Policy point - Counterpoint: Whither capitalism: The historical foundations and fallacies of an idea, theory, framework, ideology, and worldview.

• Author: Cruz, Laura
• Position: Essay

Policy Point--Counterpoint: Whither Capitalism: The Historical Foundations and Fallacies of an Idea, Theory, Framework, Ideology, and Worldview

By the mid-2010s, the term capitalism seems to have crept back into our shared cultural vocabulary--from games (e.g. Venture Capitalist) to movies (e.g. The Big Short), the word, and often the connotative baggage it carries with it, seem to be experiencing a resurgence of popular interest. Looking back through the historical record, the term seems to have enjoyed a regular number of resurgences, as well as a corresponding number of abatements; the cycles of which do appear to be sensitive not to actual economic cycles, but rather to our collective understanding. In some ways, it could be argued that usage of this term serves as a barometer of economic culture, a reflection, or refraction, of our changing relationship to the tides of economic development and the significance we believe they hold over our lives.

What does the word capitalism actually mean? According to conventional wisdom (and many websites), capitalism is an economic system, one that relies on a free market, and private ownership/enterprise. (1) It is frequently contrasted to socialism, which is characterized as state control of the market and public ownership. Both of these depictions are based on a set of assumptions, many of them fallacies, regarding the historical and philosophical foundations of each. (2) If we are rediscovering capitalism, then perhaps it is also time to rediscover it roots and peel back these layers of accumulated meaning, not unlike removing decades of questionable choices in wallpaper from our walls.

One fallacy that frequently appears is the claim that Adam Smith is the father of modern capitalism. (3) Whether or not his ideas form the basis for much of modern economic theory (or not--his contributions are not undisputed,) (4) he most certainly did not use the term capitalism. The first recorded use of the term in English did not occur until 1833, and the usage was disparaging (i.e. "the same tyranny of capitalism.") (5) The word had been coined earlier in both French and German, but with the very narrow sense of "possession of capital." Similarly, the term 'capitalist' (in English and several other languages) predates Adam Smith's lifetime, but only in the sense of a person who possesses capital. Karl Marx picked up and expanded upon both usages in the nineteenth century.

Another fallacy might be to say that it is an economic system. (6) Peak inside any economic textbook and you will see a definition similar to this one: an economic system is " a system of production, resource allocation, exchange, and distribution of goods and services," in a defined geographical space. This is frequently followed by a delineation of the types of economic systems, ranging from traditional to command/planned, and often focusing on the variations within a market system. The economic system of the modern United States is a mixed, with a tendency towards a market system. In such systems, the market serves as the primary means by which goods and services are allocated. Because of this clarity of purpose, many economists and economic historians use the term market system, rather than capitalism, as the unit of analysis. (7) Works describing the transition of the former Soviet-controlled states also frequently refer to the shift as one from a planned or socialist economy to a market economy, without mention of the word capitalism. (8) That being said, the research that is being done in this area is relatively esoteric, confined to the work of academic economists, and not always accessible to a popular audience.

If capitalism is not just an economic system, than what is it? Many of those who are considered the forefathers of capitalism would not claim to be part of the pantheon of what Thomas Carlyle called the "dismal science." Adam Smith fancied himself to be a moral philosopher. John Maynard Keynes took only one class in economics, (9) and Max Weber and Karl Marx are frequently claimed by social scientists, with particular interest from historians, political scientists and sociologists. (10) In many ways, one could consider capitalism to be a broader conceptual umbrella than 'economic system,' one that embraces multiple facets of how economics touches on our lives, including its social, political, and cultural implications. Under the dark cloud of the Great Depression, German economist Werner Sombart published a frequently-cited definition of capitalism that characterized it as a social theory or framework that is based on a market system, but also inclusive of a specific 'spirit' or culture (a la Weber), a particular 'form' or political structure (e.g. private ownership, laissez-faire), a progressive relationship with technology, and the cultivation of a certain type of individual, the entrepreneur (the latter ideas are often strongly associated with the recently-rediscovered Austrian economist Joseph Schumpeter). (11)

