Is the Name “Capitalism” Worth Keeping? Part 2
In part one I offered several reasons why those of us who support free markets perhaps shouldn’t hang on to the word “capitalism.” Now I want to explore what we might use instead.
As noted last week, most supporters of capitalism didn’t use the term until the twentieth century. Moreover, many supporters create confusion by using the word to describe both the current U.S. economy and their desired free-market alternative. You can see this confusion when capitalism’s critics blame it for problems that capitalism’s defenders blame on state intervention.
The deeper problem with the terms “capitalism” and “socialism” is that they don’t indicate the institutional arrangements under which the systems would operate. Perhaps we could get away from the etymologically biased traditional words by substituting more descriptive terms.
For example, we could substitute “markets” and “planning” for “capitalism” and “socialism.” If one believes that the fundamental institutional arrangement for capitalism is the market and for socialism some form of government planning, then this pair of words might more accurately describe each system’s institutional setting. These two terms are purely descriptive and don’t imply a preference. Normative judgment would require additional arguments.
Using “markets” instead of capitalism has one advantage and one major disadvantage. The advantage is that it seems to address the concern expressed by Auburn philosopher Roderick Long and other left-libertarians that the term “capitalism” or even “private ownership of the means of production” implies that capital must be owned by someone other than workers. This is often a source of socialist objection to capitalism. However, the term “market” should not carry those implications. After all, an economy is conceivable in which most or all firms are owned by the workers themselves, yet firms’ relationships with one another and with consumers are conducted entirely through the free market.
The term’s disadvantage is that “market” alone doesn’t distinguish between free markets and those in which the State, either on its own accord or at the behest of private actors, plays a significant role to the detriment of the public. In the current U.S. economy, markets dominate but are hardly unfettered. So using “markets” seems like an advance by specifying the primary institutional process of the preferred system, but it may well need a further qualifier to distinguish the unfettered ideal from the fettered reality. Professor Long and others have suggested the term “freed markets” for the ideal, which has the advantage of making clear that we don’t have free markets now.
Substituting “planning” for “socialism,” however, raises some potential problems of its own. Although in the late nineteenth and early twentieth centuries many saw planning as the essence of socialism, that belief was not universal and it has largely disappeared over the last few decades. For many today, socialism is more about improving working conditions than substituting planning for markets. For example, Ted Burczak, in his Socialism After Hayek, would give markets great latitude among firms and between them and consumers, but would prohibit wage-labor contracts, forcing all firms to be worker-owned and worker-managed. Historically this emphasis on worker ownership was also seen as a defining feature of socialism. As noted, it is not incompatible with freed markets as long as it is not enforced by coercion. To this extent, left-libertarians can legitimately say they support both “freed markets” and “socialism,” if by the latter they simply mean worker ownership of the means of production.
So even were we to use “markets” and “planning” for “capitalism” and “socialism,” we would still need additional adjectives. The question is whether the somewhat more tedious circumlocutions that might substitute for “capitalism” are worth it. Given the confusion I’ve described, I have become increasingly convinced that they are. Even for libertarians like me who do not believe worker ownership or management is essential to our ideal, the problems with the word “capitalism” have become so significant that it’s time for us to think seriously about dropping it as the name for our preferred alternative to the status quo.
Comment by Robert Kinnett on 7 January 2010:
As you say, A) the distinction is important, B) Marx’s word “Capitalism” is the reverse of helpful, and C) “Socialism” brings images to mind of “social versus anti-social” and “good things for Everybody”. Socialism is of course something quite different from that misconception.
Another way Capitalism has been repositioned is to call it a “limited government” program. As the previous commentator suggested, using the volitional aspect has a strong appeal to people. However, positioning Government as “the bad guy” is a no-win situation. Although Reagan had great success with “Government IS the problem”, people have a natural desire to believe in their country. This runs counter to lacking faith in “our” government.
If you saw the movie “Thank You For Smoking”, it was interesting that in steering the public away from the facts all the tobacco companies had to do was appeal to the emotion of Government “taking away your freedom.” Incidentally, the tobacco companies won the battle and lost the war, because facts are persistent little things.
