Masters in Education from Nottingham University, qualified teacher in the UK. Has studied Masters in Islamic Studies also Islamic Banking and Finance. Interests in Politics/History/Philosophy.
Capitalism is a word used so often that one would think everyone agreed on what it means. But that is not the case.
One might expect to find a definition from two economists, who come to mind as those who first explained the nature of capitalism, Adam Smith and Karl Marx. But Smith never used the term at all. And in all of Marx's books, there are only a handful of references to capitalism.
Generally capitalism is understood by economist theorists such as Karl Marx as an economic system, emphasising ownership, private property and a free competitive market with a minimal role for the state. However these elements have existed in most systems of governance.
How is this different from other economic systems?
An answer is provided by looking to history. Economic historians broadly agree that the transition from feudalism to capitalism began sometime in the middle of the second millennium. Under feudalism (primarily an agrarian society), a peasant would work both the lord's land and their "own" land, the first as necessary payment to the lord for living under their protection, the second as a way of meeting their own needs. The crucial distinction here is that in this, the prevailing form of economic relationship under feudalism, that which is produced is being produced for direct use either by the peasant or the lord, not exchange on the market, and not for the sake or profit. Inequality and differences in power certainly existed, though not through the same economic mechanisms. Similarly, small scale commodity production and exchange for profit also existed, though it was not the prevailing form in any given nation or territory.
This however does not distinguish capitalism from any other system.
The Islamic economic system for instance permits private ownership of means of production and production of goods for profit however not collective resources like water, oil, gas, coal mines and so on. It has a marketplace where participants are encouraged to seek a living and not aim for maximising wealth. It requires a state to implement mechanisms that ensure the circulation of wealth produced in the marketplace, so it does not end up in the hands of the few.
What differentiates capitalism then as a system and a philosophy is its focus on accumulating capital for economic advantage, where the market is filled with self-interests actors seeking to maximise profits where there is survival only of the fittest. This system allows the rise of an economic group with power - power to influence state policies and how society is run. In the past power was held by rulers - military, political and economic - now economic power had broken away.
Sociologist, Max Weber, also went on to point out capitalism is not only a way of doing business. It is more than that, it is a mode of organising society. There is more to capitalism than accumulating goods, or building factories, or offices. A society does not need to be capitalist to manufacture products. What makes capitalism distinctive, said Max Weber, is a particular frame of mind that makes someone want to produce and trade goods. Capitalism follows from a special set of attitudes - specifically, a willingness to invest time and effort, with a view to reaping a profit in the long run.
So, ever since Max Weber, capitalism has increasingly been understood as a set of mental attitudes that shape society.
Impact on the World
On any reasonable analysis, capitalism is a lie. It is seductive and enchanting, but a lie nonetheless.
It is rooted in the false notion of perpetual growth, the forced and unconscionable redistribution of wealth from the many to the few. From the weakest to the most powerful.
As wealth and power are concentrated in the hands of fewer and fewer corporations and/or individuals, this redistribution accelerates until we find ourselves first, in an effective oligarchy and ultimately, in tyranny.
The inextricable link of wealth and poverty was thoroughly explored by Henry George in Progress and Poverty (1879) and more recently Thomaas Pinkerty. Today, there are signs of this on every continent. People starving while others have billions.
Taken to its logical conclusion, Capitalism will produce a society where the vast majority are stripped not only of wealth, but of opportunity and dignity, while the minority become modern day Gods.
Further Reading and Watching
The Wealth of Nations, Adam Smith
Principles of Political Economy and Taxation, David Ricardo
Capital, Vol. 1, Karl Marx
The Transition From Feudalism to Capitalism, Paul Sweezy, Maurice Dodd, et al
How the West Came to Rule, Alex Anievas and Kerem Nisancioglu