Government Watch / Politics

Please Don’t Call It Capitalism: It’s Not Just about the Money!

AMAC Exclusive – By David Lewis Schaefer


This is the first installment of a two-part series.

Throughout the Cold War and beyond, it was common to describe the struggle between the United States (and its allies) and the Soviet Union as one of “capitalism” against “socialism.” Even today, foreign dictators and “democratic-socialist” advocates in the United States alike pin their grievances on “capitalism.” But this framing of the debate as a battle between socialism and capitalism adopts the favored terms of the left and misrepresents who actually benefits in “socialist” and “capitalist” societies.

Examples abound of contemporary socialists blaming their woes on the alleged predations of “capitalist” economies. During last November’s United Nations Conference on climate change, for instance, Venezuelan despot Nicolás Maduro blamed that supposed danger on the extraction of natural resources by “capitalism.” (Venezuela’s economy has long depended on the extraction of oil, though its production declined drastically once its socialist government took control of the industry.)

In the U.S., the current Hulu television series based on the New York Times’s “1619 Project” blames racial inequality in America on capitalism, when the real culprit, as two prominent economists note in their February 21 review in the Wall Street Journal, is actually socialist ideology.

Faculty at U.S. academic institutions that are supposed to train future business leaders now frequently call into question the morality of the economic system on which the country has relied throughout its history. The lead story in the New York Times Business Section this past November 28 was titled “Capitalism Is Up for Scrutiny at Elite Business Schools.” As an example of this scrutiny, the story quoted an exchange between Harvard professor Debora Spar and a student in her “widely sought-after course” on “Capitalism and the State” in which the two agreed that a “necessary condition” for capitalism is “scarcity, which is going to drive inequality.” (As if scarcity had not been the universal human condition prior to the coming of capitalism!) The course was cited as an instance of how today’s business school students are learning about “how to rethink capitalism.”

Meanwhile, over at Yale, the Times story reports, nearly half of the School of Management’s core curriculum is devoted to E.S.G., or “socially responsible” investing (a term that commonly refers to such activities of questionable public benefit as race-based hiring and the elimination of fossil fuels).

According to the story, even as most business students “are frank about the prestigious jobs they want, with hefty salaries attached,” they are “facing sharper questions from classmates about how to balance their ambitions with some sense of responsibility to the public good” – as if corporations do not normally, simply through productive (but honestly conducted) activities, benefit the public. Still, the story reports, “many of the students taking courses about challenging capitalism aren’t letting those big classroom questions overtake the ambitions that landed them in business school in the first place.”

These students are suffering from a considerable confusion, not to say contradiction, in their ambitions. “Educated” by instructors like Ms. Spar, although they are unlikely to forego their aspirations for wealth and status, those aspirations will nag at their conscience. They will have been taught as well that personal advancement in the business world, albeit by lawful means, is essentially at odds with promoting the public good, rather than being intertwined with benefiting one’s fellow citizens as well as oneself.

The truth that seems to be lost is that successful and law-abiding businessmen and women benefit other citizens by producing useful and valuable goods and services while also creating jobs. Americans, as a whole, exceed all other nations in their degree of charitable giving, as well as the amount of foreign aid they contribute through both public and private channels. While Americans of ordinary means display a high degree of charity, it is commonplace for the highest earners to donate large sums to colleges, hospitals, museums, and other philanthropic or civic institutions, as well as devote time to the support and governance of such institutions. Additionally, they pay by far the largest amount of taxes.

As for those tycoons who devote most of their time and wealth to trivial creature comforts like mansions and yachts, well, at worst, their crass materialism does no harm to anyone else. In fact, decades ago, when Congress enacted a special luxury tax on yachts, it was compelled, a short time later, to repeal the tax at the particular instigation of Democratic Rep. Patrick Kennedy, since those who worked in the boat building and maintenance industry in his state of Rhode Island had suffered mightily from the cutback in business.

At the same time, as social scientist Arthur Brooks demonstrated in his 2007 book Who Really Cares?, the tendency toward charitable giving is highly correlated with such “red-state” attitudes and practices as churchgoing, earning one’s own income (as opposed to receiving welfare), and the belief that individuals rather than government offer the best solution to social ills. While such outlooks and practices were portrayed by Alexis de Tocqueville as the key to the success of America’s democratic institutions in Democracy in America, they aren’t the sort of thing highlighted at America’s most prestigious business schools.

Therein lies the rub. For all the benefits that our so-called capitalist system provides, its survival depends on a continued appreciation of how it benefits the nation as a whole – in contrast to the morally self-indulgent but quite misleading doctrines espoused by instructors like Ms. Spar.

