Capitalism

Against Capitalism

The word is a Marxist coinage.

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Capitalism is what the Dutch call a geuzennaam—a word assigned by one's sneering enemies, such as Quaker or Tory or Whig, but later adopted proudly by the victims themselves.

The word is a Marxist coinage. Karl Marx himself never used the word capitalism, but let's not get pedantic: He freely tossed around capitalist to describe the bosses who were busily reinvesting surplus value on top of their original accumulations of capital.

Like economists and others before and after, Marx claimed that the accumulation of capital was the watchspring of wealthy modernity. The Marxian sociologist Immanuel Wallerstein, for example, wrote in 1983 that "the word capitalism is derived from capital. It would be legitimate therefore to presume that capital is a key element in capitalism."

Actually, it wouldn't. That we insist on ruminating on something called "capital" does not prove that its accumulation was in fact unique to modernity. And it is not. Romans and Chinese and human beings back to the caves have always accumulated capital, abstaining from consumption to get it. What made us rich were new ideas for investing it, not the investments themselves, necessary though they were.

I frequently find myself defending my peculiar form of anti-capitalism to my libertarian friends. Mark Skousen, who hosts the FreedomFest conference every year in Las Vegas, voices typical objections: "You must have capital to advance the economy," he wrote to me in an email recently. "Entrepreneurs have plenty of great ideas and budding technology to change the world, but unless they get financing, they will remain unfulfilled."

That's right, but as Skousen admitted, the financing is merely a necessary condition, not a sufficient one. The explosion of human ingenuity after the turn of the 19th century, by contrast, was sufficient. The ideas were so good that financing was seldom a problem. Necessary conditions are endless, and mostly not pertinent"having liquid water at the usual temperatures" and "the absence of an active civil war" are necessary too, but nobody wants to call it waterism or peaceism.

The necessary conditions were shared by a great many societies. Those nonetheless did not have anything approaching the Great Enrichment that started in northwestern Europe in 1800, bringing with it a 3,000 percent increase in the living standard of the poorest among us.

Consider China in 1492, which had long peace, excellent property rights, enforcement of law, absence of crushing intrastate tariffs (a contrast to Europe), and plenty of capital. China built the Great Wall and the Grand Canal with ease, putting even Roman capital projects into the shade. Yet it did not see the explosion of ingenuity that would ultimately enrich northwestern Europe, which was little more than an appalling, quarrelsome backwater in 1492.

What China lacked was not capital or institutions or science or coal, but Adam Smith's "liberal plan of equality, liberty, and justice." Liberating ordinary people inspired them to extraordinary ideas, which in turn redirected the capital, the labor, the liquid water, and all the other necessaries.

Skousen told me that "the scarcity of investment capital has kept us from advancing as fast we could." No, it hasn't. Such a notion was popular at the World Bank during the long reign of what the New York University development economist Bill Easterly calls "capital fundamentalism." Yet the historical and economic evidence tells against this thinking. Pour capital into Ghana, yet it fails. Don't give China a cent, yet it succeeds. The liberating ingenuity in human minds is what mattered, as in the Chinese economy after 1978 and the Indian after 1991. Give people liberty and you give them life.

Capitalism is a scientific mistake compressed into a single word: a dramatically misleading coinage of our enemies, and of the sadly misguided among our friends.

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  1. It’s good to see a libertarian defending our true core value: liberty. It is freedom, not accumulation of wealth, that drives innovation and prosperity.

    1. Reminds me of something I’ve said to my more Marxist minded friends. I believe in their right to go and practice Marxism. Get a bunch of people, form a commune, give Communism a shot. I’m okay with that.

      The problem is their belief system seems to rarely extend that freedom to my beliefs.

      1. You as a libertarian believe that every man is an island. That no one cooperates with anyone. Everyone does their own thing without any regard for anyone else. The fact is that we’re all in this together. We must cooperate. We must work collectively. This only happens through central planning that is carried out by force. No one has ever cooperated without a gun in their back. Ever. Our choices are centrally planned collectivism or chaos. That’s it.

        1. That’s a decent impersonation of Tony, sarc.

          1. Yeah man… Un-regulated or lightly regulated use of “capital” is just ONE part of “economic freedom” or “free market”.

            I am surprised that the young anti-free-speech campus NAZIs haven’t yet come up with a derogatory term for free speech, along the same lines… How about “free speech” = “mouth-off-ism”?

            1. It’s called hate-speech.

              1. I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life.

                This is what I do… http://www.onlinecareer10.com

              2. I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life.

                This is what I do… http://www.onlinecareer10.com

      2. My questionings confirm this. Looters require unanimity, as in Zamyatin’s “WE.” I have found it helpful to point out that by “free market” we mean “uncoerced market.” The dissonance this triggers works as well to silence devout communists and Comstock Law conservatives, enabling one to slip away and resume the enjoyment of life.

      3. Another way to phrase it: An individualist society can emulate socialism with voluntary contracts for those who want it. A socialist society cannot emulate individualism, and must not allow any attempts.

        1. I agree that society should be free to experiment and people should be able to go out and live on their own if they wanted to as long as they don’t hurt others, to a point. I just believe a society in which we cooperate will be much better off and and more prosperous.

          I also don’t agree with the individualistic position that if you see someone who wants to commit suicide, you don’t try to forcibly stop them from doing that. If a kind police officer didn’t do that for me, I would not be here today, and I’m forever grateful for that. For a libertarian to say I don’t deserve to live simply because my individual self wasn’t thinking right at the time is very insulting. I think the flaw in individualism is that it forces you to believe that your current “self” is your “real” self, or the one with the most authority over your body. I don’t believe that, when I can eat a poison that hijacks my mind and makes me do things the “real” me wouldn’t do. Taking it even further, what if society has no way to know what is the “real” you?

          If someone had two or three different identities and a new technology came out to eliminate all but one personality, what would you do? Allow the “current” identity to use this technology to effectively kill all other identities? My answer would be to choose what’s best for society, and I believe what’s best for society neatly coincides with what’s best for the individual.

          1. I just believe a society in which we cooperate will be much better off and and more prosperous.

            Individualism doesn’t shun cooperation. It shuns coercion. Individuals within society cooperates all the time. It’s called markets.

