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November 14, 2010 / Lukasz Cerazy

The Word We Love to Hate: Capitalism.

Why all the unfortunate associations with the word: Capitalism? In my experience the word is to some extent being misused to account for peoples misfortunes or political deceptions. That is not to say that capitalism, the main economic paradigm of the modern age, is without its faults to which I shall return later. The Oxford Dictionary defines the word capitalism as follows: “The economic system based on private property and private enterprise”. That is to say that the majority of the economy is run by private enterprise that seeks to maximise profits. Despite the perhaps blunt definition, capitalism does not imply a laissez-faire state. In a capitalistic society, private and public sectors coexist and depend on each other.

Image: renjith krishnan /

The public sector has an important role to play as both employer and supplier of various aspects of modern society such as health, education, competition, safety, rule of law, defence and protection of the environment. However, it also plays an equally important role as regulator because decision-making is decentralised and initiative lies with the entrepreneurs. This is in contrast to socialism where decisions are taken centrally and where there is no private initiative. As such these definitions should not give rise to any hateful view and indeed this unfortunate tag is more recent, perhaps dating back to the birth of neoliberalism in 1979. The first time the word “capital” was recorded was back in the thirteenth century in the city-states of Northern Italy. However, it was not until the eighteenth century that the term “capitalism” was use with any regularity. It has now evolved into an array of meanings that are often personal, however, the original meaning predates these associations.

The more neutral word capital is what economists describe as something that is valued for its future use i.e. an investment. This can take many forms and is closely associated with some kind of stock that has a life span. Its value lies in being able to apply that stock to make future improvement or bring down costs. It can therefore take on the value of land, money, schooling or e.g. a harvest. The more modern meaning of capitalism comes from the large requirements of machinery, land, labour and natural resources, which is characteristic of the post-industrial era. A capitalist is therefore a person that engages in an investment with his current wealth to get some kind of income or rent from it in the future. Owning your own house makes you a capitalist. In the modern economy a capitalist is someone who gets a significant amount of income from his or her salaried employment, which therefore includes most people. So the technical definition is quite harmless.

Image: Francesco Marino /

Capitalism both applies to very liberal countries such as the USA and to countries that put high value on equality such as the Northern European countries. It is closely associated with both democracy and the free market, where the latter can create environments, mostly in unregulated markets, that are cynically driven by profit maximising, predatory behaviour and unfair treatment. These scenarios are what fuel the arguments of anti-capitalists; however, it is rather a symptom of a particular market failure than of capitalism itself.

Capitalism has proven to be the least bad way of running an economy, however, one of the main problems of capitalism is its proneness to monopolies, which are either granted via patents or result because of a competitive advantage of a player in the market. Oligopolies work in a similar way and the result is very often high prices for consumers. However, in a modern economy government needs to regulate as the latest recession has taught us. Well-developed anti-trust laws therefore have to be in place to secure healthy competition and regulation of monopolies. The government also has the daunting task of regulating other market failures and lessons from the past should be learned so that society can function both effectively and in equality. This should hopefully have provided the reader with a better understanding of capital, capitalism, the role of government and an encouragement to use these phrases more carefully.


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