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.
Steven Horwitz
Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.
