Saving Capitalism Through Exploration
Welcome to Exploring Capitalism’s new email newsletter, a project of the Clemson Institute for the Study of Capitalism. In addition to the existing content on the site, I’ll be sending out regular essays and curated news and analysis on topics related to capitalism, especially as it relates to the moral foundations of the system.
In setting out this new project, I want to be especially clear about what I mean by capitalism, how it differs from mainstream definitions, and why our definition of capitalism matters. It not only defines the scope of what I’ll be exploring here, but it also allows us to commit to the process of being clear about our ideas. To do this, it is vital to know where the concept “capitalism” came from, how it has been used, and why it matters.
A deeper history of the term
To begin, we must consider the curious relationship between the idea of capitalism and the real world systems and institutions that scholars consistently identify as capitalism in practice.
A full century or more of human experience passed between the advent of the so-called “capitalist mode of production” and the first consistent use of the term “capitalism” in the 1850s by French socialists Louis Blanc and Pierre-Joseph Proudhon. If that seems like a long time, consider how much time had to pass—at least seventy or eighty more years—before anyone formally attempted to set the conceptual boundaries of the term and differentiate it from its original pejorative sense. By the 1940s, the term had so deeply settled into a site of contention between opposing ideological camps that little hope for a broad agreement about its meaning remained. Yet in the years since, intellectuals have continued to proffer such a dizzying array of varying and contradictory definitions that some have called for dropping the term altogether.
It should be no surprise, then, that much of the widespread confusion about capitalism today grows directly out of the convoluted evolution of the term. Though it is somewhat widely known that capitalism’s critics originated and popularized the term, relatively little light has been shed on the uneasy advent of the term among its supposed defenders in the twentieth century.
What is most arresting about the idea of capitalism is how out of sync it is with the phenomenon of capitalism both chronologically and conceptually.
For decades, scholars have debated the exact timing of when and where capitalism first arose. Whether they locate the initial phase in the mid-eighteenth century in England with the introduction of early industrial production, the Dutch overseas trading ventures of the seventeenth century, or in the merchant-driven city states of the Italian Renaissance, all historians place the “beginnings” of capitalism decades if not centuries before anyone actually used the term or, arguably, had even formed the idea. The institutions and practices of the “capitalist economy” or the “capitalist mode of production” came about without any notion that such discrete phenomena fit into any system. Just as the practitioners of feudalism simply saw themselves as ordering their temporal and spiritual lives through a hierarchical society with reciprocal legal and military obligations, the early capitalists were not self-conscious practitioners of a coherent system of capitalism.
Retroactive naming of such broad historical systems is, of course, not so mysterious or uncommon. On one level, the very desire and tendency to categorize, conceptualize, and name politico-economic systems is a distinctly post-Enlightenment project. In the Western tradition dating back to the ancient Greeks, different economic arrangements were not considered to be wholly separate from the cultural or even ethnic practitioners of such arrangements. Herodotus, for example, elaborately describes his observations of the variety of trade systems, monetary policy, labor systems, public finance, and resource allocation in the Mediterranean of his day, but he does not classify or categorize them.
Even in the purely political realm, where Aristotle and Polybius classified the types of rule, the classification schemes are excessively formal when compared to modern ideas of politico-economic systems. Thus, when we find, for example, that feudalism as a system was not properly conceptualized until the eighteenth century and capitalism only in the nineteenth century, it makes a certain kind of sense because that type of conceptualization only became common in Western thought at that moment in history. Methodologically, the naming of capitalism or feudalism only after it has existed historically for some time is also a recognition that it would have taken more than a world-historical level of insight and integration to classify developing historical trends according to their eventual systematic forms.
Even acknowledging this natural lag in classifying and naming politico-economic systems, the chronological disparity between capitalism as an idea and as a thing is thrown into more contrast when one considers how long, after it was coined, it took the term capitalism to take hold and become even somewhat common. A towering thinker such as Marx only used the term a handful of times later in life despite his familiarity with its earlier use by the French utopian socialists. Political and academic discourse in the late nineteenth century, at the height of capitalist economic development, shows scant evidence that the term was taking hold. Historian Steven Marks’s recent work on the idea demonstrates fairly conclusively that it took until the first few decades of the twentieth century before the concept made regular appearances in print, and even then authors often proffered an explanation so that readers could follow along under the assumption that they may not know the idea.