            As far as your story about suicide goes, I call bullshit. There’s no such thing as a kind cop.

          2. You went too far down the meta hole, please return to reality in 3…2…1…*snaps fingers*

            On a more serious note, just because you don’t believe in non-subjective reality doesn’t mean that if a train hits you that you’ll live.

            Even in todays society, it sounds like you’d be better off signing over your power of attorney to someone else.

        2. But perhaps a libertarian would say, eliminating identities is violence and the identiy that does this will have committed a crime. Then you’re saying every time I come off of a high, which changes my identity, I’m committing a crime. Hopefully this tries to explain why I believe current identity should not be treated as ultimate authority over my body.

          I don’t think individualism as moral philosophy provides an answer for what you should do if society is forced to choose between a bunch of different lives, which if you think about it, it does every day. Perhaps it’s answer is that it’s all equal either way because all lives are equal and deserve freedom, as long as they don’t infringe on the freedom of others. Whereas my philosophy clearly answers with, “try your best to determine what’s best for society and go with that choice.”

          1. Nobody owes you anything… any version of you.

          2. Whereas my philosophy clearly answers with, “try your best to determine what’s best for society and go with that choice.”

            That’s a whole lot of hubris right there.

            1. It takes a special kind of someone to admit that they tried to kill themselves yet they also believe they know what’s best for society. No thanks? That isn’t an attempt to make light of anyone’s mental illness, but if you know your reasoning is flawed to that degree why attempt to force it onto others?

              Oh, right, because you’re mentally ill. It seems this person got at least some of the help they needed, which is good, but it resulted in an individual that wants to control all of society which is probably bad. I don’t think Mike is making the case they think they’re making.

      4. Sad how many assume that all Marxism is government Marxism. Even Ayn Rand defended hippie communes, said their only mistake was to think they had to become farmers … like the “Marxism” of the Israeli kibbutz .. or the Shakers and sio m any other voluntary communes.

        Conflating all Marxists with state socialism is as ignorant as equating all libertarians with Ron Paul’s statist bigotry and bullshit Constitution..

  2. Thanks again for the C- my freshman year in macro at the University of Iowa, Professor. I only went to maybe 60% of the lectures, so I was lucky to get even that.

    1. Keep it on the DL man. She’s going to go back and change your grade. And soon after Chicago is going to come and take their degree back from Mr. Frank Conchfritters.

      1. Her ex-wife still lives there, so I’m banking on her avoiding the Hawkeye State.

        1. Oh, no. I still love my former wife. And Iowa City is still in my heart. Go Hawks!

  3. The above article provides a reason libertarians should support the concept of a free market (freedom of the market) over a particular type of free market like capitalism

    The free market can actually be morally supported as a market based upon freedom of association – but capitalism itself cannot be – which is why people for years have failed at trying to morally justify capitalism when they should have been concentrating on the free market.

    1. Yes, this was an error Ayn Rand repeated when what Jack Vance called “the emeritus disease” was overtaking her. But to be fair, the NAP was written by Rand at the height of her powers in early 1947 as nationalsocialists were hanged at Nuremberg. Christians running amok in a genocidal pogrom to literally breed an altruist race by culling out the “innately selfish” terrifies me, and I doubt I’m Jewish. GOP acceptance of Goldwater’s Quixotic campaign for president might have looked to her like a life-saving buoy. Ayn’s attacks on the LP betrayed a fear that Libertarian spoiler votes might play into the hands of “The Fascist New Frontier.” Instead, our 4 million votes are the new frontier for freedom.

      1. You say “Christians running amok” as though Nazi Germany is the natural result of Christian belief. There are a couple of funny things about that, though:

        (1) We have had Christian governments, to one degree or another, for about 1600 years now, yet there’s only one such country that became what Germany became in the 1930s. That’s kindof weird for a religion that’s supposed to cause such things, and

        (2) For a government philosophy that was supposed to be Christian, to the degree that it even embraced Christian imagery early on, there was an awful lot of paganism, Darwinism and distancing from Christianity going on too.

        I would further like to point out that in the last 200 years or so of atheists running amok, we see in France, Haiti, Russia, China, Cuba, Vietnam, Cambodia, Somalia, among other places, stuff that looks an awful lot like what Nazis did in Germany. Indeed, one can’t help but wonder what, if anything, would have been different, had Communists taken charge instead of Nazis…and when one considers that it’s very likely that Stalin was gearing up to purge Jews before he died, it’s not all that far of a stretch to conclude that even the Holocaust would have happened, had Communists taken power.

      2. This isn’t to say that Christians are immune to doing bad things, though: we have the witch trials as an example of that, to be sure. But it’s also interesting to observe that even then, the countries that had respect for life, liberty, property, and due process, were countries where witch trials had a difficult time taking root. This should give one pause when considering our current civil forfeiture laws…just what kinds of witch hunts can such laws enable, and even exacerbate?

        I would propose that what happened in Germany, Russia, et all, isn’t selflessness run amok. It’s Statists run amok. And if we want to avoid this from happening again, we need to celebrate the importance of the individual — which, by the way, is *exactly* what a lot of Christian denominations do.

  4. Free market is what I thought we all agreed to use.

    1. We, yes. Trumpistas… Not so much.

    2. It is, but people insist on trying to back particular forms of it – which in my mind is a strategic error

  5. What Marx looked at in 1848 was mercantilism, with a European Metropolis exploiting slaveholding colonies via coercive monopoly over all trade and production. Even Adam Smith was a proponent of a liberal brand of low-tariff mercantilism. Reason’s former boardmember the late Petr Beckmann, author of “The Structure of Language,” observed that “when you accept your adversary’s vocabulary, you’re already half-defeated.” Thank you Dierdre for a really good article.

  6. Give people liberty and you give them life.

    Contrast that to Trumpism which pretends to Make America Grating Again by imposing limits on the transfer of human capital, presumably to protect the (mythical) American Worker?.

    1. Trump’s Republican Party has just forwarded tax relief to absolutely help the American Worker, American Business, and American Consumer.

