TGIF: The Capitalist-Socialist Asymmetry

Free-marketeers have long pointed out a particular asymmetry between capitalism and socialism (whether of the international or national variety). While anyone in a capitalist society would have a right to engage in socialism (as anyone can do now in our hampered market economy), the reverse would not hold: under socialism—that is, a centrally planned economy, democratic or not—no one would be free to engage in "capitalist acts between consenting adults" (to use Robert Nozick's phrase from Anarchy, State, and Utopia). It would upset the plan.

In other words, in a fully free society, no legal barriers would prevent people from setting up communes, worker and consumer co-ops, etc., but in a socialist society, money exchanges of land, producer goods, and labor services (and perhaps even consumer goods) would be outlawed. Goodbye, entrepreneurship, free private enterprise, and economic calculation via trade-generated market prices.

That asymmetry speaks volumes, does it not? It ought to end the debate between the proponents and opponents of capitalism. Do you wish to live as a socialist with a clear conscience? Embrace the free market.

But socialists will have none of that. For them, individual choice is unimportant, if not destructive. In their view, voluntary capitalist relations are exploitative regardless of how the participants see them. So they must be forbidden. Socialist planners and their court intellectuals know better. Thus, for their own good, mere people must be controlled.

That is the height of presumptuous and arrogant elitism. The appropriate question for the socialist is that quintessential American retort: "Who asked you?"

How do the socialists know that transactions are exploitative? We can be sure that at the time of the transaction, the parties demonstrably prefer what they give up to what they receive. "No, no!" cry the socialists. One party is weaker because he must eat, work, obtain shelter, etc. What socialists refuse to acknowledge is that market relations are how we cope with a world of natural scarcity, a world in which resources—that is, natural stuff for which human ingenuity has found uses—are finite, costly to obtain, and usable in a variety of ways. (By all means, see this video from Stephen Davies and the Institute of Economic Affairs.) Scarcity is not a capitalist plot. On the contrary, the combination of the division of labor, technology, and trade is the only way to push back the constraints of scarcity. Most of today's eight billion people live much better now than one billion did in 1800.

How do the socialists know that employees are exploited? Apparently, they just do. It has something to do with the market return on goods sold being greater than the wages employees are paid. The "surplus" collected by employers is seen as stolen. That actual employees value their wages more than the effort they expend to earn them is irrelevant as far as the socialists are concerned. But again, who asked them?

Those with only a scant acquaintance with economics often find Marx's exploitation theory plausible. However, they overlook a critical factor: time. When something happens matters to us as much as what happens. Eugen von Böhm-Bawerk, the second-generation Austrian economist who delved into this matter, put the point rather nicely:

The completely just proposition that the worker is to receive the entire value of his product can be reasonably interpreted to mean either that he is to receive the full present value of his product now or that he is to get the entire future value in the future. But … the socialists interpret it to mean that the worker is to receive the entire future value of his product now.

People value present and future goods differently. Other things equal, we prefer the results of our actions sooner rather than later. Asked if you'd want a dollar today or a dollar in a month, you'll take it today. But asked if you'd want a dollar today or two dollars next month, you may choose to wait if the extra dollar will make the wait worthwhile. If two dollars won't do it, maybe three dollars will. The time element is what explains interest. I'll let you use my money for a period if you promise to compensate me later. It's perfectly legitimate. (For more, see this.)

The employment relationship involves time too. Employees typically don't want to wait until the consumer or producer goods they work on have been sold. Most prefer to be paid regularly, predictably. Nothing wrong with that. But in that case employers who advance (lend) their employees wages out of previous savings will have to wait for the sales—which may not take place if no buyers are interested. Why shouldn't employers be compensated for doing what their employees are unwilling to do: namely, assume the risk and uncertainty of waiting? If socialists don't like it, let them start businesses. (Gene Epstein points out that unions are flush with money from their members' dues. Why don't they start worker-owned firms? Why don't the union members demand it?)

In market-oriented but not fully free economies, we see few if any worker-owned businesses. Why? Probably because most people don't want the risk and responsibility of ownership. So they forgo some money in return for the relative security of employment. That's their right. But employees should not begrudge employers because the latter earn profits (which comprise both interest on the loans to employees and entrepreneurial rewards for spotting price discrepancies that others overlooked).

Socialists who dislike conventional enterprise should stop complaining and set up worker-owned firms. On the other hand, it's easier and less risky to complain about capitalism. Admittedly, in one respect, socialists would not be free to engage in socialism. They could not force anyone to go along.

Mass Production Equals Mass Consumption

[R]elative shares in national income have remained substantially constant over the last hundred years. This, however, is true only if we measure them in money. Measured in real terms, relative shares have substantially changed in favor of the lower income groups. This follows from the fact that the capitalist engine is first and last an engine of mass production which unavoidably means also production for the masses....

Electric lighting is no great boon to anyone who has money enough to buy a sufficient number of candles and to pay servants to attend to them. It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth [I] owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.

--Joseph Schumpeter, Capitalism, Socialism, and Democracy, 1942

TGIF: Hurray for the Industrial Revolution!

Unbelievably, in 2025, walking among us are people, many of them young and college-educated, who believe the Industrial Revolution (spawned by the liberal Enlightenment) was a disaster for most of mankind. They yearn for what they imagine was the tranquil, plentiful, and happy communalism of the Middle Ages. I'm not referring only to people on the fringes. Glenn Greenwald, the cosmopolitan journalist who has done important reporting on civil liberties and foreign policy, recently lamented the loss of medieval life in a paean to the anti-industrial manifesto (but not the murderous actions) of Ted Kaczinski. He was the Unabomber.

What's shocking is that the data showing what a blessing industrial capitalism has been are readily available. It's a big literature, and it may seem difficult to know where to start. So thanks (again) to Phil Gramm and Donald Boudreaux for presenting the facts in a succinct but detailed chapter in their important book, The Triumph of Economic Liberty: Debunking the Seven Great Myths of American Capitalism. The first chapter is "The Genesis Myth: The Industrial Revolution Impoverished Workers."

No, it did not, the authors demonstrate. It enriched them.

The propagators of the myth begin with a distorted picture of what preceded the Industrial Revolution. As Gramm and Boudreau correct the record:

In the communal world of the Middle Ages, the worker owed fealty to the crown, church, guild, and village. Those “stakeholders,” as they would be called today, extracted large shares of the output produced by the sweat of workers’ brows and the fruits of their thrift. Rewards for effort and saving were thus leeched away. Unsurprisingly, the economic output was so sparse and economic growth so slow that they were noticeable only across the span of centuries.

Life was not solitary (privacy was nonexistent), but it was certainly poor, nasty, brutish, and short, wracked with violence, disease. Serfdom, anyone? Who could lament the end of that era? Fortunately, it did end. Had it not ended, hardly anyone alive today would have been born, much less be flourishing. Gramm and Boudreaux write:

This dreary reality suddenly (in historical terms) changed in the seventeenth and eighteenth centuries. Starting in northwestern Europe, the Enlightenment of the era gave birth to liberalism, which—true to its name—liberated mind, soul, and property. Individuals were freed and empowered to think their own thoughts and, ultimately, have a voice in their government. Men and women secured the right to worship as they chose, as well as to own the fruits of their labor, thrift, risk-taking, and entrepreneurial creativity.

Even Karl Marx, the infamous resentful nihilist, had to acknowledge capitalism's astounding record of production for the masses. Before the liberal, capitalist industrial era, mass production was not even a figment of the imagination.