As further documented by Marks, the concept’s entry into the American lexicon came in fits and starts in the early 1920s, when journalists and politicians latched onto it as a convenient differentia from the menace of Russian bolshevism. Even then, the concept saw inconsistent and sporadic use, often left aside for more homegrown ideas such as “the free enterprise system” or more simply “the American system.” Only in the wake of the New Deal and the Second World War did intellectuals embrace and widely deploy the concept of capitalism.
Confusion reigns
One direct result of the temporal lag between the phenomenon of capitalism and its formal name was a skewing of its conceptual basis. Time alone was not the only mechanism of distortion—because self-professed socialists, syndicalists, anarchists, and communists first conceived the idea of “capitalism” as a term of derision, criticism, and opprobrium, the idea itself has stood in contrast and opposition to the phenomenon itself. No matter what the historical record may show in terms of rising standards of living, broader social and political freedom, and advancement of humanity, the progenitors of the concept sewed exploitation, impoverishment, illegitimacy, and corruption into the very fabric and texture of the idea.
As I noted earlier, most historians and theorists recognize and acknowledge that opponents of capitalism named the system out of spite, but few plumb the depths of how perverted this process was. One useful exception is Marks’s study, which helpfully catalogues how commonplace it was for writers to decry the “slave bondage of capitalism,” to warn against the “Moloch of capitalism,” or to denounce “parasitical capitalism” for turning workers into “raw materials, work tools, and beasts of burden.” Further, he highlights the pervasive anti-semitism baked into so much of the use of the idea—the “subhuman” (read: Jew) wages “a war of extermination . . . against the rest of humanity.” The luminaries Max Weber and Werner Sombart respectively denounced the “masterless slavery” and “chamber of horrors” that was capitalism, thereby influencing generations of social scientists who followed them.1
Consider this, then, the intellectual milieu in which the first explicit supporters and defenders of capitalism found themselves. Earlier economic thinkers, who were mostly proponents of the economic foundations of capitalism, had neither the term “capitalism” nor a systematic perspective on it. These writers had discovered and articulated many of capitalism’s important features, such as the division of labor, the principle of comparative advantage, the idea of gains from trade, the law of markets, the theory of diminishing marginal utility, etc. Some even commented on the types of legal and political institutions that supported those economic arrangements. Until the later part of the nineteenth century, though, the study of “political economy” focused more on describing the conditions and mechanisms whereby economic output could be optimized and less on the institutional conditions and practices that made up the system of capitalism.
The fraught and error-laden way that early twentieth-century American thinkers came to the concept of capitalism, particularly its proponents, certainly bears the imprint of the disjunction introduced by its polemical origins and the facts on the ground. These thinkers also found themselves in a politico-economic world that had moved beyond the original debates and stipulations about the nature of a free economy.
From the vantage point of the political scene in the 1920s, the contemporary embrace of “capitalism” to describe the American politico-economic system strikes me as almost a rear-guard action that was more hopeful than accurate. In the wake of the Progressive Era’s transformation of American institutions—the implementation of an aggressive competition policy in the form of antitrust laws, the continued manipulation of trade with protective tariff regimes, the creation of a central banking system in the Federal Reserve, the imposition of income taxation, the suppression of political speech during World War I, the advent of pervasive government schooling via mandatory attendance laws, the regulation of labor markets, the implementation of prohibition, the beginning of restrictive immigration policies—it is truly only by contrast with the Soviets that these thinkers could reasonably describe the American system as capitalist. In truth, it had been well on its way to a “mixed economy” or “democratic welfare statism” for decades.
After the legislative implementation of the New Deal and the accompanying revolution in Constitutional law that supported it, the fact that Cold War intellectuals continued to describe the as-then-existing American politico-economic system as capitalism constituted a rhetorical sleight of hand that stood in complete defiance of the facts. It was, however, precisely that ersatz identification that both liberal and conservative thinkers used to contrast America and the West with its Communist antipodes. Compounding the error and re-animating the deeply polemical strain of thinking, dissidents around the world had linked the idea of capitalism with any intrusion of American culture or mores and blamed it for all the world’s ills.
A new start
Slowly and from the fringes of American mainstream thought, a loosely affiliated group of thinkers emerged in the 1940s and 1950s who challenged the prevailing notion of capitalism as defective, historically inaccurate, tendentious, lacking principle, and philosophically impure. Detailed by Brian Doherty in his sweeping study, Radicals for Capitalism, the influence of Ayn Rand, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Milton Friedman towers over the intellectual landscape. In varied (and not always fully compatible) ways, these thinkers injected a renewed call for clarity about our idea of capitalism. Each articulated a definition of capitalism that was an ideal type, an abstraction that did not fully exist in the modern world. They argued that capitalism had never been properly understood or fully implemented, but that it should be.
