There is a lane for social goods and there is a lane for private goods. Henry George made the distinction based on whether the goods can be sensibly sold in markets.
Excludable and Rivalrous
Modern theorists insist that the distinction between market capitalism and socialism is in whether the goods involved are "rivalrous" or "excludable." That definition involves the behavior of consumers and sellers and power.
Excludable refers to governing powers
Excludable means that someone with power, a governor, can say "you can't enter here." It refers to the ability of people with power, government, to put gates on a resource, service or product. The natural commons is non-excludable. Yet historically westerners have seized, marked boundaries, claimed and fenced land and tried to do the same with oceans and even clouds. Rivalrous means that the good is limited in availability.
Vital Goods, food, medicine, shelter, are by definition rivalrous, but rationing them via markets is barbarous. If a good is vital and someone can exclude people from using it, then by George's version that is a natural monopoly. Excluding goods from markets is a means to make them more "rivalrous". His definition of monopoly is based on the moral effects, the natural rights of those who "should" have access to them. The Rivalrous and Excludable argument has more to do with power.
Purpose of Capital is to make Goods less rivalrous
The purpose of capital, historically, has been to make the formerly unavailable more available. Our ancestors found their health and life-spans limited by access to resources. Capital is about marshaling resources for both public and private benefit. There is little to share socially without the use of capital to make production, goods and services more efficient and/or better quality.
To Henry George and other early modern writers, capital was something very specific, it was wealth reused "in the course of production." Such wealth, like;
- Seed Corn,
- Tools of production like tractors, factory equipment, hammers and drills,
- Ingredients of production such as livestock, nails, raw materials pulled out of the ground,
- Those are “capital
Capital is the wealth, tools and equipment that go into production.
the Governance of Capital
The governorship of capital is either in the hands of the folks using those tools themselves, or in the hands of managers. Those managers can work for a government, or work for some private owner. Private owners call themselves "capitalists" but they really are property owners who are renting and managing capital. Capitalism is simply a term for a system where the ownership and governorship of capital is in private hands. Capitalists employ people and manage them. Private government versus public government. Is private government necessarily better? That is problematic.
Certainly not Collective Versus Free Enterprise
A Collective is a "group of people acting as a group." By that definition the only time one is not dealing with a collective is when a single person is running an owner operator business where he/she does everything him/herself. Therefore there is no "collectivism versus capitalism." The battle is between private governorship of collectives or some kind of republican and democratic forms. There is a range of involvement from pure democracy where nothing gets done unless everyone agrees, to some kind of hierarchy.
Republican and Democratic principles versus Tyranny
Businesses work best when they pay attention to republican and democratic principles. It is probably right to disparage purely collective decision making because that only works on a very very small scale. When scaling up to a Republic or some kind of federation you need a certain amount of hierarchy. But in any case large organizations are collective organization. This is definitional
A collective organization is can be governed democratically, oligarchically, or as a tyranny. We get sold "individual" enterprise as free enterprise. But unless Zuckerberg is the only run involved in facebook, he's managing a collective. An enterprise solely owned it is solely owned by a single person backed by a hierarchy is "monarchy" or "tyranny," by definition. If someone has a hundred or 100,000 employees, it doesn't matter. Ownership is government, enabled by legal documents registered with a court. If government turns into simple arbitrary ownership, that is usually bad government. Dictators make themselves extremely wealthy. In some cases they own their country and make themselves monarchs. "Capitalism" is often a problematical term that confuses the organization of productive property with some kind of governing system.
Privateering Versus Capitalism
For those reasons I no longer refer to predatory "capitalism" as capitalism. I call it privateering. Privateering is the conversion of government into private hands. Profiteering, legal piracy, Private warfare, modern corporate raiders, grifting and grafting, are all modern forms of privateering. Thus the issue is not capitalism versus democracy or socialism, but pirates versus common good, using propaganda and legal tricks to make their thefts perfectly legal. Privateers seek private separate power and advantage. That is tyranny, not a virtue.
What Capital is not
Not all wealth is capital.
- Loot is not capital. It was stolen from someone and not produced by the person who stole it.
- Coal, oil, gas, while still in the ground, is not yet capital. It is nature's bounty. The product of long dead trees and plants, and belongs to God, or nature. Claims on it are more like to loot than to capital.
- Solar panels are capital. The tunnels dug or pipes put in the ground to get at coal or gas are capital.
- Money invested in capital is working. Money to purchase property is derivative of capital.
The “Proper Social Function” Lane
When we are talking about nature's bounty or of goods and services that don't fit into a market mold, we are talking about goods and services that don't fit a pure capital mode. We call such goods “social Goods” because they are a “proper social function,” this is a social lane. In modern times it gets labeled socialism, but they are social goods whether or not they are controlled by the people as a whole or governed by rich people.
Public and Private Goods
When public goods, like parks, farms, and similar are handed over to private hands they are usually turned into gated club goods. A formerly non-rival good, by excluding people from using it becomes a gated good. Those with the resources to trade for the good get access to it, others are excluded. This creates market failure. Markets only work when the goods sold are non-rival (nobody hurt by purchase, plenty of hamburgers or cookies for example) and non-exclusive (meaning anyone can buy and sell in the market). Monopoly puts vital goods in the hands one one or a small number more people, who then can extract tolls from their access.
Public versus Private good
Vital social goods; food, medicine, health care, communications, transport, can be distributed through markets, but unless the markets enforce access, transparent information and resourcing for all actors, monopolists will turn them into gated goods, forcing artificial rivalries and excluding access arbitrarily. A free market is a creation not an accident. Some markets are never free. Hospitals, emergency services, and infrastructure, either belong to all the people or they risk being artificially gated or rivalrous goods where competition is life or death and resources extracted in the exchange. Example is when companies can buy drug patents and then raise prices to insane levels. Those are not free markets.
The “Capitalism” Lane
The capitalism lane is what can be bought or sold in a market, justly. A good is in the lane of markets if:
- The buyer and seller can refuse individual sales [no coercion]
- There are real alternative buyers and sellers
- There aren't significant barriers to others entering the market as buyers and sellers
Things that have those three attributes are in the capitalist lane. The social goods lane can also have capitalists involved and use markets, but if they do:
- The presence of coercion means that either buyer or seller is denied a fair price for their goods or even unjustly denied access.
- The presence of monopoly (complete or partial) means power of coercion due to lack of alternative buyers and sellers.
- Barriers to becoming buyers or sellers means that the market is failing to reach or serve all persons in a society or collection of societies.
The kinds of goods described in Henry George's comments in 1890 were very profitable, because they could be governed by monopolists and denied to those not willing or able to pay an obviously inflated price, or in the case of monopsony, not sellers denied sales unless they pay an artificially low price. HG was describing market failure and social goods. It is not socialism when social goods are under governorship or at least control of the people as a whole through their representatives. It is monopoly capitalism, and privateering.