In this newly enlightened and liberated world, individuals were empowered to pursue their own private interests instead of being conscripted by law or tradition into assisting the elite in pursuing their private interests. The economist W. H. Hutt described the change succinctly: “One of the main social results of the factory regime seems to have been the evolution of the idea of a wage contract, replacing the former idea of servitude.”

To some people, that was barely progress. Noam Chomsky thinks that chattel slavery is only slightly worse than wage employment. He rejects the proposition that "renting" someone is much different from buying him. Contract labor, chattel slavery: it's pretty much the same. The wage earners would have disagreed.

Gramm and Boudreaux explain that endless Victorian poetic and fictional depictions of how bad life was in the industrial cities were in fact a sign of capitalism's progress in enriching the masses. When everyone but the nobility was poor, no one noticed it; that's just how things were. But once life began to improve, thanks to capitalism and industry, those who did not experience progress as quickly as others stood out. The authors quote F. A. Hayek: "Economic suffering both became more conspicuous and seemed less justified, because general wealth was increasing faster than ever before.”

"Remarkably," Gramm and Boudreaux write, "these historical and romantic critiques were written about a period that, by every available economic measure, was the beginning of a golden age of material well-being—especially for workers."  The claim of impoverishment, they add,

is refuted by every major measure of material well-being. In a single century, from 1800 to 1900, wages, life span, and literacy expanded at rates never before experienced. The Industrial Revolution, beginning in Britain and then spreading to continental Europe, the United States, and eventually, most of the globe, ushered in a golden age for workers that continues to this day.

When they say every "major measure," they mean not only material wealth, but infant and child mortality, survival in childbirth, literacy, nutrition, and much more. The graph makes a hockey stick: no progress for thousands of years, and then around 1800—Zoom!—all signs of progress skyrocket.

As Gramm and Boudreaux suggest, it is absurd to judge those early years of growth by today's standards. Poverty is the natural state. Wealth is artificial (manmade). The proper comparison, then, is with what went before the industrial era, feudalism and mercantilism. Once human freedom and ingenuity were liberated, progress took time. Even so, set against all of human history, progress was swift. And recall that this was the beginning of mass production, which must precede mass consumption.

Gramm and Boudreaux turn to the economic historian Deirdre McCloskey for more evidence. I've been reading McCloskey's eye-opening work (Bourgeois Virtues, Bourgeois Dignity, and Bourgeois Equality; also, with Art Carden, Leave Me Alone and I'll Make You Rich). I can attest to its power. McCloskey, write Gramm and Boudreaux,

estimates that since the Industrial Revolution—what she calls the “Great Enrichment”—began just over two hundred years ago, living standards in countries such as Britain, the United States, Japan, and Finland have risen by at least 3,000 percent and perhaps—if improvements in product quality are more fully taken into account—by as much as 10,000 percent!"

Let that sink in. Per capita wealth has increased 3,000 to 10,000 percent since 1800.

You need more evidence? Citing economic historian Gregory Clark, Gramm and Boudreaux write,

At the dawn of the nineteenth century, real wages were no higher than they had been at the dawn of the thirteenth.... [A] revolution in economic production accelerated around the start of the 1800s, and the quality of life in Britain underwent more rapid improvement than had ever occurred in recorded human history. Wages that had largely stagnated for thirty generations began to rise rapidly.... During the Victorian era, from 1840 to 1900, the real wages of skilled builder craftsmen increased by 113 percent, and the real wages of unskilled builder helpers rose by 124 percent.

Explain that one, you lovers of the Middle Ages. Or this: compared to life as a "downstairs" servant on an aristocrat's estate, "The factories," write Gramm and Boudreaux, "offered higher pay, shorter hours, better working conditions, and even more fresh air."

Okay, but what about child labor? That will always come up. Gramm and Boudreaux quote economic historians Carolyn Tuttle and Simone Wegge: “Child labor did not begin during the Industrial Revolution of Great Britain but had existed for centuries across Europe." Remember, it took time and ingenuity for per-worker productivity to increase to where an adult could support a family. That wasn't the fault of capitalism. Little boys were chimney sweeps before the industrial era. At any rate, Gramm and Boudreaux say that "most young working children did not toil in factories or mines. Agriculture, services, trades, and clerical duties together employed far more children than did factories and mines....

"Furthermore, the economist Clark Nardinelli of the University of Virginia found that the employment of children in factories was declining before the Factory Acts were passed.... The Factory Acts codified the market process that was already underway. In closing the ugly ten-millennial chapter of child labor by the end of 1900, the Industrial Revolution had ushered in a new chapter of more intense childhood nurturing and learning."

What did the workers think about industrialization? Gramm and Boudreaux note that historian Emma Griffin, who read 350 writings of regular workers, reported, "It is time to think the unthinkable: that these writers viewed themselves not as downtrodden losers, but as men and women in control of their destiny; that the industrial revolution heralded the advent not of a yet 'darker period', but of the dawn of liberty...."

Gramm and Boudreaux sum up: "The best evidence, which can be found both in statistics and in the written testimony of workers who lived during the Industrial Revolution, strongly suggests that the initial spark of the lavish material prosperity that we enjoy today was not struck at the expense of the first few generations of workers who toiled in Britain’s water- and steam-powered factories. They, too, benefited, as the Great Enrichment made even those workers and their families richer, freer, and happier."

The same is true for America. In the second half of the 1800s, Americans "experienced unprecedented and broad-based economic growth. Between 1865 and 1900, inflation-adjusted GDP nearly tripled, expanding by an extraordinary 297 percent. Nothing
like this had ever happened in American history."

Thus, "The Gilded Age, in short, was an era of unparalleled improvement in living standards for almost all Americans."

Read this book.

Capitalism Civilizes

"Participation in capitalist markets and bourgeois virtues has civilized the world. It has 'civilized' the world in more than one of the word's root senses, that is, making it 'citified,' from the mere increase in a rich population. It has too, I claim, as many eighteenth-century European writers also claimed, made it courteous, that is, 'civil.' 'The terrestrial paradise,' said Voltaire, 'is Paris.'"

—Deirdre N. McCloskey, Bourgeois Virtues

TGIF: What Is Capitalism?

So, what is capitalism? The answer will depend on who's being asked. Language, like markets, basic law, and customs, is a spontaneous order. No one plans it. Words drift in their meaning in ways that probably can’t be fully explained. Language is a tool that people use to think and communicate, so it’s adapted according to needs, changing circumstances, and even confusion.

That doesn’t mean we can say nothing about words like capitalism. My views on that word have changed over the years; I once contributed to a book called Markets, Not Capitalism. The book was meant to show that the free market differs from capitalism. Is it right? Again, that depends on how one defines capitalism. As far as I can tell, most people who dislike capitalism also dislike the idea of a market-based society. Some prominent pro-market thinkers, Nobel laureate F. A. Hayek among them, disliked the word for a variety of reasons. 

At any rate, the word is not going away. Since no one controls the language, we should put communication before personal preferences. Let's define our terms clearly and then talk about reality.

Despite variation in the definition of capitalism, most people would agree that market orientation is at its heart. They evaluate the market differently, but it is the market that they are evaluating. So we have some common ground, even as we disagree over whether capitalism is a good or bad social arrangement or whether it conceptually includes or excludes a given practice.

I, along with many others, consider capitalism to be the social arrangement in which people are free to engage in the production and exchange of goods and services, typically for money. Left unmolested, that is what people do. Those activities generate prices, which reflect supply and demand and guide further action. To live is to act, which is to aim at ends by deploying means, which is to value. The root of this never-ending process is the wish to sustain life and to live in a particular way. (See the work of Carl Menger, Ludwig von Mises, and Ayn Rand for details.)

