What “Capitalism” Really Means

by
Owen Ashworth
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Grace Blakeley is a self-described socialist economist and author in the UK, appearing on shows like Politics Live, JOE Politics, and Novara Media. Grace throws down the proverbial gauntlet to self-described capitalists who often find themselves falling over their own logic. This should not be surprising since the “capitalists” that she often debates usually have a conservative worldview that is littered with its own inconsistencies, so socialists tend to have a field day. 

It’s worth noting to an American audience that “conservative” in the UK is wildly different to conservative in the US; UK conservatives tend to be even more statist than US conservatives so when a socialist argues with them, you can visibly witness conservatives realize that they are being inconsistent and flail. Unless Austrian economics is embraced by more conservatives, they risk the very real growth of a radically socialist movement as individuals like Grace gain momentum.

Grace comments in a recent video:

Capitalism is not, as we’re often led to believe, a free-market system. We have this view of capitalism that is nice, decentralized system where markets decide who gets what… Capitalism means more markets… Capitalism is actually a highly centralized system that rests not just on markets but also on centralized planning—an authoritarian, hierarchical, oligarchic system where a few people at the very top of society decide who gets what.

This definition is a thoroughly incoherent way of defining capitalism. Grace believes that the system we have right now is actual capitalism but parts of her definition could easily be applied to other systems that are resolutely different. Nazi Germany was extremely oligarchic and authoritarian with a few people at the top deciding for the rest of their society how they conduct their lives. The Soviet Union was a highly centralized system that rested on central planning accompanied by a veneer of markets as they attempted to use Western prices in their own planning system. The fact that you can use her definition to describe multiple different countries with very different shades of centralized planning should be a red flag indicating the dubious nature of the definition. There must be a characteristic of capitalism that makes it unique.

Ludwig von Mises says this about the term “capitalism” in Human Action:

The system of free enterprise has been dubbed capitalism in order to deprecate and to smear it. However, this term can be considered very pertinent. It refers to the most characteristic feature of the system, its main eminence, viz. the role the notion of capital plays in its conduct. (emphasis added)

Capitalism is an appropriate name because it gives the reader a very big hint as to how it is unique. It is characterized by the private ownership of capital and private ownership, coming from Lockean homesteading principles, not from state coercion and force. Accompany that with a monetary unit that is valued because others subjectively value it (like gold), not because the state backs it, then you have the formula for economic calculation. Economic calculation involves the entrepreneur arranging resources towards the production of goods that either will be used in production of consumer goods or consumer goods themselves (i.e., the arrangement of scarce resources to socially-valuable ends). Rothbard writes in Man, Economy and State:

With the nature-given elements limited by his environment, and his labor restricted both by its available supply and its disutility, there is only one way by which man can increase his production of consumers’ goods per unit of time—by increasing the quantity of capital goods.

Individuals realized—within this environment that was fostered in the late 1700s—that by accumulating capital, they could produce vastly more quantities of food and other goods than ever before which, in turn, released them to pursue other ends like an adventure into the innovation of transportation and manufacturing that further reduced the amount of time people had to spend in agriculture. This development of innovation and the realization that one need not spend all your time working on food and shelter can be found at the feet of capital accumulation and that is what defines capitalism. This is the uniqueness of capitalism.

Grace may quibble that these features of capitalism exist in almost every nation around the world, which is true to varying extents, but that does not equal a factual statement that it is a capitalist system. There is one massive elephant in the room—the state. The state necessarily disrupts this delicate process of capital accumulation, the division of labor, and the workings of a common medium of exchange. This disruption prevents the accumulation of wealth by individuals who have never before had the opportunity to acquire such wealth, thus creating many of the social ills and centralization that Grace correctly identifies.

Using one of Grace’s examples may be illustrative—Boeing. Grace uses Boeing as a shining example of the worst aspects of capitalism. She says, “They were on a drive to increase profits, minimize their costs, making big planes was going to be more profitable… pushed it through without following the safety protocols.” Generally, individuals or firms want to make the most profit they can as they think that the service or good they provide is valuable to other people subjectively, otherwise they would not sell it, so this is not abnormal in a capitalist system, but here’s where Grace correctly highlights the problem: “Boeing was being regulated by a unit of the FAA that sat inside Boeing.”

The difference between a capitalist system in the way described by Mises and Rothbard and the real situation for this example is that there was zero respect for the ultimate property right—life. Capitalism is built upon private property rights and they stem from the individual. No one owns anyone else and it is objective that the individual owns himself. In the case of Boeing, the state intervened, completely disregarded property rights, and made sure that Boeing avoided any criminal charges directly from the families of the victims. It is absurd to claim that Boeing could only attempt to avoid responsibility in a capitalist society built on private property. In a truly capitalistic system, there would be harsh consequences for the decision to disregard consumer safety, the state prevented these consequences. “These catastrophes were a joint venture between the US government and this company, Boeing.” I agree with Grace, but this is statism, cronyism, or interventionism, not capitalism. The latter respects everyone’s private property rights, the former desecrates them.

Grace does admit that this came from a toxic fusion of big government and a private company so we can lay the blame at big government just as much as Boeing. However, her conclusion is that we cannot trust those at the top (i.e., those at the top of the hierarchy in companies) to be held accountable by the market or the government. She proposes a supposed third way like that of the Lucas plan for Lucas Aerospace in 1976. This plan involved the management of the company asking workers for suggestions on what they should do to prevent layoffs like switching production to more socially-beneficial products that perhaps would have been more profitable, thus preventing layoffs and even growing the company. This was rejected by management and the government. Would it have provided more value for people? There is no way of knowing; it was never implemented. However, one can admit that the government has been intervening so much in the economy since the end of World War II, diverting resources away from potentially socially-beneficial ends, did harm workers. The government created a situation where it would eventually start running out of funds since it fostered an environment that would collapse the economy, while building up huge companies by subsidizing them, and creating harm to workers when the house of cards caved in. This is an example of statism, not capitalism. A third way is not needed when government has wrecked a route that already exists. 

Grace’s critique of capitalism is based on a definition that is incoherent. The rot sets in from there as the rest of the logic she walks through is based on wobbly foundations. There seems to be a false dichotomy existing within Grace’s thinking where the state and private interests collude to rig the political system, resulting in a lack of responsibility for the actions that these crony capitalists consciously take. This would mean we cannot trust the state, but more importantly, that we cannot trust the market, to provide this accountability. The elephant in the room here is the state itself. Grace decries centralization, which is a product of the state, but blames capitalism. She also argues that the state fails to hold capitalists accountable, but seems to prefer more statism as opposed to a free market. The existence of the state itself invites those parts of human nature that manifest corruption, immorality, and profligacy. Smashing the leviathan state takes away much of the potential for corrupt laws and regulations to be hoisted upon us. Grace’s diagnosis of social ills is not too objectionable, but her medicine leaves a lot to be desired.