What Exactly Is Capitalism?

Tom Hodgkinson asks what our dominant economic system has become

What, exactly, is capitalism? It’s a question that not many have answered well. For one thing, it’s not the same as trade. There has been buying and selling for millennia. And there is fierce trade in even the most left-wing countries. One of the world’s biggest ad sales businesses, Tik Tok, is a Chinese company. It took in $58 billion in 2021.

It’s not the same as lending goods and charging interest. Again, as we know from the work of the late David Graeber and of Edward Chancellor, that practice has been around for thousands of years and may even predate the invention of coinage.

It’s not just about exploiting global difference in prices. Merchants have always acted for profit. Socrates says that grain merchants of his time cornered markets. They bought grain cheaply from one country which had a surplus of grain, put it on a boat, stored it, and sold it at a profit to another country which was desperate for grain. In Jesus’s day there were of course money changers in the temples.

And all sorts of sophisticated banking techniques rose up during the Middle Ages despite the church’s ban on usury. The Medicis were the best known of the bankers. They had robes trimmed with ermine and built magnificent palaces and funded churches too.

Perhaps you could argue that capitalism is about shareholder companies. In the early 17th century, the joint-stock company was invented. These were shareholder-owned enterprises whose shares could be traded in a marketplace, the stock market.

Or is it something to do with hard work? The growth of capitalism in the 19th and 20th centuries was helped enormously by the Puritan work ethic, which said that toil was all that was needed to get on in this world. In the UK, Methodist preachers told their flocks to get up early, work long hours and be punctual, virtues that suited the new class of mill owners. Two classes arose: the owners of capital, and the workers.

Maybe the distinguishing feature of modern capitalism is its sheer, dizzying scale. Modern corporations are absolutely enormous. They employ thousands and thousands of people, even millions. They’re the result of a series of mergers and takeovers between smaller companies, hence the strange names of drugs companies: GlaxoSmithKline, AstraZeneca and so on. And of course there’s Unilever, which is the result of a merger in 1929 between Lever Brothers, makers of Sunlight Soap, and the Dutch firm Margarine Unie, makers of margarine.

These unfinished thoughts occurred to me when reading the brilliant books of economist Ha-Joon Chang, a recent guest on our “Drink with the Idler” online event, who also argues that the so-called “free market” has actually been created and controlled by government policy.

In a strange way then, capitalism today is not really about creativity, innovation, hard work and entrepreneurialism, as it likes to suggest. It’s about wily mergers, economies of scale, lawyers, lobbying, canny philanthropy, the creation of monopolies and well-rewarded managers.

Facebook (73,000 employees), to take one obvious example, sells lots of ads, but it also owns Instagram and WhatsApp. Google (156,000 employees) makes a fortune from selling ad space on its search service, but it also owns over 200 other companies, including Motorola, FitBit, YouTube, Waze and Nest. It buys up the competition in order to create a monopoly. And uses its wealth and power to campaign for laws that suit its own interests.

Does “capitalism” now just mean “big”?

Truly, the mills have grown to stupendous proportions. Where there is now one company selling ads, Meta, there used to be thousand of magazines and newspapers. As Chesterton said, “too much capitalism does not mean too many capitalists, but too few capitalists.”

We ordinary people now have a choice. Work as a bureaucrat in an enormous shining glass building, or take our chances in the precarious world of small business, or what we might call real business. The “winners”, so to speak, are the top brass, the people like Albert Bourla, head of Pfizer, who took home $24.3 million in 2021.

Or is there another way?

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