The institution of interpersonal exchange logically has presuppositions. It stands on a foundation. It presupposes that persons own themselves and the things they nonaggressively obtain; it also presupposes the security of contracts. These things can be violated in practice, but they are departures from the logic of the system. Historical capitalism developed over a thousand years as persons, their property (including their bodies), their contracts, and their enterprises came to be more and more respected—that is, as political power decentralized and, consequently, diminished, thanks in part to jurisdictional competition, that is, the power to vote with one's feet. (People disliked paying taxes for war and having their trade and investments disrupted.) Growing religious toleration played an important role in this process of individual liberation and spreading cooperation.

Where property and contracts became more secure, per capita wealth dramatically increased, setting an example for others. As Adam Smith put it, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”

This is not to say that injustice and aggression disappeared abruptly and completely. Of course, it did not. Who could have expected that? It would take time. Another way of saying this is that capitalism—to be clear, that means laissez-faire or free-market capitalism—was not fully achieved anywhere. It still hasn't been. But it would be wrong to attribute the great wealth generated by capitalism to injustice such as slavery and conquest. Advanced civilizations of the past conquered, plundered, and enslaved, but they did not produce astonishing, sustained, and widespread wealth. Capitalism and classical liberalism in Western Europe and America did something different, something special.

Societies can be judged by how close they came to achieving capitalism. We can distinguish particular practices and institutions as either capitalist or anticapitalist. It follows that crony capitalism, state capitalism, and political capitalism, etc., are not capitalist variations but moves away from capitalism (that is, from self-ownership, property rights, contract, and free exchange). Those labels are contradictions in terms because they entail limits on peaceful, productive market interaction. The predatory, which supposedly acts in the name of the collective, in effect makes itself the senior part-owner of what was or should have been private property. The system is no longer a fully market system, even if people who own capital ask for the intervention. Thus free-market capitalism is a redundancy.

For example, a political arrangement in which slavery and slave markets exist does not qualify as capitalism. Why not? Because in that basic respect, the arrangement does not fully embody self-ownership, property rights (which flow from self-ownership), and free exchange. Southern slave holders claimed that "their" slaves were property, but that was a category error because persons can be property owners, not property. Good Lockeans, the abolitionists called the slave holders "man stealers." 

Similarly, a political system in which politicians and bureaucrats may interfere with people’s property and free exchange through taxation, regulation, trade barriers, subsidies, government ownership, etc., should not be called capitalist. It would be a mixture of capitalism and interventionism or socialism.

We can sum up by saying that only laissez-faire capitalism—the consistent separation of state and economy—qualifies as real capitalism. Anything less than laissez faire is less than capitalism. The government cannot regulate an economy, which is an abstraction. What it can do is restrict real individuals in their peaceful, productive market interactions. Restriction requires the use or threat of aggressive force and violence. In contrast, a capitalist society is a humane society.

Call it what you will, the system that respects our freedom to engage in mutually beneficial market relations—and its prerequisites—is worth defending against its Classic Marxist and Marxist Lite detractors, who have to distort categories like “exploitation” to make their spurious case. Capitalism, despite not being fully embraced, ushered in an era of unprecedented personal freedom and sustained, widespread wealth. Capitalism is anti-exploitationism.

(I have not reinvented the wheel. Thus related reading: “The European Miracle” by Ralph Raico, “Reconsidering Gabriel Kolko: A Half-Century Perspective” by Robert L. Bradley Jr. and Roger Donway, "Capitalism, Socialism, and 'The Middle Way': A Taxonomy" by Bradley and Donway, "Beyond 'The Money-Making Personality': Notes toward a Theory of Capitalist Orthopraxy" by Roger Donway (Journal of Ayn Rand Studies 21:1 July 2021) and The Libertarian Mind by David Boaz (especially chapter 2: "The Roots of Libertarianism.")

Bryan Caplan and Me

 I sat down recently for a chat with my old friend Bryan Caplan.

TGIF: "Liberalism and Capitalism"

Ludwig von Mises's 1927 path-breaking work in political theory speaks to the current generations. In section 5 of his introduction to Liberalism: The Classical Tradition, Mises sounds impeccably relevant in describing how the opponents of liberalism and the market economy twist facts that are plainly before our eyes. You'll see how he refuted the absurd claim that capitalism serves only a tiny privileged and exploitative group. The work of most thinkers passes away soon after they do. Not so with Ludwig von Mises.

He began the section by acknowledging what should be obvious. Governments have always interfered with individual freedom, free enterprise, and free markets—in a word, capitalism—in substantial ways. Laissez faire has never been allowed. That does not prove it is impossible, only that people either did not understand the system or did not want its success demonstrated. Mises wrote:

A society in which liberal principles are put into effect is usually called a capitalist society, and the condition of that society, capitalism. Since the economic policy of liberalism has everywhere been only more or less closely approximated in practice, conditions as they are in the world today provide us with but an imperfect idea of the meaning and possible accomplishments of capitalism in full flower. Nevertheless, one is altogether justified in calling our age the age of capitalism, because all that has created the wealth of our time can be traced back to capitalist institutions. It is thanks to those liberal ideas that still remain alive in our society, to what yet survives in it of the capitalist system, that the great mass of our contemporaries can enjoy a standard of living far above that which just a few generations ago was possible only to the rich and especially privileged.

This could have been written yesterday. The fabulous wealth that Americans and the inhabitants of other semi-capitalist countries enjoy would have been unfathomable just a short time ago. Previous generations would laugh at how we use the word poor today. That's what even partial freedom has accomplished. Those lagging behind have been compelled to live without the market economy, to their misfortune. We would all be richer with complete freedom.

To be sure, in the customary rhetoric of the demagogues these facts are represented quite differently. To listen to them, one would think that all progress in the techniques of production redounds to the exclusive benefit of a favored few, while the masses sink ever more deeply into misery. However, it requires only a moment’s reflection to realize that the fruits of all technological and industrial innovations make for an improvement in the satisfaction of the wants of the great masses. All big industries that produce consumers’ goods work directly for their benefit; all industries that produce machines and half-finished products work for them indirectly. The great industrial developments of the last decades, like those of the eighteenth century that are designated by the not altogether happily chosen phrase, “the Industrial Revolution,” have resulted, above all, in a better satisfaction of the needs of the masses. The development of the clothing industry, the mechanization of shoe production, and improvements in the processing and distribution of foodstuffs have, by their very nature, benefited the widest public. It is thanks to these industries that the masses today are far better clothed and fed than ever before. However, mass production provides not only for food, shelter, and clothing, but also for other requirements of the multitude. The press serves the masses quite as much as the motion picture industry, and even the theater and similar strongholds of the arts are daily becoming more and more places of mass entertainment.

As economist Bryan Caplan says, mass consumption requires mass production, and nowhere in history has mass production benefited only a small segment of society. Mises continued:

Nevertheless, as a result of the zealous propaganda of the antiliberal parties, which twists the facts the other way round, people today have come to associate the ideas of liberalism and capitalism with the image of a world plunged into ever increasing misery and poverty. To be sure, no amount of depreciatory propaganda could ever succeed, as the demagogues had hoped, in giving the words “liberal” and “liberalism” a completely pejorative connotation. In the last analysis, it is not possible to brush aside the fact that, in spite of all the efforts of antiliberal propaganda, there is something in these expressions that suggests what every normal person feels when he hears the word “freedom.” Antiliberal propaganda, therefore, avoids mentioning the word “liberalism” too often and prefers the infamies that it attributes to the liberal system to be associated with the term “capitalism.” That word brings to mind a flint-hearted capitalist, who thinks of nothing but his own enrichment, even if that is possible only through the exploitation of his fellow men.

