Indian Libertarians

Why and why not Capitalism

smehra Monday July 21, 2014

For a greater part of the world ‘Capitalism’ is a pejorative term. It is used with contempt towards everything that is wrong with our society. And why not? As left libertarians point out, one of its first usage was in the writings of the free market defender: Thomas Hodgkin; where he used the term with negative connotations. Capitalists, the enemy of the free market, were those holders of capital goods who used their power and influence in the state to kill market freedom and competition. Free market socialism, no doubt, pre-dates Free market capitalism. So how is it that the term “Capitalism” came to be associated with the “Free Market” causing much confusion and “spilled ink” (Resulting in Anarcho-Capitalists being almost read out of the Anarchist movement)?


“By ‘capitalism’ most people mean neither the free market simpliciter nor the prevailing neomercantilist system simpliciter. Rather, what most people mean by ‘capitalism’ is this free-market system that currently prevails in the western world. In short, the term ‘capitalism’ as generally used conceals an assumption that the prevailing system is a free market. And since the prevailing system is in fact one of government favouritism toward business, the ordinary use of the term carries with it the assumption that the free market is government favouritism toward business.” - Roderick Long

To understand why this happened, we must understand the origins of the supposedly opposite of “Capitalism”: Socialism. We are, of course, speaking of the 20th Century when almost all revolutionaries were “Socialist”, who considered themselves to be part of the “Socialist Movement”. It didn’t matter if their concepts and ideas were as opposite as day and night, all of them were hesitant in letting go of this highly marketable term that could (even today) garner large support from the population. This was a period of, what could be called, a “boom” in the ideas of “socialism”. The Marxists and Leninists were socialists. Collectivist and Individualist anarchists were socialists. Communists and Mutualists were socialists. It seemed that anyone who wanted radical change was considering himself a socialist.

A good example of opposites calling themselves socialists is Benjamin Tucker and the State Socialists. Here are some of the definitions that Benjamin Tucker wrote in “Armies that overlap”:


State Socialist: one who believes that each industry should be coordinated for the mutual benefit of all concerned under a government by physical force. Socialism: The belief that progress is mainly to be effected by acting upon man through his environment rather than through man upon his environment.

Tucker admits that this definition of Socialism is far too general and that this definition “does not exclude all who have no such title” (We will get to his more specific definition later). However I contend that this definition is in fact not too general and moreover, it excludes the “State Socialists”. State Socialism, by definition, requires cooperation “under a government by physical force” which is only possible if the government acts “through man upon his environment” (All acts of physical force being just that). State Socialists therefore, by definition, cannot be the “general” Socialists as defined by Benjamin Tucker. In fact, I think it is actually impossible to give a general definition of Socialism that includes both the “free market socialists” and the “state socialists” in any meaningful way; and that their armies actually do not overlap as Tucker thought them to be.

Tucker’s more specific definition of Socialism is:


“The belief that the next important step in progress is a change in man’s environment of an economic character that shall include the abolition of every privilege whereby the holder of wealth acquires an anti-social power to compel tribute.”

This definition, one can say includes the state socialists but only if you consider the ruling class to consist only of plutocracy and not statocracy. Marx’s view of class analysis is close to this position. In his view, it was the plutocracy that gave the government its “political character” and that with certain policies intact, that demolishes plutocracy, the state could be trusted with power (and wither away when it was not needed). This privilege, in view of Marx, would not give “the holder of wealth (the state) an anti-social power to compel tribute”. But this was, however a faulty analysis of classes, which the USSR clearly exemplified. (For a better understanding of different Class Analysis please read Roderick Long’s “Towards a libertarian theory of Class” Part 1 and Part 2)

Now a marxist can argue that “this was not Marx’s intention” but it is not Marx’s liberal intentions which are called into question but rather his conservative means. However I would still not exclude Marx from Tucker’s improved definition of socialism because this definition is, in my opinion, far more general than specific. Since the destruction of privilege has been the central point of almost all major political philosophies, Tucker might as well have defined Socialists as “The good intentioned guys”. Which is, in some ways, a correct representation of Socialism. As I said before, anyone who wanted a radical change against power wanted to call himself a “Socialist”.

