Can the Dead (Capitalism) Be Brought Back to Life?
By Robert Higgs • Sunday August 15, 2010 1:08 PM PDT • 19 Comments
I pose this question seriously, not as a physiologist, but as an economic historian. I am provoked to raise the question by an advertisement that Amazon sent me recently, calling my attention a book titled Can Capitalism Survive? Creative Destruction and the Future of the Global Economy. Seeing this sales pitch, my immediate reaction was my usual sadly amused reply to such a question: Can capitalism survive? What an odd question! Assuming that capitalism ever existed at all, it has been dead for at least a century.
At first glance, I did not recognize that the book being advertised is one for which, in a sense, I am responsible. It turns out that the “new” book is only an old (portion of a) book, now adorned by a new subtitle and two new introductory paragraphs by the Newsweek columnist Robert J. Samuelson. If I reveal that the book’s author is Joseph A. Schumpeter, many readers will recognize it immediately as Part II of that famous economist’s best-known work Capitalism, Socialism and Democracy, first published in 1942, with subsequent editions in 1947 and 1950.
The new book’s front cover has a blurb from Fortune that declares Schumpeter to have been “the most influential economist of the twentieth century . . . a major prophet.” The back cover has an embarrassingly superficial blurb by publisher Steve Forbes that, among other things, describes Schumpeter as “the twentieth century’s foremost economist.”
I do not consider Schumpeter entitled to be called the most influential economist of the past century―that distinction unfortunately belongs to John Maynard Keynes, and Milton Friedman surely deserves the second place. As for Schumpeter’s rank as a prophet or as the intellectually foremost economist, I would place him below Ludwig von Mises and F. A. Hayek.
Nevertheless, Schumpeter was unquestionably one of the most important economists of his day, and his work has continued for good reason to attract readers ever since his death in 1950. His analysis of the historical dynamics of classic capitalism, which makes up Part II of Capitalism, Socialism, and Democracy, though contestable on various grounds, may be, all in all, the best ever written, and it certainly remains among the most thought-provoking. (My own thoughts on Schumpeter’s analysis appear briefly in my book Crisis and Leviathan, pp. 239-44.)
In the mid-1970s, having read Capitalism, Socialism and Democracy repeatedly and having used it to good effect in my teaching, I sent a proposal to Harper & Row, the publisher. I proposed that Part II of the book be published as a separate work with an introduction by me. I asked for a reasonable royalty on sales of this proposed book. Harper & Row declined my offer. The publisher liked the idea of a stand-alone publication of Part II, with my introduction, but did not want to pay me a royalty. Not long afterward, in 1978, I was surprised to find in the bookstores the very volume I had proposed, with an introduction by Robert Lekachman, who evidently had been willing to work for less than I when he was approached by the publisher. Somewhat pushed out of shape by this pilfering of my idea, I wrote a letter to Harper & Row to let their managers know how unprofessional, at best, I considered their action to be. As I recall―although my memory is foggy in this regard―Harper then sent me a nominal “finder’s fee.”
(This episode, by the way, was but one of many that led me to propound Higgs’s Law of Publishing, which states: All publishers strive to maximize losses, but by virtue of sheer stupidity, some of them screw up so royally that they earn enough income to remain in business.)
Returning from the foregoing personal digression, what are we to make of the idea that capitalism might survive, indeed, of the idea that it has survived to date, when in fact it has scarcely ever existed and, even when prevailing economic conditions and institutions verged most closely on the capitalist model, sometime between the 1830s and World War I in the United States, they suffered a variety of government interventions and distortions that made the prevailing economic order, like nearly all such orders in reality, a form of “mixed economy”?
My friend Sheldon Richman has been on something of a crusade recently against the defense of capitalism by those who favor a free society, which of course includes a free-market economy. He prefers that defenders of freedom avoid the defense of something called capitalism because, first, the term derives in large part from enemies of the free society, such as the Marxists, and, second, because it has always served and continues to serve the enemies of a free society as a perennial object of misplaced responsibility, a (nonexistent) malefactor to be blamed for every economic problem the government’s countless interventions bring about.
Thus, most recently, by undertaking a series of decisive interventions stretching from the Fed‘s mismanagement of monetary policy, to Fannie and Freddie’s subsidies of unqualified home buyers, to the self-serving idiocies of Barney Frank, Chris Dodd, and Co., among other ill-fated actions, the government created the complex of interrelated disasters that includes the housing boom and bust, the financial debacle of 2008, and the economic recession since 2007. And who’s to blame? That’s right: capitalism. Which must then be “reformed” by mountains of additional government interventions laid atop the previously existing mountain, leaving, of course, Barney and Chris sitting pretty as the reformers, and the key troublemakers―the Fed, Fannie, and Freddie―smelling like roses, with the Fed being given even more power, and Fannie and Freddie being fed a diet of hundreds of billions of dollars in ongoing taxpayer-funded bailouts to continue doing the damage they do.