Here, things in some ways have changed for the worse. The illiberals of the so-called left and right tribes have indeed made the word liberal a pejorative. It's become almost as pejorative as capitalism. But as Mises pointed out, one simple and undeniable fact about the market economy is overlooked:

It hardly occurs to anyone, when he forms his notion of a capitalist, that a social order organized on genuinely liberal principles is so constituted as to leave the entrepreneurs and the capitalists only one way to wealth, viz., by better providing their fellow men with what they themselves think they need. Instead of speaking of capitalism in connection with the prodigious improvement in the standard of living of the masses, antiliberal propaganda mentions capitalism only in referring to those phenomena whose emergence was made possible solely because of the restraints that were imposed upon liberalism. No reference is made to the fact that capitalism has placed a delectable luxury as well as a food, in the form of sugar, at the disposal of the great masses. Capitalism is mentioned in connection with sugar only when the price of sugar in a country is raised above the world market price by a cartel. As if such a development were even conceivable in a social order in which liberal principles were put into effect! In a country with a liberal regime, in which there are no tariffs, cartels capable of driving the price of a commodity above the world market price would be quite unthinkable.

In other words, the illiberal pins on the market economy the failings that come from the government's subversion of the market economy.

The links in the chain of reasoning by which antiliberal demagogy succeeds in laying upon liberalism and capitalism the blame for all the excesses and evil consequences of antiliberal policies are as follows: One starts from the assumption that liberal principles aim at promoting the interests of the capitalists and entrepreneurs at the expense of the interests of the rest of the population and that liberalism is a policy that favors the rich over the poor. Then one observes that many entrepreneurs and capitalists, under certain conditions, advocate protective tariffs, and still others—the armaments manufacturers—support a policy of “national preparedness”; and, out of hand, one jumps to the conclusion that these must be “capitalistic” policies.

Note his reference to the military-industrial complex as anti-capitalist. In the Trump-tariff age, Mises's next segment is particularly apt.

In fact, however, the case is quite otherwise. Liberalism is not a policy in the interest of any particular group, but a policy in the interest of all mankind. It is, therefore, incorrect to assert that the entrepreneurs and capitalists have any special interest in supporting liberalism. Their interest in championing the liberal program is exactly the same as that of everyone else. There may be individual cases in which some entrepreneurs or capitalists cloak their special interests in the program of liberalism; but opposed to these are always the special interests of other entrepreneurs or capitalists. The matter is not quite so simple as those who everywhere scent “interests” and “interested parties” imagine. That a nation imposes a tariff on iron, for example, cannot “simply” be explained by the fact that this benefits the iron magnates. There are also persons with opposing interests in the country, even among the entrepreneurs; and, in any case, the beneficiaries of the tariff on iron are a steadily diminishing minority. Nor can bribery be the explanation, for the people bribed can likewise be only a minority; and, besides, why does only one group, the protectionists, do the bribing, and not their opponents, the freetraders?

Mises here rebuts the notion that business is a monolithic class that calls all the shots. In fact, diverse interests vie for favors from the state. One industry's subsidy is many other industries' expense. Beware simple models. They will lead you astray. Mises went on:

The fact is that the ideology that makes the protective tariff possible is created neither by the “interested parties” nor by those bribed by them, but by the ideologists, who give the world the ideas that direct the course of all human affairs. In our age, in which antiliberal ideas prevail, virtually everyone thinks accordingly, just as, a hundred years ago, most people thought in terms of the then prevailing liberal ideology. If many entrepreneurs today advocate protective tariffs, this is nothing more than the form that antiliberalism takes in their case. It has nothing to do with liberalism.

Ideas, not interests, rule the world? We need to pay more attention to this guy.

"Mature Capitalism" Ain't Capitalism

"It would be correct to describe this state of affairs in this way: Today many or some groups of business are no longer liberal; they do not advocate a pure market economy and free enterprise, but, on the contrary, are asking for various measures of government interference with business. But it is entirely misleading to say that the meaning of the concept of capitalism has changed and that 'mature capitalism'—as the American Institutionalists call it—or 'late 'capitalism'—as the Marxians call it—is characterized by restrictive policies to protect the vested interests of wage earners, farmers, shopkeepers, artisans, and sometimes also of capitalists and entrepreneurs. The concept of capitalism is as an economic concept immutable; if it means anything, it means the market economy. One deprives oneself of the semantic tools to deal adequately with the problems of contemporary history and economic policies if one acquiesces in a different terminology. This faulty nomenclature becomes understandable only if we realize that the pseudo-economists and the politicians who apply it want to prevent people from knowing what the market economy really is. They want to make people believe that all the repulsive manifestations of restrictive government policies are produced by 'capitalism.'”

—Ludwig von Mises, Human Action

From Savagery to Civilization

"The market economy is a man-made mode of acting under the division of labor. But this does not imply that it is something accidental or artificial and could be replaced by another mode. The market economy is the product of a long evolutionary process. It is the outcome of man’s endeavors to adjust his action in the best possible way to the given conditions of his environment that he cannot alter. It is the strategy, as it were, by the application of which man has triumphantly progressed from savagery to civilization."

—Ludwig von Mises, Human Action

How Far We've Come

"The conditions under which modern man of the capitalist West must act are different from those under which his primitive ancestors lived and acted. As a result of the providential care of our forebears we have at our disposal an ample stock of intermediate products (capital goods or produced factors of production) and of consumers’ goods. Our activities are designed for a longer period of provision because we are the lucky heirs of a past which has lengthened, step by step, the period of provision and has bequeathed to us the means to expand the waiting period. In acting we are concerned with longer periods and are aiming at an even satisfaction in all parts of the period chosen as the period of provision. We are in a position to rely upon a continuing influx of consumers’ goods and have at our disposal not only stocks of goods ready for consumption but also stocks of producers’ goods out of which our continuous efforts again and again make new consumers’ goods mature."

—Ludwig von Mises, Human Action

The Vulnerable Capitalist

"Popular literature attributes enormous 'power' to the capitalist and considers his owning a mass of capital goods as of enormous significance, giving him a great advantage over other people in the economy. We see, however, that this is far from the case; indeed, the opposite may well be true. For the capitalist has already saved from possible consumption and hired the services of factors to produce his capital goods. The owners of these factors have the money already for which they otherwise would have had to save and wait (and bear uncertainty), while the capitalist has only a mass of capital goods, a mass that will prove worthless to him unless it can be further worked on and the product sold to the consumers....

"[C]apital goods are not independently productive. They are the imputable creatures of land and labor (and time). Therefore, capital goods generate no interest income. We have seen above, in keeping with this analysis, that no income accrues to the owners of capital goods as such."

