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Friday, April 16, 2010

Is Capitalism Something Good?

Earlier this week I attended the annual meeting of the Association of Private Enterprise Education in Las Vegas to participate in a panel with the intriguing title “Free-Market Anti-Capitalism?” Organized by Roderick Long of Auburn University, the panel also included TheFreemanOnline columnist Steven Horwitz of St. Lawrence University, Gary Chartier of La Sierra University School of Business, and Charles Johnson of the Molinari Institute. Here is an expanded version of my remarks.

The question concerning the relationship (if any) between the free market and capitalism can be addressed at many levels. Let’s start with history. The word capitalist was indeed first used disparagingly by opponents of “capitalism.” But it is important to realize that among those opponents were advocates of property rights and free markets, such as Thomas Hodgskin and later Benjamin Tucker. Why?

The reason is this: In the periods regarded as classic “capitalist” eras, government intervention on behalf of capital was commonplace. Moreover, it was integral not incidental. In both England and the United States government intervened – on behalf of a privileged landed and then mercantile class – with land grants, subsidies, and commercial regulations. In America, this was true to various degrees at all levels of government, both before and after the Civil War.

Thus capitalism did not mean the free market, or laissez faire, back then. It’s not that the system fell short of an ideal. To the people on the ground, and to historians looking back, this was the system that was intended. Thus pro-business interventionism has a far better claim to the term capitalism than any unrealized free-market system.

The mercantilist particulars of this era have been available to advocates of free markets for years. For example, Jonathan R. T. Hughes’s The Governmental Habit (updated as The Governmental Habit Redux) and Arthur A. Ekirch Jr.’s The Decline of American Liberalism, as well as Albert Jay Nock’s earlier Our Enemy, The State, have been in the libertarian canon for decades.

I will focus on the post-Civil War nineteenth century because the abomination known as chattel slavery in the first half of the century makes it too easy to undermine the claim that this was the free market’s halcyon days. Post-Civil War “capitalism,” however, is often seen as the heyday of free-market society. This is odd, to say the least. Libertarians understand Randolph Bourne’s maxim, “War is the health of the state.” It so happens there was a war in the United States just past the midpoint of the century, so we should expect that it had the effects on the political economy that war always has: centralization, consolidation, and close government-business partnerships. That is exactly what happened.

A few quotations from Ekirch make this clear. (I’ve written about Ekirch previously here, here, and here, and Hughes here.)

“On all sides, in the North as well as in the South, the  new nationalism that succeeded the Civil War marked a further retreat [N.B.; emphasis added] from liberalism…. North and South the alliance of government and business had been much strengthened by the Civil War and its aftermath. Although business interests occasionally espoused a philosophy of laissez faire, basically they relied upon the favors and subsidies of the government. Especially in the North, Whiggery became the order of the day.”

Quoting Merle Curti, an earlier historian: “A supreme national government, controlled by Republicans friendly to industry and finance, could insure favors to corporations, protective tariffs, a centralized banking system, the redemption of government securities, and subsidies to railroads.”

Ekirch again: “The nationalistic ideas of Alexander Hamilton and Henry Clay had been revived….”

“Beginning with the economic legislation of the war years, the Republican party gave the business interests of the North the protection and encouragement they desired.”

“Instead of the limited state desired by Jeffersonian believers in an agrarian society, the post-Civil War era was characterized by the passage of a stream of tariffs, taxes, and subsidies unprecedented in their volume and scope.”

“Also vital to big business was patent law, with its provisions granting exclusive rights to an inventor for seventeen years; this enabled companies to buy up and hoard patents, using such control to maintain a monopoly.”

The era was a far cry from the free market.


At the semantic level, capitalism is an unfortunate word when applied to the free market. It suggests a privileged status for capital over other factors of production, which is not the case in a free market. A capitalist is not a believer in capitalism but rather an owner of capital. One can be a socialist capitalist, that is, one who owns capital while favoring a system called socialism. All this was pointed out in The Freeman 25 years ago by historian Clarence Carson in “Capitalism: Yes and No.” He wrote:

In sum, capitalism gained its currency from Marx and others as a blunderbuss word, misnames what it claims to identify, and carries with it connotations which unfit it for precise use in discourse. Even so, there has been a considerable effort to reclaim the word for discourse by some of those who are convinced of the superiority of privately owned capital in the production, distribution, and exchange of goods. It is a dubious undertaking. For one thing, Marx loaded the word, and when all that he put into it has been removed, only the shell remains. For another, linguistically, it does not stand for private property, free enterprise, and the free market. It is false labeling to make it appear to do so. Capitalism means either a system in which capital holds sway, which is largely what Marx apparently meant, or an ideology to justify such a system.

Carson went on to point out the irony that “in view of Marx and socialist doctrine generally, capitalism is most rampant in Communist countries. It is there that the most extreme measures are taken to accumulate capital.”

Finally, at the rhetorical level, we should appreciate how powerful the word capitalism is in its capacity to miscommunicate. Since we free-market advocates are trying to persuade, this should trouble us. In a recent newspaper article, “Caribbean Communism versus Capitalism,” the left-leaning journalist Stephen Kinzer compared socialist Cuba to what he described as its “capitalist” Caribbean neighbors. Who? Haiti, Guatemala, the Dominican Republic, Honduras, among others! For Kinzer a capitalist country apparently is simply one that has not declared its official ideology to be Marxism or one that has de jure private ownership of the means production no matter how much of a plutocracy it is. On the other side of the spectrum we find business commentators Lawrence Kudlow, Ben Stein, and others regularly condemning Barack Obama’s policies for “undermining our capitalist system.” That implies we have a capitalist system today.

If capitalism designates what we have today, we should flee from it as we flee for the exits when we hear a fire alarm. I’ll take the free market.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.