Why is capitalism not liberalism?

…as answered on Quora….

Which capitalism? Which liberalism?

What came to be known as “capitalism” grew out of mercantilism and the freeing up of such systems in part by liberals — “classical liberals” — who sought to limit government interference in the workings of markets. Arguing for a generally ‘laissez faire’ approach, and persuaded by economic reasoning that most of the goals and methods of mercantilists achieved socially negative results — often the opposite of the promised results of the traditional advocates of private-public partnerships — these liberals helped spur the astounding economic advances of the agricultural and industrial revolutions.

But almost no country has ever sported pure laissez faire — such a policy seems austere to folks in government, whose power is limited under such a policy — and Actually Existing Capitalism has always been to some degree mercantilist, filled with goofy and exploitative favoritism, transfer payments, deceptive and slippery regulations, tragedies of the commons, vast public work projects, and persistent rent-seeking manias. Self-proclaimed liberals fought this for many decades of the 19th century, but the popularity of socialist ideas infected the class of people who called themselves liberals, and this class of people reverted to a kind of neo-mercantilism, dubbed ‘progressivism’ in America and ‘social democracy’ in Europe, often pushing to dirigisme — sometimes called fascism and other times called national socialism and often pitched with eulogistic, sloganeering brand names, like The New Freedom and The New Deal.

It is time to take back the term ‘liberalism’ from the advocates of some jury-rigged ‘third way’ between laissez faire and state socialism. But we may have to stick with alternates, like ‘libertarianism’ or Benedetto Croce’s ‘liberism.’

It would be easy to argue that ‘capitalism’ has almost always been used as a pejorative, and should be dropped like a scorched spud. Worse yet, naming a system of private property, free production, free trade, free labor, and free banking by only one of the three traditional factors of production — ‘capital’ (instead of by land and labor as well) — makes capitalism unsuitable for those who wish for any sort of precision. But we are probably stuck with it, too. In my nitpickier moments I sometimes talk up The Catallaxy — the emergent order of all voluntary exchanges (Richard Whately defined economics as ‘catallactics,’ or the Science of Exchanges, nearly two centuries ago, and F.A. Hayek coined the above term for the liberal system sometime in the 1960s or 70s) — but that isn’t going to fly.

When someone says they are for or against ‘capitalism,’ we must ask for clarification. When folks call themselves a ‘liberal’ but are only liberal in spending other people’s money, laugh in their faces.

Today’s critics of capitalism must not be allowed to get away with their most characteristic legerdemain, pretending that every problem in our mixed economy is caused only by the ‘free market’ aspect of the system, and not the government part. And conservative defenders of capitalism have got to stop calling the current system ‘free enterprise.’ Wake up and throw out the coffee grounds.

In my opinion, liberals are those who advocate laissez faire capitalism. They oppose the neo-mercantilists of all varieties, and socialists even stronger.

So, back to the question. Why is capitalism not liberalism? Capitalism is an economic order; liberalism is an ideology.

Alas, we are almost always stuck with the tedious job of disambiguating both terms.