“Capitalism”: The Known Reality

“Capitalism”: The Known Reality

The following article was written by Chris Sciabarra and published on his blog Notablog, February 4th, 2005.

Reaching out to the Left has been the source of much good discussion at the Liberty and Power Group Blog. So I’d like to pick up on that thread, yet again.

After reading [a] comment by Jake Smith in response to my “Market Shall Set You Free” post, I took a stroll over to Kevin Carson’s Mutualist Blog, which he subtitles “Free Market Anti-Capitalism.” It’s a provocative subtitle, actually. I’ve been having an ongoing discussion with a friend of mine for months about the nature of capitalism, so any subtitle that calls for “Free Market Anti-Capitalism” is intriguing on the face of it. (Kevin also has a very interesting book out, entitled Studies in Mutualist Political Economy.) He writes:

If the market and the state have coexisted historically, they can be separated logically. The question of whether class differences originally arose from successful competition in the market, and the state was then called in to reinforce the position of the winners; or whether the class differences first arose from state interference, is a vital one. The fact that the state has been intertwined with every “actually existing” market in history is beside the point; social anarchists themselves face a similar challenge – that the state has been intertwined with every society in history. The response, in both cases, is essentially the same – the seeds of a non-exploitative order exist within every system of exploitation. Our goal, not only as anarchists but as free market anarchists, is to supplant the state with voluntary relations. If the absence of something in historical times, in a society based on division of labor, is a damning challenge – well then, they’re damned as well as we are.

The questions of whether state capitalism is an inevitable outgrowth of the free market, of whether decentralized and libertarian forms of industrial production can exist under worker control in a market society, etc., are at least questions on which we can approach the Left with logic and evidence. They are, for the most part, rational and open to persuasion. At the very least, there is room for constructive engagement. And remember, it is not an all-or-nothing matter. It is possible, if nothing else, to reduce the area of disagreement on a case-by-case basis.

Well, questions concerning “free-market anarchism” aside, I agree that the market and the state can be separated logically, and I also agree that the class question is a vital one. And I’m the first to advocate constructive engagement with all parties. But as I suggested, there is a problem that must be confronted when dealing with “capitalism.” Let me explain further.

So much has been said about Ayn Rand’s defense of “capitalism: the unknown ideal” that we often forget that the very term “capitalism” was coined by the Left. As F. A. Hayek puts it in the book, Capitalism and the Historians:

In many ways it is misleading to speak of “capitalism” as though this had been a new and altogether different system which suddenly came into being toward the end of the eighteenth century; we use this term here because it is the most familiar name, but only with great reluctance, since with its modern connotations it is itself largely a creation of that socialist interpretation of economic history with which we are concerned.

Hayek found the term even more misleading because it is almost always “connected with the idea of the rise of the propertyless proletariat, which by some devious process have been deprived of their rightful ownership of the tools for their work.”

And yet, Rand proudly took up the mantle of “capitalism,” defining it as the only moral social system consonant with human nature and “based on the recognition of individual rights, including property rights, in which all property is privately owned.” For Rand, this “unknown ideal” had been approximated in history but it had never been practiced in its full, unadulterated laissez-faire form. It was largely undercut by state intervention.

But we have to ask here: Did Rand – and do free-market advocates in general – redefine “capitalism” in such a way as to make it a neologism? (I address the issue of whether Rand engages in such neologistic redefinition with terms such as “selfishness,” “altruism,” and even “government” in my books, Ayn Rand: The Russian Radical and Total Freedom: Toward a Dialectical Libertarianism.) If real, actual, historically specific “capitalism” has always entailed the intervention of the state, are leftists onto something when they “package deal” state involvement in markets as endemic to capitalism? Of what use is it to keep claiming that libertarians are champions of “capitalism” when that system as it exists is a warped, distorted version of the ideal so many of us hold dear? (I’m leaving aside questions concerning the possibilities for the emergence of a genuinely libertarian social system.)

Now, it may be true, as Ludwig von Mises has argued, that there is a bit of “envy” at the base of the “anti-capitalistic mentality.” And it may be true that some socialists would oppose market relationships regardless of the presence of the state because they oppose the very notion of individual enterprise and private appropriation. But the fact remains: Laissez-faire capitalism has never existed in its purest form. Libertarian free-market advocates know this. But even Marx knew it. He argued that existing systems were only approximations to that pure form, “adulterated and amalgamated with survivals of former economic conditions,” the kind of mercantilist and neomercantilist state involvement whose “antiquated modes of production” had inhibited the progressive character of markets. (It’s this aspect of Marx’s work that has been captured in Meghnad Desai’s book Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism.)

