It might seem like a silly question, and the answer depends on who you ask. From an economic view, though, it doesn’t look terribly complicated. 

Certainly, the dictionary definition is straightforward. Capitalism is an economic system defined by the private ownership of capital. But there’s a lot of assumed knowledge in a definition like that, so let’s define some terms.

Private ownership simply means something is owned by individuals or companies rather than the government. While this concept seems straightforward, it can get a bit confusing when we talk about “public” versus “private” companies.

In economics, “private” means exactly what we just went over. In finance, it refers to whether anyone can buy ownership shares in the company. Take Apple, for example—it’s a private company in economic terms (not government-owned) but public in financial terms (anyone can buy its stock).

So, when you hear about a company “going public,” reporters are speaking financially, not economically. For consistency’s sake, we’ll stick to the economic definitions here.

Next up is another tricky term: capital. This word is frequently used in the business arena. It’s generally applied during a company’s startup and investment phases—think “raising capital” or “capital investment.” Because of this, a significant segment of the population tends to use the term interchangeably with “money.”

And yes, capital can be money. But it isn’t only money. 

Capital is a very broad term that covers a wide range of things. It is any asset, whether tangible or intangible, used to produce and distribute goods and services. Capital can include everything from financial assets, tools, and real estate to ideas, skills, and even interpersonal relationships.

Not only is capital a very broad term, it’s a subjective one, too. Let’s say Jane is a freelance copywriter. For her, the laptop she works on is capital. It’s used to produce a product (Jane’s writing) and as a tool for distribution (Jane’s internet access). The laptop improves Jane’s efficiency and quality of work.

But if Jane gets a new laptop and gives her son Clark the old one for school, the old laptop is no longer capital. It’s literally the same machine with the same capabilities, and Jane still owns it, legally speaking. But Clark isn’t using it to make a product to bring to market; he’s just doing his homework and playing Roblox.

So, what might be capital to one person wouldn’t necessarily be capital for another. If it isn’t used by a specific business to do whatever it is that business does, it isn’t actually capital for them.

Based on this understanding and the definition above, capitalism is what you have when the tools, land, and other assets and resources used to create and provide goods and services are owned by not-the-government. And that’s true, so far as it goes, but it isn’t sufficient. There are a lot of implications made by this definition that need to be addressed for its full meaning to be understood.

For example, what does it mean to own something?

Again, it seems like a silly question, but it’s worth asking. The common response is something along the lines of, “If I own it, it’s mine, and I get to decide what to do with it.” And yes, ownership does mean being entitled to the benefits of the thing you own. But it also includes bearing the responsibility for the thing.

So, yes, you own your car, and you can take it wherever you’re allowed to go and modify it to suit your preferences. But you’re also responsible for putting fuel in it, keeping up with the maintenance, and paying the insurance bill.

The same goes for businesses. Owning a business and the capital for it means that you get to decide what to do with it all and enjoy the benefits of its success. But it also means that you’re the one who covers the upkeep costs, pays the employees, and eats any losses. 

Without getting into the weeds of legal liability, owning something means far more than simply enjoying its benefits. It also means bearing any consequences regarding it.

And other people own things, too, with all the perks and responsibilities that entails. So now we have billions of individuals all over the world, each getting to make decisions about the things they own. 

But how do we know who owns what? This isn’t simply a matter of paperwork. For this, we’ll need to decide, first and foremost, what is ownable to begin with. What’s more, how can we accurately and consistently demonstrate ownership? What if more than one person claims to own the same thing? Who decides? And who decides who decides?

Settling these questions requires legal codes and social norms, a certain degree of trust and respect, arbitrative institutions with enforceable authority, and so much more.

So now we return to the original question: what is capitalism?

At its core, it means that individuals, either on their own or in groups, own the things, processes, and ideas that go into creating the goods and services that are then sold to customers, with all the privileges and responsibilities that ownership entails. Because that’s what it means, the inverse must also hold. The individuals who don’t own the capital in question don’t get to enjoy the direct benefits of ownership, but they don’t bear any of the responsibilities, either. It also suggests the presence of strong social or civic institutions that, at a minimum, arbitrate matters of ownership, all of which assume a cultural underpinning that accepts the moral and rational understanding of ownership in the first place.

We’ll get into some of the finer points later in this series, but for now, it’s enough to define the term.

Learn more about capitalism here.