Tuesday, August 5, 2014

The Comical History of Capitalism(the word)

CapitalismThis is not about capitalism, the theorized socio-economic system of production.  This is about the word “capitalism” itself.  The term, “capitalism” has been used, abused, reborn, and re-mutilated so many times that if one were to use the term, you have to immediately stop and define what you mean by “capitalism”. Why is that?  There aren’t multiple definitions of mercantilism or feudalism.  So what happened to “capitalism”? To find out, follow me through the comical history of “capitalism”, the word.

In the Beginning...

"Capitalism" came into focus somewhere around the early to mid 18th century.  But nobody called it "capitalism" at the time.   The term "capitalism" didn't appear until about a 100 years later when it was first coined by socialists in the mid 19th century as a pejorative for the current state of the world.  This was when the term capitalism was first used to describe a socio-political-economic system.  (there are a few uses of the term pre-1850.  But they were all used as synonyms for commerce or a capitalist.  And was not widely used, and, therefore I think can be ignored)  So the first comical thing to note about the term, "capitalism" is that the history of the word is tied to socialism and socialist thought, and NOT to the system it describes.

What about Marx?

Here's another funny thing about “capitalism”.  Despite what most people think, Karl Marx, the most infamous socialist, neither coined the term nor popularized it.  The term "capitalism" was coined by Pierre-Joseph Proudhon,  A French individualist socialist(more commonly referred to today as an anarchist).   You will not find the term anywhere in The Communist Manifesto.  Later, when Marx and his partner Engels wrote Das Kapital, they would describe the situation as "the capitalist mode of production".  Engels may have used "capitalism" later in life, but neither he nor Marx popularized the term.

It wasn't until the turn of the century that it was made clear that "capitalism" was the word to describe what socialists opposed.  Werner Sombart's "Der Moderne  Kapitalismus" in 1902 exploded the term's popularity both inside and outside of socialist circles.  Or as respected historian Fernand Braudel puts it in his book Civilization and Capitalism:

In fact, it was not until the beginning of this century that it fully burst upon political debate as the natural opposite of socialism.  It was to be launched in academic circles by Werner Sombart's explosive book Der moderne Kapitalismus.  Not unnaturally, this word which Marx never used was incorporated into the Marxist model, so much so that the terms slavery, feudalism and capitalism are commonly used to refer to the three major stages of development defined by the author of Capital.

The term must have stuck because two years later Max Weber published his famous tome, "The Protestant Ethic and the Spirit of Capitalism" which is "the fourth most important sociological book of the 20th century".

So, to be clear on why I find this so damn funny... At the beginning of the 20th century, "capitalism" became a "marxist" term that was neither coined nor popularized by Karl Marx!

Capitalism is a good thing now?

Now fast forward 60 years.  It's 1962 and at this point, The terms “capitalism” and “capitalist” had been pejoratives and a negative descriptions used by socialists for 100 years.  Up until this point, intellectuals that were opposed to socialism described themselves as being in favor of liberalism(especially the classical kind) and not "capitalism".  Then, Milton Friedman publishes a book called Capitalism and Freedom in 1962.  And then 4 years later, Ayn Rand comes out with her book Capitalism: The Unknown Ideal.  In these books, these (now famous) authors described "capitalism" in glowing terms and came out FOR it.

Wait a minute!  (insert record scratch sound)  What the F*!)K Just Happened???  The 50s and early 60s mark when many intellectuals started openly using the term "capitalism" as the term for their ideal system instead of "liberal", "free market", "Laissez faire", or "free enterprise".  I've checked as many places I can think, but it just didn't happen until that time.

The Foundation for Economic Education was created in 1946 to promote free markets.  And no where in their founding 14 principals was the term capitalism.

The American Enterprise Institute founded in 1943 didn't defend "capitalism", it defended "competitive, free-enterprise".

The Founding article in William Buckley's conservative National Review mentions "capitalism" only in relation to socialism.  Among the magazine's "convictions", it only states "The competitive price system" and no mention of "capitalism".

Who can I blame for this???

Now we come to the person whom I blame for this whole mess:  Ludwig von Mises.  At the time, he was a semi-known Austrian economist who was very much in favor of "liberalism" and very much against socialism.  However, in his writings, he adopted the language of his socialist rivals.  In his 1922 book titled "Socialism", he acknowledged that the term "Capitalism" was a "political word".  He stated:

The terms "Capitalism" and "Capitalistic Production" are political catchwords. They were invented by socialists, not to extend knowledge, but to carp, to criticize, to condemn. Today, they have only to be uttered to conjure up a picture of the relentless exploitation of wage-slaves by the pitiless rich. They are scarcely ever used save to imply a disease in the body-politic. From a scientific point of view, they are so obscure and ambiguous that they have no value whatever. Their users agree only in this, that they indicate the characteristics of the modern economic system. But wherein these characteristics consist is always a matter of dispute. Their use, therefore, is entirely pernicious, and the proposal to extrude them altogether from economic terminology, and to leave them to the matadors of popular agitation, deserves serious consideration.

