Ludwig von Mises wrote,

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.

That's from chapter 13 of Human Action.

I think Robert Murphy's summary is even better:

Capitalism was originally a smear term for the system of free enterprise, meant to imply that this system only serves the narrow interests of the capitalists. However, the term is a good one, for the very notion of capital — of summing the market prices of the resources available for a project — is inextricably linked to monetary calculation, which itself can only occur in a capitalist society.

I was a free-market advocate before I became an advocate of capitalism. The free market is an ethical concept, not an economic one; it is merely the recognition that nonaggression needs to apply to exchange as much as it applies to anything else. (Robert Nozick summarized this idea as "capitalist acts between consenting adults.")

Capitalism is a separate issue and a separate agenda — a positive agenda, in contradistinction to the negative agenda of nonaggression, a utilitarian concept rather than an ethical one — but the more I learned of economics, capital theory, and economic history, the less I could understand the left-libertarian position of embracing the free market while rejecting capitalism.

The free-market anticapitalists define capitalism as any system of political privilege for current capitalists, especially as it suppresses bottom-up competition, entry-level entrepreneurship, and the rights of labor. But we already have plenty of other terms to cover that idea — mercantilism, corporatism, even fascism — but what alternative is there to indicate the universal benefits of capital accumulation, capital structure, and capital calculation — all of which result from the private ownership of the means of production?

In fact, private ownership of the means of production (that is, of capital) was the technical definition of capitalism, even among the anticapitalists who coined the term! The idea of political privilege for capital owners was just an assumed consequence, a conflation of definition and theory.

The only advantage I see to accepting this linguistic conflation is to conciliate the heirs of the New Left, to tease out of them a more consistent individualism without tripping their anticommercial reflexes. But aside from what I consider its intellectual dishonesty, this strategy, it seems to me, does more than postpone anti-economic prejudices; it implicitly promotes them.

Faced with these same prejudices, many anti-anti-capitalists adopted the label of "free enterprise," but that term, taken literally, tells us nothing more than "free market" does. It certainly indicates nothing about the structure of ownership or of the means of production.

Until a free-market anticapitalist can offer me a useful alternative label for the utilitarian economic concept Mises called "capitalism," I'll stick with his reclaimed word.

When the great truths of Political Economy shall become generally known—when men shall be convinced that each person will sell with greater facility the more others gain; that they can only gain by means of labour, capital, or land; that the greater the number of producers the greater the number of consumers; that unproductive consumers are mere representatives of others, and can only consume by means of what others produce; that all nations are interested in the prosperity of each other, and in facilitating the means of communication; that capital or land, and even labour, can only be productive while it is respected as property, and that the poor but industrious man is interested in the defence of the property of the rich, and in maintaining good order, because their subversion may deprive him of the means of subsistence:—when these truths shall be generally known, it will be almost impossible to stir up nations or bodies of men against each other. This science therefore is eminently social, and by teaching that no men can injure others without injuring themselves, and that the advantages gained by others are productive of advantages to themselves, will probably effect what a less interested doctrine has not yet accomplished.

– Translator's preface to Letters to Mr. Malthus (1821) by Jean-Baptiste Say, pp. vi–vii

(The Mises Insitute has also made available J-B Say's Treatise on Political Economy.)

There are certain lightbulb moments in political economy: the first time you understand price fixing as it relates to shortages and gluts; the first time you understand minimum wage in terms of price fixing; the first time you understand opportunity costs the way Bastiat meant when he wrote of the seen and the unseen; the first time you grasp what is meant by externalization of costs, the tragedy of the commons, moral hazard…

Jörg Guido Hülsmann's "The Political Economy of Moral Hazard" is the type of essay that turns on the lightbulb. It's not that I hadn't grasped the concept of moral hazard before. I had. But somehow JGH puts it all together in a way that seems so simple and obvious and yet it helps pieces slide into place that had perhaps been at odd angles before. It is one of those clarifying essays that won't let you see the world the same way again:

Moral hazard is the incentive of person A to use more resources than he otherwise would have used, because he knows, or believes he knows, that person B will provide some or all of these resources. Many economists have concluded that moral hazard entails market failures.

Jörg Guido Hülsmann shows, however, that moral hazard arises anywhere there is a separation of ownership and control — and further, that moral hazard entails expropriation when ownership and control of a resource are separated without the consent of the owner. This is, in fact, the essence of government interventionism: institutionalized uninvited co-ownership. FULL ARTICLE

About this post, Jeremy left this comment: "Sorry, this is bugging me to no end... what is the pernicious myth about Hamilton vs. Jefferson to which you refer?"

