According to the Online Etymology Dictionary, the word, “capitalism,” was invented by socialists in 1872 to provide a name for everything they opposed. The word has never been very clearly defined and has become essentially meaningless in current common usage. Both supporters and opponents of capitalism use the word to describe a variety of very different political economic activities. In my 1970s introductory economics course we were told that capitalism was an economic system with private ownership of capital; I will address that definition in a bit. The root word, “capital,” is older and has been used since the 15th century to mean “wealth employed in carrying on a particular business.”
According to the same source, the word, “socialism,” was introduced by reformers Pierre Leroux and Robert Owen in the 1830s. I don’t know much about Monsieur Leroux, but have read quite a bit from various sources about Mr. Owen and his vision. Robert Owen was a wealthy British businessman who wrote inspiring articles and made inspiring speeches lamenting the social and economic disruptions that were accompanying the industrial revolution and promoting a system he called “socialism” as the solution. He eventually put his money where is mouth was by founding an experimental community in the wilderness of North America. Other “Owenite” communities soon followed suit. But his inspiring visions and sweeping generalizations did not perform as well as the market-based traditions that had evolved over thousands of years, and the Owenite communities all failed. Since then, hundreds—perhaps thousands—of attempts have been made on various scales around the world to implement one variation or another of the socialist vision, and all but a few small communities have been failures. (For a rare exception, check out Amana, Iowa.) In introductory economics they taught us that socialism is an economic system with public ownership of capital. In current usage, the word, “socialism,” has become almost meaningless, as it has been used to describe a variety of political economic activities with little in common.
To understand the definitions of “capitalism” and “socialism” that I learned in economics class, one must understand the words, “private” and “public.” In current practice, a business that is entirely owned by members of the general public is called “private.” A business may be owned directly and indirectly by over a hundred million members of the general public and still called, “private.” A business controlled by a small cadre of unelected government officials who are unaccountable to the public is called “public.” In many cases, the interests of managers of private businesses may be more closely aligned with the interests of the general public than those of managers of public businesses.
The original vision of socialism did not require government ownership of capital, but that seems to be the vision of our prominent modern socialists, based on their words and actions. Compromise systems have been tried, such as fascism, wherein government has essentially total control of the use of capital, but allows a portion of the capital to be nominally privately owned. In fascism, private owners who resist government edicts soon find their capital taken away and given to someone more agreeable. (They may suffer other consequences as well).
The United States, today, has a mixed system, with some capital owned by the people, and some by the government, with many private businesses under such tight government control as to be considered borderline fascist.
Now that we’ve defined these familiar terms, I would like to introduce a couple of less familiar, and possibly more-useful terms. In a speech to economics educators, economist and theologian, Paul Heyne, mentions that long before the word, “capitalism,” was coined, moral philosopher, Adam Smith, used the term, “commercial society,” to describe an economic system wherein people could obtain and provide goods and services through voluntary exchanges. This type of system is commonly opposed by critics of “capitalism.” Heyne, suggests using the term, “market economy,” as an even simpler and clearer description. (Smith would not have used that phrase because the word, economy, had a different meaning in Smith’s day.) Either one is a better choice than “capitalism.”
Instead of socialism, we might say, “planned economy.” That sounds much better than calling it coercive. Of course, planning is pointless unless one has the power to implement the plan, so planned political economies are necessarily coercive.
The phrases “market economy,” and “planned economy,” instead of the worn-out buzzwords, “capitalism,” and “socialism,” more-clearly express the choices we face as we decide what sort of world we want to live in.
Posted 2022/08/02