This problem of definition is not simply an epistemic one or even a semantic one. It has practical implications. When neoconservative advocates of U.S. intervention in the Middle East talk about “nation-building,” about building “free markets” and “capitalist” social conditions abroad as part of the march toward “democracy,” those who live in that region of the world do not understand “capitalism” as anything remotely like the libertarian ideal. (Indeed, neocons don’t understand it either!) U.S. capitalism as such is equated with “crony capitalism” or with what Rand called the “New Fascism”: the intimate involvement of the U.S. government in the protection of business interests at home and abroad through politico-economic and military intervention. It’s not simply that the left has “package-dealt” us this bill of goods; it is what exists and it is what has existed, in an ever-increasingly intense form, from the very inception of modern “capitalism.”

Indeed, one of the most insidious forms of state intervention has been in the area of money, banking, and finance. And if Austrian economists are correct that the boom-bust cycle itself is rooted in the state-banking nexus, then that nexus and its destabilizing effects have been around in various incarnations ever since “capitalism” was given its name. And this is certainly something that even Marx understood. As I put it in my book, Marx, Hayek, and Utopia,

Marx shares with his Austrian rivals an understanding of the political character of the business cycle. Yet the implications of his analysis are vastly different. While [the Austrians] argue for the abolition of central banking, and the separation of the political sphere from money and credit, Marx advocates using the credit system as a mechanism for socialist transformation.

Marx believes that capitalism, based on the dualism between purchase and sale, makes an exchange economy necessary. The exchange process makes possible the emergence of pseudotransactions through an inflationary credit system. Like [the Austrians], Marx views the state as the source of inflation. The state’s central bank is the “pivot” of the credit system. Its artificially-induced monetary expansion engenders an illusory accumulation process in which “fictitious money-capital” distorts the structure of prices. This leads to overproduction and overspeculation. Real prices – those that reflect actual supply and demand – appear nowhere, until the crisis begins the necessary corrective measures.

Marx views the business cycle as an extension of intensifying class struggle. The state’s ability to thrust an arbitrary amount of unbacked paper money into circulation creates an inflationary dynamic that favors debtors at the expense of creditors. The credit system becomes an instrument for the “ever-growing control of industrialists and merchants over the money savings of all classes of society.” It provides “swindlers” with the ability to buy up depreciated commodities. Yet the credit system is a historically progressive institution, according to Marx. Despite its distortive effects, it accelerates the expansion of the global market and polarizes classes in capitalist society. It facilitates socialized control of production and capital investment.

One would find a very similar, though more detailed, analysis in the works of Mises, Hayek, and Rothbard, with different implications, as I’ve stated above.

… If libertarians continue to use the word “capitalism” as some kind of ahistorical ideal, if they refuse to look at the fuller cultural and historical context within which actual market relations function, they will forever be dismissed by the Left as rationalist apologists for a state-capitalist reality. That’s ironic, considering that so many Leftists have been constructivist rationalist apologists for a different kind of statist reality. But it does not obscure a very real problem.

Reaching out to the Left or to any other category of intellectuals requires a translation exercise of sorts. Real communication depends upon a full clarification of terms; if we end up using the same term to mean different things, I fear we’ll be talking over each other’s heads for a long time to come.

13 responses to ““Capitalism”: The Known Reality

  1. I agree that the present situation is very far from a free market.

    The state, in most Western countries, takes about half the economy with its spending (mostly on the Welfare States) and saturates the economy with its regulations, and (of course) the monetary and fiancial system is utterly twisted by the flow of “cheap money” (low interest rate money created from NOTHING by the government backed Central Banks).

    Whilst the present society is not socialist – it is indeed very far from free market also.

    However, the obvious first question to ask is “would Kevin Carson and his followers like things any better if the state was much smaller in size and scope – if things were much closer to a free market?”

    For example. are they reasonably happy with the situation (in relation to the state) in Britian in say 1870 or the United Startes in, say, 1880 – when government was vastly smaller (both as proportion of the economy and in terms of its regulations than it today).

    Of course it is easy to see imperfections even, for example, in the United States in 1880 (the rise of state education is an obvious one), but would Kevin Carson and his followers be REASONABLLY (not totally) happy with the state of affairs, in relation to the state, in Britain in 1870 or the United State sin 1880?

    Of, for that matter, in 1912 – when the state was still quite limited in both the United States and the United Kingdom. After all total government spending (Federal,State and local) was less than 10% of the economy in 1912 – and the Federal Register of regulations was a tiny fraction of the size it is today.

    I am afraid the answer is “no”.

    To judge by such works as “Contract Feudalism” Kevin Carson is filled with fanatical hatred for the state of affairs that existed in the past – even though the state was vastly smaller (in both size and scope) than it is today.

    So it is NOT the distance we are from a free market that upsets Kevin Carson.