If capitalism is just a theoretical framework, however, why does the term seem to evoke stronger emotions than other economic terms, even those that are contested? Much of Sombart's work built on the foundation laid by Weber, (12) but the evocation of such an integrative definition of capitalism was also redolent of another of his German predecessors, Karl Marx. Marx characterized capitalism as an all-inclusive mode of production, a set of inter-related features--society, politics, and culture--that stemmed from the same materialist base and which constituted a discrete period of history. For Marx (and his followers), we do not live in age of capitalism, but rather in a capitalist age in which even the air we breathe is saturated with capitalism. In his depiction, capitalism is the all-encompassing and all-consuming foundation of modern life. It is precisely because we are consumed by or saturated in capitalism, though, that we cannot see it flaws clearly, or so Marx argued, and this limits our ability to consider possible alternatives. Eventually, he predicted that capitalism would be torn asunder by the very forces that allowed it to rise to greatness, and a new historical age, that of socialism, would emerge. To put another way, to Karl Marx's capitalism had elements of an ideology, or a set of comprehensive and compelling ideas that would serve as a blueprint for change. (13)

Not everyone shares Marx's view that a socialist future is one worthy of aspiration. For many, the failures of the Soviet-led economies in the late twentieth century tip the weight of historical evidence against the viability of such systems. (14) For others, it is the failure of the workers of the world to unite and violently shake off their chains that suggests Marx should perhaps have stayed away from prognostication in his writing. That would depend, however, on which Marx you read. For most people, the short pamphlet The Communist Manifesto serves as their only direct exposure to Marx. This inflammatory work is not incompatible with the deeper foundations of Marxist theory, but it is intended to serve a particular political purpose, that of the Communist League who commissioned it. One does get rather a different perspective in Marx's later, but less accessible works, including his magnum opus, Das Kapital, in which the violence of revolution is surpassed by the inevitability of social and economic collapse. (15) We are not the only ones guilty of perhaps not reading our Marx closely, as Lenin's vision of vanguard socialism violates several central tenets of Marx's historical theory, especially the necessity of giving capitalism sufficient time and space to develop our global productive capabilities. (16) Marx believed that the age of capitalism would come to an end, but, as they say in the old wine commercials, he did not think it should do so before its time. (17)

Whether in early or later writings, Marx exhorted his readers to combat apathy, to wake up to the reality of the world they lived in, and to exercise "ruthless criticism" of all parts of their capitalist world. (18) For this reason, the term capitalism is often associated with a critical view of the modern age or economy. Frequent messages from the 2011 Occupy Wall Street movement included "capitalism isn't working," "capitalism is the problem," and "capitalism is the crisis." (19) The 2016 discovery of the Panama papers was branded an "indictment of modern capitalism." (20) As part of his campaign, 2016 Democratic candidate Bernie Sanders publically averred that he is not a capitalist, presumably because he believed the sentiment would resonate with some voters. In popular culture, the morally reprehensible antihero of the 2013 movie The Wolf of Wall Street states, "money is the oxygen of capitalism and I wanna breathe more than any other human being alive." In a new twist, several video games/apps allow the player to take on the role of the 'bad' guy--a capitalist (see Cutthroat Capitalist, Sweatshop, and, arguably, Grand Theft Auto).

It may also be tempting to take this assumption one step further. If we use the term capitalism more often when taking a critical eye to economic life, then perhaps we also use it more often in periods of economic downturn, when criticism of economic policies and calls for change are more likely to be prevalent. The 2008-2009 economic downturn of the American economy was severe, and it could be tempting to say that contemporary references to the term can be seen as a response to that. However, the popular culture of the growth-oriented period of the 1980s also frequently evoked the term capitalism, especially in a sub-genre of movies that glorified the excitement of the market. In Trading Places (1983), for example, the lead character refers to New York, in an admiring way, as "the last bastion of pure capitalism left on earth." (21) Neither does the connection between economic downturn...