      1. Re: loveconstitutuon1789,

        The “Tax Relief” you so highly tout is ‘so good’ it is set to expire in 2025. It does nothing to reform the tax code as promised nor is the relief anythibg remotely close to what the p…y grabber promised during the campaign.

        Plus his insistence on heavy tariffs and limiting immigration is not conducive to economic growth. Tariffs are a tax on people’s pockets and limiting immigration as the national-socialists in the Trumpista camp want limits business access to human capital, which is just as bad economically as limiting access to cash.

        1. 2025 is less than 8 years away and that is better than not having it. The tax code is reformed for 8 years. There is also nothing that says that Congress cannot add more tax reforms in Trump’s next 7 years as President.

          Plus, all laws that add government power should have sunset provisions.

          If you haven’t gotten the hint by now, You need to pay attention to the main themes trump ran on: rolling back government, enforcing immigration law and building a wall, tax reform, repealing Obamacare, helping the American worker, etc.

          Trump wants to help American workers and if raising tariffs does that, then he might push for it. That is yet to be seen. Since most of us know that raising tariffs is NOT the solution for American workers and that high tariffs actually hurt trade.

          Massive immigration legal and illegal is not per se conductive to economic growth.

          1. Massive immigration legal and illegal is not per se conductive to economic growth.

            Anyone that tries to tell you otherwise is a liar. Arguments from mythical libertopia do not count.

            1. Re: Deven,

              Anyone that tries to tell you otherwise is a liar.

              Anyone who makes sweeping generalizations is a liar.

              See how that works?

          2. Re: loveconstitution1789,

            2025 is less than 8 years away and that is better than not having it.

            “Better than nothing” is not what was promised.

            The tax code is reformed for 8 years.

            These are temporary tax cuts; actually most of the “tax cuts” are in the form of higher deductions, not real tax cuts, which means a MORE complicated and not less complicated Tax Code. Some “reform”!

            Trump wants to help American workers and if raising tariffs does that, then he might push for it. That is yet to be seen. [???]

            What the fuck are you talking about? Is this supposed to be again an experiment to find out the obvious? Tariffs are a TAX. Tariffs do NOT help anyone, not even the industries that the tariffs purport to help, precisely because it means a huge transfer of capital from more productive to much LESS productive endeavors, i.e. government.

            Massive immigration legal and illegal is not per se conductive to economic growth.

            You haven’t a clue of what you talk about. Immigration, doesn’t matter the kind, IS conducive to economic growth because of THREE things: COMPARATIVE ADVANTAGE, DIVISION OF LABOR, and SPECIALIZATION.

            Trumpistas never fail to grab every opportunity to showcase their economic ignorance. You’re evidence of that truism.

            1. You would prefer Hillary?

              1. Re: Philadelphia Collins,

                At least with Hillary at the helm she would still be limited by a hostile House and Senate, plus there would be NO way anyone could claim that Capitalism is the reason the economy goes ka-blooey in her face, not with any semblance of seriousness at least.

                Now with the p…y grabber being the very face of ‘Capitalism’ for at least a generation (whether we like it or not), us liberty-lovers face a much tougher road ahead for our promotion of freedom and markets.

                1. Ok, I’m ignorant. What tariffs?

                  1. The ones in OM’s demented brain. He is an open borders anti-Trump moron; open borders and private property are incompatible. Guys like him say that Trump was bragging and exaggerating about everything…until he claimed to grab some woman, and then he was telling the gods’ truth. Completely subjective reality.

        2. The fiction that it expires in 2025 is the lie that always needs to be told to get something passed.

          If we can reduce the number of people who benefit from government largess, then the tax relief will be extended.

          If we can’t, we are all screwed anyway.

          In either case, you can’t really blame the Republicans for playing the hand they were dealt.

          Besides, there is no shortage of other things you can fault them on…

        3. Let’s list the trade scenarios between two countries, from best to worst, OMS.

          1. Completely Free Trade
          2. Mostly Free Trade
          3. One country trades freely while the other restricts it aggressively
          4. Both countries restrict trade aggressively

          So, how do you get from 3 to 2, or from 2 to 1? Ask nicely? Threaten to bomb them? Convince corrupt despots that Free Trade is better for their people, even if they cannot so easily line their own pockets?

          Your TDS blinds you to what Trump is actually doing, and it is something he ALWAYS does: Takes an extreme position to get a better deal. If trade is less free overall by the end of his 4 or 8 years I’ll admit I’m wrong, but I don’t see it happening.

          1. Re: Deven,

            So, how do you get from 3 to 2, or from 2 to 1?

            Who the heck is “you”? Why do you think it would matter if the other country punishes its own people by imposing on itself what other countries do to it in times of war?

            Your TDS blinds you to what Trump is actually doing[…]

            Your lack of economic sophistication hinders your intellect to the point you would believe such claptrap. The p…y grabber is not trying to get a “better deal”. He’s not negotiation for himself. Neither you nor him understand that only INDIVIDUAL HUMANS OF WILL trade, not “countries”. The ONLY solution to trade barriers from others is to allow MORE trade, not less. The only ones suitable to get “better deals” is each individual person, not the p…y grabber.

            1. Why do you think it would matter if the other country punishes its own people by imposing on itself what other countries do to it in times of war?

              This shows that you are nothing but an abject retard. The rest of your post is pure self-contradiction. Also, fuck off.

              1. Re: Deven,

                This shows that you are nothing but an abject retard.

                Translation: “I don’t have a good answer so I will just throw bombs at you.”

                Trumpistas are a silly bunch.

                1. You didn’t answer any of their questions, and instead insulted them, and this makes them the bomb thrower. Cool beans?

                  1. What questions? You’re making stuff up.

                    1. Not sure how it serves you to deny what is written above, but you keep doing you.

          2. “Your TDS blinds you to what Trump is actually doing, and it is something he ALWAYS does: Takes an extreme position to get a better deal.”

            The most insightful comment ever appearing on Reason.

            (btw i posted the same thing 18 months ago)

        4. The “Tax Relief” you so highly tout is ‘so good’ it is set to expire in 2025.

          Because if it didn’t, the Democrats wouldn’t have let it get past a filibuster.