    It is, in fact, the existance of employers (of labour employing farm owners, ranch owners, mine owners, factory owners, retail outlet owners….) at all.

    There is a pretence (and it is a pretence) that economies do not exist. And that such things as roads and railways would not exist if it was not for government intervention (which would actally mean, if true – which it is not, that government road and railway building is a good thing, preventing mass starvation).

    Let us turn to “class”……

    It is the central insight of classcial liberalism and libertarianism that the rightly understood long term interests of businesmen are in harmony with employees and others.

    This does NOT mean that an individual buinessman does not benefit by a government subsidy or regualtion – but it does mean that businessmen on the whole (as a group – or “class”) lose by such policies – just as other people do.

    It is the central insight of classcal liberalism and libertarianism that there is harmony of longh term rightly understood economic interests between “rich and poor”, “capitalists and employees” and so on.

    Of course there is no such harmony of long term economic interests between “tax payers and tax eaters”.

    Apart from in the very long term – for if the state becomes too large and too interventionist (both these things have now happened) it kills the civil society (“capitalism” if we must use this word) on which it depends.

    This we shall see presently.

  2. Of course even the half free – half not free, countries that we have in the West are vastly superior to what the Red Flag Marxists or their allies the Black Flag (anti large scale private property in the means of production, distribution and exchage) “anarchists” offer as an alternative.

    Although, also, vastly inferior to what these countries could be – if the state was radically rolled back in size and scope.

    “But the state was vastly smaller a century ago – and living standards were vastly lower”.

    The classic error.

    Technology and physical capital were vastly inferior a century ago.

    If we had the level of statism there was a century ago – our living standards would be vastly higher (not lower) than they are now.

    And if they (a century ago) had our level of statism over a longish time period – they would have collapsed into mass starvation.

    Indeed even with our level of technology and so on – the level of statism we have now have is simply not sustainable.

    It will come to an end – and, sadly, I suspect the end will be terrible.

  3. “the obvious first question to ask is [something about Kevin Carson]”

    Idée fixe, noun \(ˌ)ē-ˌdā-ˈfēks\ plural idées fixes

    : an idea that dominates one’s mind especially for a prolonged period : obsession

    Synonyms: fetish (also fetich), fixation, mania, obsession, preoccupation, prepossession

  4. That is not a good answer to my question.

    But, O.K. I will ask a short one – and to you.

    Do you (like Rousseau and Kevin Carson) believe that paying someone for voluntary work (employing someone) is enslaving them? Do you believe this a violation of liberty?

    Yes or no?

    As for a “fetish” or “obsession” – surely that would be a good description of the view of KEVIN CARSON in relation to employers.

    In the late 1940s India adopted regulations that made it very hard for large private business enterprises to employ people – especially in retail

    The only think that Kevin Carson thinks is wrong with that – is that it did not hit small employers (corner shops and so on) as well as large ones.

    So which of us (Kevin Carson or me) is really the crazy fetish guy?

    • “Do you (like Rousseau and Kevin Carson)”

      See? Idee fixe.

      The article isn’t by Kevin Carson.

      The article isn’t by Rousseau.

      The article isn’t by me.

      Another frog term for ya: Bete noir.

      “Do you (like Rousseau and Kevin Carson) believe that paying someone for voluntary work (employing someone) is enslaving them?”

      I don’t believe that.

      Neither, on the evidence, does Carson.

      Now, a question for you: For which religious holiday to you think that Carson kidnaps capitalist babies to use their blood in his biscuits?

  5. “I took a stroll over to Kevin Carson Mutualist Blog….”

    In short the stuff in the post is Carsonist stuff.

    It is like someone taking stuff from H. Z.s “People’s History of the United States” and then saying – “I am not a Marxist propagandist, I am just taking stuff from a Marxist propagandist”.

    “But Kevin is not a Marxist” – no he is a Black Flag ally of the Marxists (ally of the Occupy Movement, ally of the Chicago Teachers Union, ally of the Chevez regime, ally of the Social Justice crowd – and on and on).

    By the way – thanks for the blood libel stuff.

    Especially as you know what happened to my father’s close kin. Which is, of course, why you wrote what you just did.

    I will answer my own questions – as you refuse to do so.

    Kevin Carson hates Western societies just as much (if not more) when they had small governments as he does now they have large ones.

    He hates the state of affairs in Britain in (for example) 1912 (when government was a fraction of the proportion of the economy that it is today). Ditto the United States in 1912. Not less than he hates it now.

    In short reducing the size and scope of govenment to the level it was in 1912 or 1890 or 1880 would not FUNDEMENTALLY please him.

    Because he has his eye on something else.

    That was made clear by “Contract Feudalism” and most of the stuff he has written since then.

    As for the second question.