--Murray N. Rothbard, Man, Economy, and State, Chap. 5, secs. 6 & 7, 1962

Anyone Can Be a Capitalist, part 2

"It might be argued that only the 'rich' can afford to be capitalists, i.e., those who have a greater amount of money stock. This argument has superficial plausibility, since ... for any given individual and a given time-preference schedule, a greater money stock will lead to a greater supply of savings, and a lesser money stock to a lesser supply of savings.... We cannot, however, assume that a man with (post-income) assets of 10,000 ounces of gold will necessarily save more than a man with 100 ounces of gold. We cannot compare time preferences interpersonally, any more than we can formulate interpersonal laws for any other type of utilities. What we can assert as an economic law for one person we cannot assert in comparing two or more persons. Each person has his own time-preference schedule, apart from the specific size of his monetary stock. Each person’s time-preference schedule, as with any other element in his value scale, is entirely of his own making. All of us have heard of the proverbially thrifty French peasant, compared with the rich playboy who is always running into debt. The common-sense observation that it is generally the rich who save more may be an interesting historical judgment, but it furnishes us with no scientific economic law whatever, and the purpose of economic science is to furnish us with such laws. As long as a person has any money at all, and he must have some money if he participates in the market society to any extent, he can be a capitalist.

—Murray Rothbard, Man, Economy, and State

TGIF: "You Didn't Build That"

Remember Barack Obama's profound 2012 campaign speech about success? Here's part of what he said:

There are a lot of wealthy, successful Americans who agree with me -- because they want to give something back. They know they didn’t -- look, if you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something -- there are a whole bunch of hardworking people out there.

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed [!] you to thrive.  Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.

So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together.... We rise or fall together as one nation and as one people, and that’s the reason I’m running for President—because I still believe in that idea. You’re not on your own, we’re in this together.

Obama was no outlier. Plenty of people would be willing to give that speech today, maybe even Donald Trump.

Where to start? Obama said that he knows wealthy people who want to "give something back." Why? Presumably because of their wealth and success. That makes no sense. If these people made their wealth by producing attractive goods for consumers (which is how most wealthy people get wealthy), then what's to give back? We consumers did not give them money as a favor. We engaged in voluntary exchange. We gave up $X to get product Y because we prefer what we got to what we gave up. They benefitted and we benefitted. Double profit, double "thank you," as John Stossel says. That's how trade works when it's uncoerced. No debt; nothing to give back. End of.

Second, superstar entrepreneurs likely are smarter and more perceptive about the future state of the market than most other people. I doubt they go around bragging about it or minimizing the role of "good breaks." They surely know that things other than sheer intelligence figure into success. But let's not be unrealistically egalitarian about it. Some people are better suited to be entrepreneurs than others. Many of the outside factors that Obama named were also available to others. Why didn't those others succeed?

Next, what's this buncombe about all of us rising or falling together? When a business fails to satisfy us, it falls. Its owners, managers, and employees have to find other work. Its investors lose out. But the rest of us have not fallen. The failed businesses's material factors are now available to produce things we want. The discharged employees are now available to make other things we want. Where's the general failure? Obama spoke collectivist nonsense. Something does—or should—unite people, but it's not what Obama had in mind. They have a stake in a free society, that is, a society in which the government does not try to manage their lives and market relations.

The rest of the passage is Obama's elaboration of this thesis: "If you’ve been successful, you didn’t get there on your own." Was he so ignorant of the case for laissez faire that he thought this was news for defenders of the unmolested market economy? Was he having a laugh? Ludwig von Mises, one of the 20th century's premier champions of individual freedom considered calling his economic treatise "Social Cooperation." That is the second most common phrase in Human Action, right behind "division of labor," which Mises sometimes called the "social division of labor."

So Obama was tackling the scrawniest of strawmen. He was being a demagogue. No market advocate ever suggested that lucrative businesses were built in isolated shacks in rural Montana. Businesses were always described as embedded in the complex network we call the market economy.

I modestly suggest that Obama and every one of his ilk read I, Pencil. That's Leonard E. Read's 1958 essay explaining why no one person can make something as commonplace as a pencil. On the contrary, it takes incredibly complex worldwide cooperation, and it happens without a central authority. The price system, rooted in private property in the factors of production and in trade, directs the myriad self-interested activities that entrepreneurs, under no one's orders, combine to produce the pencil. No kidding. I. Pencil was written three years before Obama was born. Read, founder of the Foundation for Economic Education, had a different lesson in mind from Obama's ignorant message. The former president had a collectivist, interventionist message. Read's was an individualist, free-market message. Read for the win.

Obama named particular things, such as the internet, which got started or built under government auspices. But, as usual, he overlooks what is not seen. (Also see "I, Website.") Obama thinks that if the government does not do something, it does not get done. But if the government did not build roads, bridges, airports, ports, schools, and the internet, would those things never have come into being? That's beggars belief. We know it's not true. People privately built public infrastructure before the government did. It didn't happen "on its own." Profit-seeking individuals and their free associations made it happen.

Businesses that relied on the infrastructure paid for its services. "Take what you want, said God, and pay for it," the Spanish proverb says. That's the market; no need for coercion. Why the mystery? Obama ignored all of the amazing things that free and private enterprise has created over the centuries, not without any assistance, but without government assistance. If he knows better, he's a demagogue.

Here's how Ludwig von Mises addressed the issue in Human Action in 1949, long before Obama  was born (but the year I was born):

The interventionists and the socialists contend that all commodities are turned out by a social process of production. When this process comes to an end and its fruits ripen, a second social process, that of distribution of the yield, follows and allots a share to each. The characteristic feature of the capitalist order is that the shares allotted are unequal. Some people—the entrepreneurs, the capitalists, and the landowners—appropriate to themselves more than they should. Accordingly, the portions of other people are curtailed. Government should by rights expropriate the surplus of the privileged and distribute it among the underprivileged.

Now in the market economy this alleged dualism of two independent processes, that of production and that of distribution, does not exist. There is only one process going on. Goods are not first produced and then distributed. There is no such thing as an appropriation of portions out of a stock of ownerless goods. The products come into existence as somebody’s property. If one wants to distribute them, one must first confiscate them. It is certainly very easy for the governmental apparatus of compulsion and coercion to embark upon confiscation and expropriation. But this does not prove that a durable system of economic affairs can be built upon such confiscation and expropriation.

Before the interventionists dispense more advice, they might learn some economics.

 

TGIF: Who Cares about Inequality?

What accounts for the preoccupation with income and wealth inequality? We hear about it every day. Isn't our absolute living standard what matters and whether it is improving or deteriorating? I'll bet that's what regular people care about. However, the professional grievance mongers see things differently, They want you to resent those who are richer.

To start with the basics, we are not talking about inequality. We're talking about income and wealth differences. Substitution of the term inequality is an appeal to emotion, a cashing in on other senses of the word. "You oppose equality? Don't you believe that 'all men are created equal'?" That's demagoguery not argument.

In a market-oriented economy, most income is not distributed. There's no distribution to describe as equal or unequal, fair or unfair. (What the government does is another story.) As Ludwig von Mises, wrote 102 years ago in Socialism: An Economic and Sociological Analysis, "Under Capitalism incomes emerge as a result of market transactions which are indissolubly linked up with production." That's not distribution or allocation.

Mises continued:

We do not first produce things and afterwards distribute them. When products are supplied for use and consumption, incomes for the greater part have already been determined, since they arise during the process of production and are indeed derived from it. Workers, landowners, and capitalists and a large number of the entrepreneurs contributing to production have already received their share before the product is ready for consumption.

"[T]he concept of distribution is only figurative," Mises added. What people call "the income distribution" is not the outcome of a grand allocation plan. It's a snapshot of a dynamic, decentralized series of exchanges and is always subject to change.

People transact, trade, only when they expect to gain. Otherwise, they wouldn't bother. That's true for both parties to a transaction. It's win-win. Among the things people trade are labor services for money and vice versa. That people have to work so they can eat is not the fault of employers, who also have bosses to satisfy; they're called consumers. That's the nature of reality. But in a free and competitive market economy, few people are dependent on only one buyer or one seller. They are free to choose.

