Why is Capitalism is a Dirty Word?

By David Strom
Wednesday, February 21, 2007

Why is "Capitalism" a dirty word for some people?

It makes no sense at all. Since the decline of feudalism and mercantilism, the rise of capitalism has given us the most remarkable expansion of wealth, health, and general well-being that the world has ever seen.

In the last few centuries, our life spans have doubled, our wealth has expanded immeasurably, our educational attainments are unparalleled in human history, and our productivity growth has allowed us to enjoy leisure and entertainment inconceivable only a century ago.

All these facts are certainly attributable mainly to the development and expansion of capitalism and the division of labor that springs from it; yet with few exceptions intellectuals and many others consider capitalism with suspicion and even hostility.

Why?

It seems to me that the term itself puts people off. After all, if you think of the three major economic ideologies, Capitalism, Socialism, and Communism, one has as its descriptive root “capital” which usually means money, while the others both refer to human relations themselves. In short, it looks like capitalism focuses on money, while socialism and communism focus on people.

Who would prefer an economic and political system that focuses on the good of money or capital versus one where the good of people comes first?

But of course, history and experience show that a liberal society with a capitalist economic system is infinitely superior to the command-and-control communist model, and a far better wealth and well-being generator than the increasingly creaky democratic socialist states seen in much of Europe. (The average European Union citizen is only 70% as wealthy as the average American, and falling further behind).

Adam Smith, the iconic economist and philosopher of Capitalism had a much different way of describing our system than we use today. Smith did not call what he was describing and advocating for “capitalism;” instead the term he used was in many ways superior, if not as succinct: “the system of natural liberty.”

Smith’s formulation is superior to the term capitalism, if for no other reason than it defines one of the great moral differences between free market economics (capitalism) and its more statist rivals: capitalist economies are free economies with free people, while socialist, communist, and fascistic economies are characterized by central planning and control, which requires some level of coercion.

Milton Friedman’s most famous work, Capitalism and Freedom, drives home this point. Friedman argues correctly that economic and political freedoms are indissoluble. You simply cannot be politically free without economic freedom. It is not only the case that capitalism or free market economies are superior at producing wealth; without basically free markets people themselves aren’t free.

Both Smith and Friedman point to the most salient point about what we call capitalism, that it isn’t about the efficient allocation of capital. It’s about the maximizing of human freedom.

Capitalism and freedom don’t just coexist comfortably; what we call “capitalism” really is just another way of saying what Smith did: capitalism is freedom expressed in economic relations. It is the economic system of people making free choices. And capitalism works so well precisely because free people trading freely become ever more productive, and do well precisely to the extent that what they have to trade is wanted by others.

Liberal democracies with free markets are so successful precisely because free people prosper precisely to the extent that they are successfully “other directed;” individuals prosper as they learn to satisfy the wants and desires of other free people.

So really, we need to think up a modern version of Smith’s “system of natural liberty,” because in a way people are right to cringe at the term “capitalism.” The focus shouldn’t be on capital, it should be on freedom.

Even “free market” doesn’t capture the essence of what we are talking about, because it still implies that the market is free, but maybe not the people.

Maybe instead of “capitalism” or “free markets” we should just cut to the chase. Our preferred alternative to planned economies or European corporatist socialism is simple: call it “freedom.”