  7. Capitalism also including the freedom to spend/invest/loan one’s capital as one sees fit is really the only way that works.

    1. That may be, but do you want to arguing political practicality or political morality when it comes to what you believe ?

      1. When I have freedom from government control on my capital, I don’t need to argue about anything political.

  8. Consider China in 1492, which had long peace, excellent property rights, enforcement of law, absence of crushing intrastate tariffs (a contrast to Europe), and plenty of capital.

    Also, one of the things that really hammered China after 1492 was an influx of silver from Spanish mines in South America, which led to runaway inflation and failed attempts to impose fiat currency. Charles Mann’s 1493 has an excellent account of this.

    1. Spanish silver? I thought that was Spain.

      1. Trading has always been a main part of human societies, dawg.

        The silver was brought up from what’s now Bolivia and then went in one of two directions – either across the Atlantic to Spain and thence the rest of Europe, where it also caused rampant inflation (as well as funding all kinds of religious wars), or across the Pacific via the Manila galleons, where Spanish agents in the Philippines traded it to Chinese merchants for porcelain and silk.

        1. Yes, but the issue is that the word “inflation” is being misapplied.

          Inflation is in reality the rapid increase of the money supply through credit expansion. That is what it IS. Bringing silver from Bolivia is not inflation. It may lead to sellers asking for a higher price after seeing that your wallet is loaded but that’s not inflation per s?.

          That wasn’t what hammered China. I don’t trust such a thesis. What happened in China had to do more with politics and the fear of Japanese aggression than Spanish silver.

          1. Inflation is an increase of the supply of money. Full stop. It does not matter if it is an expansion of debt backed fiat currency or a sudden influx of new hard currency into the market. It is always too many dollars (or pieces of eight) chasing too few goods.

            1. Re: Mickey Rat,

              Inflation is an increase of the supply of money. Full stop.

              That’s not correct, M. That gives a very distorted definition of reality. You may find the mother load and increase the money supply in terms of gold but that per se is not inflation.

              Inflation is the rapid increase of the money supply due to credit expansion. That is what it IS. Just dropping gold coins on to the street is NOT inflation. Expanding credit IS what leads to inflation.

              The same error you make is what others make when defining DEflation, which they put in terms of lowering prices. But that is not what deflation is nor how it should be defined. Deflation is not merely lower prices. It’s the correction that happens after the credit expansion stops.

              1. You’re wrong.

                Inflation

                The reason you might think that is because, if you cracked open an economics textbook, they might not have felt that it was necessary to talk about currencies that aren’t non-convertible fiat currencies.

                1. Re: BYODB,

                  This definition: “In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time” is completely and totally incorrect.

                  Is the fact that prices rise after a catastrophe “inflation”, or merely the result of increased demand? That definition is like defining gravity as “the general fall of objects to the ground”.

                  Inflation IS the rapid increase in the money supply due to credit expansion. That is what it IS. That is what causes a “general rise in the price level”.

                  Go and showcase your ignorance to someone who loves you or something. Here, you’re looking ridiculous. Or learn some economics for a gawd-damned change.

                  1. All I did was cite something Speedo. Feel free to do the same.

              2. You are 100% correct.

                There CAN be no inflation when commodities are monetized. Turning gold/silver into a coin – and then dropping it somewhere can’t possibly lead to inflation. Nothing new has been created or consumed. Not even the seigniorage is inflationary as long as the coin is accepted for its monetary functions/value. It’s also why Say’s Law works – when money is coins/commodities or some other existing surplus. That excess supply can simply be turned into coins (monetized) and is then demanded as savings (money) rather than being consumed.

                It is the credit/banking system that creates the disconnect between the existing economy today v some expectation of what it will be tomorrow – and that disconnect is what leads to inflation/deflation (ie money gets out of whack with real goods).


                1. There CAN be no inflation when commodities are monetized. Turning gold/silver into a coin – and then dropping it somewhere can’t possibly lead to inflation.

                  But when you import more silver, and silver is your medium of transaction, it would reduce the value of your medium of transaction as you HAVE increased it’s supply. Correct?

                  1. Correct?

                    Price levels of ‘stuff’ relative to ‘money’ might change – but that’s not inflation. If you have imported that silver, you have exported something else. That something else could have been monetized. It was surplus – it wasn’t consumed – that’s why it was available for export. And once its exported it can’t be monetized – but you now have the silver which is monetized.

                    1. And the devaluation of the currency as a result of the inflated supply of the commodity it consists of would be called…?

                      I’m looking for a specific economic concept I can look up, here. If it’s just your own extrapolation, just say that. My guess is that this predates any semblance of modern economics and perhaps there simply isn’t a modern analog beyond the concept of inflation, but that’s a guess.

                    2. And the devaluation of the currency as a result of the inflated supply of the commodity it consists of would be called…?

                      Changes in prices? Even the well-studied ‘inflation’ of the 16th century – where Europe essentially got a huge silver dump with very little exported in an arm’s length transaction (some labor exported, lots of shipbuilding) is only a partial TRUE inflation.

                      The true inflation is that the Hapsburgs sold Spanish mercury (necessary to process gold) and Austrian silver/copper mines to the Fuggers for a loan in 1519 – BEFORE they even landed in Mexico/Peru when gold/silver were scarce/expensive – went to war with most of Europe for much of the 16th century – and then when the price of silver kept dropping relative to loans they went bankrupt repeatedly (1557, 1560, 1575, 1596, 1607, etc) – and had to fight more wars. That is a credit disconnect that seriously affected Spain long-term – but not ‘Europe’. Partially why the Salamanca school were the first modern ‘economic’ thinkers.


                    3. Price levels of ‘stuff’ relative to ‘money’ might change – but that’s not inflation.

                      Yes, but that’s not what I’m saying. I’m saying that when you use commodity money that expanding the supply of the commodity that is your currency results in the same effect as inflation. That being higher prices in terms of your commodity money, or put another way a reduced value of your currency.

                    4. Actually that’s sort of what I’m saying, it’s only ‘different’ in that the particular commodity is also the medium of exchange which has it’s own set of consequences that creates a price-changing effect throughout all commodities that are valued, in this case, in silver.

