Many people use the word capitalism to describe economic systems based on competition in a more-or-less “free” market and the word capitalist is often used by free-market enthusiasts to label their beliefs — but all these uses are wrong. Markets are often highlighted by capitalist systems but the market does not define them as capitalist and capitalism isn’t the same idea as the free market…

Capitalism vs. the Market :

Mixing Up Two Very Different Ideas

Markets are as old as civilization itself. A “market” is just a place where stuff is bought and sold, whether that place is a bazaar in ancient Mesopotamia or a modern stock exchange. Despite the simple set-up, markets do some pretty neat things — they determine prices, gather and dispense goods and services, and turn complex interactions between many people into smooth, orderly systems. While markets have obviously been put to good use by capitalist systems, the idea that the market itself is somehow capitalistic does not hold up to reality. In fact, the market may have been even more crucial in pre-capitalist systems due to its usefulness in organizing large-scale social interactions that might otherwise have been impossible at earlier stages of development.

Capitalism showed up just a few centuries ago during the 1700s as the industrial revolution was building steam. The first use of capitalism as a term for an economic system was by libertarian-socialist Pierre-Joseph Proudhon in the 1860s but it was rarely used before Werner Sombart published Der Moderne Kapitalismus in 1902. The capitalist system itself, however, had already been described in detail by Marx’s 1867 Das Kapital, which used the terms capitalist, capitalist mode of production, and capitalist system but not capitalism.* All three — Proudhon, Marx, and Sombart — understood capitalism as a system defined by its enforcement of private property rights.

Capitalism Is a Concept of Ownership

To understand what distinguishes a capitalist society from others, it is important to step back and get a good look at other historical ideas of ownership that existed in different times and places. Some indigenous American societies held different views of property than the European invaders — the Algonquian, for instance, owned land communally and honored an individuals’ temporary right to own part of it, established by use or a fair exchange of use-rights with others. Once a person quit cultivating an area, it reverted back to the public so that others could use it.

As another example, undeveloped nature outside of major cities in pre-capitalist Europe was owned by nobody and governed by customary use-rights. These areas were called the commons, which is where the term “commoner” comes from. Many English communities subsisted on the commons before England — the first mature capitalist state — seized and partitioned them by enacting policies known as enclosure. This is one of the more literal instances of the transition to private concepts of property — contrary to prior ideas of ownership, this was an exclusive ownership. Enclosure not only evicted commoners from public lands but it got rid of customary use-rights (such as the biblical tradition of gleaning) and built a legal framework of rights to exclusive ownership that existed outside of any social context.

[For a closer look at the enforcement of property ownership, read “Private Property Is a Police State” by this author and, for more on the topic of enclosure, read Ellen Meiksins Wood’s fantastic “The Agrarian Origins of Capitalism”]

Property Reflects the Structure of Power

The statement,”This is my property” actually means “I can access and control this, as well as grant or deny access and control to others.” Ideas about property determine how control over wealth and resources is distributed and transferred between the members of a society. In absolute monarchy, for example, nobody technically has property rights aside from the ruler who effectively owns all that is in the territory — the ideas of absolute power and absolute ownership are separate but their reality is identical. In contrast, property-ownership in the English commons was communally distributed within limits determined by the group without establishing exclusive or individual rights.

In systems of private property (aka capitalism), exclusive rights to property are determined for the private benefit of individual owners without social limitations. In capitalism, markets usually function as an arena where property-owners vie for greater shares in the society’s wealth but it is the private property that makes it capitalism, not the markets.

The Free Market & Laissez-Faire Capitalism

A lot of the blame for the confusion over capitalism and markets can be leveled against Ludwig Von Mises, an Austrian economist and patron saint of laissez-faire or “free market capitalism.” As an ardent anti-socialist and advocate of classical liberalism, a lot of Von Mises’ writings argued against socialism and attempted to re-frame capitalism as an economic model that suited his ideal of democratic liberalism rooted in a free market. Of course, Von Mises understood the real definition of capitalism (he was an economist, after all) and in 1922 he wrote:

“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“

While Von Mises’ work failed to change the public’s negative view of capitalism, Fredrich Hayek, Milton Friedman, and other apostles of laissez-faire continued his work in redefining capitalism as an economy based on something people liked — the free market. The issue, however, was — and is — that other capitalist systems exist that are not characterized by markets.

State Capitalism & Fascism

Under “state capitalism,” private property rights exist, often with regulated markets, but the state intervenes as manager when economic activity hinders the goals set by governing institutions. Depending on whose definition is used, this term could apply to the modern People’s Republic of China, which blends a planned economic model with more-or-less typical private property rights. According to others, the United States today might even be closer to a state capitalist system than to the laissez-faire policies it embraced during parts of the 20th centry.

Despite the contested definition of fascism and contradictory ideas of prominent fascist leaders, every fascist system has upheld vibrant rights of private property and it is often viewed as an especially authoritarian and nationalist form of state-capitalism. In fact, fascist officials in both Italy and Germany pioneered the most ambitious privatizations of public property in their time. Von Mises even commended European fascism for defending the institution of private property in the period of unrest after the Bolshevik revolt in Czarist Russia and the global depression in the ’20s and ’30s, though he disliked fascism’s tendency to use violence and interfere with markets. In his own words:

“It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization”

Capitalist Doesn’t Mean “Pro-Market”

All economic paradigms (so far) have included markets in one way or another, from ancient empires to European feudalism, mercantilism, and capitalism. Markets are pretty cool and there are even coherent ideas about “market socialism” that involve changing the scope of what is considered property while maintaining the free markets for other commodities. But whether you appreciate markets or not, the issue of what is bought and sold on the market is a really important issue that needs to be weighed carefully. Ask yourself — does exchanging trinkets in a market seem just as okay as exchanging the pelts of endangered animals? Should anyone own the sky? Are you okay with the idea of a business observing your online activity and selling informative reports about you? How does it feel to consider the idea of buying and selling human beings on the market? How about their houses? If you feel differently about those ideas (and I hope you do), it should be easy to see that the idea of property is socially determined — it’s a participatory thing. And if you feel the same about them — well, maybe you are a capitalist after all…

In solidarity,

John Laurits

*Note: Marx did actually use the term “capitalism” in Das Kapital Vol. II, which wasn’t published until after his death