Blogs > Liberty and Power > "Capitalism": The Known Reality

Feb 4, 2005 6:16 pm

"Capitalism": The Known Reality

Reaching out to the Left has been the source of much good discussion at the Liberty and Power Group Blog. So I'd like to pick up on that thread, yet again.

After reading this comment by Jake Smith in response to my"Market Shall Set You Free" post, I took a stroll over to Kevin Carson's Mutualist Blog, which he subtitles"Free Market Anti-Capitalism." It's a provocative subtitle, actually. I've been having an ongoing discussion with a friend of mine for months about the nature of capitalism, so any subtitle that calls for"Free Market Anti-Capitalism" is intriguing on the face of it. (Kevin also has a very interesting book out, entitled Studies in Mutualist Political Economy.) He writes:

If the market and the state have coexisted historically, they can be separated logically. The question of whether class differences originally arose from successful competition in the market, and the state was then called in to reinforce the position of the winners; or whether the class differences first arose from state interference, is a vital one. The fact that the state has been intertwined with every"actually existing" market in history is beside the point; social anarchists themselves face a similar challenge—that the state has been intertwined with every society in history. The response, in both cases, is essentially the same—the seeds of a non-exploitative order exist within every system of exploitation. Our goal, not only as anarchists but as free market anarchists, is to supplant the state with voluntary relations. If the absence of something in historical times, in a society based on division of labor, is a damning challenge—well then, they're damned as well as we are.
The questions of whether state capitalism is an inevitable outgrowth of the free market, of whether decentralized and libertarian forms of industrial production can exist under worker control in a market society, etc., are at least questions on which we can approach the Left with logic and evidence. They are, for the most part, rational and open to persuasion. At the very least, there is room for constructive engagement. And remember, it is not an all-or-nothing matter. It is possible, if nothing else, to reduce the area of disagreement on a case-by-case basis.

Well, questions concerning"free-market anarchism" aside, I agree that the market and the state can be separated logically, and I also agree that the class question is a vital one. And I'm the first to advocate constructive engagement with all parties. But as I suggested here, there is a problem that must be confronted when dealing with" capitalism." Let me explain further.

So much has been said about Ayn Rand's defense of" capitalism: the unknown ideal" that we often forget that the very term" capitalism" was coined by the Left. As F. A. Hayek puts it in the book, Capitalism and the Historians:

In many ways it is misleading to speak of" capitalism" as though this had been a new and altogether different system which suddenly came into being toward the end of the eighteenth century; we use this term here because it is the most familiar name, but only with great reluctance, since with its modern connotations it is itself largely a creation of that socialist interpretation of economic history with which we are concerned.

Hayek found the term even more misleading because it is almost always" connected with the idea of the rise of the propertyless proletariat, which by some devious process have been deprived of their rightful ownership of the tools for their work."

And yet, Rand proudly took up the mantle of" capitalism," defining it as the only moral social system consonant with human nature and"based on the recognition of individual rights, including property rights, in which all property is privately owned." For Rand, this"unknown ideal" had been approximated in history but it had never been practiced in its full, unadulterated laissez-faire form. It was largely undercut by state intervention.

But we have to ask here: Did Rand—and do free-market advocates in general—redefine" capitalism" in such a way as to make it a neologism? (I address the issue of whether Rand engages in such neologistic redefinition with terms such as"selfishness,""altruism," and even"government" in my books, Ayn Rand: The Russian Radical and Total Freedom: Toward a Dialectical Libertarianism.) If real, actual, historically specific" capitalism" has always entailed the intervention of the state, are leftists onto something when they"package deal" state involvement in markets as endemic to capitalism? Of what use is it to keep claiming that libertarians are champions of" capitalism" when that system as it exists is a warped, distorted version of the ideal so many of us hold dear? (I'm leaving aside questions concerning the possibilities for the emergence of a genuinely libertarian social system.)