                    5. when you use commodity money that expanding the supply of the commodity that is your currency results in the same effect as inflation.

                      Only if you define inflation as ‘changes in prices’ but that’s kind of circular. The only inflation risk of commodity money is with a commodity disconnect – when you SAY you are monetizing barley but you actually issue a metal coin (or a banknote) and when someone comes to redeem the barley backing the metal – but the barley has rotted and the coin is still there. NOW you have actual inflation – but that is actually a credit problem (barley now v same barley in two years) and a seigniorage calculation (need to discount that money by the cost of keeping barley inventory ‘exchangeable’) problem.

                    6. Are you trying to say that ‘changes in prices’ are the same as ‘devaluation of currency’. Honest question, because that seems to be what you’re saying. Maybe I’m the one confusing the issue by saying both things, but I’m not trying to say that both things are the same. Merely that both of those things could happen.

                    7. when you use commodity money that expanding the supply of the commodity that is your currency results in the same effect as inflation.

                      Caveat here – if you are EXPANDING the supply of that monetized commodity, then yes that can look like inflation. But what is actually happening in that case is a producer subsidy because the monetized price was set too high. It is that subsidy – not the monetization itself – that results in new capital being diverted to produce more of that commodity. The monetization itself only stabilizes the price of the thing monetized within some range.

                      I used the phrase ‘existing surplus’ in my first comment and that ‘existing’ word is important.

                    8. I’m baffled on why I can’t find this definition of inflation anywhere, then, including in college textbooks. I’m assuming it’s high-level economics concept since I wasn’t exposed to this definition in my undergraduate classes and indeed can find no reference to it online.

                      I’ve only ever seen it used in conjunction with higher prices based upon money supply, regardless of what type of money is being used.

                    9. I’m baffled on why I can’t find this definition of inflation anywhere, then, including in college textbooks.

                      Probably because they can get away with not defining ‘dollar’ or ‘money’ very well either. ‘Inflation’ is a function of those two over time. It’s not high-level econ – but you have to have been a student asking assholish questions – like WTF is a dollar? So you’re saying all money is a loan (aha moment – so increased money = increased loans – so does inflation result from the extra money or the loans?)? What happens if everyone pays off all their loans, does money just disappear? Was it always this way? Didn’t money exist before banks? I thought gold WASN’T a loan – so it would obviously still be around if loan-money all disappeared. And what about that POW camp where cigarettes were money – no bank loans there and no one sitting on a pile of cigarettes either.

                      At that point, they will usually want to shut you up so they’ll send you off to some Economic History class. And if they’re a good teacher, they’ll make you read original source material (not a textbook) from the days when there were lots of potential different ‘money options’ and lots of arguments about all that. And you will forever be stuck in tinfoilhatland with Hayek and Silvio Gesell and the chartalists and the bimetallists and the goldbugs and the circuitists and the MMT crowd. And there went any possible banking career.

          2. So what word would you use when ‘money’ exists only as a commodity? Also, which economist are you going to cite from 1492? Oh, right, that’s the wrong word because they didn’t exist.

            1. Re: BYODB,

              So what word would you use when ‘money’ exists only as a commodity?

              Rising prices. But not “inflation”.

              Also, which economist are you going to cite from 1492?

              Do I need to quote a physicists from 1492 to talk about physics?

              1. Since inflation describes rising prices, I’m afraid you attempt at pedantry has failed.

                1. Re: BYODB,

                  No, you’re confusing what others write in their glossaries and what is actually just one EFFECT of inflation which is precisely “rising prices”. The CAUSE, that is, inflation, IS the rapid increase of the money supply due to credit expansion. That is what the PHENOMENON is.

                  1. So a rapid increase in the money supply through importing more physical medium of transaction isn’t inflation. Ok. What is it? Feel free to cite something now.

                    1. And for the record, even while it’s Wikipedia, you might have missed this bit:


                      Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.

                      No caveats, no mention of a distinction between ‘commodity currency / commodity money’ or non-convertible fiat. That could very well be an oversight on the part of Wikipedia, since it’s garbage, but unfortunately my economics textbooks are at home. I don’t recall any distinction from college, either, although it was a while ago and it was never my actual major.

                    2. Re: BYODB,

                      Economists generally believe

                      That’s not a definition. The phenomenon and its definition does not stem from a belief.

                    3. Re: BYODB,

                      No, importing a commodity is not inflation. Even if the importation was rapid, there is still a physical constraint when importing such commodity which limits the rate of change.

                    4. Are you allergic to citations, or do citations disagree with your opinions? Maybe you can answer something more binary.

                    5. Re: BYODB

                      Are you allergic to citations, or do citations disagree with your opinions?

                      Mine are not opinions nor assertions. They’re statements of fact: inflation IS the rapid increase in the money supply through credit expansion, your citations notwithstanding.

                      You’re confusing phenomena with the same thing, but it is very simple to understand:

                      * Just increasing the quantity of commodity money from one source is not in itself ‘inflation’ since the market quickly accommodates itself to this new quantity, even if it were rapid.

                      * Credit is not merely loans from a bank, even when credit expansion is mostly driven by fractional reserve banks. But money can also expand when governments issue DEBT by issuing money, like the French Assignats or the revolutionary Continentals, which were promises to pay in specie. As governments issue more money which is backed up the same amount of commodity or even less commodity, you get credit expansion – inflation.

                    6. Look Speedo, you saying a thing is a fact is a lot different than a citation. I can just as easily say that the definition of inflation I cited is a fact, but you’ll note in that instance my personal credibility isn’t the important consideration. Hell, you didn’t even attack the source.

                      I do appreciate your oblique answer that yes, you are allergic to simple citations. We’re done now, I think.

                    7. Inflation is when the demand for money falls relative to supply of money (or if you prefer, supply of money increases relative to demand).

                      Increasing the money supply often causes inflation but does not necessarily; at the same time, even without an increase in supply, if demand for money falls, you get inflation.

                      That’s it really. An increase in supply/demand.