Tucker’s improved definition of “Socialism” also falls short of its original intent, which is to “exclude all who have no such title”. Anarcho-Capitalists, despite how they are portrayed by other Anarchists, do not want the holders of wealth to be privileged or entitled in any way (not even property). Property being entitled to protection is a Minarchist view rather than Anarcho-Capitalist. I myself have criticized this position here. An Anarcho-Capitalist insistence on “Property Rights” comes from his understanding that they are the only means of allocating scarce resources in society. And that the best way to have a just and economical allocation is through private defense and arbitration (as opposed to centralized defense of property and subjugation). Here is another analysis by Brad Spangler: Market Anarchism as Stigmergic Socialism.

Rothbard is repeatedly blamed by left libertarians for “muddying the waters” of market anarchism. However Mises (from whom Rothbard inherited these definitions) can hardly be blamed for this stark reverse of definitions. As we shall see, Mises is hardly the source of this confusion.


Competitive vs Collective Socialism

Even though Socialism is too varied a thought, it can be broadly be split into two categories based on a very important question: Is the current system of ‘capitalist’ economy a result of ‘peaceful’ market process?

Collective socialists would answer “yes”:


“The best that can happen within the competitive system is that the most ambitious, cunning, and lucky individuals in the working class would be enabled to claw their way into the exploiting class.”

The most known proponent of market socialism (or competitive socialism ), Pierre-Joseph Proudhon, in his book “Property is Theft” defends competition:


“Competition is as essential to labour as division.... It is necessary ... for the advent of equality.”

Market Socialists were by no means without a reply to Collective Socialists and this debate can be lengthy. But who among them was right is not the focus of this article. Austro-Libertarians have had major issues with Collective Socialists but they also have had fair share of disagreements with Market Socialists. These criticisms, summed up in this paper, have indeed influenced modern market socialism (Kevin Carson being one example).

In a broad sense, market socialists were defenders of the peaceful market process and collective socialists argued that peaceful market process being competitive resulted in exploitative society that we have today. Of course this is too general and there have been numerous confused overlapping socialists. But by no means should market socialists (classical or modern) be confused with “middle of the road” mixed economy advocates.

Obviously the Socialist movement could not progress if its major thinkers disagreed on this very basic question. And as with every movement, its foot soldiers did not have enough insight for an in-depth analysis. This meant that one side had to oust the other and kill it in ideologues that could be made popular among the foot soldiers. This resulted in an expansion in definition of Capitalism. Capitalism was “redefined” to mean not only government favouritism to business but also market process (or more specifically exchange market) itself. Since collective socialists considered “free markets” to result in Capitalism, “free markets” became Capitalism and Capitalism became “free markets”. It is interesting to note that Adam Smith, considered as father of Capitalism, never called himself as such. Smith called his fourth age of man, ‘commerce’ (after Hunting, Shepherding and Farming).

Since free markets started to be criticized as capitalism, it was only a matter of time when free markets were also started to be defended as capitalism. The result was massive confusion. The Anarchist movement too was affected where it became commonly accepted that “free market” must be demolished along with the state forgetting their pro-market roots in Proudhon (while they maintained their opposition to state socialism). State Socialism had won the battle of definitions.

With the rise in State Socialism, the political intelligentsia was convinced in the “scientific” reasons for state socialism. Free Market advocates were hardly mainstream and were pushed in the corner. It was at this time that a new defence of free markets was needed and Mises, with his “Economic Calculation Problem of Socialist Economies”, came to the rescue. And he was indeed an advocate of "free market" definition of “Capitalism”.

Mises was in not your usual free market defender, he did not base his arguments on positivist methodology or the economics of David Ricardo et al. He based his defence on Mengerian Economics (or Austrian Economics as it commonly known). His take on Economics was based on study of Human Action and its implications. Mises’s challenge of “Economics Calculation” was an intellectual blow to State Socialists. Of course, the State Socialists, within their framework of methodology did provide some answers. However, State Socialism and by that extension Socialism was set back with the fall of USSR. As it turns out, Mises’s “Problem of Economic Calculation” was indeed fatal flaw in USSR’s State Socialist system.

