The definition of capitalism that makes the most sense to me is that capitalism is the separation of ownership of businesses from employment in the business, i.e. The joint stock corporation. As opposed to all businesses being run directly by their owner, or being family businesses, etc. The big idea behind the joint stock corporation is that the son of the previous owner might not be the best person to run the business when the previous owner passes on, and if you want to unlock the wealth and resources of the aristocracy you need a way for them to invest in a business and have a permanent stake rather than just give a loan. But then to make that work you need to take the legal and ideological stance that businesses should be optimized to benefit the owners of them - the owners of the capital. From that point of view, markets and a currency and banking system- the "free market"- can exist without capitalism. For instance, if all companies were employee owned, there would be no stock market, and no class of people whose role was to own stock and collect the profits. Capitalism was a great idea, and produced a huge surge in investment, but freedom for the people who don't own capital is neither necessary or helpful to make it work.

That works, but I think to get at what people mean (pro or against) when they say capitalism, you have to define it in a way that speaks to the economic "system" in practice, not just the rules governing it.

Joint-stock and separation of capital & ownership. These need to be the dominant structure in an economy, for the economy to "count" as capitalism. IMO, this is a lot closer to Marx' "mode of production" definition (he also saw it as a progressive step up from feudalism) that the "capitalism as an ideology" definition of Neo/Classical/Anglo-liberalism. So... your defining mechanism may have existed at point A but I don't count that as capitalism until that mechanism runs a significant portion of industrial output. ...Also you need to consider all the clearly non-capitalist mechanisms that separate "ownership" from management, like the Byzantine/Ossoman system for example.

The "ideological" definition just makes a lot more sense in a small firms world, where you really are talking about freely transacting individuals.

The private property point is also worth delving into. No one is a feudalist anymore, so no one defends it. But, I think it's worth comparing and contrasting to this (much more long lived) ideological and practical mode of society. It's the one part of the definition both that marxists and capitalists emphasize is a defining feature of "Capitalism." The private property point made by marx is a pretty obscure 175 years later as we lost context. He considered feudal rights and borouise property to be very distinct from each other.

Under most well functioning feudal systems in their prime, there were "welfare-ish" obligations (and obligations generally) of lords to serfs. Emergency grain stores, for example. A lord was expected to house and feed his subjects. These obligations don't come with modern property rights. In fact, there is barely a concept of obligations that come with property or rights anymore.

> These obligations don't come with modern property rights. In fact, there is barely a concept of obligations that come with property or rights anymore.

In some places, these obligations do exist, at least in theory. The German Grundgesetz Article 14, for example, states: "(2) Property entails obligations. Its use shall also serve the public good." [0]

Which is often quoted but these days rarely actually enforced/acted upon, the opposite is becoming far more common (privatization of common goods/services or straight up bailing out private companies with public money) like recent pushes to privatize German Autobahn [1] or when the public is bailing out massive private companies, like it happened with the banking crisis of 2008 [2], nuclear waste deals [3] or most recently bailing out German car manufacturers for Dieselgate [4].

[0] https://www.gesetze-im-internet.de/englisch_gg/englisch_gg.h...

[1] http://www.dw.com/en/german-autobahns-backdoor-privatization...

[2] http://www.spiegel.de/international/business/subprime-bailou...

[3] http://www.dw.com/en/german-government-does-nuclear-waste-de...

[4] https://www.irishtimes.com/business/manufacturing/disbelief-...

These are great points. On the obligations point: If you look at the whole uber/Lyft/gig economy dynamic and contrast that with salaried employment, I think you'll see that to the extent that a company owns the time of their employees, they are more likely to give them health benefits, paid vacation time, and so on analogous to how a lord treated his subjects. I think Nassim Taleb has made that point. Whereas a Lyft driver doesn't get taken care of in the same way.

I liked Taleb's point too, especially as it ties in to completely disparate situations like ancient greek urbanism. I think it's early to hang to much theory on these gig-companies though. It's still not clear they'll stick around for the long term. Hardly an economic "mode" yet.

It's a great place to explore the divide though. To the capitalism point though... I think Uber/Lyft dynamics are perfectly capitalistic in a marxist sense. I think that from a ideological-capitalist perspective, a system where drivers transact more directly with passengers would be more capitalist.

How can all companies be employee owned if you need to invest a lot of capital to start a car factory. Half of the fortune 500 companies are younger then 10 years - starting a company has a high risk on the invested capital.

A company is owned by whomever is risking their money to finance it.

How is capitalism different from early human tribes? They also needed to work and trade. Things have become much more sophisticated but the basic principles remain. People complain about spending too much time for a company and slaving away - but in earlier times they would have spend way more time on the fields plowing while 4 of their 8 kids died.

how can all companies be employee owned?

Is this rhetorical? I didn't say they could (or couldn't be). If you mean it in a curious way than let's start with 'how can a company...'

How is capitalism different from early human tribes?