                    8. Flip that over, and that’s why the gold standard failed as a currency base. As Friedman asked so brilliantly, “Do we want stable prices or a stable money supply?” We can’t have both, obviously, unless somebody repeals the Law of Supply and Demand. Gold caused constant DEflation for over a century (except wartime monetary expansion). As the Industrial Revolution exploded the demand for money, much faster than the Supply could keep up. Going bimetallic, adding silver, confirms the failure of gold. But even silver couldn’t correct the problem..

                      19th century capital was boosted by the deflation. But that also forced worker wages down, at the same time Marx was railing against the “exploitation of the working class.” That was caused by gold (deflation), not by capitalism, which is why we need an honest depiction of gold’s failures.

  9. This was a fantastic article, really enjoyed reading it!

  10. “Capitalism” is poorly named.

    Private Enterprise should be used. Private Enterprise in a Free Market system best describes what we are getting at.

    A government owned/run enterprise (say, the post office) requires “capital” to launch, but it’s not what we mean by “capitalism”.

  11. Actually, through all of human history, there has been plenty of “waterism”. Even pre-monetary societies manipulated, stored, and invested water resources, first for food production, and then for mechanical energy.

  12. Free market? Private Enterprise? Why can’t we call it what the nation was founded on: Individual Liberty !!

  13. Skousen told me that “the scarcity of investment capital has kept us from advancing as fast we could.” No, it hasn’t

    This 10000% Dierdre. I’m stunned that a guy like Skousen can still, presumably honestly, still spout this nonsense about capital’s unique scarcity – that leads inevitably to an ism that puts capital at the center with everything else subordinate. If capital is scarce, then why are banks/finance sector paying NOTHING to those who create capital by saving.

    Labor finances itself. Whatever it produces, it produces BEFORE it gets paid. If there is one aha moment from Henry George – this one is it – not his land stuff. Capital finances only itself.
    Land is certainly limited – but the limit is more about the terms of legal ‘ownership’ v ‘usufruct’. That ‘societal’ decision can tilt the field as to who benefits from growth – but the resource itself is limited and cannot itself grow with growth – no matter what the decision is.
    The only real scarcity is the entrepreneur who mixes all those three production-side factors to fulfill a demand-side need/want. And what an entrepreneur needs is the liberty – to upend the status quo.

    1. “Labor finances itself. Whatever it produces, it produces BEFORE it gets paid.”

      No, this isn’t completely true. Or even mostly true. Skilled labor almost always requires a capital investment in training and tools.

      1. And they finance that training themselves – by spending their time ‘training’ rather than ‘producing’ – with a payoff ‘in the future’ sometime. IOW – they get ‘paid’ AFTER they produce their own training. Which means – the tools (the capital) only need to finance themselves too.

        1. Even the entrepreneur doesn’t need financing – in the sense that that is meant. Financing in that sense is the status quo itself buying into his idea. But by definition that means the status quo is NOT being upended. That ‘change’ is being controlled by the status quo – and the ‘need for financing’ is simply the rationale for eliminating the ACTUAL liberty to upend the status quo. IOW – the promise to the entrepreneur is You can get rich – but you can’t actually change anything.

          1. Does that include Henry Ford? He got rich and changed the ways of production of goods.

            1. Ford had huge problems with his early capital investors (not his sweat-equity managers though) – who ended up forming Cadillac, Dodge, AeroStar – and costing him a ton to buy them out from their Ford stake later. The reality is that he only actually needed working capital since his company was wildly profitable and self-sustaining by month 4 – with 300% dividend returns paid by year two. Did it make those early years easier not having to deal with short-term factoring finance? Sure but that was a very expensive decision to make. And that was all nearly a decade before his assembly line innovation (1913) and his $5/day pay innovation (1914) which only occurred after he bought out or bought down to ‘passive status’ the original capital investors.

              IOW – that liberty only occurred after he got rid of the ‘need for financing’ – and in fact after his investors became his competition. He’s unusual in that he was still hungry even after he became rich.

        2. And they finance that training themselves – by spending their time ‘training’ rather than ‘producing’

          They write their own paychecks? Who knew?
          The capital investment is needed to finance the training ON those tools, to the extent that the training minimizes or replaces the production that workers would otherwise be doing. e.g.., when the wages are not a direct cost of goods sold.

      2. Re: JWatts,

        Tools and training do not exist by themselves but are the result of the interest in increasing the productivity of labor. You still need labor and you still need previous production.

    2. If capital is scarce, then why are banks/finance sector paying NOTHING to those who create capital by saving.

      We call it the Federal Reserve.

  14. The liberating ingenuity in human minds is what mattered

    Yep. The problem with the word ‘capitalism’ is that it can be used to justify plundering the wealth of others. Which ironically was the appeal of Trump – to ‘take the oil’ and round up illegals and take their houses and cars (and pave over the inner cities to create condos). This is why people cheered for him. But the real innovation of capitalism (sorry) is freedom. Marxism teaches its adherents to be envious of the rich and blame them for all their ills even though their innovations improved their lives immensely.

    1. “Which ironically was the appeal of Trump – to ‘take the oil’ and round up illegals and take their houses and cars (and pave over the inner cities to create condos). This is why people cheered for him. ”

      That’s not remotely true. Did you say it as propaganda or are you delusional?

    2. size isn’t everything. how those improvements are distributed matters too.

  15. “That we insist on ruminating on something called “capital” does not prove that its accumulation was in fact unique to modernity. ”

    Is that a straw man argument? That would seem unlikely from McCloskey. However, I’m not familiar with anyone making this claim.

    1. “Is that a straw man argument? That would seem unlikely from McCloskey. However, I’m not familiar with anyone making this claim.”

      That’s not remotely true. Did you say it as propaganda or are you delusional?

  16. Consider China in 1492, which had long peace, excellent property rights, enforcement of law, absence of crushing intrastate tariffs (a contrast to Europe), and plenty of capital. China built the Great Wall and the Grand Canal with ease, putting even Roman capital projects into the shade. Yet it did not see the explosion of ingenuity that would ultimately enrich northwestern Europe, which was little more than an appalling, quarrelsome backwater in 1492.

    Since when do libertarians celebrate massive government projects as examples of capitalism?

    And your commentary about ~1500 AD Europe is just laughable. Technology continued to march forward after the fall of western Rome. Developments continued in the Byzantine Empire until their collapse, and by the time they fell in the mid 1400’s the Renaissance was well under way in Western Europe.