At this point, the “radicals for capitalism” revealed a major divergence between the descriptive and the normative senses of how intellectuals used the idea of capitalism. They insisted that capitalism was something to be achieved, that liberty-loving people should strive to implement more capitalism. This chasm between the common slipshod use of capitalism and the analytically precise definition has only grown in the subsequent decades. Two Nobel Prizes, an award-winning documentary series, and millions of copies of best-selling novels have done little to repair the fissure.
Economist Bryan Caplan highlighted this issue in a recent NPR interview where he indicated that most people today use the term purely to describe the status quo economic systems of a certain set of countries but that, analytically, this is not in fact true. This points to the fundamental tension in how we, and the culture more broadly, define and use the idea “capitalism” today.
Thirty years after the end of the Cold War and fully eighty since Doherty’s “radicals” first presented a principled, normative case for laissez-faire capitalism, the confusion about the idea of capitalism has only grown in the rising generation. Periodic surveys showing that this new generation supports socialism over capitalism exist in a salacious headline-grabbing world shorn of all context—few ask respondents to provide a basic definition of either concept. Concrete-bound meme activists among the younger crowd relish presenting “arguments” that amount to vague gesturing about the aspects of American life that are “brought to you by socialism” or which things you should “thank capitalism for.” The morass of misunderstanding is underscored when one considers that each example is in fact an artifact of the mixed economy.
In this context, there is a real danger that differentiating between descriptive definitions of capitalism and analytical or normative definitions seems to push us into the quandaries and rabbit holes of “not real socialism.” Ever since Western proponents of socialism/communism had to confront the horrors of its actual implementation by Lenin and Stalin, there has been a perpetual argumentative “moving of the goalposts” that results in a near-automatic rejection of objections to socialism by saying that “true socialism has never been tried.” This ideological legerdemain provides a kind of theoretical magic by waving away as irrelevant dozens of regimes that have, in fact, implemented some more or less authentic version of socialism.
Are we not, then, falling into the same trap by demanding a pure and normative definition of capitalism while admitting that there has never been, historically, a true and authentic implementation of it? Are we committing the “No True Scotsman” fallacy by insisting that we reserve judgment about mixed cases? I think the final answer is no, but avoiding that snare requires more than stipulative definitions, it merits our forthright attention and considerable intellectual honesty.
On a fundamental level, there is an empirical and clear path out of the appeal to purity that Hugo Newman has nicely illustrated. To borrow from and slightly expand his argument, we can stipulate that neither pure socialism nor pure capitalism have ever existed (let alone pure communism). Any given historical or contemporary example is necessarily a mixed case, tending to be more or less of either system. We might then posit that we can rank the degree to which any given example is, say, 80% of the way to pure capitalism or pure socialism. We could then judge the tendency of such systems to produce human prosperity and flourishing. This takes some rigorous scholarship and research, but it is by no means an insurmountable problem. History has even conveniently provided some natural experiments (East and West Germany during the Cold War, North and South Korea today).
If this comparative systems analysis is going to lead us away from the constant jousting about pure versus actual versions of some “-ism,” we must have an agreement about how to analyze those historical outcomes as a function of the different parts of a given system. That is, if general levels of prosperity in a given country are trending downward, is it because they have too much or not enough capitalism?
It doesn’t take much diving into contemporary political commentary, for example, to see that our current mixed system produces plausible narratives on both sides of the question. Though I certainly believe one side is right and the other is wrong, I would suggest the example of the causes of the Great Recession of 2007–09. Mountains of scholarship and commentary flowed forth contending that unchecked greed and the underregulated financial sector produced a catastrophic crash in the economy. Against that trend was the (perhaps not equally large) volume of scholarship detailing the perverse incentives of Fed policy and regulatory distortions of a dozen federal agencies that produced negative results.
Approaching things from a new angle
Doing the detailed work of empirical economic and political analysis in such cases is one path forward. There are two basic reasons why this is not my approach. First, the careful work is already being admirably done by dozens if not hundreds of scholars around the world, and in my judgment it is overwhelmingly in favor of capitalism. I’ll likely be referencing and linking to this work a lot. I find it incredibly valuable, and in the face of the wide swaths of ignorance about the historical record, it is vital.
The second reason is deeper and theoretical, and thus more philosophical. I believe that the case for capitalism cannot stand on comparative economic and historical arguments alone. In the 1960s, when Ayn Rand called capitalism “the unknown ideal,” I believe she meant that as much a critique of contemporary historical understanding as she did a philosophical one. The animus of historians and economists toward capitalism and their distortion of its empirical record had not yet been corrected. Today, thankfully, an enormous volume of work has been produced that applies the needed corrective to the perverse misrepresentations and biases of the past. Long may it continue.