To start with, the very term “capitalism,” a coinage of communist theorists Karl Marx and Friedrich Engels, is a misnomer. As all economists know, the reliance on “capital” is not a peculiarity of one economic system. At least beyond the hunter-gatherer stage of existence, all economies depend on the combination of capital (farmland, farm animals, tools, workshops or factories, intellectual capital, cash available for investment, etc., in varying combinations) and labor. This was no less true of the Soviet Union, Communist China, Cuba, and other self-described communist or socialist political regimes than it was of the modern, industrialized West or of agrarian feudal regimes of the past.

The issue here is not merely verbal. The proper term for the economic systems of the industrialized nations for which Marx and Engels and their contemporary epigoni express undying hatred is “free enterprise.” Whereas socialist or communist regimes rest on government ownership of the means of production, the so-called capitalist systems depend on the enterprise and initiative of private individuals.

This doesn’t mean, of course, that free enterprise is incompatible with extensive government regulation of the economy, or generous welfare states. But the very capacity of free-enterprise economies to provide generously for the public welfare, in contrast to the poverty associated with socialism, derives from the labor and investment of private individuals – workers, scientists, inventors, entrepreneurs, and owners of corporations – animated by the pursuit of economic gain.

Free enterprise has made an enormous contribution to elevating the living standards of nations that adopted it under the influence of such modern liberal political philosophers as John Locke, Adam Smith, Baron de Montesquieu, and the American Founding Fathers. They all rejected the shackles that aristocratic or theocratic regimes had put on labor and commerce. This has been amply documented by the economic historian Deirdre McCloskey in her trilogy Bourgeois Virtue, Bourgeois Dignity, and Bourgeois Equality, among numerous other works that could be mentioned here.

In labeling the free-enterprise system “capitalist,” even its most distinguished advocates over the past century, such as Milton Friedman (Capitalism and Freedom) and Friedrich Hayek (for instance in his excellent edited volume Capitalism and the Historians) have surrendered their language to the enemies of freedom.

By calling the system of economic freedom, or (alternatively) commercial republicanism, by its Marxist label, its advocates are implying that the battle between socialist and free regimes was really about the competing interests of labor and “capital.” That is, socialist regimes supposedly advance the interests of workers (the vast majority of human beings) while capitalist ones just benefit greedy, materialistic plutocrats. As the current slogan of the American Communist Party puts it, Communists supposedly serve “People and Planet Before Profits.” (Stalin, Mao, and their cohorts, who lived in luxury while their subjects starved, would have a good, if private, laugh at that line!)

As already mentioned, the Times’s “1619 Project” exemplifies the error of blaming on “capitalism” what are really the consequences of arbitrary, corrupt, or merely private-interest-based government regulations that improperly interfere with the operation of the free-enterprise system – as well as, to the extent that their effects are still felt, of the pre-“capitalist” practices of slavery or serfdom.

As the Journal review of the Hulu series by economists David Henderson and Philip Magness demonstrates, the “1619 Project” inadvertently makes the case for economic freedom, since most of the contemporary injustices it cites resulted from government interventions that undercut free markets and property rights and therefore limited the opportunity for black advancement. These include the abuse of eminent domain, racial red-lining of Federally subsidized mortgages, minimum-wage laws originally designed to protect white workers in the North from competition by black migrants from the South who were willing to work for less, and governmental support and enforcement of labor monopolies by unions that systematically excluded blacks.

Stay tuned for the second installment of “Please Don’t Call It Capitalism” in the coming days.

David Lewis Schaefer is a Professor of Political Science at College of the Holy Cross.

We hope you've enjoyed this article. While you're here, we have a small favor to ask...

Support AMAC Action. Our 501 (C)(4) advances initiatives on Capitol Hill, in the state legislatures, and at the local level to protect American values, free speech, the exercise of religion, equality of opportunity, sanctity of life, and the rule of law.

Donate Now

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter
and Download the AMAC App

Sign Up Today Download

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter!

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments
2 months ago

Failure of large bank this week should get the attention of a lot of investors & economists. Investing in tech is risky , but I think most of us have warned that investing in any stock is risking your money. And this bank failure will probably put an end to investing in high risk Cryptocurrency which takes an astronomical amount of electrical power to produce. Old Sayin: “BUYER BEWARE”

2 months ago
Reply to  johnh

The downside to corporations giving their CEO’s and/or CFO’s large amounts of stock while they are in charge of the financial decisions and err in their judgements to the losses that they do not honor their fiduciary responsibilities.
They sell their stock at the cost of other stockholders to suffer the financial loss while they walk away with the other investors money with no recourse.
Now is the time to change that loophole. The money they made should be put back into the corporate account and their loss should be the same as any other stockholder. Make them responsible for their bad judgement and leadership that ran the company into bankruptcy.
Why should bad decisions be rewarded and the loss is passed onto others to lose their investment, and the leaders come out richer and take a reward for ruining a corporation?