    1. What China lacked was not capital or institutions or science or coal, but Adam Smith’s “liberal plan of equality, liberty, and justice.” Liberating ordinary people inspired them to extraordinary ideas, which in turn redirected the capital, the labor, the liquid water, and all the other necessaries.

      Remember kids: The Great Wall of China wasn’t some centrally-planned big government program. It was the free market! The same with the Grand Canal! That water was redirected by the invisible hand of the market!

      1. This is an impressive misreading.

    2. “Since when do libertarians celebrate massive government projects as examples of capitalism?”

      Is the author saying that is the case?

      Those projects got built because the state expropriated large resources. The projects weren’t built as a calculated attempt to get a return on capital as an entrepreneur would do. In fact the expropriation of those resources would have led to the opposite, transferring capital from those that would have used it to create wealth based on actual demand.

      The author goes on to say:

      “What China lacked was not capital or institutions or science or coal, but Adam Smith’s “liberal plan of equality, liberty, and justice.” Liberating ordinary people inspired them to extraordinary ideas, which in turn redirected the capital, the labor, the liquid water, and all the other necessaries.”

      The “liberating ordinary people” means, in part, protecting them from such expropriation allowing real satisfaction of demands and the creation of a virtuous circle of investment and return.

    3. Since when do libertarians celebrate massive government projects as examples of capitalism?

      Start with the words, “Yet it did not see …”

  17. While I do agree with McCloskey’s theorem that liberty breeds explosive growth, I do take issue with her claim that capital accumulation is not a requirement to fuel this growth. I believe that both Skousen and McCloskey are making each a sine qua non argument (one for capital and the other for liberty) when the answer is that both capital and freedom are needed in order to spur the kind of growth seen in the late part of the 18th and all of the 19th Century onward.

    it is true that Marx more or less coined the term “Capitalism” but I think letting Marx define the term is a mistake. Marx’s proposition is that Capitalists steal from workers, by giving workers a wage that has a lower value than the work they applied on production. In order to get to this conclusion, he figures that labor is equally productive whether you grow tomatoes for your own consumption or you work at a factory. Supposedly, what Capitalists have done is strip the laborers from their means of production (land, what have you); laborers, devoid of the means to produce, as the serfs of old, now have to work for the Capitalists who pay them a wage far lower compared to the real value of their production. This is what the Labor Theory of Value is all about: Capitalists paying the workers a wage with a value much lower than the real value of their work and thus pocketing the profit.

    1. Of course this is all nonsense. Eugen von Bohm-Bawerk elegantly debunked Marx’s claim. We don’t need to get into that, though. Sufficient to say is that Capitalism is a PROCESS where Capital (postponed consumption, savings) Capital Goods (land, tools etc.) and Labor are used in conjunction to transform goods of a lesser value into goods of a higher value, for the purpose of trade and wealth accumulation. That is what Capitalism IS. It is not the “Free Market” per se but actually the RESULT of a Free Market, Freedom and respect for Property Rights. Capitalism IS an expression of liberty, the result of liberty.

    2. Marx defined the term as an ism. It’s not a mistake of ‘letting him define it’. He did define it. That is just reality. The mistake is pretending that the word can now be redefined (rereappropriated or geuzennaammed or gesundheited) into something else that means something else and that the Marxist definitional baggage won’t then exist anymore. That’s what happens when people defend ‘capitalism’ – and think they mean ‘free markets’ – but in fact they’re not really describing anything different than Marx described – and often making the same mistakes Marx did but justifying them. Anarcho stuff like Rothbard ends up defending ‘capitalism’ based on – labor theory of property in land. WTF?

      Ricardo used the word ‘capitalist’ – but he was clearly using the word to mean financier/owner AND entrepreneur AND manager/executive/agent/employee. We don’t have that restriction anymore. We now have three very different terms that mean very different things and that are quite easy to distinguish/explain. IMO – muddying those three terms back into one actually serves to diminish the liberty of the entrepreneur – and actually FURTHERS the Marxist distortion.

      1. Re: JFree,

        muddying those three terms back into one actually serves to diminish the liberty of the entrepreneur

        Why would that be? An entrepreneur merely takes advantage of dislocations between supply and demand, for what else if not to accumulate wealth. The problem is not that Marx defined Capitalism or Capitalist one way, but that people still apply their moralistic hangups on that term due to economic ignorance.

        1. The entrepreneur takes on the risk of all that. If she decides to produce a billion purple dresses – and has either made an assessment mistake or can’t create the demand for the product, then that product becomes purple rags. Both the upside and the downside are entrepreneurial – and not just at the margin (where only the billionth purple dress becomes a rag cuz it can’t be sold). Capital (via say equity instead of debt) and labor (via lower pay w options v higher wages) may take on some of that entrepreneurial risk – but that is (or should be) a very different economic decision because it is a different economic factor.

          I’d argue that exploitation (even in the Marxist sense) is nothing more than those other factors being deceived about the risk/rewards – so they end up paying the risk and not receiving the reward. In economic terms though, that’s just information asymmetry. Which isn’t easy to fix but is completely irrelevant to some capitalism/socialism framing of anything – since that asymmetry can easily exist in both capitalism and socialism and any other ism.

    3. I do take issue with her claim that capital accumulation is not a requirement to fuel this growth

      Not what she said..

  18. Yet the historical and economic evidence tells against this thinking. Pour capital into Ghana, yet it fails. Don’t give China a cent, yet it succeeds.

    I say that this is an oversimplification. It’s possible that if you pour capital into Ghana, you won’t see a dime in return because Ghana is a place where property rights and freedom are curtailed and attacked by government bureaucrats or other criminals of a similar nature. But don’t say Capital doesn’t help.

    And it is not true that China succeeded without capital, because that is not the case. The path to growth from 1978 onward was painful and slow, precisely because of how little capital there was available for average Chinese. It wasn’t until there was enough capital accumulation that you would see the surge of production in China, adding to that all capital coming from investors from abroad. Freedom is the first step; capital is the next.