We are looking at the problem from the wrong side. People do care about their own interests primarily. It’s how they survive. Who loses power when government increases control? Consumers. Average people. Voters. No one wants to lose the right to vote at the ballot box. Why should their right to vote with their dollars in the marketplace be any less sacred? This is a human rights issue.
If the right to vote thumbs up or thumbs down on products and services in the market was put into the Bill of Rights, how would it be worded? Isn’t Freedom of Commerce as important as Freedom of Speech? Isn’t it a FORM of Freedom of Speech?
I propose that we label our position as a “Free Commerce system” and using Marx’s strategy, we label Socialism as a “Government-Control system”. The two phrases which we hammer repeatedly into every dialogue are:
1. A Free Commerce system means that consumers control what products are in the marketplace by what they choose to spend their money on.
2. A Government-Control system means that Government decides what products will be available for you to buy.
By repeating these definitions over and over, AND using an clear list of easily-digestible facts (there are many), I believe public perception can begin to turn back to the Freedom our Founders envisioned.
Mr. Horwitz, thank you for your stimulating article.
Comment by Les on 7 January 2010:
Neither “Capitalism and Socialism” nor “Markets and Planning” really go to the root of the matter.
A better choice would be “Centrally Commanded” versus “Voluntary.”
Comment by Eric Hollering on 7 January 2010:
All these terms are too overloaded with connotations. I would like to see terms emerge that do a better job of expressing the voluntary nature of transactions in capitalism.
Personally, my favorite to-date is Mises’s reference to consumers’ democracy in his book _Socialism: An Economic and Sociological Analysis_. He actually recommends the term economic democracy. While I find consumer’s democracy more vivid, it is unfortunately a little overloaded as well; I’ve spent a lot of energy trying to get people to dissociate the terms capitalism and consumerism, since the latter is equated with materialism by those not thoroughly cognizant of subjective value theory.
I’m not sure what the analogous term for socialism could be, but it doesn’t matter because we know the socialists will define and spin their own labels. They may not be able to perform economic calculation, but they apparently understand marketing (ironically)…. See More
See http://mises.org/books/socialism/Preface_Second_German_Edition.aspx 15th paragraph
Note: I made these comments on the Facebook post as well, so my apologies if they end up showing twice here.
Comment by Pearl on 7 January 2010:
I’m not liking the alternatives proposed. “Freed Market” has a tortured quality and ultimately seems to imply that government action is required to create it!
What is wrong with “Free Market”? It’s always been in use, people know what it means, and it pretty well describes what is intended. It can help if we use this opportunity to clarify that we currently live in anything but a free market environment. On the other side, Government Planned would perfectly describe the socialist state.
Comment by voteright on 7 January 2010:
The problem with the English language is that words “morph” into terms that cause misinterpration. Maybe we should do like the Lawyers — use some Latin terms that have more exact and defined meanings. I do not know Latin; but there may be others who can come up with the term for “Free Market System” as implied by the great Milton Friedman in his book, Capitalism and Freedom.
Comment by Craig Wright on 7 January 2010:
Free Market.
Solvo Venalicium.
Democratic economics.
Democratic parcus.
Free Commerce.
Solvo Ineo. (or unrestricted commerce = liber Ineo)
Economic Democracy.
Parcus Democracy.
What may be better would be “unrestricted market” which is “liber venalicium”.
Comment by Adam on 7 January 2010:
All terms are prone to perversions that can lead to opposing viewpoints on the idea behind the term. If only definitions also included a list of what it is not or were written with clarity of other terms that implied it. And in the end, you’ll still have the opposing viewpoints that will still be at war with each other. It’s a dialog/war of ideas, not terms. In the end, finding a new term only will be as useful as people engage in the full debate behind the idea — what it is and what it isn’t.
a stab at it [leaving room below for something like anarcho-capitalism]:
Private parties with private property rights having the private means to produce private goods for a private or public exchange of said goods determine by the two parties in an open market based upon contract Law where the “government” might have the implied monopoly of force and final judgment [unless the private parties agree to another third party agent] upon contractual violations, including fraud, between the two parties or another third party claiming private property violations stemming from the agreement and/or use of the private property or production of the other parties.
