The term “capitalism” is past its sell-by date. Why? It means too many things to too many different people to be useful. 

For some conservatives, capitalism is central to our American identity. This is despite the fact that none of the Founders had ever heard the term, which was not invented until 1850: James Madison, for example, advocated laws that “without violating the rights of property, reduce extreme wealth towards a state of mediocrity.”  

For the followers of Karl Marx, capitalism is an economic system that, while having unleashed great productive forces, relies on the exploitation of workers by a class of capitalists, who capture all the workers’ “surplus value” and put it in their own pockets. For Ayn Rand and her followers, however, capitalism is an “unknown ideal,” which could possibly come about if the government completely refrained from economic interventions. 

For many on the left today, capitalism means a system that entrenches vast inequality, environmental destruction, systemic racism, and neocolonialism. They often talk about “dismantling” capitalism, as though it were a large structure that could be taken apart at the joints. They decry capitalism’s focus on productivity, perhaps not realizing that communist regimes focused on productivity just as much or even more intently than any capitalist country.  

In response to such criticisms of capitalism, some libertarians reply, “No, that’s crony capitalism! In a true free market, those problems would largely disappear.” Meanwhile, a distributist such as G. K. Chesterton holds that the problem of our current economic system is that there are too few capitalists, by which he means that capital is in too few hands; he wants the mass of the people to own some productive capital. In The Outline of Sanity, he writes, “The truth is that what we call Capitalism ought to be called Proletarianism. The point of it is not that some people have capital, but that most people only have wages because they do not have capital.” Chesterton’s friend Hilaire Belloc argues in The Servile State that a great concentration of capital would lead, in fact, to socialism. 

No one can agree on just when capitalism started, either. The historian Jan Lucassen, in his book The Story of Work, writes, “Other recent participants in this debate propose [capitalism’s] origins as being: in the early Middle Ages . . . between 1400 and 1800; circa 1500 or 1600; between 1600 and 1800; or in the industrialization period of 1850–1920.” 

Lucassen also points out that many aspects of what some might call capitalism emerged millennia ago. He notes that “market economies themselves have appeared multiple times, in various parts of the world, and (sometimes) vanished again.” In particular, he describes a “deep monetization” of the economy that took place, starting around 500 B.C., in three different areas: the Near East–Mediterranean cultural nexus, Mauryan India, and Han and Song China. Were these societies “capitalist”? 

One of the founders of modern sociology, Max Weber, dealt with the problem of when capitalism was born by distinguishing capitalism per se, which he acknowledges had early instances, from “modern capitalism,” which he contends arose in the eighteenth century, due, among other factors, to the “Protestant work ethic.” So if we talk about capitalism, are we talking about all historical instances, or just “modern capitalism”? 

In short, we find widespread disagreement on what capitalism is, and even those who agree can’t decide when it started. Lucassen argues, 

The central concepts of capitalism and modernity are now in flux . . . for this reason, I have refrained from giving the terms capitalism . . . and modern . . . a central place in this book . . . because I believe that these terms have become so contaminated in the discussions of the last one to one-and-a-half centuries that they have largely lost their analytical power.

Lucassen is spot on here: We can do better than all this wrangling about what exactly capitalism is and whether we have a capitalist economy or not. We might look to the great Austrian economist Ludwig von Mises for guidance in this regard. He describes two “imaginary constructions” for use in economic analysis: the imaginary construction of a pure market economy and the imaginary construction of a socialist society. The purpose of such constructions was to conduct thought experiments with them, not to posit them as actually achievable states of affairs. In this case, the two constructions represent the poles of a continuum. In the pure market economy, there is absolutely no government intervention in the market. In the pure socialist society, absolutely no market exists: The socialist government directs all economic activity based on a central plan. Although some societies have more closely approached one pole of this continuum than the other, we never see any complex society actually occupy either end of the spectrum. 

As to why we never find “pure free market” societies, Mises’s student, Israel Kirzner, in his book The Driving Force of the Market, explains that there are “institutional prerequisites for the very existence of the market.” These include such things as a legal system that defines property rights, torts, criminal activities, and so on. 

