law - a way of holding people to obligations.
5. Limited Liability - a way for investors to terminate unprofitable investments and for entrepreneurs to escape impossible obligations.
6. Bankruptcy - another way to terminate unprofitable investments and obligations.
7. Stock exchanges - a venue for investors and entrepreneurs to meet and form business relationships.
8. Insurance - a way for investors to hedge their bets against unforeseen events.
9. Profit - Capitalism's preferred measure of success.
10. Budgeting - Capitalism's preferred method of controlling managers by limiting how much money they can spend.

I'm sure I'm missing a lot of things. What else does a capitalist economy need or use more so than other economies?

Political stability. A business is going to have a tough time surviving if it's personnel and materials are subject to violent assault or theft. Investing in a country that has a history of civil conflict,high crime or invasion from its neighbors is rather challenging.
Corruption is always an issue . All countries have some corruption but there is a tipping point where if the bribes are higher then the profits or somewhat close to the profit level then it's not worth doing business.
Taxes are always an issue if the tax rate is to high then it's not worth the effort to have a business in a given political entity.
Does a given location have organized crime groups that can in effect generate an unofficial but high tax?
Labor costs are always an issue. If minimum wage laws cut into profits by a high percentage maybe that given entity isn't worth the trouble of doing business there.
Especially for high tech industries does a nations immigration laws restrict the ability of a hi tech firm to import highly skilled personnel?
Leftyhunter

Alexander the Gay · Mar 30, 2024

Abundant labour. Cheap and preferably skilled.

YouLoveMeYouKnowIt · Mar 30, 2024

AlpinLuke said:
Maybe there is a point to remember ...

By definition Capitalism is the economic system where the Capital rules.

This requires the existence of "legal persons" [legal entities].
What does this mean? That it's the corporation the legal subject, not this or that shareholder.

This is also the legal base for the existence of the limited liability.

In fact, a corporation can be limited or not. A "society of persons" [a form of corporation which exists in Italy], being of persons and not of capitals, has got an unlimited liability.
That is to say that if the corporation goes bankruptcy the business partners have to pay also with their own personal private capital [so, personally].

In that case the liability is not limited to the legal entity, it's expanded to all the business partners.

It's evident that without the existence of "legal entities" proper Capitalism wouldn't exist: it would be too risky to be a member of a corporation.

Your second sentence sums up the only DEFINING characteristic of capitalism. The other oft cited characteristics such "free market" and "economic liberalism" are not definitive of capitalism but are consequential characteristics of a country that happens to be capitalist. They do not determine if a county is capitalist but are embodied in a country that's capitalist. They are cogwheels of a virtuous/vicious cycle that reinforces itself.

Capitalism is where capital supersedes the polity, and the interest of capital supersedes the interest of polity. It's where capital rules. The direction of control in a country that's capitalist:
Capital > Party > Government > ~~State~~Marketplace = ~~People~~Consumer

People who do not consume are losers. Any money spent on them are considered budgets you have to find by cutting things (like public transit). Money spent to force consumption are considered investments you get by convincing non-losers (like highways for personal cars).

Alexander the Gay · Mar 30, 2024

One of the biggest features of a capitalistic society is the primacy of bankers, merchants and businessman in the political process.

YouLoveMeYouKnowIt · Mar 30, 2024

Alexander the ... said:
One of the biggest features of a capitalistic society is the primacy of bankers, merchants and businessman in the political process.

The primacy of pooled, institutionalized capital.

Leftyhunter · Mar 30, 2024

Alexander the ... said:
One of the biggest features of a capitalistic society is the primacy of bankers, merchants and businessman in the political process.

Even more importantly how are disputes handled? Is there a reasonably fair and impartial judicial system in place to resolve disputes?
Leftyhunter

Yury · Mar 30, 2024

I think Marx nailed it with his famous formula Commodity-Money-Commodity. In all other economic orders consumption is the goal of production, and capitalist uses the proceeds of production (money) to invest in even more production. Everything else comes along.

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Elements of Capitalism

Chlodio

DingBat

robto

robto

Dalgonar

Alexander the Gay

robto

Silesius Smithee

YouLoveMeYouKnowIt

Silesius Smithee

AlpinLuke

Silesius Smithee

AlpinLuke

Leftyhunter

Alexander the Gay

YouLoveMeYouKnowIt

Alexander the Gay

YouLoveMeYouKnowIt

Leftyhunter

Yury

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