The term capitalism is used very loosely. The most commonplace - and the silliest - way of using is to oppose it to Communism (or to Socialism). This is intellectually disastrous; it accepts without question and consideration two chief claims of Communism - that Communism is the enemy of Capitalism (as if any principled opponent of Communism were to be, by that fact alone, a supporter of Capitalism - whatever that is), and that Capitalism is a political system.
Pay attention to this, because it is important in terms of the fraudulent claims of Communism. There has never been a political system that called itself Capitalism, or that qualified itself as being capitalist. We talk of democracy, oligarchy, dictatorship, theocracy, stratocracy (rule by the Army), monarchy, feudalism and even anarchy, but no political system that ever existed or sought to exist has ever qualified itself as "capitalist". The merchant republics of Florence and the Netherlands qualified themselves not as "merchant" but as "popular"; that was how Florence defined itself repeatedly in the course of its epic struggle against the tyrant of Milan, Gian Galeazzo Visconti. (This mighty struggle for freedom, that lasted a quarter of a century, produced a considerable amount of literature on both sides. Gian Galeazzo was not short of supporters, who, disgusted and terrified by the chaos of contending city-states in Italy, hoped to see him enthroned as absolute king of the country, and even perhaps as Emperor, invoking the precedent of the Roman Empire.) Venice, which was ruled by a closed circle of families, saw itself as an aristocracy, and indeed one only has to look at the portraits of Venetian merchant princes such as Tiziano's The Vendramin Family to realize that the great houses of Venice saw themselves not mainly as capitalists, but as aristocrats no less splendid than any sovereign of any European kingdom. I repeat: capitalism is not and never has been a political system.
The claim that capitalism is the opposite of socialism is actually quite easy to understand, once one accepts that it is only a claim and has nothing to do with political reality. Again, it is reality that we have to look at: and in reality, Communism has been the open and subversive enemy of every other political system - stratocracy and monarchy and democracy and theocracy, one and all. Communism accounted for this universal eagerness to conquer by the claim that all the different political systems it opposed and sought to subvert were mere "superstructures", or in vulgar Marxist terms disguises, for the one universal reality of class oppression by capitalists. That is, whether a state was ruled by elected representatives or by an unelected individual, by the Army or by priests, all these were only disguises for the one basic reality of class rule. Colonels and deputies, monarchs and cardinals, were all in their different ways merely the face of capitalist oppression, of the class rule that Communists pledged themselves to destroy. In particular, the claim by which they intended to subvert liberal democracy was the claim that "bourgeois" democracy was nothing more than a disguise for naked class power, with laws and institutions designed to protect the rich from the righteous wrath of the poor. (Notice that this implies that the poor ought naturally to be angry at the rich, not just because of any actual injustices, but simply because they are rich. This is a projection upon the proletariat of the resentment and power-thirst typical of the middle-class intellectuals who are and have always been, ever since the middle-class intellectuals Marx and Engels, the backbone of the Communist movement. That is not to say that vast swathes of the upper class are not indeed selfish, villainous and criminal; but to make of it an absolute and natural fact, independent from any actual criminality, is a scapegoating no less outrageous and no less vicious than the Nazi scapegoating of Jews.)
Of course, wealth has a lot to do with political power. A rich man is a powerful man by definition. But wealth is not the essence of political power. Ultimately power is based on strength; "Power grows out of the barrel of a gun", said the most successful of Communist rebels, although if he had realized to what an extent his commonplace observation was subversive of the ideology he claimed, he'd have deleted that line even before he finished it. It is not that wealth arms itself and then bludgeons the rest of society to obey it; more often it is the opposite - that those who are in a position to bludgeon society grow wealthy too. Army officers in a stratocracy, high-ranking clerics in a theocracy, don’t have to be rich by birth; indeed, they often come from dirt poor but ambitious backgrounds and gain wealth through their ability to demand a piece of any action that happens to be going. That is often the case, though not always to the same extent, with democratic politicians. John Major entered politics from a two-up two-down Brixton terraced house; he retired to a multi-million-pound Huntingdonshire mansion, without even necessarily having committed any burdensome or noticeable act of larceny.
