Many people use the word capitalism to describe economic systems based on competition in a more-or-less “free” market and the word capitalist is often used by free-market enthusiasts to label their beliefs — but all these uses are wrong. Markets are often highlighted by capitalism but the market does not define them as capitalist and capitalism isn’t the same idea as the free market…
Capitalism vs. the Market:
Mixing Up Two Very Different Ideas
Markets are as old as civilization itself. A “market” is just a place where stuff is bought and sold, whether that place is a bazaar in ancient Mesopotamia or a modern stock exchange. Despite the simple set-up, markets do some pretty neat things — they determine prices, gather and dispense goods and services, and turn complex interactions between many people into smooth, orderly systems. While markets have obviously been put to good use by capitalist systems, the idea that the market itself is somehow capitalistic does not hold up to reality. In fact, the market may have been even more crucial in pre-capitalist systems due to its usefulness in organizing large-scale social interactions that might otherwise have been impossible at earlier stages of development.
Capitalism showed up just a few centuries ago during the 1700s as the industrial revolution was building steam. The first use of capitalism as a term for an economic system was by libertarian-socialist Pierre-Joseph Proudhon in t
he 1860s but it was rarely used before Werner Sombart published Der Moderne Kapitalismus in 1902. The capitalist system itself, however, had already been described in detail by Marx’s 1867 Das Kapital, which used the terms capitalist, capitalist mode of production, and capitalist system but not capitalism.* All three — Proudhon,
Marx, and Sombart — understood capitalism as a system defined by its enforcement of private property rights.