Libertarian socialists (or market socialists) later claimed that “Economic Calculation Problem” was a flaw in State Socialist economy but not libertarian socialism. But libertarian socialism is quite varied a thought and depending on strand to strand, Mises’s criticism can apply. (Again I refer to this paper which concludes similarly).


Why Capitalism?

While it is true that Mises was a free market defender but his defence of free market (which the Anarcho-Capitalists have inherited) was radically different than the original Market Socialists. This is also why you would find Market Socialists butting heads with Anarcho-Capitalists and Austrian Economists. So while Mises was not a Capitalism supporter in the "hierarchical" sense, he was a supporter in the "free market" sense where he defined it as a system that allows each private individual to create and posses capital goods. His (and later Rothbard’s) support for free market does not tangle with support for labour movement, democracy etc. He practised Economics in a “value free” sense. He did not discriminate between individuals, their preferences and their class. Which lead to interesting differences between Anarcho-Capitalism and classical Market Socialism:


  • Anarcho-Capitalists do not consider all forms of Wage labour as slavery. Instead they wish to leave it to the worker to decide what he wishes to do with his labour. However this is not to deny that current system of wage bargaining is heavily shifted towards ‘Capitalists’, especially those who get Corporate Welfare. Providing labour in exchange for something is not coercion. This also means that Anarcho-Capitalists have no special preference for worker owned cooperatives, leaving it to individual workers to choose and organize.
  • Anarcho-Capitalists are radically more propertarian than their Market Socialist counterparts. They have provided criticism for Georgist, Mutualist and Minarchist systems of property. But most (if not all) also realize that current outcomes of property rights are not a result of the free market but rather government allocation and ‘theft’. (Some do forget this from time to time).
  • With the new Socialist takeover of Union Movement, Anarcho-Capitalists find it hard to identify with it. Indeed Unions after repeated government interventions have become power centres where the state nominates one of the laborer as a fellow exploiter.
  • Anarcho-Capitalists insist on thinking economy from the consumer’s side and not just labourer or capitalist side. They would not restrict choices of the consumer to protect labor (which the labour unions do) or capitalist (which corporate lobbies do).
  • In all the quagmire of Socialism in the 20th Century, importance of Capital goods had taken a back seat. Anarcho-Capitalists want to bring back the discussion to importance of capital goods.

There are of course more differences and the line between the two camps have blurred due to “cross-pollination” of ideas that it is useful to call them all “Market Anarchists”.

Rothbard was heavily influenced by Benjamin Tucker, who called himself a socialist. So it was not that Rothbard didn’t know the issue of definitions. Rothbard (even though he didn’t coin the term) adopted Anarcho-Capitalism as a term knowing fully well that it would “muddy the waters”. So maybe it was that he really did want to muddy them or rather prune market socialism of all its baggage, history and faulty economics. Indeed I consider Anarcho-Capitalism as “Market Socialism” corrected using Austrian Economics, a process that really took off after Rothbard. (This needed to be said)


Why not Socialism?

Socialism isn’t what is used to be. The term no longer means “proletarian revolution” or “state ownership of industries” but rather “this mixed economic welfare state that we have right now”. Most supporters of “Socialism” these days are simply “social democrats” of the mixed economy variety. Rothbard called Marx’s State Socialism as “Conservative means to liberal ends”. It would be appropriate to call this modern socialism as “Fascist means to liberal ends”.

I could have called it “Corporatist means to liberal ends” but i have run out of sugar coating. Our world is filled with Fascist states who promote and feed on corporate economy which in turn feeds on ‘free’ people. Modern socialists with “good intentions” while trying to fight this very nexus, unwittingly fuel the fire that is burning them.