2 months ago

Capitalism is always better than Communism & is the backbone of the middle class that made America great. But greed is not helping USA when the CEO & top management are now making about 3-400 times the average wage of their employees, which in my opinion is not good for Capitalism.

2 months ago

The economy is people trading value for value. It’s not abstract processes, government edict or money. People produce so that they can get something. They don’t need to be told what or how to produce, they don’t need to be regulated, and they don’t need government printed money. It’s time to ignore the Ruling Class of parasites.

2 months ago

Socialism is COMMUNISM WITH A SMILE. Even Lenin said it was the first step to communism.

Bro. Steve
2 months ago

Socialism is just envy with a gun.

Marc Ziegler
2 months ago

Everything Socialism touches it destroys. Every nation that has tried it has failed. Nothing good ever comes out of it. If some people think Socialism is so good and desirable, why do so many people want to break into our Country, a Capitalist one and flee Socialism? A riddle that no democrat can really what to answer!

2 months ago
Reply to  Marc Ziegler

Why did east germany and east berlin have to build walls to separate them from the west? NOT TO KEEP PEOPLE FROM THE WEST BREAKING IN! TO KEEP THEIR OWN PEOPLE FROM LEAVING!!!!!

David Millikan
2 months ago

Capitalism = Freedom, Independence, and Prosperity.
Socialism = Slavery, Suppression, Depression and Broke by going WOKE.
It doesn’t take a genius to see which is better and healthier.

2 months ago
Reply to  David Millikan

“It doesn’t take a genius”
Lenin called them “useful idiots” for a reason.

2 months ago
Reply to  David Millikan

Well said, David.

Chuck Gades
2 months ago

Finally, an excellent article. A simple clarification is in order strongly alluded to by the author and respondents. Capital simply is the means of production. Shovels, hammers, trucks, etc. All people and societies use them. Capitalism is not specific to different types of government systems. What is different is governmental control of the use of capital. The free enterprise system limits government control of the use of capital (yes, we are losing the grip on that). The socialist, communist, nazi, fascist systems exert near or total control on capital. The result is abundance or scarcity that has been well documented in the article. We should be focusing on the government systems that produce abundance or scarcity and not blame the hammer or the axe.

2 months ago

We have economic freedoms and I hope we always will; it helps every taxpayer and everyone else. Who loves money and power more than the democrats; just look at Pelosi, Schumer, Warren, and the list goes on. Just power and pure greed. What liars. Too, funny………….

joe mchugh
2 months ago

While the author of this article correctly described capitalism, he danced around its place in free societies.

Capitalism is a feature of free enterprise, it involves the ways that private businesses can operate.
Socialism is a false political theory that some societies try to model their governments on. Socialism always fails as a governance model. The gist of socialism is that the government taxes the compensation of the workers, and gives some of that money to individual laggards. This behavior of socialist governments causes an impediment to the society. Socialism is akin to an anchor that holds a society back from being all that it could be.

While socialist, parliamentary, representative republic, monarchy, theocracy, etc, are models of governments, capitalism is not. One could say that capitalism IS business. To call a society a capitalistic one causes confusion. It would be accurate to describe a society that allows businesses to engage in capitalism, a society that enables free enterprise to flourish.

One could use the concept of capitalism as a template to determine what kind of government a country is. Liberalism, progressivism, Marxism and communism are all peas in the same socialist pod. None of the societies that impose socialism allow free enterprise. All of them interfere by exacting taxes on the product of labor, i.e. the worker’s compensation. Exacted taxes are any taxes that are used to subsidize individuals. The only exception to this truism is the support that a government affords for those who are crippled in mind, or body. All other adults are expected to earn their own way without government “freebies”.

anna hubert
2 months ago

What a great article Should be a compulsory reading for every student in every school

2 months ago

Great piece! As mentioned, surrendering the language to leftist monsters lets them grow larger. Theres a difference between accepting linguistic norms and accepting the language perversions of the lefties. One of the most basic is the supposed spectrum of political thought with communism and socialism on one end and hutler on the other. Of course the lefties put conservatives right there next to hutler. Right next to the national socialists. This linguistic device conditions dem robots and kids to think anyone opposing communism is pure evil. Its good to root out the lefty implants in ones thought patterns.

Ann S
2 months ago

Excellent article.

2 months ago

An excellent article for the serious thinker. More articles like this would be a serious step up in the quality of articles offered here. Good job on this one AMAC.