Comment by David Hillary on 7 January 2010:
Planning is a proper feature of a free market: individuals, households and firms plan their activities, it is one of the four functions of management (the others being organising, leadership and control).
And I guess that is what free markets are: self-management — self planning, self organising, self leadership and self control.
The market an environment within which individuals can interact, but it is not the only environment. Within the environment of the firm or household, interactions are planned.
Comment by Steve Horwitz on 7 January 2010:
Of course David, and that’s a fundamental Hayekian point I’ve made over and over again myself. But in the market, planning is not the “fundamental institutional arrangement” in the way it is under socialism. Perhaps “coordination process” would be a better term. I suggest you take a look at chapter 2 of Don Lavoie’s *National Economic Planning: What is Left?* to see the best discussion of this point.
Comment by David Hillary on 7 January 2010:
Both planning and markets feature under both ‘free markets’ and state hampered, state regulated and state owned systems. Markets exist under state owned systems, for example the Chinese banking system features for main state owned banks that households and businesses can operate accounts with, they just operate under different institutions. (It should be noted that state owned systems can be competitive, and that markets can exist without them being competitive, e.g. monopoly, monopsony and bilateral monopoly are studied and taught in economics.) Planning exists under free markets, e.g. planning for a household’s affairs or a budget for a large firm (studied and taught as ‘management’), again the difference is institutional — who has the right to impose plans upon whom and what, and how plans are executed etc.
So, in summary, the differences are what institutions are used to solve the coordination problem.
The terms ‘planning’ and ‘markets’ cross over between the institutions of the natural system of social freedom under natural law, and the institutions of state regulation and involvement. Although they might not be good as a labels, ‘natural rights’, ‘natural justice’ and ‘natural law’ seem, to me, to be the best descriptions of the institutions free marketeers favour. Perhaps we could label them institutional naturalism or natural institutions? Or perhaps, like ‘coordination problem’ we could have ‘natural coordination’?
Comment by Miles Hayward-Ryan - NZ on 7 January 2010:
The problem with ‘free market’ is that it is already tarnished. And in fact I believe no-one wants a truly free market. Would you want products with no legislated guarantees as to quality? We need legal controls to stop bad business. The markets are not free of constraints and should never be. The qualifying issue is about the limitations on markets and planning.
How about :
‘limited markets’ [which implies proper restraint] to substitute for capitalism; and
‘unlimited planning’ [which implies the lack of popular control of government bureaucracy] to describe socialism?
Comment by Dr. Steve on 7 January 2010:
Miles, in a “free market” “free speech” will regulate poor quality. Outright fraud is another thing, but otherwise I’ll take my chances with freedom over government guarantees.
Comment by Terri K on 8 January 2010:
Miles, one need only look at the track record of the FDA to determine whether we want/need government to legislate quality or safety. I too will take my chances with freedom over government guarantees.
Yes, the C word has been bastardized and I stopped using it a long time ago. Just like, if I must have a label, I prefer voluntarist or agorist to anarchist because of the negative connotations.
In my mission to enlighten and explain the concepts to my sphere of influence, I use “free-markets” and “central planning”. An additional problem is that most think we already have unfettered free-markets (heh, they think we’re FREE! too), regardless of the terminology, but it’s easy to give examples of how we don’t.
I’m far more interested in getting people to understand the concepts and to inspire them to seek further knowledge. I love it when someone says, “I never thought of it that way before!”
Anyway Steven Horwitz, why don’t you use your favorite terms in your writing and see how the free-market responds?
Comment by Jim Hlavac on 9 January 2010:
I have long been opposed to the word “Capitalism” — argued against it as early as the 1970s in high school, continued through all my college economics courses — and even my Socialist theory professor at NYU had to agree that even Communists had to pull together “capital” to create the state enterprise. He was a bit taken aback by that — but agreed to the concept that a USA steel mill had just as much need for capital as a Soviet one (it was the 1980s, which was a stark period of contrast) to make vast quantities of steel — after constant reminders.