Now, it may be true, as Ludwig von Mises has argued, that there is a bit of"envy" at the base of the"anti-capitalistic mentality." And it may be true that some socialists would oppose market relationships regardless of the presence of the state because they oppose the very notion of individual enterprise and private appropriation. But the fact remains: Laissez-faire capitalism has never existed in its purest form. Libertarian free-market advocates know this. But even Marx knew it. He argued that existing systems were only approximations to that pure form,"adulterated and amalgamated with survivals of former economic conditions," the kind of mercantilist and neomercantilist state involvement whose"antiquated modes of production" had inhibited the progressive character of markets. (It's this aspect of Marx's work that has been captured in Meghnad Desai's book Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism.)

This problem of definition is not simply an epistemic one or even a semantic one. It has practical implications. When neoconservative advocates of U.S. intervention in the Middle East talk about"nation-building," about building"free markets" and" capitalist" social conditions abroad as part of the march toward"democracy," those who live in that region of the world do not understand" capitalism" as anything remotely like the libertarian ideal. (Indeed, neocons don't understand it either!) U.S. capitalism as such is equated with" crony capitalism" or with what Rand called the"New Fascism": the intimate involvement of the U.S. government in the protection of business interests at home and abroad through politico-economic and military intervention. It's not simply that the left has"package-dealt" us this bill of goods; it is what exists and it is what has existed, in an ever-increasingly intense form, from the very inception of modern" capitalism."

Indeed, one of the most insidious forms of state intervention has been in the area of money, banking, and finance. And if Austrian economists are correct that the boom-bust cycle itself is rooted in the state-banking nexus, then that nexus and its destabilizing effects have been around in various incarnations ever since" capitalism" was given its name. And this is certainly something that even Marx understood. As I put it in my book, Marx, Hayek, and Utopia,

Marx shares with his Austrian rivals an understanding of the political character of the business cycle. Yet the implications of his analysis are vastly different. While [the Austrians] argue for the abolition of central banking, and the separation of the political sphere from money and credit, Marx advocates using the credit system as a mechanism for socialist transformation.
Marx believes that capitalism, based on the dualism between purchase and sale, makes an exchange economy necessary. The exchange process makes possible the emergence of pseudotransactions through an inflationary credit system. Like [the Austrians], Marx views the state as the source of inflation. The state's central bank is the"pivot" of the credit system. Its artificially-induced monetary expansion engenders an illusory accumulation process in which"fictitious money-capital" distorts the structure of prices. This leads to overproduction and overspeculation. Real prices—those that reflect actual supply and demand—appear nowhere, until the crisis begins the necessary corrective measures.
Marx views the business cycle as an extension of intensifying class struggle. The state's ability to thrust an arbitrary amount of unbacked paper money into circulation creates an inflationary dynamic that favors debtors at the expense of creditors. The credit system becomes an instrument for the"ever-growing control of industrialists and merchants over the money savings of all classes of society." It provides"swindlers" with the ability to buy up depreciated commodities. Yet the credit system is a historically progressive institution, according to Marx. Despite its distortive effects, it accelerates the expansion of the global market and polarizes classes in capitalist society. It facilitates socialized control of production and capital investment.

One would find a very similar, though more detailed, analysis in the works of Mises, Hayek, and Rothbard, with different implications, as I've stated above.

Some of this discussion can be viewed as a complement to Arthur Silber's discussion here, and Gus diZerega's comments here. If libertarians continue to use the word" capitalism" as some kind of ahistorical ideal, if they refuse to look at the fuller cultural and historical context within which actual market relations function, they will forever be dismissed by the Left as rationalist apologists for a state-capitalist reality. That's ironic, considering that so many Leftists have been constructivist rationalist apologists for a different kind of statist reality. But it does not obscure a very real problem.

Reaching out to the Left or to any other category of intellectuals requires a translation exercise of sorts. Real communication depends upon a full clarification of terms; if we end up using the same term to mean different things, I fear we'll be talking over each other's heads for a long time to come.

Cross-posted to Not a Blog.