So: the notion that Communism is the enemy of Capitalism is nothing but a verbal trick, whether conscious or not, by which Communists claim to find a common identity behind all the various and opposing forms of government they oppose. In reality, of course, these forms may have nothing in common and be as much each other’s enemy as Communism is all of theirs - think, for instance, of the deadly conflict that opposed the Pope and Italy’s liberals through most of the nineteenth century, or of the warmth with which the average rich Iranian cleric regards Israeli or American capitalists. In real life, there are oppositions in interest and in ideology that far surpass the commonplace fact that all the ruling classes in any given country tend to be rich.
Each and every person who opposes capitalism and communism or treats capitalism as being the same as liberal democracy is in fact a victim of Communist propaganda; a ghost of infernal vivacity, that still lives and moves and marches through our culture and our institutions a whole generation after Communism, borne down by its own inevitable corruption and wickedness, collapsed and vanished like a dream in daylight. There are, of course, reasons other than nostalgia and ignorance why this should be so. It is hugely flattering to the representatives of a living money power to be made to look like the enemy of a dead tyranny; it lends them a heroic overtone they don’t deserve - in real life, Western capitalists piled over each other to do deals with the Soviet Union and any other tyranny that happened to have deals to make. But the life of the ghost goes well beyond the self-image of a small group of rich people, many of whom at any rate don’t share it; it dominates the minds of left and right in the modern world, and especially in America, to the extent that the American right mechanically condemns an entire set of possible ideas and activities in advance because they are “socialist” and therefore opposed to “capitalism” which is equivalent to “freedom”; while the American left, following the same script, does not even realize that it is in fact the party of big business, of the richest strata and the most entrenched corporations, and that if “capitalism” were the enemy of “socialism” they would have no way to exist. Vladimir Lenin’s body lies a-mouldering in the grave, but his soul goes marching on through the American and the Western mind, paralyzing counsel and confusing ideas.
There is, in actual fact, no need at all to concede so much. Capitalism is not a political system and is not the enemy of socialism as such. This depends of course on how you define socialism. But worker-owned, cooperative corporations are among the greatest business groups in many "capitalist" countries - take Italy's League of Cooperatives or Britain's John Lewis Partnership - and many countries with strong socialist components are among the most consistently successful capitalist countries - think of Germany, Sweden or France. And Capitalism is no more identical to representative government than are trades unions, churches, parties, charities, foundations or individuals. Communists viewed Capitalism as the diabolical puppeteer running the whole of liberal democracy from behind the scenes, rather than one of many powers contending and confronting each other across the stage of representative politics; and therefore claimed that it was their real enemy, when their enemy was in fact representative government as such. But if we don't admit that Capitalism is any more in control of representative democracy than are churches or charities, then we get an image that agrees much more closely with the facts as any sane man experiences them daily. Sure, Capitalism is a mighty interest in the public square; sure, it is often corrupt and often corrupting. But an interest is exactly what it is, confronting or agreeing or opposing or ignoring other interests of equal legitimacy and sometimes of equal power. The vision of Capitalism as the puppeteer of bourgeois democracy is, in general, twisted by hatred, and therefore tends to twist the facts.
So should we discard this word Capitalism, that does so much to confuse, to darken, to mislead? No, we should not discard it; we should rethink it, for once rethought, it will be found to be quite useful.
Although his explanation of it was defective, Karl Marx had got hold of something real. His age did indeed witness the triumph and the entrenchment of a distinctive kind of economic power which can only be called capitalism. Capitalism is an economic term, not a political one; and using it to define an economic fact is as useful and clarifying as to use it to define a political system is darkening and mistaken. Capitalism is that part or kind of economic activity which uses capital as its main tool. It can also be used in a political context, to define the complex of interests that represent such activities.
This may sound tautological or over-simple, but it really is not. To explain, let us go back to the European middle ages. The Magna Charta, among many other mediaeval law codes, forbids the confiscation of the working tools of any artisan, for whatever reason - not for debt, not even for crime. Why? Because the tools are fundamental to his livelihood and to his status. In codes of law as different as Ireland's and Florence's, the foundation of a free man's rank lay in his working skills. "The more a man's professional skills, the higher his honour-price; it increases franchise", says an Irish law code; and in Florence only guild members could be citizens - in fact, the attempted revolution of 1380 took the form of an attempt by the lesser orders of labourers to organize Guilds of their own and have them recognized, thus gaining political weight. And so a man's working tools were part and parcel of his role in society, of his participation in representative politics and in business through the Guilds, and of his identity. The tools of a fuller, or a carpenter, or a painter, could no more be separated from him than his name or his family.