If I took the time to research a reply, I'd probably never respond, and it's a fair question he asks, so here's my off-the-cuff response:

When I was in 3rd grade, we were taught that Jefferson and Hamilton were not only political rivals, but that they represented opposite tendencies in the early American republic: Hamilton representing strong central authority and Jefferson representing decentralization.

So far so good, and even at age 8, I sided with Jefferson.

But since then I've heard other claims from modern Hamiltonians (e.g., Ric Burns, brother of Ken, in his documentary series about the history of New York): that Jefferson was for aristocracy while Hamilton favored meritocracy, that Jefferson was opposed to capitalism and opposed to industry — a sort of primitivist agriculturalist, where Hamilton was all about the power of the market and promoting commerce. These claims are misleading to say the least. A free-market Jeffersonian might even insist that they are backwards.

Then, just recently, Stephan Kinsella posted "Catoites on Hamilton v. Jefferson," which tells us of claims that "Jefferson was also a slaveholding racist — in contrast to Hamilton, whom Wilkinson says 'was against slavery'."

Tom DiLorenzo replies:

Hamilton was not the moral role model that Wilkerson apparently believes he was. He owned "house slaves," returned several runaway slaves to their owners, and once purchased six slaves at a slave auction (biographer Ron Chernow says they were for his brother-in-law). He never advocated abolition per se. He was also a notorious adulterer.

Anthony Gregory will tell you that Thomas Jefferson was not the great libertarian hero some of us sometimes make him out to be. He was especially bad in office. But I think Anthony would agree that in the context of his ideological battles with Hamilton, Jefferson was heroic, and (out of office) he was good on theory and principle as well. He wasn't against industrial capitalism; he was against corporate welfare. There's nothing incompatible with a hard-money free-market advocate having a fondness for farming and a suspicion of Anglo-American capitalists, who were already hand-in-glove with the State before, during, and after the War of Independence.

Hamilton, in contrast, was not in favor of capitalism (not in any free-market sense), but rather the very mercantilism that Adam Smith was denouncing in The Wealth of Nations. He was friendly to big business and industry, not the market. And Hamiltonian meritocracy resembles the Mandarin variety, whereby merit can advance you within a centralized system of privilege. It isn't something that should be confused with individualism or liberty.

There are many pernicious myths of modern history — about the Industrial Revolution versus the working poor, about Jefferson versus Hamilton, about Lincoln versus slavery, about robber barons, railroads, trusts, imperialism, central banking, labor unions, and on and on — but in our current situation, the most dangerous of all these myths is probably the old canard that Hoover's laissez-faire policies got us into the Great Depression and that FDR's New Deal got us out. The first piece to take apart is the claim that Hoover's policies were laissez-faire. Yes we should blame him for the severity and length of the early Depression, but to portray him as a president who was unwilling to intervene in the economy is to get his legacy exactly backwards. See chapter 7 of Murray Rothbard's America's Great Depression:

Postscript: Paul Marks, in a comment at the Mises Blog, calls this chapter "A good section of a good book," but does see a couple of weak spots. Here's one:

I am not sure that the oft repeated claim that Hoover supported laissez-faire is an "ironic twist of fate" - after all this claim was first made by people who knew perfectly well that Hoover was an ardent interventionist.

So "bare faced lie" would be more accurate than "ironic twist of fate".

Of course, now several generations have passed, people (such as media types) who make the "Hoover was a free market person" assumption are NOT telling lies - they are simply comming out with the nonsense they were taught at school and college.

"There are decent public schools and terrible ones," writes Lew Rockwell, "so there is no use generalizing. Nor is there a need to trot out data on test scores. Let me just deal with economics. All studies have shown that average cost per pupil for public schools is twice that of private schools. If we could abolish public schools and compulsory schooling laws, and replace it all with market-provided education, we would have better schools at half the price, and be freer too. We would also be a more just society, with only the customers of education bearing the costs." FULL ARTICLE

Bob Murphy, adjunct scholar at the Ludwig von Mises Institute and author of The Politically Incorrect Guide to Capitalism, discusses the Fed-created housing bubble, the bailout of Bear Sterns and JP Morgan, and the fallacies used to attempt to justify government intervention in the economy.

Play here:

or download MP3 here.

In the last decade of the last century, Fed Chairmain Alan Greenspan (former libertarian, supposed fiscal conservative) and President Bill Clinton (left-neoliberal for life) decided that the way the government measured and produced official economic statistics was misleading (read: too revealing), and so they started fudging the numbers. Dubya's government has continued to do so, while adding the new strategy of discontinuing publication of certain numbers.

Here's a site that tracks the present economy according to the government's own previous methods:

Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.