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More Comments:

Stephan (K-dog) Kinsella - 7/14/2005

Roderick, what term do you prefer to describe "socialism"--I have always liked Hoppe's definition of socialism as a system of institutionalized aggression against private property. This seems to get to the essence of what is wrong with "Socialist" or "communist" societies, and put this way it shows that all non-minimalist states are to a degree "socialist"--theocracies, welfare-states, what have you. And in Hoppe's A Theory of Socialism and Capitalism, he indeed analysis Socialism Russian-Style, Socialism Social-Democratic Style, the Socialism of Conservatism, the Socialism of Social Engineering, etc. ( )

Curious if you bifurcate institutions or interpersonal actions or laws into 2 types, this way, and if so, what labels you apply.

Stephan (K-dog) Kinsella - 7/14/2005

To me, the word used is not that crucial. It's just semantics. What is important is that the single concept (whatever word tags it) identifies something common to all forms of (what I'm calling here as socialism), even though there are also significant differences. I suppose criminal or criminalism could be used, but this implies the existing legal code outlaws it; obviously, the state's laws are "legal". I think the trick is to realize that there are both private/individual forms of aggression, i.e., crime; and public forms of it, more organized forms of it.... the state in all its variants is thus some type of socialism or public, institutionalized aggression.

Not sure waht the best label is, but there are commonalities among all public forms of it, and even between public and private types of aggression or border-invasion. Maybe we call them property snatchers, or second-comers. I don't know.

Kevin Carson - 2/7/2005

I usually hesitate to sign onto discussion boards that require logins, because I'm horrible at keeping track of the passwords. But this is too interesting to pass up.

A very thought-provoking post, Chris--and some great discussion in the comment thread. I'm currently digesting a blog post on the main points here, but thought I'd add my $0.02 on this interesting discussion of the term "socialism."

Mises' equation of "socialism" with state ownership/planning was ahistorical IMO, and flew directly in the face of earlier usage.

Even Friedrich Engels, arguably the father of "vulgar Marxism," only saw state involvement in the economy as a step toward socialism, or maybe even a precondition--not as socialism itself. Even for Engels, "socialism" still carried its earlier meaning of a system in which the actual workers exercised real political and/or economic power. As an unreconstructed Tuckerite, I still hold onto the earlier usage of "socialist" myself, along with the "free market" label.

Engels argued in Anti-Duhring that state ownership and control might serve as a bridge to socialism, if workers seized political power. But if capitalists retained power in the state, state ownership and control would function as a component of an overall capitalist system of class-rule. Engels saw the Junker Socialism or "gas light socialism" of his day as just another example of the capitalists acting through their own executive committee, the state, to stabilize and plan capitalism and make their profits more secure. And he certainly would have ridiculed the use of the term "National Socialist" by the corporatist regimes of a later generation.

For Engels, the mixed economy had a dialectical character. The capitalists played a leading role in creating it for their own purposes; but some aspects of it (like the welfare state) were created at least partially in response to pressure from outside, from the working class. And although both state ownership/planning and the welfare state might be used by capitalists as an instrument of their own class-domination, the state became an arena of struggle in which the working class contested capitalist control over the mixed economy and attempted to redirect it to their own purposes.

So even for a state socialist like Engels, whether statism was a precursor of socialism or only an intensifier of capitalist exploitation depended on the outcome of the class struggle in the political arena.

The issue is further complicated by the assertion of Rosa Luxembourg and other assorted libertarian communists that the statist system implemented in the USSR was not "socialist" at all, because it was in its essence a class system for exploiting the worker. Luxembourg coined the term "state capitalist" to describe it, with the Party apparat replacing the old capitalists as owners of the means of production and extracting surplus value through the state. The Frankfurt School people argued that Marxist-Leninist systems were a post-capitalist form of class society, which they called "bureaucratic collectivism." As Luxembourg put it, a post-capitalist collectivist society was inevitable--the only question was whether it would be socialism or barbarism.

Me, I like Immanuel Goldstein's term "oligarchical collectivism."

Sorry for the long rant.