Despite that, Mises attempted to "appropriate the word for his own purposes".  After acknowledging this, 2 paragraphs later, he tries to justify the use of the term "capitalism" to describe the liberal system that he favored:

If the term capitalism is used to designate an economic system in which production is governed by capital calculations, it acquires a special significance for defining economic activity. Understood thus, it is by no means misleading to speak of Capitalism and capitalistic methods of production, and expressions such as the capitalistic spirit and the anti-capitalistic disposition acquire a rigidly circumscribed connotation. Capitalism is better suited to be the antithesis of Socialism than Individualism, which is often used in this way.

As far as I can tell, this 1922 book was the beginning of the shift in the meaning of the term Capitalism.

So then, what is the connection between Mises and future "capitalism" supporters?  Ludwig von Mises was Fredrich Hayek's teacher in Austria.  The one that converted him from socialism to "liberalism".  Hayek would later found a social club called the Mont Pelerin society in 1947 for free market economists.  At the founding meeting was Hayek, Mises, and... Milton Friedman, the aforementioned author of "Capitalism and Freedom".  I don't think it is a stretch to say that Mises attempts to redefine capitalism as a positive would've rubbed off on the younger economists.

In fact, before founding the society, Hayek published the book "The Road To Serfdom" where he did pretty much the same thing as his teacher did in "Socialism".  He notes that the term conceals the truth, but then later redefines the term "capitalism" and then speaks approvingly of it.  On page 89 of the book he wrote

Though the terms "capitalism" and "socialism" are still generally used to describe the past and the future forms of society, they conceal rather than elucidate the nature of the transition through which we are passing.

And then by page 109 he redefines capitalism and praises it as the only way democracy can thrive:

It is now often said that democracy will not tolerate "capitalism".  If "capitalism" means here a competitive system based on free disposal over private property, it is far more important to realize that only within this system is democracy possible.

Another early and obscure attempt to redefine capitalism - and then come out in favor of it- was by Political Philosopher Frank Chodorov.  In October of 1945 he wrote an article titled "Let's Try Capitalism".  Whether his attempt to redefine capitalism was his own, or influenced by Mises, I cannot say for certain.  But being that he was very much active in the "free market liberalism" movement in New York for years, and that Ludwig von Mises had been teaching at NYU for 5 years while promoting free markets, it's not hard to fathom that they may have run into each other and exchanged ideas by 1945.  In fact, based on the fact that both men knew Murray Rothbard(Another "free market" advocate) and Milton Friedman, it is hard to imagine that they didn't at least know each other.

Backlash, and Backlash to the Backlash

So after the "free market" advocates tried to commandeer the word for their own purposes, you can imagine that there was a backlash.  But the backlash wasn't from state socialists.  It came from anarchists and other "free market" advocates!

In 1972 Murray Rothbard noted the absurdity of trying to commandeer the term "capitalism" as a description of what he advocated for.  By 1972 , Murray Rothbard notes in an essay that there are multiple definitions of "capitalism".  He tries to split the definition in two to describe two very different concepts, "free-market capitalism" and "state capitalism".  Naturally he is in favor of one and against the other.

From the very first we run into grave problems with the term "capitalism." When we realize that the word was coined by capitalism's most famous enemy, Karl Marx, it is not surprising that a neutral or a pro-"capitalist" analyst might find the term lacking in precision. For capitalism tends to be a catchall, a portmanteau concept that Marxists apply to virtually every society on the face of the globe, with the exception of a few possible "feudalist" countries and the Communist nations (although, of course, the Chinese consider Yugoslavia and Russia "capitalist," while many Trotskyites would include China as well). Marxists, for example, consider India as a "capitalist" country, but India, hagridden by a vast and monstrous network of restrictions, castes, state regulations, and monopoly privileges is about as far from free-market capitalism as can be imagined
If we are to keep the term "capitalism" at all, then, we must distinguish between "free-market capitalism" on the one hand, and "state capitalism" on the other. The two are as different as day and night in their nature and consequences.

Other, more modern writers have continued the backlash.  Sheldon Richman argues that libertarians should use "capitalism" as the description of what they oppose.

 We are a group of libertarians who understand that historically the word "capitalism" has meant, not the free market, but crony capitalism -- that is, collusion between business and State at the expense of consumers/workers. Thus we refuse to use the word "capitalism" to describe what we favor: individual liberty in all respects and free, competitive markets. We believe that what we have today IS capitalism -- and we oppose it.

Other modern free marketers have noted the same thing.  And now, of course, there is a backlash against this backlash.  The suggestion of letting "capitalism" return to it's original meaning, is rejected because(among other reasons), we shouldn't let the definition of words change.  I shit you not:

As Sheldon admits in his talk, however, changing words is like changing currencies.  If they're already widely accepted, you need a really good reason to abandon them.  Awkward etymology notwithstanding, I think the concepts of capitalism and socialism are good enough to keep using.


So now you know why it is so damn hard to talk about "capitalism".  And now, before one can even debate the merits of "capitalism", one has to define what they mean by "capitalism".  Do they mean the system of exploitation as defined by Proudhon or Marx(who both defined it differently)?  Or do they mean "a competitive system based on free disposal over private property"?  Or something else?  My recommendation is to never use the term.  If one has to define a word every time one uses it, then it's not a useful word.

If you enjoyed this article, let me know.  If there is interest I can attempt a similar article on the terms "socialism", "liberalism", "fascism", and probably even "keynesian".  Also, if you ever an article by an influential person from before 1922 describing "capitalism" as a good thing, please let me know.  I would be interested if there is another or a different person we can blame for this mess.
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