Capitalism is a protean concept with a variety of definitions. To avoid confusion and to allow for a straightforward analysis, it is first necessary to define my subject matter. I bear in mind, however, a serious warning: “The surest way to fail as an author is to start by sounding pedantic, and the surest way to sound pedantic is to start with an unexhilarating search for definitions.” I plead guilty.

This chapter starts with general definitions of the terms “economic system” and “capitalism.” I then explore some of the important implications of the definition of capitalism to specify the dimensions along which it can be quantified, so that in later chapters I can quantify the degree of capitalism in each of about ninety nations. The footnotes present references and additional explanations, while the technical appendices to the book appear on my Web site.

Definitions and Some Implications

Some Definitions

The word “capitalism” began to appear in various Western languages less than three centuries ago (see Appendix 2–1 for a discussion of its etymology), and over the succeeding centuries the concept has acquired various meanings. Some writers have used the term “capitalism” simply to designate ordinary trade in which credit and financial instruments play a large role, which is carried out in order to accumulate more wealth (commercial capitalism), an approach also followed in a broader manner by many of the classical economists.