Perhaps, if we all frankly admitted that capitalism has been as dead as a dodo since 1914, if not even longer, then such factually absurd, ideologically inspired, politically tactical blame-casting would be precluded. It would make no more sense than blaming our economic troubles on the divine right of absolute monarchs, centuries after that doctrine has been abandoned. Perhaps.
So far, however, I have refrained from coming completely onboard Richman’s crusade ship. For many proponents of the free society, capitalism has always signified the ideal of the free-market society more than it has referred to any of its deeply compromised and distorted instantiations that have occurred historically. These people are understandably reluctant to give up still another cherished shibboleth to their enemies, as they previously surrendered their most positive and important ideological identity as liberals. So, even though I rarely use the term capitalism, and I strive to make as clear as I can the difference between the ideal free society (which I defend) and the realities of any existing or previously existing society (which I only study), for now, I decline to condemn those who continue to defend capitalism. They may be making a rhetorical mistake, as Richman insists, yet their hearts are in the right place. It will be easier to straighten out people’s rhetoric in due course than to bring about the change of heart that so many misguided people must experience, if even a shred of freedom is to be preserved.
Tags: American History, Corporatism, Economics, Fascism, Free Market, Liberty, Mercantilism, Personal Liberty, Philosophy, Politics, Property Rights, The State 
Dr. Higgs,
Wouldn’t it be fair to say, that we haven’t had “Capitalism” (in the sense of freedom from government monkey-business) since before the War of Lincoln? I mean, it wasn’t too long after that railroad lobbyists stole the proverbial sheep, and then the ICC took hold, and it’s been a long decline since.
Thanks for the always enlightened perspective.
John Heinbockel | Aug 15, 2010 | Reply
Yes, I recall buying this book back in the 1980s! Still have it on my shelf.
There is also an important new biography of Schumpeter which corrects many misunderstandings of him and places him in the context of HBS politics and the intellectual politics of the day.
As for terms, the Other Side always seems to win on language. Hayek preferred “catallaxy” but you see how far that got!
Frankly, I prefer “free society” because capitalism also reinforces libertarians’ unnatural tendency to reduce everything to economics (important though that is). Again, on that score, Marxists gave up the battle over “feasible socialism” and simply went on to set the new agenda based on race, gender, and even language (post modernism).
Jonathan Bean | Aug 15, 2010 | Reply
My grounds for opposing “capitalism” are not those specified above. Negative references to capitalists predate Marx. For example, Thomas Hodgskin, a laissez faire advocate and mentor to Herbert Spencer, thought of capitalism as the existing system in which government openly favors capital at the expense of labor and consumers through controls, tariffs, subsidies, and the like. (The word certainly suggests that.) This was the common view among radical liberals throughout the nineteenth century. The American Benjamin Tucker, a self-described consistent Manchester man, regarded capitalism that way. But it’s not just semantics, the actual on-the-ground architects of the American system (e.g. Hamilton and Lincoln) favored heavy government assistance to business, a form of industrial policy and corporatism. Nock and Ekirch understood this completely. I see no grounds for associating capitalism with freed markets.
This is more than a rhetorical matter.
PS: I haven’t condemned anyone.
Sheldon Richman | Aug 16, 2010 | Reply
Sheldon,
I apologize for mischaracterizing your grounds for your crusade against “capitalism,” and I am puzzled that I managed to misunderstand you so completely. You obviously know your motives better than I, so I am not arguing against them as such if I affirm that your crusade against something called capitalism would make more sense if it were based on the grounds I wrongly attributed to you.
I am well aware that Marx did not invent the term capitalism, but the present worldwide use and — for most intellectuals and secondhand dealers in ideas, the hostility toward — capitalism may be traced fairly directly to Marxists. People such as Hodgson and Tucker, in contrast, are virtually unknown outside the circle of intellectual historians and a small group of libertarians.
More important, the prevailing use of the term “capitalism” in intellectual and ideological writings and political struggles changed greatly in the twentieth century. In the nineteenth century, many writers, as you note, attacked “capitalism” because they identified it with a prevailing system that contained many government intrusions, often in favor of the “capitalists” of the day who had influence with the government. In the twentieth century, in contrast, intellectuals who wished to defend the free society, including free markets, came by and large to defend “capitalism.” Without explicitly pro-capitalist works such as Milton Friedman’s CAPITALISM AND FREEDOM and Ayn Rand and associates’ CAPITALISM: THE UNKNOWN IDEAL, we could probably count the number of contemporary libertarians on our fingers and toes.
Even the great Ludwig von Mises wrote a book titled THE ANTI-CAPITALIST MENTALITY to analyze this mentality and expose its fallacies.
I greatly fear that the main effect of any crusade against “capitalism” will be to cause pro-freedom people who encounter it to reject the crusaders immediately, given that the greatest enemies of the free society for the past century, especially the Communists, ceaselessly attacked capitalism, blamed it for every imaginable evil, and held out the prospect that by destroying it, we can create heaven on earth. I don’t believe in guilt by association; I simply insist that you won’t do the pro-freedom cause much good by sleeping in the same “anti-capitalist” bed as these well-known enemies of the free society.