Despite the popular understanding, “corporate” economy was central to Fascism not a violent dictatorship. One must read their “good intentioned” manifesto to get the idea:


“We have constituted a Corporative and Fascist state, the state of national society, a State which concentrates, controls, harmonizes and tempers the interests of all social classes, which are thereby protected in equal measure.”

If this sounds familiar it is because this is what all states have been claiming to do. This is also what parties promise to get elected: Protection of all social classes through control. Fascists also have a familiar concept of Democracy:


“In rejecting democracy Fascism rejects the absurd conventional lie of political equalitarianism, the habit of collective irresponsibility, the myth of felicity and indefinite progress. But if democracy be understood as meaning a regime in which the masses are not driven back to the margin of the State, and then the writer of these pages has already defined Fascism as an organized, centralized, authoritarian democracy.”

This might be confusing, but quite simply Fascism is rejecting the concept of “mob” democracy. Instead it is advocating a form of authoritarian democracy where responsibility can be fixed. This too sounds quite like the systems of Democracy we have today, only our systems need to be more authoritarian to completely satisfy this definition.

As Rothbard writes in “Left, Right and the Prospects of Liberty” while criticizing New Deal policies:


“And, surely, William Howard Taft, Woodrow Wilson, and Herbert Clark Hoover make far more recognizable figures as proto-Fascists than they do as crypto-Communists.”

USA didn’t start out as a Fascist state, with its doctrines of Individualism, but it certainly has moved towards it in the garb of Socialism. Policies that it claims to be Socialist are actually pacifiers to different social classes, protecting them in “equal measure”. Indeed you will find modern socialists of USA (specifically Modern Liberals) calling New Deal as a step in the right direction. USA version of “free stuff” socialism is impossible without the corporatism that these socialists supposedly fight.

A Fascist state allows markets inasmuch as it does not conflict with the state’s goals or if it does not economically effect a social class it “needs to show protection towards”. A Fascist state also feeds off of the white market through taxation and it needs some amount of market process to generate that revenue. Fascism can hide in a “middle of the road” movement for corporate power.

In India, most liberals consider the 1991 “liberalization” as a reform in the right direction. But here too it is easy to see that these reforms, pushed down our throats by IMF, are in fact Fascist reforms. India’s Socialist state could not keep up with its promises of production (a flaw Austrians point out) therefore it had to open its doors to corporates with licenses. It also had to drop licenses rule wherever it could not afford.

Why not Socialism? Because it either devolves into Fascism (in case of India) or complete break down and starvation (in case of USSR) or it allows Fascism to hide in its cloak (in case of USA). Either way Socialism is no longer a movement where libertarians can ride on.

With the rise of Fascism everywhere, it has become ever more important to defend freed markets.



Why not Capitalism?

In the section “Why Capitalism” I argued why Anarcho-Capitalists insist on “defending Capitalism”. Here I argue the opposite.

It is true that “Free Market Capitalism” is under attack by those who wish to argue for so-called Socialism (which feeds the Corporate economy) and wishes to empower the state (so that it can grant privilege for “social” purpose rather than destroying privilege). However it is also true that many neo-liberal defenders of what they consider “Free Market Capitalism” tend to be only against laws that define “limits on privilege” and not against laws that grant the most basic privilege (As I have described before in Two types of laws and Vulgar Libertarianism)

The more I read these defenders of “old definition of Capitalism” the more it becomes tough for me to identify as a “Free Market Capitalist”. The ideas of government induced “perfect competition” haven’t helped either. In this fight of Socialism vs Capitalism the winner is Fascism, which has successfully hidden itself in both the rhetoric.

Libertarians today must remember the words of Konkin in the “New Libertarian Manifesto”:


“Where the State beclouds, Libertarian clarifies; where the state conceals, Libertarian uncovers;”

Libertarians must do exactly that, as was my intent with this article.


“And that, I suggest, is the function of these terms: to blur the distinction between the free market and neomercantilism. Such confusion prevails because it works to the advantage of the statist establishment: those who want to defend the free market can more easily be seduced into defending neomercantilism, and those who want to combat neomercantilism can more easily be seduced into combating the free market. Either way, the state remains secure.” - Roderick Long