Charles Johnson - 2/7/2005


I agree that getting a precise and theoretically useful concept is more important than the specific word you use to tag it; I'm perfectly willing to talk with people who use "socialism" in a Hoppean sense and I agree that questions of lexicography shouldn't be allowed to get in the way of analysis and discussion.

But, granted all that, I also think that it can be worthwhile to look at how the choice of a particular word for your stipulate definition eases or obscures communication with others about the content of the theory. I mean, I take it that Hoppe didn't think of himself as offering a pure neologism--if he did, then he would have made up a word or phrase that doesn't have a fixed meaning--but rather catching ahold of, and clearly setting out, what is essential to a historical common usage.

I think that's a mistake, but you're right that the mistake isn't a serious mistake as far as the development of the theory is concerned. But there are questions as to what sort of problems in the gaps between the historical usage of "socialism" and Hoppe's (and other 20th century libertarians') stipulative definition of "socialism" might cause for the communication and application of the theory. (In particular, I'd argue that the use of the term in such a way that libertarians become *by definition* anti-"socialist" has encouraged libertarians to overestimate their proper distance from the Left and even more substantially underestimate their proper distance from the Right. If this can partly be traced to the Left and libertarians simply talking past each other when they use terms like "capitalism" and "socialism" (in ways that libertarians did NOT use them in, say, the 19th century), then that may be a reason to reconsider the words. Not necessarily a decisive reason, but at least a prima facie one.

As for what word to use... well, again, what's wrong with "statism?" Doesn't that already mean institutionalized aggression against private property, especially for a specifically anarcho-capitalist libertarian like Hoppe? Or if you think that runs the risk of making the account seem tautologous at first glance ("states are bad because they're statist"), why not just use the term "institutionalized coercion" instead? Or "a racket," if you want something a bit punchier. These are all terms that get the point across clearly and wouldn't raise any objections from even the most ardent Tuckerite.

Kenneth R Gregg - 2/6/2005

The use of these terminologies leave us with quite an important issue, and an important opportunity as well. The pre-Austrian (and by that I mean prior to the introduction of Mises to American circles of scholars and free-marketeers in the late 1940's) economic thinkers were Thomas Nixon Carver (who was known as "Mr. Capitalism" at Harvard, where he taught) was the author of many books and articles on economic theory, and Carl Snyder, primarily with the publication of his magnificant book, "Capitalism, the Creator."

It may be well worth reviewing Charles T. Sprading's influence in popularizing the "libertarianism" from the time of the publication of his "Liberty and the Great Libertarians" and the usage that he made of the term. His emphasis on "mutualism" and "cooperation" may well be keys in helping to resolve, or possibly expand, this topic.

Just a thought.
Just Ken

Max Swing - 2/5/2005

So what is it then you want to call that system? Free market, or perhaps, as I would prefer, it is some sort of Trade-ism ;)

Charles Johnson - 2/5/2005

Kinsella: "I have always liked Hoppe's definition of socialism as a system of institutionalized aggression against private property."

Stephan, one of the problems with this definition is that there are many clear cases of people who called themselves socialists, and were recognized as such by other folks at the time, but did not accept any kind of aggression against private property, institutionalized or otherwise, especially Benjamin Tucker and the Liberty circle in the late 19th and early 20th century. Of course, they recognized at the time, and defined themselves in opposition to, statist socialists such as Marx. But they viewed this as an internecine struggle within "Modern Socialism" over a question of means (both constitute and instrumental, for what that's worth), and identified the State-capital nexus, not statist socialists, as the primary target of their struggle. (Of course, the seizure of the state by the most monstrous forms of state socialism in the 20th century couldn't help but change the rhetorical stance that libertarians would take. But while the change may have been understandable, there may be good reasons to think that it's had plenty of unfortunate consequences.)