The wider argument that Rand was making concerned the morality of capitalism. She recognized that many of the early adopters of the term were apologists and compromisers—they meekly supported the economic institutions but let pass the moral condemnation of markets and trade. They severely undercut their own arguments by justifying capitalism as the system that derived societal good from individual greed or immorality. This utilitarian approach seemed to accept capitalism, but only as a Churchillian least bad system.
Rand published her seminal essay “What is Capitalism?” in the middle of the 1960s, when other American thinkers, confronting the escalating Vietnam War and US commitments vis-à-vis Soviet and Chinese Communist aggression, were furiously trying to articulate what was unique about its “capitalist” system and why that could help improve the world. Though some of that work had pushed beyond vague invocations of freedom and of “the American way of life,” it remained moored to the broadly apologetic utilitarian justification of net social good.
In her characteristically radical way, Rand did not engage this debate, but instead fundamentally recast the question. She noted that the discussion of capitalism started mid-stream and not at the beginning. Economists, historians, and other social scientists began their analyses by interrogating the existing relationships of trade and production. They described how goods were allocated and how the social surplus was invested. As Rand pointed out, this analysis took these facts as givens—that people would produce and trade goods—and failed to investigate the conditions that made it possible. At the heart of her reformulation was the question “what is the nature of man?” In other words, what kind of being is man such that he must produce his own sustenance, what facts about human nature condition that process, and what limitations apply to it.
This reorientation is where my exploration of capitalism will have its focus. By driving to the root questions about human nature and the fundamentals of political theory, Rand highlighted that one cannot understand or defend capitalism without a broader philosophical basis in ethics and epistemology.
To be reductionistic, she pointed out that it is not enough to say that capitalism is good for humanity; the proper perspective is that human nature requires capitalism to achieve its full flourishing.
This broad perspective also implicates the scope of what we understand when we use the concept “capitalism.” Many scholars define capitalism according to a narrow list of criteria that describe the economic arrangements of a given society. Almost in a checklist fashion, if one observes private property, commodification of goods, division of labor, specialization, mass production, and wage labor, one designates such a system as capitalist. The crippling nature of this economic reductionism becomes obvious when these same scholars find “capitalism” nearly everywhere and at all times. The list of characteristics is not a definition by essentials, and it leads to an overbreadth of examples that manifestly contradict each other.
Other scholars have emphasized the cultural, social, and even political elements of capitalism, avoiding reductionism in its most blatant form. Yet their analyses often invert cause and effect. They follow the materialism of Marx and allege that these are by-products of the capitalist mode of production. This is backwards—a society must in some ways have the legal, social, and cultural forms of capitalism to facilitate and make possible the pure economic forms. The analysis that proceeds from tracing the extent to which the “capitalist mode of production” and other economic forms of capitalism exist in a certain society (i.e., the different “degrees” of capitalism or the different “forms” of capitalism) makes it seem like the economy is totally separate from the politico-legal system that makes economic transactions possible. Although production of goods and exchange of said goods has been happening for millennia, there is no “economy” per se without the institutional structures that make it possible, or at the very least, give it shape and form. Primitive barter and production for consumption is not an “economy” no matter how much we call it that. An “economy,” to the extent that it is an “economic system,” must be institutionally embodied. It is not merely the equations of the quantitative economists applied to human behavior throughout time that determines the “degree” of capitalism—it is the real people, laws, and institutions within which the economic transactions are embodied.
Thus, when I define capitalism, I am fully aware that it must encompass the entirety of the politico-social-economic system. To define it by essentials, it must include everything that makes it possible and that differentiates it. Following Rand, I define capitalism as the social system that recognizes and fully protects individual rights and thereby banishes the initiation of force from human relationships. It is, in short, the voluntary society, where individuals are both free to choose and direct their own actions consistent with the rights of others and where they are responsible moral agents who have accountability for their own moral action.
There is, of course, a lot more to say about what capitalism properly defined looks like and how it works—which is why Exploring Capitalism is here. I want to host and extend that broad conversation about what the legal, social, moral, political, and cultural foundations of capitalism are. Our flourishing and our humanity depend on it.
Steven G. Marks, The Information Nexus: Global Capitalism from the Renaissance to the Present (Cambridge: Cambridge University Press, 2016). Quotations are from pp. 8–11.