Does the discipline of economics have an accepted rigorous definition of capitalism?
I.e. not something like "some economists would quote Hayek and say that so and so constitutes capitalism" but an if and only if definition that most economists would agree on.
Does the discipline of economics have an accepted rigorous definition of capitalism?
The dictionary definitions of capitalism (currently the most upvoted answer) have been critiqued as inadequate, in the sense that they are too broad, by Geoffrey Hodgson in his treatise, Conceptualising Capitalism (University of Chicago Press, 2015).
Definitions proliferate. Most dictionaries stress private ownership and markets; many add the profit motive. The entry in The New Encyclopaedia Britannica (1998, 2:831) is typical: “Capitalism, also called free market economy, or free enterprise economy: economic system . . . in which most of the means of production are privately owned and production is guided and income distributed largely through the operation of markets.”
But, if we consider systems based largely on private ownership, the profit motive, and markets, we can find many examples before the medieval era. [...] trade has existed for tens of thousands of years, markets may have appeared as long as five millennia ago in China, and they were evident in several locations in the eastern Mediterranean and the Middle East around 600 BC. Private ownership, the pecuniary calculus, and the profit motive have similarly played a prominent role in leading economic regions for thousands of years. Hence, prominent dictionary definitions of capitalism make it a system that has lasted for multiple millennia. If we adopt such definitions, then we need to find another word to describe the institutional structures that were consolidated in the eighteenth century and gave rise to spectacular economic growth and ongoing technological innovation.
And he does have his own definition (which I will not try to argue that is mainstream); its premise is that:
Capitalism [...] requires special forms of state that cannot confiscate property arbitrarily at will, that are effectively restrained by laws, that have internal checks and balances, and that are faced with countervailing (democratic or other) powers that help protect a relatively autonomous legal system. Such states are necessary to legitimate and protect property rights and to enforce contracts. They required peculiar circumstances and a long time to evolve. Foreshadowed in the Italian city- states, they did not appear on a national scale until the seventeenth century, in Britain and the Netherlands. [...]
I argue that, while markets are central to capitalism, capitalism is not simply a market system: unavoidably it contains different subsystems of governance, production, distribution, and exchange. Furthermore, capitalism cannot in principle have markets for everything or bring everything within the orbit of commodity exchange. In particular, under capitalism there can never be a complete set of markets for future labor power. For there to be full futures markets for labor, all workers must enter into contracts for their expected working life. This would be tantamount to voluntary bondage, limiting the freedom of workers to quit their employment. Paradoxically, pushing markets to their limits would mean the return of slavery for the workforce.
He goes on to semi-formalize a list of tenets that constitute capitalism first according to [his interpretation of] Marx and then similarly for Schumpeter
- A legal system supporting widespread individual rights and liberties to own, buy, and sell private property
- Widespread commodity exchange and markets involving money
- Widespread private ownership of the means of production by firms producing goods or services for sale in the pursuit of profit
- Much of production organized separately and apart from the home and family
- Widespread wage labor and employment contracts
Most dictionary and encyclopedia definitions emphasize conditions (1), (2), and (3), albeit often without emphasis on the legal system. More than Marx, the notion of M-capitalism emphasizes the legal system and individual rights. Regarding condition (4), the separation of much production from the family and the domestic sphere was emphasized by Weber (1968) and is implicit in Marx’s writings. Weber rightly argued that this separation was important to subject production to systems of rational accounting and pecuniary motivation. Marx emphasized condition (5) because it flows from the nature of capitalism as generalized commodity production and encapsulates the driving antagonism between the employing class and the working class. [...]
A problem [...] is that the addition of condition (5), widespread wage labor, to the preceding four does not effectively demarcate modern industrial capitalism from the four preceding centuries when wage labor was widespread in rural England. M-capitalism, as specified above, gives us a better-than-average definition, but not one that is sufficiently sharp in terms of historical specificity.
Further problems of historical demarcation arise with the first four conditions. As noted in section 4.4 above, the idea that secure property rights were first established in England in the seventeenth century is a myth. Furthermore, money, markets, and private ownership have existed for millennia. The fourth condition is helpful but hardly sufficient as an explanation of massive expansion of capitalism around 1800. The five conditions are inadequate to demarcate historically the explosion of capitalist productivity even if they are necessary for that system.
As for S[chumpeter]-capitalism, he argues that it contains all of the above, except for #5, but that additionally it has
- A developed financial system with banking institutions, the widespread use of credit with property as collateral, and the selling of debt
The addition of condition (6) takes seriously the monetary definition of capital and institutions promoting collateralization and the salability of debt. Capitalism is thus marked by “the predominance of ‘capital’” (Sombart 1930, 196). This definition points to the development of institutions of clearer historical specificity. According to this definition, the emergence of capitalism in England is marked by developments in financial institutions in the eighteenth century.
Note that condition (1) in the definitions of M-capitalism and S-capitalism rules out (at least widespread) slavery. Consequently, both M-capitalism and S-capitalism involve missing futures markets for labor. With S-capitalism, there may be self-employment or worker cooperatives but not extensive slave labor. M-capitalism rules out an economy with predominant self- employment or worker cooperatives.