Of course, you might say, "Well, look, they may have called themselves socialists, but if they didn't endorse institutionalized aggression against private property then they weren't really socialists at all; they were libertarians." I agree that they were libertarians, but I think that conceding the term "socialists" to the Marxists and the welfare statists gives the doctrinaire pronouncements of statist butchers entirely too much credence. Just because specifically Marxist socialism was clearly ascendent from ca. 1921 onwards doesn't mean that the Marxists have any firmer claim to determining the content of the word "socialist" than the many other competing conceptions of socialism that were common in the 19th century. If Tucker used the word "socialist" in such a way that socialism was conceptually compatible with a thoroughgoing free market (as, in fact, he did), I don't see any reason to take Marx's word over his as to what "socialism" means.

Or, while we're at it, to take Hoppe's stipulative definition over either historical conception. It's good to point out that welfare liberalism, fascism, Nazism, Bolshevism, theocracy, "progressivism," etc. all have something importantly in common with one another. But isn't the best word for what they have in common just "statism," or, if you prefer, "coercion?" Why not save socialism for what its practitioners actually took it to pick out--a tradition of thought and action with the aim of placing the means of production under workers' control--rather than expanding it (so as to encompass all other forms of statism) and contracting it (so as to eliminate many forms of anarchist socialism) so as to make it fit a concept that we already have a perfectly good word for?

Lisa Casanova - 2/4/2005

In a course I took about Latin American democracies, the teacher used the term "corporatism" to refer to a historical stage in Latin America when many countries sought to promote economic development and push industrialization via very heavy government involvement in industry and partial socialization of the economy, and applied the term to this type of system in general. I used the term to explain to someone the distinction between capitalism as I believe in it and the system we have in the U.S. I said that I would consider the system we have here to be corporatism, meaning a kind of capitalism where companies compete in markets but are in bed with the government, and don't hesitate to use government to achieve their ends when it suits them. I don't know if using that term might help define the debate more precisely.

Grant Gould - 2/4/2005

The terminology problem seems to come down to an attempt to capture too many axes of difference in a single term. When we examine a sociopolitical system, we can characterize it by the classes (if any) on whose behalf the political means (coercion, violence, expropriation) are used. We can characterize it by the principles on which the society is broadly organized. We can characterize it by the economic mechanisms that predominate. These axes are not totally independent, but they are also not tightly enough correlated to let a very few terms suffice.

For instance, I have generally divided societies on the first basis -- the control of the political means of the state. Thus, anarchist (no political means), capitalist (holders of capital in control), socialist (representatives of "social interests" in control). But in each of these cases, plenty of social organizations and economic mechanisms could exist.

Unless we want to populate the whole three-dimensional space with technical terms that nobody will understand or remember (and I'll admit, it's tempting) we need to defer to the wider understanding of terms. And in the world outside of our rarified libertarian cloud, what prevails today in the US is capitalism and a voluntarily-organized society is anarchism. If those are the terms we have to work with -- and for the larger discourse, they are -- then I'm an unapologetic anarchist.

Roderick T. Long - 2/4/2005

Plus, one can be a "market liberal," or even a "radical libertarian" (e.g., Chris) without being an anarchist. and "anti-statist" might convey merely being against statism rather than being against the state.

Rand embraced terms like "capitalism" and "selfishness" as a kind of the-hell-with-it defiance. I'm not inclined to embrace those terms, but I confess my liking for "anarchism" expresses a similar mood.

But there's another factor. I'm a big fan of the 19th-century individualist anarchists and think they had many things right. "Anarchism" stresses libertarianism's continuity with that tradition while "capitalism" has the reverse effect.

Roderick T. Long - 2/4/2005

That's true, and maybe I'm being inconsistent in remaining fond of "anarchism" as a term. But I do see one difference:

There are plenty of people who have no fundamental objection to the system that most libertarians call "capitalism" but who still object to the term because it has negative associations for them.

By contrast, people who have no fundamental objection to the system that I call "anarchism" tend to object to the term, when they do, only because it has negative associations for others (i.e., for people who, given their current views, wouldn't like anarchism even if it were called something else).

