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"Capitalism": The Known Reality

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 this 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 here, 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.

Some of this discussion can be viewed as a complement to Arthur Silber's discussion here, and Gus diZerega's comments here. 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.

Cross-posted to L&P, where readers may post comments. See follow-up discussion here, here, here, here, here, and here.