On a secondary note, the left has always tried to reshape the conversation in their favor by modifying the language used to describe things, since they cannot win the argument on the merits alone. Their p[ositions simply don’t stand up well to close scrutiny. That we, as a country, so often just roll over and adopt whatever new phrases or descriptors the left throws out there with little to no push back, that is a character flaw in most Americans that has to be corrected at some point. It is primarily due to most Americans becoming far too soft.

George Washington's Admirer
2 months ago

This is an intellectual article with a lot of merit. The Stock Market is complex to me. The many workings of a free enterprise system. The Marxists/Socialists have been hard at work for at least seventy to ninety years trying to brainwash us. Of course, they are going to hit everything from kindergarten to graduate school. They deposit their seeds of propaganda and misinformation on young fertile soil. A sort of ‘Woke’ BS about economics. What would the Founding Fathers say about all of this communist theology? May God Bless & Protect This United States of America!

Paul W
2 months ago

I completely agree with the author. Thumbs up!
The free-market economic system has lifted more people out of poverty than any other economic system.,,ever. Let’s be honest, it’s the only one to do so. No socialistic “welfare” system has ever elevated anyone to wealthy status. In fact, it doesn’t even move those in poverty into the middle-class. The goal of the “welfare” system has always been to keep people down and needy, thereby perpetuating government reliance. Those that deny that are either liars or ignorant.

2 months ago
Reply to  Paul W

“No socialistic “welfare” system has ever elevated anyone to wealthy status”
oh but it has! castro’s family, chavez’s family, madam mao didn’t do to bad, etc. Unfortunately, “useful idiots” dont see that. It’s the people who dont stand a chance under a “socialist” system.

Paul W
2 months ago
Reply to  edward

Exactly. I should’ve said. “With a caveat…the “elitists” in power always get much wealthier.” maduro dines on $200US meals while his citizens dumpster dive for scraps or eat their pets. chavez and now maduro destroyed the middle and upper-middle classes in Venezuela.

2 months ago

I remember that in the Soviet Union, people waited months and years to buy a car or a refrigerator. In the Soviet Communist bastion, the economic situation could be defined as shared misery. Those who ran the country did not share in the misery, but everyone else did. Competition is a great motivator. The idea that a “necessary condition” for capitalism is “scarcity, which is going to drive inequality” is invalid. In the 70s we endured two gasoline shortages. A number of people I knew bought small cars imported from Japan that got greatly improved mileage. The buyers also discovered that these Japanese cars not only delivered on mileage, but also did not rust out as quickly as the typical American behemoth. The Japanese also used statistical process control, a technique to lessen the failure rate of the parts used in the product. American car manufacturers scrambled to address these deficiencies, which is what competition and capitalism is all about. That being said, their failure deliver improved products until forced to do so by foreign competition cost them significant market share. The winner was the consumer.

2 months ago
Reply to  DenvilleSr

yep. Detroit was serving up unreliable trash that exploded into shards of rust in three years. Also, youre quite right about the Soviet Union. Everything was scarce. People carried string bags and got in line whenever one formed and bought whatever was available. They then shared with friends. In addition, apartments were in short supply. Young married couples had to live with parents for years before getting their own. Owning a home? Only party apparatchiks. Party members shopped in private stores that were well stocked.

2 months ago
Reply to  DenvilleSr

What you said is true, but I would add that the Japanese did not come up with “statistical process control” on their own. They deployed the system designed by Edwards Deming, an American, for managing quality in their manufacturing processes that led to their product superiority. Unfortunately, American carmakers dismissed Deming’s ideas which led to him going to Japan.

Mark Yotter
2 months ago

Prager U needs to turn this article into one of their 5 minute videos.

2 months ago
Reply to  Mark Yotter

Hillsdale College already has a free on-line course by Art Laffer covering much of what was discussed in this article. You should take a look at it. As for trying to condense this subject into a 5-minute video, that would be reducing the subject to essentially a meaningless sound bite. Not everything can be distilled down to a bumper sticker.

2 months ago

In free enterprise anyone is able to create and prosper from their ideas and hard work. It’s not a given, but a chance. Dr. Schaefer is most correct in his thoughts about capitalism. The left has nearly created a new “four letter” word whenever they say capitalism. If I wanted Biden and his Keystone Kops to take away my freedoms and possibilities I would have voted for them.

Wayne Peterkin
2 months ago

I have chosen to use the term “Free Enterprise” rather than “Capitalism” for many years now for the reasons cited in this article. “Capitalism” has a negative connotation, undeserved but real.

Would love your thoughts, please comment.x