[This is a self-explanatory email message I sent to some friends in March 2003. —S.H.]
At last night's "Science Book Club" meeting Rosie asked me what the "dictionary definition" of capitalism is. That set me off on a lexicographical discourse about there actually being no such thing as the dictionary definition of any word. Not only do different dictionaries usually disagree, but most words have multiple meanings, depending on the context (including many very specific meanings in specific contexts which are not in any dictionary). But, alas, having got off the track that way, I never got back on the track to give any sort of definition of the word. So, here belatedly it goes!
First, here's what one of the (generally) better desk dictionaries (Merriam-Webster's Collegiate Dictionary) has to say: "capitalism (1877) : an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market".1
One immediate thing here is noteworthy—the late date they say the word entered the English language! I found that very hard to believe, when Marx & Engels were talking about capitalism in German as early as the 1840s. So I consulted the Oxford English Dictionary, which gives the first English use as that of Thackeray in 1854. But the second citation it mentions is still from 1877 (by the writer A. Douai). The OED's definition, by the way, is: "The condition of possessing capital; the position of a capitalist; a system which favours the existence of capitalists."2
Despite the fame of the OED, I think you'd have to say that the M-WCD definition is on most counts superior (though still quite inadequate). I was still very surprised that there was no earlier citation of the word 'capitalism', going back long before Marx and Engels even. But if not that, surely dictionaries should have cited the Communist Manifesto, which appeared in an English edition in London as early as 1850. (The Communist Manifesto was published for the very first time in London, in German, in Feb. 1848. The first formal English edition came out in 1888, translated by Samuel Moore, who also had translated volume I of Capital.)
It is true that Marx and Engels most often speak not of "capitalism", but rather of "capital", "the capitalist mode of production", or "the capitalist system". In most contexts these are synonyms for what we would today more usually just call "capitalism". Marx and Engels also often use other terms for the same system, including (in some contexts) "the bourgeoisie" or "bourgeois society". A common thread here is that Marx and Engels generally tried to focus on the human relationships which lie hidden beneath the institutions and systems. Thus they preferred to talk about "bourgeois and proletarians" rather than use more abstract terms like capitalism. Thumbing through the "Manifesto" I could not spot a single use of the word 'capitalism' itself. So maybe it is really true that the precise word 'capitalism' greatly postdates the concept which it refers to.
How would I define 'capitalism'? I think you have to focus on the concept of surplus value. In Capital Marx wrote that "The directing motive, the end and aim of capitalist production is to extract the greatest possible amount of surplus value, and consequently to exploit labor power to the greatest possible extent."3 What is surplus value, then? Well, very briefly, it is the concept that workers produce more than they actually get paid for. For part of the day their labor goes towards their pay; for the rest of the day they work for free for the capitalist. (Officially they are usually paid for every hour they work, but the total amount they are paid still comes to only a fraction of the value they produce, so it amounts to the same thing.) Slightly more formally, surplus value is the increase in capital after the production process (i.e., after deducting wages, the cost of raw materials and machinery used up, and overhead). There are two excellent little pamphlets by Marx that explain this critically important concept of surplus value in careful detail, and answer the objections sometimes raised against the concept: "Wages, Price and Profit" and "Wage-Labor and Capital". No person who has not read at least one of these (or else vol. 1 of Capital) can really be said to have much of an understanding of Marxism.
Many definitions, including that of capitalism, can be given in the Aristotelian "genus et differentia" form. That is, you first say what general sort of thing it is, then you say how it differs from other things of that same general sort. Capitalism, like feudalism and slavery before it, is an exploitative economic system. That is the first essential point (the "genus"). But it differs from the others in how it accomplishes the exploitation, namely through the extraction of surplus value.
In slavery all of the slave's production belongs automatically to the slaveowner—though the slaveowner ordinarily is smart enough to give the slave enough back in the form of food, clothing and shelter, for him/her to survive and continue to be exploited some more. Under most forms of feudalism, a fraction of the serf's production belongs automatically to the feudal lord, and often a fraction of his work days (a certain amount of unpaid labor, or "corvée" labor). Serfs don't "sell" anything to the lord; it just gets taken from them. While the serf usually has a somewhat better situation than the outright slave, both the serf and the slave are openly and obviously exploited. But in the case of capitalism, the exploitation is hidden and not even understood by most of the workers who are being exploited. That is the true genius of the system. (It was also why Marx's contribution was so important in breaking through this false surface appearance and demonstrating what was really going on.)
All forms of economic exploitation are, when you get right down to it, forms of slavery of one sort or another. Chattel slavery is total, open slavery. Feudalism is partial, but still open slavery. And capitalism is a hidden form of slavery, appropriately considered to be "wage slavery". Under chattel slavery, the slave is (usually) the property of a single slaveowner. Under feudalism, the serf is tied to the land (he/she cannot leave), and is in effect the partial property of whichever individual owns that land. Under capitalism, the worker is not actually the property of any individual capitalist—because the worker can (usually) quit, and get a job elsewhere ... working for another capitalist. In other words, the best way to look at it is that workers are the collective property of the capitalist class as a whole. (It is an advantage to be able to choose your exploiter, but not as much of an advantage as it would be not to be exploited at all!)
Is being a worker better than being a serf? Sure, most of the time. Being a serf was better than being an outright slave too, most of the time. But it was still not good enough, and neither is being a wage slave. What is needed is the overthrow of all forms of exploitation, the overthrow of all forms of slavery, no matter how well hidden they are.
So in sum, my brief definition of capitalism is: The most modern form of an exploitative economic system, in which capitalists (the owners of the means of production—the factories, machinery, etc.) extract surplus value from their workers.
Of course much more can be said about capitalism! (Many, many books worth!) But that, I think, should be considered the briefest possible definition from a Marxist point of view.
This definition is much superior to that given above from the M-WCD. That definition didn't mention that capitalism was a system of economic exploitation, nor did it mention surplus value—the means by which this exploitation takes place. Moreover, even what it did say is not always correct. The Soviet Union, in its last decades, was also a form of capitalism—"state capitalism"—in which the state and its agencies owned the means of production, made the investment decisions, established prices, organized distribution, and so forth. There was a sort of hidden market there, but the market was very weak compared to Western-style capitalism. But the Soviet Union was—despite all this—a form of capitalism, because exploitation of the workers existed (for the benefit of the new Soviet ruling class or "nomenklatura") through the same old medium of surplus value.
The M-WCD definition doesn't sound as bad as it really is because it focuses on the form of capitalism that we are most familiar with. But even there it "forgets" to mention the most central aspect of the system, its constant ripping off of the working class by the capitalists.