If no distribution occurs in a market economy, then no redistribution is possible. When the government taxes our incomes and gives the money to others—be they low-income people or military contractors—that's plain old distribution. And it's illegitimate.

Taxation and other forms of political manipulation are objectionable even if large-scale wealth and income differences do not result. So that cannot be the primary objection. Political manipulation is objectionable because it aggresses against nonaggressors and disrupts the process that best serves consumers. It would be odd to say, "I see inequality, so I wonder what government manipulation has brought that about." It would be reasonable to say instead, "I see government manipulation, so I wonder if, on top of all the other bad consequences, it also has disrupted the wealth-creation process."

Economic differences among individuals and groups are to be expected among free people and ought not to arouse suspicions of illegitimacy. To expect economic equality as the default is to commit the fallacy Thomas Sowell has exposed concerning all sorts of disparities among groups. Uniformity is found nowhere in the world.

Everyone knows that people's contributions to productive activities vary widely, with a relatively few people at the top and bottom and most in the middle. No mystery here. Individuals differ in intelligence, age, ability, disposition, upbringing, energy, alertness, patience, ambition, education, work habits, culture, risk tolerance, entrepreneurship, and much more. No one should be surprised that their contributions to wealth creation also differ vastly or that they change over time. Thus vast differences in income and wealth are to be expected. I couldn't have done what Bill Gates, Steve Jobs, Serge Brin, or Jeff Bezos, did—and, appropriately, my income reflects that.

Despite the seeming paradox, the huge economic differences that can result from innovation benefit everyone. Much would be lost without that possibility. Incentives matter. Moreover, the innovators' gains are minuscule compared to the total gains to consumers. A system designed to prevent or stamp out those rewards to innovation would impoverish us all. It would also put us on what F. A. Hayek called "the road to serfdom."

It should also be noted that the price system, of which income levels are a part, signals to producers what consumers want most. It's our way of telling producers where to put their efforts and scarce resources.

What indicates progress or regress in society is not the latest dubious measure of a gap between rich and nonrich, but how easily people of determination can climb the income ladder. If the government stays out of the way, the obstacles are minimized. Gaps don't matter. Think of an elevator that can expand like an accordion: the floor can rise even if the distance to the ceiling increases.

Most people don't envy wealthy innovators. They admire them. But anti-freedom politicians, intellectuals, and activists think you should resent anyone who is considerably wealthier. They're running a scam designed to obtain power. We need to call them out.

If you like gaps, check out the shrinking consumption gap, the product of the growing availability of resources worldwide thanks to the spread of economic liberalization and the liberation of human ingenuity and entrepreneurship.

 

TGIF: Doing Good at a Profit

[P]eople started to believe that the bourgeoisie and its economic activities of trade and innovation were virtuous, or at least tolerable. In every successful lurch into modern riches from Holland in 1650 to the United States in 1900 to China in 2000, one sees a startling revaluation in how people thought about exchange and innovation.

"How the Bourgeois Deal Enriched the World"
Art Carden and Deirdre Nansen McCloskey

Perhaps it's time for another, similarly positive reevaluation of exchange and innovation. Heaven knows we need it. Our age features a distinct lack of appreciation of trade through the global division of labor, the innovation and prosperity it produces, and the signs of entrepreneurial success, namely, the wealth of innovators. We have witnessed a surge in good feelings toward socialism and various socialism-lites despite their unbroken record of death, oppression, and stagnation.

Could the varied opponents of market-liberalism—libertarianism in its purest form—suffer an allergy to what Adam Smith identified as a key feature of the "system of natural liberty"? In The Wealth of Nations Smith famously observed,

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.

Apparently, for people who dislike the market economy, producing even astounding benefits for others does not count if one does it at a profit. That is strange.

In 1900 about 80 percent of the world's population lived in extreme poverty. Today, less than 10 percent does. The reduction since the 1980s alone has been phenomenal. And during that time the world's population has grown dramatically —from under 2 billion in 1900 to 8 billion today!

Deirdre McCloskey and Art Carden write that since 1800 per-capita wealth has increased by 3,000 percent. Per capita! (They explain how and why in Leave Me Alone and I Will Make You Rich: How the Bourgeois Deal Enriched the World. Also see this.)

Malthus and Marx must be spinning in their graves. Paul Ehrlich, still alive, declared in the late 1960s that "the battle to feed all of humanity is over." About that prediction, Maxwell Smart would have said, "Missed it by that much." (Ehrlich still gets treated by the news media like an oracle.)

Do people know about this marken-driven progress? Did the establishment and alternative media report it? I must have missed it.

The eradication of poverty has many freedom-related reasons. Economic liberalization (marketization), that is, the freeing up of entrepreneurship and trade deserves much credit. But something else was also required. Economic historian McCloskey primarily credits a change in attitude toward the "bourgeois virtues," such as innovation. "In every successful lurch into modern riches from Holland in 1650 to the United States in 1900 to China in 2000," McCloskey and Art Carden write, "one sees a startling revaluation in how people thought about exchange and innovation." Envy and resentment at success diminished, freeing people to innovate, trade, and get rich while making consumers better off. Mass production emerged for the first time in history. Producers didn't work just for the political elite. How great was that?

Let's put it another way: poverty has been eradicated at a profit! Was that virtuous? Would it have been more virtuous had it been done by nonprofits? The antipoverty record of nonprofits, especially governments, is dismal.

Where is the praise for the market from all the usual antipoverty voices? I can find only one voice, however grudging: Rock star Bono, who said in 2022:

There’s a funny moment when you realize that as an activist: The off-ramp out of extreme poverty is, ugh, commerce, it’s entrepreneurial capitalism. I spend a lot of time in countries all over Africa, and they’re like, “Eh, we wouldn’t mind a little more globalization actually. I would point out that there has been a lot of progress over the years.” . . . Capitalism is a wild beast. We need to tame it. But globalization has brought more people out of poverty than any other -ism. If somebody comes to me with a better idea, I’ll sign up. I didn’t grow up to like the idea that we’ve made heroes out of businesspeople, but if you’re bringing jobs to a community and treating people well, then you are a hero.

As I said, grudging, but better than nothing. But did Bono's friends and fans become pro-market? I don't see it.

One might expect that in a world of scarcity, a system of political economy that harmonizes diverse interests and creates widespread wealth from those differences to win enthusiastic praise. But no. Enthusiasts for markets and economic success have been scarce throughout history because a relative few succeed fabulously as innovators while most others merely succeed as consumers—beyond their recent ancestors' wildest dreams.

"People before profits!" shout envious ignoramuses, who can't be bothered to figure out that businesses that fail to please people record losses, not profits, and go bankrupt. It's a profit-and-loss system (unless the government violates the system by intervening).

By the way, pure entrepreneurial profit emerges when a business can sell its goods for more than its costs, including wages. That is, an entrepreneur happens upon a discrepancy between the price (valuation) of inputs and the price buyers are willing to pay for the output. Hence my battle cry: Exploit price discrepancies, not people!

However, some find it more satisfying to look for exploitation in any encounter whether it is there or not. Sellers exploit buyers; employers exploit employees. It requires no proof because it is a sacred article of faith. The faithful are blind to the deep harmony of interests of sellers and buyers, of employers and employees. They need each other because the system of natural liberty, even when burdened by state intervention, makes all parties richer than they ever could be without the market, its prerequisites (respect for others and their property), and its consequences (the global division of labor).