As you can probably guess, by synthesis, he argues that the definition of capitalism should include the superset of 1-6 from both M- and S-capitalism (which already have a lot in common).
But there is a cost to the exclusion of condition (5) from this definition. [...] the advantage of retaining the employment contract in the definition of capitalism is that it demarcates the system from economies involving self-employed producers or worker cooperatives. Furthermore, the introduction of wage labor gave important incentives for labor-saving innovations and led to increases in productivity. Consequently, the definition of capitalism that is favored here— and described simply as capitalism, without any prefix— involves all six of the above conditions. [...]
Conditions (5) and (6) serve as fuzzy historical bookends, together demarcating capitalism from preceding systems and possible successors. [...]
Explicit reference to social class is also absent from the definition offered above. In his review of different definitions of capitalism, Michael Merrill (1995) argued that capitalism is much more than simply a market economy. He was right about that. But he wanted to define capitalism as “a market economy ruled by, or in the interests of, capitalists” (322). A problem [...] is that the basis of class itself has to be defined, and Marx and Engels were obliged to use legal terms such as ownership to do so. Being a capitalist or a worker is not a congenital attribute: it is the occupation of a social role that is determined in part by legal relations. Class-related legal terms appear in all points above, except condition (4).
Marxists have abused class-centered definitions of capitalism. They see class struggle, where the destiny of one class is to seize control of the system from another. But, notwithstanding the power of capitalists over workers, capitalists do not control capitalism: it is more the other way round. Such large and complex systems cannot be fully controlled, as if from a single chamber of power.
And while he disses that idea that capitalists control capitalism itself as a caricature, he nevertheless argues that it is an integrated economic and political system (and in this he is not that original, as he acknowledges):
The central role of the state within capitalism means that we must address politics as well as economics. [...] Douglass C. North, John J. Wallis, and Barry R. Weingast (2009, 269) argued: “The seeming independence of the economic and political systems on the surface is apparent, not real. In fact, these systems are deeply intertwined.” I also concur with Bruce R. Scott (2009, 4) in his claim that capitalism is both “a political phenomenon” and “an economic one” and that “specifically it requires the visible hands of political actors exercising power through political institutions.” Capitalism always involves legal and political institutions: pure “anarchocapitalism” is an unrealizable fantasy.
And since the Austrians (Hayek actually) got mentioned in the question, Hodgson has this to say about their approach to defining capitalism:
The Austrian economists had little to say about the sphere of production—conditions (4) and (5)— including the employment contract. Although they mentioned money many times, they paid insufficient attention to the use of property as collateral or to the selling of debt—condition (6). Their theory of money downplays the vital constitutive role of the state. At best, they stressed three of the six conditions only. The first three conditions are insufficient to identify the institutions of the capitalist system that were responsible for the explosive production of wealth in the last three hundred years.
While this may not be any sort of consensus statement, it is at least a comparative analysis of various definitions (from fairly prominent sources).
Though there may not be a set definition of "capitalism" chisled in stone somewhere, there are general principles that economists agree are implied in capitalism and that capitalism implies.
Take, for example, the two below definitions of "capitalism":
[A]n economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market -- Merriam-Webster Dictionary
Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy. -- Investopedia
Both definitions provide two elements necessary for "capitalism": (1) private individual / corporate business ownership of capital goods and (2) private decisions based on the given market's supply and demand curves (and the factors influencing those curves).
CORE is an open-access economics course put together by a group of experts (including colleagues of mine).
This page covers their definition of a capitalist system. From there, this figure 1.8 visualises one aspect of it:
They go on to say:
The distinctive hallmark of the capitalist economic system is the private ownership(1) of capital goods(2) that are organized for use in firms. Other economic systems are distinctive because of the importance of privately owned land, the presence of slaves, because the government owns capital goods, or because of the limited role of firms. Capitalist economies differ, too, from earlier economies in the magnitude of the capital goods used in production. Massive power looms have replaced spinning wheels; a tractor now pulls a plough to do a job once done by a farmer using a hoe.
Capitalism is an economic system that combines centralization with decentralization. It concentrates power in the hands of owners and managers of firms who are then able to secure the cooperation of large numbers of employees in the production process. But it limits the powers of owners and of other individuals, because they face competition to buy and sell in markets.
(1) the right to use and exclude others from the use of something, and the right to sell the thing that is owned
(2) The equipment, buildings, and other durable inputs used in producing goods and services, including where applicable any patents or other intellectual property that is used
- considering money capital, i.e., considering money itself productive
- "control over economic life in the name of the unrestricted and unlimited acquisitive interests of those who own capital." (Heinrich Pesch, S.J., Ethics and the National Economy p. 159; cf. these quotes from it)
- "state-sponsored usury" (E. Michael Jones, Barren Metal: A History of Capitalism as the Conflict Between Labor and Usury)
- "means of production […] being concentrated in the hands of a few owners" (John Médaille)
- a "dictatorship" of "those who, since they hold the money and completely control it, control credit also and rule the lending of money" and "regulate the flow, so to speak, of the life-blood whereby the entire economic system lives" (Pius XI, Quadragesimo Anno §106)