It depends on which capitalism you mean, Marx's or Milton Friedman's. Also which tribe. If early human tribes were like modern ones, they had a lot of different ways of doing things.:)

For marx, you could probably stop at "they don't live in cities or work for wages" like they do in capitalist systems.

For Friedman's capitalism, they tribesmens affairs are probably dictated by customs and communal nterests, not private interests.

Idk, though. It's theoretically possible for ancient human culture to be capitalist under Friedman's definition, if their rules are compatible. Under Marx's it doesn't matter what they do, capitalism is an urban-industrial society.

My point was more that the basic characteristics of our modern economy (our modern economy = capitalism) also apply to early human societies. Working a profession, cooperating with colleagues and trading goods are inherent human nature. Even if you are a hunter-gather.

I wasn't referring to specific theories. My point was more about observing how the world is.

Sure. What's universal is universal. But what's the point of defining something as capitalist (or anything) if it applies to every case.

Characteristics of capitalism (let's go with the Marxist definition) certainly aren't universal. Not every human economy includes private property, for example. Not every system include a bourgiouse elite, a customary, religious or military elite is more common historicaly.

> How can all companies be employee owned if you need to invest a lot of capital to start a car factory.

Equity isn't the only form of capital investment.

> How is capitalism different from early human tribes?

Well, lots of ways, including the thing that actually defines capitalism, the particular model of property rights.

> They also needed to work and trade.

Which is broadly true of every human society, regardless of politico-economic system; such systems differ in the (for instance) distribution of the accumulated benefits of trade, not in it's practical necessity.

> Things have become much more sophisticated but the basic principles remain.

The basic principles that remain the same are not the features that distinguish politico-economic systems from each other.

> People complain about spending too much time for a company and slaving away - but in earlier times they would have spend way more time on the fields plowing while 4 of their 8 kids died.

Yes, technology has improved since ancient times, and, in the domain of politico-economic systems even most critics of capitalism would agree that it represents positive progress from feudalism and other earlier politico-economic sysyems.

An interesting (probably leads nowhere) way of defining this question is in reverse, how would a company that is to be owned by employees going to get started?

It's an easier question to answer these days, when many companies are like Google or Facebook. They don't really have "capital assets." No stock to buy or factories to build. Just people that need to pay rent.

> Equity isn't the only form of capital investment.

Someone has to pay for the fixed costs. And its most common that an investor does that. Never said it has to be that way, just that it is common and offers many advantages.

> Well, lots of ways, including the thing that actually defines capitalism, the particular model of property rights.

Property rights are just an extension to help the underlying basics I wrote about. If you are a tribe you might life in balance with other tribes and you have control over a river (or whatever) and you might even give something comparable to property right to a member of your tribe. But this is all enforced by society. Property rights are the same thing, just more formalized and generalized. Ofc. there is more insecurity in a autocracy, but that because an autocracy is about exploiting others.

> Someone has to pay for the fixed costs. And its most common that an investor does that.

Yes, and, again, equity isn't the only form of investment even within the capitalist system (though, obviously, it's often structurally preferred by investors within that system.) So, even granting, for the sake of argument, the need for capital investment to start firms, that does not imply a need for capital, as opposed to labor, ownership of firms. (See, for a large example even embedded within a capitalist economy, the Mondragon Corporation.)

> Property rights are just an extension to help the underlying basics

That's certainly one of the reasons for formalizing such rights, but “property rights” aren't a special feature of capitalism, what defines capitalism—and this is generally true of each other politico-economic system—is a particular model of property rights. And, yes, in each case they are viewed by defenders of the system to “help” the immutable basic needs of human society.

>>How can all companies be employee owned if you need to invest a lot of capital to start a car factory.

You go to a bank (or credit union in this instance) with a compelling business plan and a history of success and get a loan. If the company at some point can't make the payments they declare bankruptcy, the company dissolves and the credit union takes ownership of the company's assets (or what ever was used as collateral) which it then sells off.

Same as real estate deals the people who take the loan legally own the property unless they fail to pay off the loan, then and only then does the property change hands to the loaner.

Interesting point, considering a lot of modern finance, where there is often very little investor "risk capital" in the sense implied by the OP.

A lot of large infrastructure projects, for example, are funded by loans with very little (or none) equity capital. Risk is borne by the firm, its lenders, or the state. The "owners" are basically they guys who get the deals made.

I have no idea if employee-owned companies will be any good. There were examples (eg Egged) in the past that didn't work well. But it's curious to see them taken as an impossibility for reasons like this, that they don't fit inside of a textbook free market example, with all incentives perfectly aligned. Half the companies in the world weren't started this way. How did Russian oligarchs buy all those state companies? Leveraged buyouts. IE, the banks (does this count as the state?) gave them money to buy (or start) them.

The more interesting questions are around management. How does an employee owned company work well? Answer that with confidence, and I think everything else is solvable.

