yet another attempt at a coherent answer:
I run hot and cold on the word “capitalism.” The institutional system? Fine with it. Would want more of it. But the word itself is less than perfect. (Like capitalism itself!)
A “capitalist” is not an advocate of “capitalism.” When I see the word used that way I flinch. A capitalist is someone who invests capital, specifically someone for whom such investment is a major source of income. Not all that many people are really capitalists.
But “capitalism” seems inapt for a more profound reason: the major institutional features of the capitalist system are
- extensive private property holdings
- self-ownership in one’s actions, meaning, especially
- free labor (not “free” in terms of price or fantasy, of course)
- free trade (unencumbered by prohibitions, regulations, etc)
- private markets in capital goods
Now, that last point might justify the term. It’s a profound concept that most people have no idea about. Even economists have balled it up.
But we traditionally note three factors of production: land, labor, and capital. And yet, when we use the word capitalism we identify the lack of criminal and governmental interference in the management of these factors by only one factor. That’s prejudicial. It’s rather lame.
There are huge demarcation problems associated with the word, too.
The economists of France and Britain began developing the science of the study of this set of institutions with the critique of a particular form of government policy, which Adam Smith called “mercantilism.” That’s a good term, an apt term, since it refers to the close relationship between some merchants and the State. It seems an apt moniker for the policy.
Under mercantilism, governments favors some over others, engages in various forms of protectionist trade restriction policies, and generally tries to keep production within a nation rather than outsource it (“free international trade” being the thing established, well-connected merchants most fear) while aiming to increase the supply of money (in the early cases, gold and silver) within the boundaries of a nation, and especially into the coffers of the king.
But mercantilism is not a bad term for what we have today, in many ways. Sure, international trade has been encouraged — but in a rather regulated way. The amount of regulations in America and Europe is astounding. The secular trend regarding this has been growth. And this hardly seems very “capitalistic,” if you mean it in the robust sense. And it certainly favors some capitalists and entrepreneurs and managers over their competitors, immediate and possible.
And yes, this feature makes a difference. The general effect of government regulation of markets — what Mises called “interventionism” and what Pareto called “restrictionism,” but which everybody else calls progressivism, fascism, democratic socialism, or the Administrative State — is to favor established business over upstarts. This is known. There is no real way around this. Current trends in hollowing out the upper-working class economy is largely a result of mechanization in combination with the suppression of small business by the regulatory state.*
So, while we certainly now live under “capitalism,” it is nothing like the laissez faire that economists dreamed up to regulate not business and market life, but the State itself (limited government being the flip side of laissez faire, with the constitutional limits it establishes being a form of anti-corruption regulation).
Recently, folks have been using the term “crony capitalism” to refer to the regulated/subsidized (“bailed out”) nature of current American economic policy. This reflects the old mercantilist practice of favoring well-connected insiders (“cronies”) at the expense of the masses of workers and entrepreneurs.
Anthony de Jasay calls the current form of governance/policy “the churning state,” since there is so much forced wealth distribution that we cannot really keep track of net winners — instead, the interests and the transfers are merely “churned.”
I tend to dub the current mode of capitalism “neo-mercantilism,” but an adjective is in order: technocratic neo-mercantilism. The technocracy is important to this, for it gives college graduates cushy jobs while they pretend to manage “the economy.” Which doesn’t exist . . . but that’s another issue.
The crucial thing to understand about capitalism is that it rests on rights to private property (including one’s own body and person) and mostly unencumbered trade.
And trade, or market exchange, is pretty much what Thomas Jefferson’s favorite economist said it was, “a transaction in which the two contracting parties both gain. Whenever I make an exchange freely, and without constraint, it is because I desire the thing I receive more than that I give; and, on the contrary, he with whom I bargain desires what I offer more than that which he renders me. When I give my labour for wages it is because I esteem the wages more than what I should have been able to produce by labouring for myself; and he who pays me prizes more the services I render him than what he gives me in return.”
This is an elaboration of Condillac’s chief notion in his 1776 treatise. How this made sense in terms of value and distribution — how to think about it precisely — took another century of stumbling by economists. The work of Carl Menger and William Stanley Jevons, especially, clarified the exact nature of mutual benefit through exchange.
And it is indeed this concept, of ex ante mutual benefit in trade, that is the most essential feature of “capitalism.” The mutual benefit aspect is the core aspect. And it is why freedom — a division of responsibility and a general lack of coercive bullying — is the key concept, the entelechy, of the very idea of capitalism.
And it is what politicians of nearly all parties — and their supporters — attack daily, to the hobbling of civilization.
Wirkman Comment 