Getting back to Adam Smith's point, what could be the objection to trade based on mutual benefit? Why should anyone expect the butcher, baker, and brewer to live for their customers? Like their customers, they have lives and families too. Are sellers wrong because they don't give away their wares? Do their customers give away their products and services? Then what's wrong with charging what "the market will bear," that is, what people are willing to pay?

We all agree that no one can own other people? If you want something that belongs to another person, you offer to trade. Just as you don't own other people—that's called slavery—you also don't own their belongings until they accept the terms of trade. Governments often seek to set the terms of trade, but it has no legitimate power to do so. Governments are usurpers. The terms are up to the parties because the parties are trading their property. (If they violate the rights of nonconsenting third parties, that's a matter for the courts.)

Smith didn't mean that buyers and sellers can't be friendly or care about one another. His point was that benevolence is not necessary for mutually beneficial exchanges. It would take place anyway. All that's required is the realization that trade is positive-sum. Each exchanges something less-preferred for something more-preferred. Person A gets what he wants by offering to Person B what he wants, and vice versa. One serves one's interests by figuring out what's in other people's interests. The pursuit of self-interest serves the interests of all. That's one fine arrangement.

Somebody once said that if America is worth saving, it's worth saving at a profit. That goes for the whole world.

"Capitalism" Is about Freedom, Not Capital

 "Why 'capitalism'? Words have an unfortunate tendency to confuse. Free market capitalism is not really about capital, it is about handing control of the economy from the top to billions of independent consumers, entrepreneurs and workers, and allowing them to make their own decisions about what they think will improve their lives. So careless talk about 'taking control of capitalism' actually means that governments take control of citizens.

"But it doesn't sound like it, does it? One of my intellectual heroes, Deirdre McCloskey, complains that the word capitalism gives the misleading impression that it is about the rule of capital, rather than liberating people to make their own economic decisions, which is really what the free market is about: 'Capitalism' is a scientific mistake compressed into a single word, a dramatically misleading coinage by our enemies, and still used by the sadly misled among out friends.' So why do I use it? Because, no matter what we think of it, and no matter which word we would prefer for a system of private property and free markets, this is the word that has become inextricably linked to it, and if its supporters don't fill that word with meaning, its opponents will."

--Johan Norberg, The Capitalist Manifesto, 2023

TGIF: The Nonsense of Statist Political Economy

In the video "How Capitalism Makes You Less Free," self-described Marxist Grace Blakeley, author of Vulture Capitalism: Corporate Crimes, Backdoor Bailouts and the Death of Freedom, boldly asserts that all societies must have some kind of economic planning. That's hardly news in 2024. Free-market liberals, or libertarians, have long taught that the issue is not planning versus no planning but who plans: free profit-motivated, consumer-oriented individuals independent of the state and other coercion or force-wielding centralized bureaucrats and their cronies, with or without democratic window-dressing. 

Blakeley rejects independent planning in favor of democratic planning. But that means coercion must be in the picture. For all her concern about freedom, she doesn't use the word as everyone else does.

Blakeley, a 30-year-old commentator on political economy with two books now under her belt, seems confused. She's worth discussing because her views would be well-received on American college campuses.

Her answer to the great social question is a complex system of multi-layered purportedly democratic planning and accountability. Worker-managed entities and other democratic bodies would check one another to keep them in line. Any other form of planning, ranging from business owners running their own firms in competitive markets to the centralized "fusion between public and private power" would be forbidden. Her argument heavily relies on horror stories involving profit-seeking businesses. Of course, democratic people's republics have never committed atrocities. The collectives she envisions would always serve the public interest because of "democratic oversight."

Need I point out that this is oversimplified and that some distinctions are required? Fully private profit-and-loss decision-making -- independent of the state -- is what authentic liberalism, or libertarianism, calls for. It requires no state whatsoever because entrepreneurs can produce law and rights protection. On the other hand, the "fusion between public and private power" is fascism, the negation of free private consensual enterprise. Like all fascism, Nazism was socialism with a thin veneer of private ownership.

Blakeley would have us believe that a bonafide free market is not an option. (She doesn't regret that. But why not?) So let's stop talking about it. We must choose between coercive planning for the rich and coercive planning for all.

"Capitalism requires a certain amount of centralized planning to function," she says. It is a "central part of the way the capitalist system works":

In the [pre-World War II] laissez-faire period [Henry] Ford does whatever he wants; the state does what he says. In the postwar period Ford has to manage his relationship with workers and he has to manage his relationship with the state and all three of these parties had to come together and try to decide what happens next. What changes in the neoliberal period [beginning in the 1980s] ... the decision-making power is basically returned solely to capitalists and their allies within the state.

Now hang on. What laissez-faire period? She told us laissez faire was impossible. So how did the impossible exist?

She has more problems. If the state did what Ford told it to do, why does she call that laissez faire? This is basic stuff that she can't get right.

After the war we got a sort of fascism, but Blakeley won't call it that. The federal government (gun in hand) tried to orchestrate cooperation between business and labor. (Ayn Rand properly labeled John Kennedy's New Frontier "the new fascism.") But then when Reagan (and Thatcher) came to power, we returned to the impossible laissez faire that can't exist. Confused? So am I, and apparently so is she.

Here's another gem. "Individualism is hampering any kind of change because it's hampering our ability to organize collectively." Never mind that for centuries, individuals have voluntarily joined together in formal and informal markets to accomplish what one could not do alone. Blakeley poses as a champion of workers, but she's an elitist. She knows better: what we need are coercively organized "democratic" collectives for everything. She condemns the "gig economy" because it does not have real employment. It's elitism in populist clothing.

And here's another doozy:

I harken back to this Marxist socialist idea of freedom, which looks at -- yes, individual freedom and autonomy, but also your freedom as a member of a group to shape the conditions that affect your life and your existence.

Where is room left for individual freedom and autonomy?

Even in this mixed economy, people -- thanks to the coordination that market exchange and prices make possible -- substantially shape their lives. Of course, they would have even more control if the government would get out of the way by abolishing housing and land-use restrictions, occupational licensing, business-permit requirements, central bank fiat money (that causes inflation and recessions), theft-by-taxation, immigration barriers, victimless crimes, intellectual "property," surveillance, and other impositions. To the extent workers are unfree, it's because politicians and bureaucrats have the power to privilege themselves and their cronies at everyone else's expense.

Democracy, of course, is majority rule. What's so great about forcing everyone, Rousseau-style, to obey the majority? Should the majority prevail on everything? If not, what's beyond its reach? How is that line drawn, by vote? What keeps the majority from crossing the line it establishes? What happens to the individual, the smallest minority?

Democracy settles nothing. It simply shifts problems from the realm of consent, where problems are manageable thanks to the profit incentive and price coordination, to the realm of coercion, one-size-fits-all answers, perverse incentives, one-vote impotence, and the mirage of accountability. (Compare a consumer who, without notice, switches products to a citizen who wants to switch democratic rulers.) 

Blakeley should read Benjamin Constant's classic essay, "The Liberty of the Ancients Compared with that of the Moderns." She is an ancient -- and in this context, that's no compliment.

Even with hampered markets, general living standards in the West and other places have been dramatically rising for hundreds of years because of the Industrial Revolution and global liberalization. Consumption inequality has fallen. The labor-time price of all goods has dropped. The division of labor and trade have created broad-based wealth. Global poverty has plummeted. Despite government interference, rich and poor get richer. We need more freedom, not less.

