4. The Capitalist Economy

4. The Capitalist Economy

The terms ‘Capitalism’ and ‘Capitalistic Production’ are political catchwords. They were invented by socialists, not to extend knowledge, but to carp, to criticize, to condemn. To-day, they have only to be uttered to conjure up a picture of the relentless exploitation of wage-slaves by the pitiless rich. They are scarcely ever used save to imply a disease in the body-politic. From a scientific point of view, they are so obscure and ambiguous that they have no value whatever. Their users agree only in this, that they indicate the characteristics of the modern economic system. But wherein these characteristics consist is always a matter of dispute. Their use, therefore, is entirely pernicious, and the proposal to extrude them altogether from economic terminology, and to leave them to the matadors of popular agitation, deserves serious consideration.1

If, nevertheless, we do desire to discover for them a precise application, we should start from the idea of capital calculations. And since we are concerned only with the analysis of actual economic phenomena, and not with economic theory — where ‘capital’ is often used in a sense specially extended for particular purposes — we must first ask what significance is attached to the term in business practice. There we find it used only for purposes of economic calculation. It serves to bring the original properties of a concern under one denomination, whether they consisted of money or were only expressed in money.2  The object of its computations is to enable us to ascertain how much the value of this property has altered in the course of business operations. The concept of capital is derived from economic calculation. Its true home is accountancy — the chief instrument of commercial rationality. Calculation in terms of money is an essential element of the concept of capital.3

If the term capitalism is used to designate an economic system in which production is governed by capital calculations, it acquires a special significance for defining economic activity. Understood thus, it is by no means misleading to speak of Capitalism and capitalistic methods of production, and expressions such as the capitalistic spirit and the anti-capitalistic disposition acquire a rigidly circumscribed connotation. Capitalism is better suited to be the antithesis of Socialism than Individualism, which is often used in this way. As a rule those who contrast Socialism with Individualism proceed on the tacit assumption that there is a contradiction between the interests of the individual and the interest of society, and that, while Socialism takes the public welfare as its object, individualism serves the interests of particular people. And since this is one of the gravest sociological fallacies we must avoid carefully any form of expression which might allow it secretly to creep in.

According to Passow, where the term Capitalism is used correctly, the association it is intended to convey is usually bound up with the development and spread of large scale undertakings.4  We may admit this — even if it is rather difficult to reconcile with the fact that people customarily speak of ‘Grosskapital’ and ‘Grosskapitalist’ and then of ‘Kleinkapitalisten’. But, if we recollect that only capital calculation made the growth of giant enterprise and undertakings possible, this does not in any way invalidate the definitions we propose.

  • 1Passow, Kapitalismus, eine begrifflich-terminologische Studie, Jena 1918, p. 1 et seq. In the second Edition, published 1927, Passow expressed the opinion (p. 15, note 2), in view of the most recent literature, that the term ‘Capitalism’ might in time gradually lose the moral colouring.
  • 2Karl Menger, Zur Theorie des Kapitals (S.A. aus den Jahrbüchern f. Nationalo- konomie und Statistik, Vol. XVII), p. 41.
  • 3Passow, op. cit. (2nd Edition), p. 49 et seq.
  • 4Passow, op. cit. (and Edition), p. 132 et. seq.