In 1870, workmen in a house in Prato, Italy, near Florence, knocked down a wall and came upon an old boarded-up stairwell filled with sacks of documents. It turned out they belonged to Francesco di Marco Datini, the head of a late-fourteenth-century import-export firm, and included more than 150,000 letters, 500 account books, 400 insurance policies, 300 deeds of partnership, and tens of thousands of commercial bills and instruments. This was the discovery of a medieval “database” compiled by a businessman who spent so much time sending and receiving letters that one can imagine him adjusting very quickly to email had it been introduced in the 1300s.

It is important to understand that Datini was not all that unusual for his time and place. Nor would he be out of place in today's world – although he might store his documents in a file cabinet or online rather than in sacks. If his obsession with collecting and communicating information seems familiar from the behavior of corporations in the twenty-first century, that is because Renaissance Italy's merchants had the same need to find out news that might affect their business and the same need to achieve coordination and control of their operations.

Why the similarity? Because business, whether ancient, medieval, or modern, needs information to function. The most basic feature of a market economy is a price, which is a “mechanism for communicating information” about any product being bought or sold. Besides supply and demand, what economists call “transaction costs” influence prices. The cost of doing business is obviously less, for instance, if property rights are protected, contracts are enforced, and transportation is more advanced, as these make it easier to buy, sell, and produce. Conversely, the costs are higher if these conditions do not exist. The lower such transaction costs, the more efficient the market.

Acquiring information about something one might buy, sell, or invest in is another transaction cost with an impact on market efficiency. Following the lead of economists dating back to the eighteenth century, Friedrich A. Hayek emphasized that relationship in his writings of the 1930s and 1940s: “The economic problem of society,” he wrote, “is a problem of the utilization of knowledge not given to anyone in its totality.” Several decades later, George Stigler won a Nobel Prize for coming to grips with the implications of Hayek's statement.

The core of this book's argument is that polemicist critiques and celebrations reflect a failure to understand capitalism. Both opponents and supporters of capitalism have obscured historical and present-day reality by using the term incautiously and inaccurately. Critics and advocates alike have distorted and blurred its distinctive attributes. The defining feature of capitalism is an intensification of information gathering that goes above and beyond what is possible in non-capitalist societies. This amounted to a qualitative transformation in the consistency, public accessibility, efficiency, and global reach of information flows, initially in Northwestern Europe. The emergence of the information nexus in the early modern era explains the “great divergence” in modern world economic history, as well as accounting for the strong continuities in the history of capitalism from its birth in the seventeenth-century Dutch Republic to the “IT Revolution” of the current digital age.

Despite the misconceptions surrounding the word “capitalism,” we are probably stuck with it. Replacing it with something in line with my interpretation like “informationism” would be implausible. But in light of the findings in this book, our understanding of the concept has to shift in the direction of the information nexus and away from capital, commodification, and the other features mistakenly identified as unique characteristics of capitalism. Several conclusions logically follow.

As opposed to those who would argue for the existence of two forms of capitalism in the world, a good capitalism based on entrepreneurialism and big firms versus a bad oligarchic or crony capitalism, the notion of the information nexus leads me to propose a new taxonomy altogether, excluding from the ranks of capitalism any economies in which access to information is substantially blocked. The fact that contemporary China or other authoritarian societies like Putin's Russia have basically market economies with stock markets, consumer marketing, and other epiphenomena associated with capitalism misses the point. Calling them “state capitalist” makes no sense. Because of restrictions on the press, the opacity that surrounds so much economic policy, and the corruption that channels so much economic activity in these countries, we cannot describe them as capitalist if “capitalism” is defined as the information nexus.

That is not to say authoritarian market economies make all the wrong decisions and capitalist ones with a flourishing information nexus all the right ones. In the case of China, imperfect markets are preferable to Soviet-style central planning.