Finally, though much more could be said, Blakeley and her fellow socialists must come to terms with Ludwig von Mises's proof that socialism, democratic or otherwise, cannot produce high living standards for a modern society. For that, we need real prices, exchange ratios, for producer and consumer goods; otherwise no one can rationally calculate the best way to produce what we want in a world of scarcity and uncertainty. But you can't have real communicative prices without markets, and you can't have markets without free trade in labor services and goods and resources. That requires self-ownership and private property. Abolishing private property, Marx's chief hope, would destroy our ability to increase prosperity for all.

That is the century-old Mises-Hayek argument against socialism. The socialists lost. Someone should do Grace Blakeley a favor: send her a copy of one-time British Marxist David Ramsay Steele's From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation.

The Logic of It All

This is how some people think: Business has long used the government to gain benefits it could not get in the marketplace. I have the cure for that: Abolish the market and expand the government to encompass all of society.

TGIF: Which Way -- Capitalism or Socialism or Something Else?

Big questions are being thrashed out these days. One of the biggest is this: do we want capitalism or socialism? Unfortunately, the online discussions I've witnessed have been, to put it as politely as I can, terrible. (For an example, see this one between Reason senior editor Robby Soave and political commentator Briahna Joy Gray, cohosts of The Hill's online show "Rising.")

Let's start with the words themselves. We're in a linguistic mess. It's only a slight exaggeration to say that nearly everyone has his own definition of capitalism and socialism. So when people get together to hash things out, they ought to begin by saying what they -- the discussants, not the words -- mean. That doesn't seem to be an unreasonable demand.

It's pointless to debate what words "really mean." There are no platonic definitions. Language is usage, which is what dictionaries have traditionally reported on. and word usage changes. So we should dispense with that conversation or else time will be wasted.

As I say, we're in a linguistic mess. Bernie Sanders is the country's best-known "democratic socialist." Asked during one of his campaigns what democratic socialism is, Sanders said something like, "It's an economy that works for everyone." Real informative, Bern. Thank you very much.

The fact is that most younger Americans today seem to think that socialism is just a bigger welfare state. For example, they would probably say socialism would include Medicare for all, a program in which the government would pay everyone's medical bills through taxation. But that's not what socialist ideologues have traditionally had in mind. For Marx and his socialist predecessors, socialism meant the abolition of private property, money, and hence the market: the state would own the factories, hospitals, and other means of production. I don't think most people who call themselves socialists today favor that.

How about capitalism? As I wrote some years ago, as the word is used, capitalism

designates a system in which the means of production are de jure privately owned. Left open is the question of government intervention. Thus the phrases “free-market capitalism” and “laissez-faire capitalism” are typically not seen as redundant and the phrases “state capitalism” or “crony capitalism” are not seen as contradictions. If without controversy “capitalism” can take the qualifiers “free-market” and “state,” that tells us something. [I discuss the many problems with the word capitalism here.]

It tells us that the word itself is a muddle. The word capitalism has been called an "anti-concept," a term I associate with Ayn Rand, who wrote:

An anti-concept is an unnecessary and rationally unusable term designed to replace and obliterate some legitimate concept. The use of anti-concepts gives the listeners a sense of approximate understanding. But in the realm of cognition, nothing is as bad as the approximate....

But the word capitalism is worse than an anti-concept because it's not merely approximate; it contains contradictory elements. As philosopher Roderick Long writes:

Now I think the word “capitalism,” if used with the meaning most people give it, is a package-deal term. By “capitalism” most people mean neither the free market simpliciter nor the prevailing neomercantilist system simpliciter. Rather, what most people mean by “capitalism” is this free-market system that currently prevails in the western world. In short, the term “capitalism” as generally used conceals an assumption that the prevailing system is a free market. And since the prevailing system is in fact one of government favoritism toward business, the ordinary use of the term carries with it the assumption that the free market is government favoritism toward business.

And similar considerations apply to the term “socialism.”...

Ironically Rand, like Ludwig von Mises but unlike F. A. Hayek, favored the name capitalism for her "unknown ideal." But Rand, again like Mises, left no doubt about what she meant. The other day I caught a YouTube short of Rand talking about capitalism in which she said she meant "real, free, uncontrolled, unregulated, laissez-faire capitalism, not the mongrel mixed economy we have today." (I prefer self-controlling and self-regulating to uncontrolled and unregulated, but let that go. See my "Regulation Red Herring.")

If people define their terms before plunging into the debate, the time will likely be more fruitfully spent. If I were in such a discussion, I would insist that the issue is not whether we really have capitalism, but whether we, individually, are fully free, politically and legally, to produce, consume, invest, and exchange in unmolested self-regulating markets.

And I would ask the self-described socialist if he favors the abolition of property, money, and markets. If he says no but favors Medicare for all, housing subsidies, and regulatory agencies, I would say he sounds like an advocate of a mixed economy in which markets exist but are routinely manipulated by state personnel aiming to effect outcomes they believe that voluntary exchange will not achieve.

As for the actual socialist, I'd start by saying what H. L. Mencken said:

The chief difference between free capitalism and State socialism seems to be this: that under the former a man pursues his own advantage openly, frankly and honestly, whereas under the latter he does so hypocritically and under false pretenses.

People with an overwrought sense of romance love the phrase, which Marx did not originate, "From each according to his ability, to each according to  his need." But how does that not describe a nightmare world? Under socialism, would each individual freely decide what he thinks his abilities and needs are? (What is a need?) If so, central planning is out of the question. So some presumptuous person or bureaucracy with dictatorial powers would make those decisions. Oh happy days! The promised withering away of the state is about as likely as an honest politician.

I can't see that socialism has anything at all to be said in its favor. Even Benjamin Tucker, the prominent American free-market anarchist, who was seduced by the valueless labor theory of value, said, "[State] Capitalism is at least tolerable, which cannot be said of Socialism or Communism."

What the free-market advocate must not do is let his interlocutor get away with claiming that "our capitalist system" is the free market. When, for example, Briahna Joy Gray says, as she did in the discussion I linked to above, that homelessness or (undefined) inequality is capitalism, she must be called to account with a question: "But are people free in the market?" Considering how thoroughly government bureaucracies at every level encumber necessarily win-win voluntary exchange, it can't be the free-market order that's causing homelessness. Coercive corporate power, which Gray and her ilk see as the prime culprit in so many ills, derives from coercive political power and cannot exist without it -- thus, it's what I call the most dangerous derivative.

Influencing the language is like herding cats. Nevertheless, I'd love to come up with a single word ending in ism for what free-market champions favor. We could simply say, "the free market," "laissez-faire capitalism," or Adam Smith's marvelous term "the system of natural liberty," but they seem clunky in some sentences. "Individualism" has its virtues, but it's not quite on point in this context because markets are founded on social cooperation and the division of labor. "Enterpriseism" is contrived, although it makes the point. I'll keep working on it.

For Further Study

Sheldon Richman, "Capitalism versus the Free Market" (video), Future of Freedom Foundation, 2010.

Sheldon Richman, "Capitalism and the Free Market, Part 1 and Part 2, Future of Freedom Foundation, 2010.

Sheldon Richman, "Is Capitalism Something Good?" Foundation for Economic Education, 2010.

Sheldon Richman, "Wall Street Couldn't Have Done It Alone," Counterpunch, 2011.

Roderick T. Long, "Corporations Versus the Free Market, Or Whip Conflation Now," Cato Institute.

Roderick T. Long, "Rothbard's 'Left and Right': Forty Years Later," 2006.

How Not to Defend "Capitalism" Against" Socialism"

I challenge you to show me a lamer "debate" over "capitalism" and "socialism." (Don't worry; it's not about Bill Maher.)