Tracing consequences both seen and unseen.
Wirkman VirkkalaTwo Words for Capitalism
Posted at 8:51 pm on April 16, 2010, by Wirkman Virkkala

A number of writers from across the political spectrum have been writing about the word “capitalism” recently. What does it mean? Do we have what it signifies? Does talking about such a seemingly vague thing increase our understanding?

John Stossel argues that we don’t live under capitalism, unless you modify the word to mean “crony capitalism.” His essay “Let’s Take the ‘Crony’ Out of ‘Crony Capitalism’” makes a very familiar case:

The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

But it’s fair to say that crony capitalism created the economic mess.

This is all very well and good. Accurate in its own way. But I am not sure we should give in to either libertarians who want to defend free markets or statists who want to bury them in red tape. “Capitalism” isn’t a word that means just one thing, just as “democracy” isn’t a word that means just one thing. One usage isn’t obviously better than another. Thackeray’s coinage serves more than one master.

I support laissez-faire. It’s a great and noble — and ultra-civilized — policy. But laissez-faire isn’t the only form of capitalism. Indeed, the dominant form has always been some form of dirigisme, or piecemeal state control of market activity.

So, I suggest letting everybody use the word “capitalism” in a broad sense, as an economic system featuring a large degree of private property both at the consumer and producer levels, wide market interaction in both consumer and producer goods, and fully developed labor markets.

It nevertheless remains the case that laissez-faire is more capitalistic than dirigisme. For, the more state control of markets, the more limitations on private property — particularly with command-and-control regulation, rather than rule-of-law oversight — capitalism morphs into socialism. The more government you have, the less the capitalist element dominates.

To put this more straightforwardly, capitalism is defined by the features that laissez-faire unreservedly supports: private property, freedom of contract, markets in capital goods, and contract labor. So, though dirisgistic capitalism is indeed capitalism, laissez-faire capitalism is “more capitalistic,” by the standards of its very definition.

There is one sense that this understanding, however, is not true. That’s the sense in which dirigistic capitalism serves capitalists, that is, people with money. It is a truism of government that it rarely serves all, equally. And it is also a truism that money talks in politics. So, dirigistic capitalism amounts to little more than plutocracy.

This sad truth comes as a shock to those who hail from the left. Those leftists who propose to make capitalism more dirigistic often merely serve as useful idiots for the very rich. Businesses have a long history supporting mercantalist policies, policies that so-called “progressives” thought “regulated business.” Instead, regulations most often help business cartelize, even monopolize, their positions. Getting the upper hand is something many businessmen attempt, and attempt through government.

Such operations have taken many forms, from anti-trust (which actually makes businesses less competitive) through micromanaging regulation to outright subsidy.

It can be quite amusing to watch a standard-brand leftist make all the arguments necessary for businesses to trump their market competition. The trump being, of course, government.

This was most entertainingly seen in the recent bailouts, where it was a whole class of bankers and intermediaries who were aided, not the general run of market participants. Indeed, bankers’ jobs and intermediaries’ jobs were made secure, and their fortunes restored, while the economy lurched out of control and into double-digit unemployment. Such is the logic of dirigisme: Not very logical.

Very political, though.

The great rule of capitalism is that everybody’s worth differs in differing contexts. Laissez-faire is a form of regulating capitalism by the rule of law, trying to set a political limit on the value of human beings. In laissez-faire, the political value of people are equalized by their equal rights to liberty and free contract. But under dirigistic capitalism, the fluctuating value of human beings is re-introduced into the political system because rights no longer regulate human interaction, micromanaging policy-makers do. So everything goes up for grabs.

Under dirigisme you get the general exploitation of the politically weak by the politically powerful — two classes that continually shift, according to the deals and machinations of politicians. You get what Anthony de Jasay calls “the churning state.”

I have no special love for the term “capitalism,” and see no great and overriding reason to shore it up. I just want people to be able to talk to each other about the realities of the current (and past) social world. Capitalism obviously exists in some form today. But it is obviously not laissez-faire capitalism. What we are blessed with and suffer under is dirigistic capitalism.

Two French terms. Why not?

It should be remembered, though, that dirigisme is the ancient, traditional state practice. It flows naturally out of the limited-access society’s basic deal: Tough guys provide order, and in “exchange” we — each of us — gets a fairly stable, quasi-guaranteed place in that state, however lowly.

The idea of laissez-faire, though perennial, is much newer, and quite revolutionary. It is deeply associated with the idea of a rule of law, and its main feature, on the personal level, is personal freedom, the ability to choose what you do in life.

It is always amusing to me how advocates of dirigistic capitalism so readily devolve into advocates of ancient political notions of status. Both centrist Republicans and Democrats tend to move in that direction, and leftists, in particular, keep reviving ancient notions of class and “my station and its duties.”

The great thing about laissez-faire is that it allows us that opportunity to throw off the shackles of time and chance and programming, it conjures up the ability to remake oneself, correct course. This allows for a great amount of progress and flexibility. But stability? Nothing can be guaranteed.

Those who want guarantees of place and position, they tend to hate the freedom in laissez-faire. They don’t want government to “let others act” within the confines of a rule of law, they want more regulation.

Ah, regulation!

The lifeblood of dirigisme. The command structure of socialism. The inheritance of the conquerors who established the first states. At one with military orders, the darling of bureaucracies, the goal of most politicians. It is coercion instantiated in its most paradigmatic act.

The paradigmatic act of laissez-faire, on the other hand, is, first, the trade, and, second, being held responsible for one’s own actions.

But I’m more than willing to admit that “capitalism” fits a broader history than the ideal of laissez-faire. So the word must be modified. “Dirisgistic” will do. I offer it to those reasonable people — see, for instance, Stephan Kinsella in his recent essay “Capitalism, Socialism, and Libertarianism” — who wish to keep their terms straight and move beyond semantic disagreement to substantive argument.

And perhaps more French words could be found for the varying degrees of control that have characterized American market life.


Filed under: Economic Theory, Regulation
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3 Comments »

  1. [...] via The Lesson Applied » Two Words for Capitalism. [...]

    Pingback by Two Words for Capitalism « Thinking Things Through — April 17, 2010 @ 2:21 pm

  2. [...] the new blog The Lesson Applied, I recently argued for an open, inclusive use of the term capitalism. Capitalism describes any [...]

    Pingback by A capital ism? | The Libertarian Standard — April 20, 2010 @ 5:49 pm

  3. [...] hey, I am on record as deprecating “socialism” in most modern cases for “dirigisme,” or what Mises called [...]

    Pingback by Sticks and Stones and All That | The Libertarian Standard — May 20, 2010 @ 12:31 pm

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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Henry Hazlitt, Economics in One Lesson
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