I don't actually think "how" is even a question at this point. If you poke around wikipedia's (clearly incomplete) list of cooperatives and employee-owned* companies the answer is/has-always-been pretty clearly: just like any other form of company works.

*coops however aren't necessarily employee owned-- there's a several models-- and ESOP style employee ownership can be pretty weak from an ownership perspective so in addition to being woefully incomplete the lists should also not be taken at face value.

Seems like you are only talking about the market for corporate governance http://www.econlib.org/library/Enc/CorporateGovernance.html and not about the foundations of a political system

I think history shows that capitalism and democracy can coexist, but I think it's a mistake to assume that they are the same thing, or that they can only exist together. I suppose that's what the parent article is arguing too.

> "Adam Smith...idealized independent people, usually farmers. Entrepreneurs, maybe 10 person tin factories"

Actually, Adam Smith constantly used independent farmers as examples of inefficiency, and the second paragraph the first chapter of "Wealth of Nations" mentions huge companies "destined to supply the great wants of the great body of the people".

Adam Smith is easier to read than are most discussions of his writing. If you want a sample, read the first three chapters of "Wealth of Nations" - only 20 pages. https://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pd...

Cheers Daniel. I suppose we could argue this point. But... my reading of Smith is that he is describing the world as it is at his time. A lot of mid-sized agricultural enterprises, in a world transitioning from feudal privilege to private ownership. A smaller (but very interesting) industry, also transitioning from the guild system to a more modern system.

Here's a semi-random example from a chapter on wager labour:

"When an independent workman, such as a weaver or shoemaker, has got more stock than what is sufficient to purchase the materials of his own work, and to maintain himself till he can dispose of it, he naturally employs one or more journeymen with the surplus, in order to make a profit by their work. Increase this surplus, and he will naturally increase the number of his journeymen."

or the famous one:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”

It seems to me that he is talking about a world that is not really capitalist, in a marxian sense.

Smith does spend a lot of time on wager labour, he does talk about freedom (nonexistent under feudalism) to pursue their own interests and the market forces which create opportunities. But... the economy he is describing is of small scale industry, landlord-tenant dynamics... I don't think Marx would have called this capitalism.

Also, what he regards as "monopoly" (bad) is a much lower bar than we use today. Where he describes larger scale structures like corporations (I think he means guilds and regulators), joint-stock companies (rare then), and such it is usually in a negative light, associated with monopoly or what we'd call "regulatory capture" today.

All of this is arguable. Smith was a long time ago, the world was different, and we can't really know if he'd consider modern capitalism good. But, I do think that what marx was describing and SMith was advocating are two completely different things. We happen to call both capitalism (depending on whether we're for or against it). I think they're tangental or even somewhat contradictory.

I agree with your more important point. Read Smith. It's a great opportunity to read accessible and interesting texts that are important to modern thought, and still easily relevant. Don't try read Marx, only heartbreak will follow. Read Darwin too, for the same reason.

   Adam Smith, the American founders, Locke, Hume... and others that form the basis of ideological capitalism... they idealized independent people, usually farmers. Entrepreneurs, maybe 10 person tin factories. Facebook or Unilever... Idk if an economy of mostly these is all that capitalist, by the proponents' definition.

Then you need to read the french free marketers like Frederic Bastiat or Gustave de Molinari :p

True, these guys (having come later, and often writing in direct response to Marx, a contemporary) are easier to think of in the context of post industrial economies. IDK, Molinari. I do know Bastiat, but I can't recall anything that speaks directly to the reality of an economy made up of mostly large firms. He's pretty early though, and the world wasn't like that yet (even though Marx saw it coming, I think).

The "Austrians" (particularly Hayek, IMO) do address this world of megafirms a lot more than earlier writers (again, makes sense considering the times). This is getting a lot closer to modern theories, with Hayek directly defending "capitalism" (free market systems, and here we really have the modern ideological framework in a similar form to today's). They (Hayek & Mises anyway) had much more modern, abstract theories.

Hayek described the economy as an information system, with price signals as its source of information flow. This certainly is a defense (one the the most interesting and convincing, IMO) of free markets, but we're back to the modern definition. ..It's fairly tangential to Marx' definition, and harder to argue for from a traditionally ideological/liberal perspective. IE, it's fairly tangential to and disconnected from the "liberals" of the british enlightenment or the american revolution.

FYI Bastiat wrote before Marx (Bastiat most likely is among the ones Marx talked about when he said "bourgeois economists have said [...]")

There were already mega firms back then (East India Company IIRC ?)

Interesting, I always thought bastiat was writing in response to marx...

You're right about the colonial megafirms, they were really the forerunners of today's corporate world...quarterly stock price pressure and all. But, they're pretty absent from most examples of that time. Maybe it's because they didn't operate in Europe much.

Modern free marketers can easily disown them on crown issued monopoly grounds. Smith considered them the same as guilds... Even Marxists didn't really pay as much attention to them as they should have, considering hindsight.