People such as Mises and Friedman, who unashamedly endorsed capitalism, never defended the countless interventions that mark the existing (or previously existing) system, such as tariffs, subsidies, price controls, and so forth. For them, as for most people nowadays, capitalism and the free-market system are synonymous. It’s more important to get the substance right than to choose a particular word to denote the ideal system of political economy we seek to defend.
Of course — and I suspect this is your real grievance — many political actors and political commentators purport to defend capitalism while taking countless actions that actually undermine and tend to destroy the free society, and the free market in particular. Such hypocrisy is to be exposed and condemned; you are a great living example of how to do so tirelessly. However, we can’t get rid of political hypocrisy; politics and lying are as hand and glove. I don’t think, though, that this sort of grievance justifies a movement to attack capitalism. Again, we have a better chance of getting our message through if we simply attack the particular objectionable government action or program.
Robert Higgs | Aug 16, 2010 | Reply
I have always tried to not use the term “liberal” or “liberalism” in a negative context — the result being that I seldom have a good reason to use it. Maybe “capitalism” needs to be treated in similar fashion.
Jule Herbert | Aug 16, 2010 | Reply
Charles Beard wrote several books related to this subject, nearly 100 years ago, but still worth reading.
richard | Aug 17, 2010 | Reply
Rasmussen has some interesting results in this regard: “Just 35% of American voters believe that a free market economy is the same as a capitalist economy. The latest Rasmussen Reports national telephone survey found that 38% disagree and 27% are not sure.
This helps explain earlier data showing that 77% prefer a free market economy over a government managed economy while just 53% prefer capitalism over socialism.”
MERLIN | Aug 17, 2010 | Reply
Pilfered your idea? Don’t you know there’s no such thing–see Stephan Kinsella’s copyrighted book, Against Intellectual Property! :-)
Jim | Aug 17, 2010 | Reply
Mr. Higgs,
You have presumed that the State has “killed” or is killing capitalism. To presume that capitalism is dead is to mistakenly give the State (any State) power that it can never possess. Forget about capitalism for a moment and lets just talk markets. As you are aware, people like Rothbard actually prefer to think about the free market in the absence of a State. They believe this is possible. Whether you believe in anarchy or not, even “statists” like Nozick believe Rothbard on this point. Nozick would say the State is a product of the market! I find both men sound and I’m convinced the market can and does exist outside of the State. Now what is the logical extension of this?
Easy. What may exist (indeed come into existence) without the State is not capable of being destroyed by the State. Markets beget a State...not vice versa. The market is always in operation, and its so large and powerful no man or group of men can determine where it ultimately goes. Its just there and no group of liberal academics or socialist politicians can theorize it away.
Pure Capitalism in action is like a pro surfer hitting the right wave. The surfer knows keenly that the wave (the market) is in control; yet the surfer can anticipate subtle changes in the wave and adjust himself for a better ride. The longer the ride goes (capital accumulation) the more enjoyable and productive the ride. Right now our system is being managed by a surfer on LSD. He’s fighting the waves, making all the rookie mistakes. He has wiped out so many times he does not even know from what direction comes the wave. He blames this on himself! “I’m sure there’s a way to surf against the wave!” He’s probably really pissed and just doing stupid things at this point, and only wiping out more. Ha ha!
Yet the market persists...always. Its just an a priori “accept it or be damned,” 2+2=4 kind of thing. It exists and will exist forever as long as there is scarcity. For this reason too, capitalism can never be completely dead. Capitalism only waits for men to embrace the market rather than try to control it. The market is there and its giving signals, and those signals say “you are damned fools and you are making all the rookie mistakes and if only you would just listen to me instead of trying to control me you’d be far better off.” Capitalism will return because its better to ride waves than be crushed by them.
Matt Butler | Aug 17, 2010 | Reply
The Credo Quia Certum audio should make your day.
David Holmes | Aug 18, 2010 | Reply
The confusion and pointless bickering over “capitalism” is being needlessly exacerbated by so-called left-libertarians. It would’ve been more constructive to denounce “mercantilism” which encompasses precisely what we all object to, and over which there is no confusion at all.
Alan Chapman | Aug 18, 2010 | Reply
Bob, identifying historical capitalism with corporatism (which is valid) gives us the opportunity to make the point that the free market is not what we have today, though most people think it is. (Even Posner and Greenspan!) There is no platonic capitalism such that we can say, “The system today is not capitalism. Capitalism means the free market.” When did it really mean that? Friedman, Mises, and Rand were the innovators in this regard but it was ahistorical. Capitalism sounds like a system that privileges capital. It always will.
Sheldon Richman | Aug 21, 2010 | Reply
To Sheldon’s point, it is worth noting that Friedman, Mises, and Rand were all minarchists (though clearly they favored a very limited state). Perhaps market anarchists who do not believe that a free market is possible under a monopolistic government would be well advised to part company with these giants on terminology here, as much as we might admire much of their work.
D. Saul Weiner | Aug 23, 2010 | Reply