  19. Waterist pigs

  20. McCloskey is an interesting economist. I studied out of her “Price Theory” textbook as an undergraduate back in the Reagan years, and have always found her to be clear and, generally, correct. But I think she places too much emphasis on the notion that it was the idea that earning rents from owning and using capital was a good thing that led to the the explosion in growth in the west in the 19th century. The older generation of economists, like Douglas North, attributed the growth spurt to well defined property rights. I have a lot of sympathy for that, except that when you read Acemoglu and Robison’s book “Why Nations Fail” you find anecdotes about how the English tried to replicate in North America what the Spanish did in South America — i.e., plunder and exploitation by the elites. It failed in North America because the indigenous populations were about 5% of their pre-contact levels, and they were happy to have people join them. So there was an outside option. And that is why institutions in the west became pro-freedom. Other economists, Gregory Clarke in “Farewell to Alms” and Michael Kremer in a paper published in the Quarterly J. Economics, argue that we escaped the Malthusian trap — where higher productivity just leads to a higher population — because people finally got rich enough to start investing in their children’s education, rather than just letting the little buggers run loose. McCloskey ignores all of those developments, to her detriment.

    1. Well said.

      1. Well defined property rights
      2. Well defined contract law

      Capital will flow where it is wanted and stay where it is well treated. –Walter Wriston

    2. Don’t forget the gold standard, which failed to provide stable prices throughout the 19th century (except the two wars).
      The steady DEflation was not nearly as severe as Bitcoin today, but Bitcoin is an investment not a currency.

    3. Perhaps you might read more of my recent works on such matters. At any rate before declaring that I “ignore” them.

  21. “That we insist on ruminating on something called “capital” does not prove that its accumulation was in fact unique to modernity. And it is not. Romans and Chinese and human beings back to the caves have always accumulated capital…”

    We humans have always accumulated capital but what’s unique to modernity is that it’s not Romans or cavemen but capital which accumulates capital. That’s how the wealthiest among us are so successful. Not through their genius or hard work, but thanks instead to their wealth’s ability to attract more wealth.

    1. That ‘capital accumulating capital’ exists mainly because of Marx. He chose to ignore land and its return (rent) – unlike classical economists like Ricardo/Smith/etc – and morphed it into ‘capital’. That error was repeated in neoclassical/marginalist economics – which meant the return on capital now included both interest and rent. And then doubled down in the 20th century when we finally understood the entrepreneur as a separate/unique economic factor – but couldn’t figure out what to call ITS return (sweat equity, profit, etc) so we stuck that in capital too. And then doubled down again when we separated capital from savings so it no longer actually means anything in an economic sense – but it receives pretty much all the incremental economic value created.

      1. Thanks for your insights. I could use all the help I can get when it comes to finance and economics.

  22. It’s a good argument. And why Rand redefined capitalism:

    Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.

    Capital not even mentioned, and property rights merely as a function of individual rights.

    But sometimes it’s too much bother trying to reclaim a word, and why many use other terms to describe their economic and social stances.

  23. Uh-oh, this will drive the goobers INSANE. They’ll never notice that she says liberty (etc) is a greater component than capital alone. Those memorized slogans …. the same folks who are blissfully unaware WHY the gold standard FAILED to provide stable PRICES for over a century. As Friedman asked, so brilliantly, “What do we want, a stable money supply or stable prices?”

    We cannot have both unless somebody repeals the Law of Supply and Demand. What are the odds?.

  24. Of course, of course, those Chinese serfs all enjoyed full liberties under the dynasties.

    In fact, in China under serfdom, social and economic mobility were so within reach that the 1949 revolution was not even necessary.

  25. It is valid to distinguish various systems that are called “capitalism”, but the statement about the past is totally misleading.

    Chou dynasty China in 1000BC was extremely feudal, and the nobles controlled just about all activity. It was difficult — perhaps impossible — to become economically independent through business, let alone rich and powerful. By contrast, Song dynasty China around 1000AD was intensely commercial, and only the details would seem strange to us.

    Hunter-gatherer peoples did not accumulate capital, or anything. Indeed, they had no way to gain future advantage by making and preserving things of value. Therefore, they caught and gathered food only for the day, and enjoyed lots of leisure. It was the development If agriculture, or in some places smoking fish, so that it was possible to save food for later use, that it made practical sense to work hard to accumulate something.

  26. Could not agree more. Have been pushing the same argument for several years. I suggest returning to “laissez faire,” for that is what it was called before Marx, and that is what he aimed at in his DAS KAPITAL. Since the key ingredient of our beloved system is freedom–not capital–I suggest replacing capitalism with “free markets.” It is a lot harder to attack freedom than capitalism. “What is it about freedom you don’t like?”

  27. You could have written that much simpler and shorter. You simply disagree with an observed definition of capitalism. You think ideas, liberty, property rights, etc…, are an equal or greater part of capitalism. That’s what I got out of this jibber jabber. I think you’ll find that many people agree with you and no libertarians I know see the roots of capitalism defined by the accumulation of capital.

    1. You seem to have missed the point.

  28. Ugh, this bullshit myth again. “Capitalism” predates Marx, as does the use of “capitalist” as a pejorative. In fact, some of the first people to use “capitalist” as a pejorative were radical free-market liberals like Thomas Hodgskin (a die-hard defender of free trade… REAL free trade); class analysis itself came out off the classical liberal tradition through writers like Charles Dunoyer and Charles Comte.

    This conflation of “capitalism” and “free markets” needs to die before the former can do any more damage to the latter. ‘Reason’ contributor Sheldon Richman has a great essay on the topic. (Read by Stephanie Murphy.):

    “What Laissez Faire?”
    https://www.youtube.com/watch?v=xEXay4X99M4

    1. You cannot make sense to these faux-libertarian goobers.

  29. I strongly agree with McCloskey.

    Capitalism is a particularly inappropriate term to describe free markets. Capital, that is to say the tools of production or the money to purchase them, is just as necessary under socialism, communism, fascism, or even feudalism. Although free markets encourage the accumulation of productive capital more than the coercive alternatives, what really
    distinguishes free markets from the alternatives is freedom.

  30. “t nobody wants to call it waterism or peaceism”

    citation?

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