No anarchist I know of is happy with the existence of a market for contract killings. Yet such a market does exist, since people do pay to have someone else killed. So if we are to forbid such market transactions, some force must intervene in the free market to ban them. An anarchist such as Murray Rothbard attempts to solve this problem by assuming that everyone would adopt his system of ethics as the basis for a “pure” market society. But if that system is the presupposition of his pure market society, it cannot itself have been decided upon in a market. 

Mises’s pure socialist commonwealth described a society with a complex division of labor, but without any markets at all. Mises himself, and another of his students, F. A. Hayek, demonstrate why we never find a pure socialist society: The result of trying to establish one would be an inability to do rational economic calculation. With a complete absence of market prices, how can the socialist planner determine what resources should be devoted to any particular end? 

In fact, even in bands of hunter-gatherers, where within the group economic relations were reciprocal and highly egalitarian (the condition Marx and Engels called “primitive communism”), markets generally existed. As Lucassen notes, “between different bands [they exchanged] goods, services and people (marriage candidates).” This is not in essence different than the situation today, in which, within a family, communism is generally practiced, while market exchanges are a large part of the interactions between family and non-family members. It should be admitted here that there are very rare examples of hunter-gather groups that refuse to trade at all. But as Lucassen says, hunter-gatherers live in groups “of a few dozen people, in which household, extended family and band more or less coincide.” These bands do not have an extensive division of labor, so the few hunter-gatherer groups that refuse to trade are not particularly different than a modern family that goes “off grid” in Alaska, and not a counterexample to the fact that all complex societies contain market elements. 

But what about recent examples of supposed “socialist societies”? Even a communist nation such as the Soviet Union relied extensively on markets. There is an economist’s joke based on this fact: 

The finance minister of the USSR, having visited some western nation, is getting on a plane to go back home. But he answers a few questions from the press before boarding. 

“What,” a reporter asks him “is your vision for the future of humanity?” 

“I welcome the day when the whole world will become communist,” he replied. “Except for Switzerland.” 

“Why not Switzerland?” the surprised reporter replies. 

“Well, we need someplace to get the prices from!” 

This is part of the answer as to how the USSR managed to limp along for seven decades: the Economic planners of that country used market prices from noncommunist countries to do economic calculation. 

The George Mason economist Peter Boettke and his coauthor Gary Anderson, in their paper “Soviet venality: A rent seeking model of the communist state,” showed that “the mature Soviet system was not a hierarchical central planning system at all, but was really a market economy heavily encrusted with central government regulation and restrictions.” Thus, the USSR does not provide a counterexample to Mises’s and Hayek’s argument against socialism. 

Mises’s two imaginary constructs provide us with limits to social reality. Much like limits in mathematics, though, they can be approached, but never actually reached. Rather than futilely arguing about whether society should be “capitalist” or not, it will be much more useful for us to consider where on the spectrum we would like our society to lie. The market is an engine of great economic efficiency, but it is fundamentally amoral: No demonstration of the economic efficacy of market transactions can tell us if there are things that should not be bought or sold because allowing mere private demand for them to determine their availability is destructive for society as a whole. I think we have nearly unanimous agreement today that there should not be markets for slaves or contract killings. But should there be markets for sexual services? For human organs? For childbearing? For pornography? For dangerous and addictive drugs? Was the government intervention in the market that created limited liability corporations a mistake, one that allowed the huge concentrations of wealth in a few hands that we see today to arise? Nor can the science of economics tell us how much we should value greater efficiency in producing material goods relative to other good things, such as social solidarity or caring for those left behind in the race to produce more. (And the possible “free market” response that unfettered markets, over time, reduce poverty levels doesn’t tell us how to help those who are poor today. Should we just tell them, “Don’t worry, in a hundred years your descendants . . . if you have any . . . won’t be nearly so poor”?) 

If we recognize that all the complex societies embody some combination of markets and governmental creation of conditions that permit, ban, or encourage some sorts of market transactions, we might be able to embark on a more serious discussion of these matters, instead of continuing to bloviate about “capitalism.”