Not thrilled with “Socialism” either — for the USA, in a Toqueville sort of way, is very social. Indeed, we seem to have more social clubs and more socializing than so called Socialism, which ironically restricted people from socializing. Again, it was the Socialist theory professor who had to accede that point — grudgingly.
As I’m not thrilled either with “market economy.” All economies have markets — even two traditional, or primitive, people have a market — my arrow for your curare poison, for instance. Soviet Russia had a market. As did Medieval France. As does the US. Markets are just where things are bought and sold, traded and exchanged, as is required for all since no one can make all they need. Now it depends on who gets to say what one can buy or sell, and when and where, and who gets to accumulate capital and who gets to keep the gain required for a successful enterprise of any sort, big or small.
Voluntary Market doesn’t seem to fit the bill either, for in a sense Marxists argue that all enter into the system voluntarily by the social compact — and that capitalism is “forced” by laws set by elites. And at the time Marx wrote Das Kapital it was hereditary landed aristocracy that wielded a lot of the force, though not all, in England’s market.
Nor does Coerced market seem to fit — for even Soviet Russia didn’t make you buy something, or sell something, you just had limited choices. While the Health care bill under consideration now would coerce you to buy insurance, whether you want to or not. And it would coerce the seller to sell to any coerced buyer regardless of price or earnings or expenses. Which stand coercion and the system supposedly for it or against it on its head — and takes markets beyond where few have gone before.
Nor is there anything wrong about workers owning the means of their productive activities — no reason why General Motors’ unions couldn’t have bought at any time a controlling or complete interest in the company and run it for themselves. I believe Delta Airlines is owned to some degree by its union. Small businesses with just two or three partners as employees are both worker and boss — which are they?
Further — both so called capitalist and socialist economies have “profit.” That socialists want to call it “gain in the five year plan” to avoid “profit” is just a product of politics and semantics — again, the Socialist theory professor couldn’t quite get around that, though he tried. Even “non-profits” have “profit” — it’s just not taxed, but the term “untaxed company” is not politically palatable. No gain, much pain, after all — so non-profits make a profit but call it something else. Semantics again.
Free market sounds too libertine, and without regulations of any kind, thus scary to many. Controlled markets are exactly what, say, Walmart does — indeed, they are very good at controlling their portion of the market.
Same with planned — Ford is a very planned company, even years in advance of product launch. But so were Russian car companies just as planned.
On the other hand — Open Markets fits well — for anyone is open to join or not join the marketplace in any capacity. And Closed Markets is the opposite — for no one can enter the marketplace without permission or restriction from the powers that be and you have no other option then the choices offered, even if you have a better idea — the old “we’ll pretend to pay you, you’ll pretend to work, and you can buy sausage on Tuesday.”
Open Markets do allow for a Closed Market for certain products, such as sewer services, or highways — while Closed Markets don’t allow for anyone to just set up shop of any sort to sell anything.
And those are the terms I use as much as possible (yes, I lapse.)
Open is just that — opportunity at the door so to speak, and you can open it as you please — short of fraud and theft.
Closed is just that — you are locked out or in depending on political power — and fraud, aka corruption, is part of the equation.
And few words are as simple, and unencumbered with baggage, and free from ideological taint as “open” and “closed.” Which is the goal – to make it so simple that an eighth grader can conceptualize the options — open opportunity or closed opportunity – such a simple choice, really.
Comment by Russ Nelson on 9 January 2010:
I like Open Market and Closed Market, but like Open Source, it needs a definition that we can all agree on. I can host a website, but does anybody want to take a crack at writing a definitional document?
Comment by Michael M on 14 January 2010:
You guys are making so complicated something that isn’t! If you wish to find an alternative term, why not simply use what was in use prior to capitalism?
Adam Smith called the system he was trying to describe the, ‘Natural System of Liberty’. Political economy knew the position that we might call capitalism as, ‘Market Liberalism’. Liberalism itself is a label for the goal we all pursue.
The past can serve our needs in this area, there is no need to go inventing new terms in some Orwellian attempt to control the words people are using.
Comment by Eric Hollering on 16 January 2010:
Actually, I like liberalism. I think we should take it back. (No, seriously)
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