    Of course Kevin regards paid voluntary employment as slavery (or at least serfdom) that is the whole point of his position – and always has been.

    “Neither, on the evidence, does Carson”.

    To quote the famous tennis player from New York.

    “You can not be serious man”.

    You know that this is the central feature of Kevin Carson position – there is no point in your response.

    Other than the same point as throwing the blood libel in my face.

    An effort to provoke.

    Have an nice day.

    • No, I don’t know what happened to your father’s close kin. All I know is that you have an unhealthy obsession with Kevin Carson — unhealthy enough that when a well-known scholar who was publishing on Rand, Rothbard and Hayek long before Carson was well-known happens to mention him, you immediately assume that he’s a “Carsonist” instead of wondering if perhaps Carson is something of a “Sciabarrist.”

      Be sure to check under your bed this evening before going to sleep. Kevin Carson might be there.

  6. I have written out two reples to the last comment – and lost both of them (my fault I think – I suspect I am hitting the wrong keys).

    Anyway I will not write it out a long reply again.

    This post was in a group of lets-push-Kevin posts.

    I did not check the name of the poster – because many of the poster names on this site are fake (people who do not even exist).

    I apologise if there was a lot of other interesting stuff in the post – although I do remember seeing the words “reach out to the left” (unless that was in the context of “why we should not” I would not be wildy happy to see those words).

    Anyway I APOLOGISE for treating this post as just part of a lump (a group of posts) – there is no point in denying that (because that is how I did treat it).

    It is wrong to treat an individual post as just part of a lump (a group of posts).

    If I do not have time (or desire) to read a particular post all the way through – then I should leave it alone.

    Anyway – after checking under the bed for Kevins, I had better get some sleep.

    By the way – one thing I do remember.

    You saying “I did not know”.

    Are you giving me your word on that?

    • —–
      You saying “I did not know”.

      Are you giving me your word on that?

      Not only DID I not know, I still don’t. From context, I’m assuming that you have relatives who were murdered in Hitler’s holocaust. If that is the case, I apologize for any implication that you share the values of the Nazis.

  7. I accept what you say Sir.

    And I apologise for the Red Mist comming down when I come upon a group of K.C. related posts.

    Treating an individual post as just part of a lump is WRONG.

    And I APOLOGISE for doing so.

  8. It certainly an interesting essay – but I part company from it in the first line “the state is dying” (there is no real evidence for that).

    Also there are some odd errors in it – for example it refers to the European Union as the European “Common Market” (the P.R. term used to trick the British people into entering this state), Of course the E.U. (with its endless regulations) is just another layer of statism – on top of all the other layers (and able to order the other layers about). The E.U. is not the European Free Trade Association (that is not what it is about).

    As for the United Nations and Agenda 21 and so on – best not to talk about that (I am still tired from a long walk yesterday and do not want the screams of “paranoid” to hurt my ears). So I will just say that the U.N. with his human rights charters (which sound so good in their generalities, and is so vile in its specific details) is exactly the force for statism that E.H. Carr and Harold Laski (the British representatives to the making of the international “human rights” thing) intended it to be.

    The policy of freedom must be to LEAVE the European Union, and the United Nations – and the “World Court” and the International Monetary Fund and the World Bank and…….

    The national state is bad enough – but all this stuff (not “limiting it” but ON TOP OF IT) makes it even worse.

    As for the actual situation…..

    Government spending at about 50% of the economy in most Western nations – and the rest of the economy (of civil society) controlled by endless regulations.

    And the financial system is a total mess – credit bubble banks (dependent on illusions – not REAL SAVINGS) and endless fiat (government whim) money.

    I know the word “capitalism” was first coined as a attack term – but it was eventually adopted by the defenders of civil society (of large scale privately owned means of production, distribution and exchange – with real freedom of civil use, not the “German Socialism”, World War One or Nazi style, of nominal private owership with indirect control by government regulation) such as Ludwig Von Mises and other defenders of capitalism (or “tools of Koch brothers” as the left would call them).

    And if what we have now is “capitalism” (in this sense) then my name is Frederick the Great.

    That, I think, is the real point of the orignial post (which I have now, MUCH TOO LATE, read).

    Although I still think the whole idea of “reaching out to the left” is (at best) a waste of time.

    Sadly the only way I can see the present order going – is by de facto bankruptcy.

    The bankruptcy of the Welfare State (which will have terrible results for the elderly and so on who are dependent upon it) and the bankruptcy of the credit bubble and fiat money finanical system (which will have…. ditto).

    The path of reform – of an orderly roll back of statism, has been rejected (again and again).

    And I believe it is now too late for reform.

    So de facto bankruptcy it will be.

  9. As for war…..

    Expect a lot more of those.

    Both at the state level – and, if States break down, at the local gang or warlord level.