Roderick T. Long - 2/4/2005

Stephan, I don't have any preferred word there. I use "state socialist" for governmental socialism, but I don't have a term that distinguishes non-governmental-but-still-rights-violating socialism (as in the nastier versions of anarcho-socialism) from genuinely voluntary socialism (as in the nicer versions of anarcho-socialism). I'm open to suggestions!

Aeon J. Skoble - 2/4/2005

What you say here about labels is all true - I rarely use "capitalism" with lefties because for them it's definitionally bad -- but this also goes to your use of the word "anarchism." For pretty much everyone, that's definitionally bad too. Not that I have any better suggestions -- anti-statism? radical libertarianism? market liberalism? -- but the deck is already stacked against you using the a-word.

Gus diZerega - 2/4/2005

Let me offer an example to suggest how sensitivity to where others are coming from rather than thinking in slogans can have a positive effect.

Karl Hess, jr., Randal O'Toole, Rocky Barker, and I (and possibly others) have been working from complementary directions on the idea of democratic national forest trusts as an alternative to national forests. Currently, such forests mean a substantial percentage of especially western land is under the incompetent oversight of Congress and the lunatics in the executive branch.

Democratic trusts would be free from governmental control, their boards elected by citizens who chose to join the trusts. They would be responsible for raising their own money - but would not be organized like corporations, where market prices are basically commands rather than serving as signals. There is much more to the proposal, but think a decentralized version of the National Trust of England, Wales and Northern Ireland.

If they were successful, they could also be adapted to BLM lands.

The concept is voluntary, frees land from government control without thereby subjecting it to corporate control, and constructively addresses issues that many environmentalists hold dear, while also being open to local communities. It serves what we political theorists term public values. (These are different from what economists call public goods.)

For some time I have been speaking about the idea with the staff of Wild Earth, one of the best, and most influential, radical ecology journals - you know, the ones the likes of Fred Smith like to denounce as the implacable enemy of everything good. They say they will be printing an article of mine arguing for the concept.

Roderick T. Long - 2/4/2005

I've largely stopped using the words "capitalism" and "socialism" because they're so misleading. I still use the terms "state capitalism" and "state socialism" (both evil), but to most right-libertarians "socialism" just means "state socialism" and to most left-libertarians "capitalism" just means "state capitalism."

That's also why I generally describe myself as a "market anarchist" rather than an "anarcho-capitalist."

Grant Gould - 2/4/2005

I've been thinking on this issue ever since I read Fernand Braudel's extraordinary "Civilization and Capitalism" trilogy. Braudel, a doctrinaire Marxist in aradigm and vocabulary if not quite in practice, distinguishes effortlessly between "free markets" and "capitalism" -- indeed, to him they are opposites. While I had tended to look at subsidies, tarriffs, regulations, and the like as flaws in a capitalist order, I realize increasingly that these are simply epiphenomena of capitalism, and distinguish capitalism from actual free-market liberty.

I think that Marx got it right. Capitalism is the dedication of the political means to the projects of holders of capital. This is a system quite different from free markets, and is in fact doomed for largely the same reasons that Marx identified. Because at any particular moment the current capitalist classes must oppose innovations that would devalue their existing capital, they can deploy the political means to stifle such innovation. Innovation is the revolutionary class struggle; the political class opposes it with the political means. In the absence of productive innovation, efficient markets rapidly degenerate into zero-sum games. An analogous argument about diversity worsens the situation even more.

I believe that advocates of liberty and of free markets must separate themselves from this system of social organization, and I believe that it has for better or for worse taken the name "capitalism." The efforts of revisionists like Rand notwithstanding, liberty has lost the war to define capitalism. The more that we speak of capitalism as an ideal, the more we make asses of ourselves.

I favor liberty and free markets, and their child prosperity. I oppose capitalism and socialism, and their bizarre hybrid, fascism.

That makes a lot of sense to me.

Roderick T. Long - 2/4/2005

By the way, Kevin Carson's very interesting book is the subject of an upcoming symposium issue of the Journal of Libertarian Studies.

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