Compare that with the reality of setting up nearly every kind of business today. The businessman hires a skilled person and buys the tools required, making a forecast of how long they will take to be worn through and how much money, how often, will have to be earmarked for their regular replacement. What is essential is the capital that dances its way through the buy and sell columns. A businessman does not concern himself about tools, unless of course they are for some reason difficult to replace - and that only means that more expenditure will have to be earmarked for them. What really makes any businessman's heart run cold are the two words "cash flow". Money, and nothing else, is the life-blood of capitalist business; it must be there when it's needed, every time it's needed, with no surprises or delays. That is the essence of a good business plan.
Capitalism, then, begins when money replaces tools and skills as the main tool of a business enterprise. There is even a functional equivalent to the mediaeval prohibition of confiscating tools: the limited company, in which investors can only be sued for losses or bankruptcy up to a given point. The purpose is the same: just as the mediaeval artisan could not be allowed, whatever he had done, to lose the tools on which his living and his civic status depended, so too the Victorian investor could not be allowed to fall so hopelessly in debt that he ceased to be an effective member of society. The protection that mediaeval laws extended to tools, Victorian and modern laws extend to investment. And from the point of view of the rise and final triumph of capitalism, experienced in continental Europe by the final collapse and disbandment of the ancient system of guilds, it is significant that the first law on limited companies was passed by Robert Peel’s reforming Government in the early eighteen-forties only a few years before Marx began writing. In continental Europe memory of the old Guild system was still fresh, and in fact a number of thinkers, especially Catholic ones, spent considerable time looking for ways to revitalize it - an effort which was finally tainted and poisoned by Mussolini’s adoption of it. Marx had no interest in that: he regarded capitalism as having triumphed, and took his steps from that.
The accumulation of capital and the formation of structures for its rational exploitation is something that goes back to well beyond the nineteenth century, of course. The history of our West begins with feudalism, which is a system designed to insure some kind of governance and defence of the territory in the virtually complete absence of capital. The king cannot pay for a standing army such as Rome used to have, so he parcels out the territory and allows his troops to live on it - and to administer it - in exchange for the pledge to turn out in arms (paid by themselves from their own feudal resources) when required. The slow accumulation of wealth in the West eventually led to a crisis in the very principles of feudalism, as money proliferated in the interstices of a system originally designed to function without it. The most interesting (if evil) feature of this crisis was the rise of professional, stateless mercenary armies that fought for anyone who paid them, and that soon began to systematically blackmail the kings of France and Germany and especially the rich and vulnerable cities of Italy. Without lord, allegiance, or faith, held together exclusively by the money they systematically and steadily bled from communities already well able to pay it, these “companies of venture” were utterly in contradiction with the whole ethics of mediaeval politics; they were also probably the first purely capitalistic enterprise in European history. The very words passed on to the type of capitalist enterprise, “company” and “venture capital”.
I have no intention to trace the growth and development of capitalism from the fourteenth to the nineteenth century; all I want to do is to outline what capitalism is, that is, what is a useful and not corrupting use of the word. As I said, Karl Marx had seen something real, and the word as such is useful, if only to understand that not all kinds of business and not all areas of the free market are in fact capitalistic. Every business that depends at least in part on individual talent - that is, every business in the area of the arts - cannot be wholly capitalistic, because no amount of capital can replace a popular artist, or make certain that one will be available. But capitalism is at present the foundation of business practice, of business legislation, and of business mentality.
There is another point to be made, perhaps as important, certainly ironical. If capitalism is the word for the kind of economic activity in which capital is the foundation and cash flow the central consideration, then, far from being the enemy of capitalism, Communism is a sub-case of it. The economic activity of the Communist state is certainly inefficient, but it is an inefficient capitalism: allocating capital (poorly) for enterprises in which the chief consideration is cash flow (often strangled). The competition between the Soviet Union and the United States was a competition between two models of capital allocation and development; that the one proved far more efficient than the other does not show that the other did not equally have the allocation of financial resources as its centre. And indeed, the more even free-market capitalism approaches to monopoly, the more it comes to resemble Russian state capitalism: brutal, exploitative, neglectful, inefficient, contemptous and backward. Mussolini, the former red revolutionary, had seen that long ago: in at least one major speech in the thirties, he described Stalin’s socialism as a state capitalism. Do you see, now, to what an extent we have all been bamboozled?
