Capitalism, Schmapitalism

Jonathan Rothwell, an economist, posted an interesting Twitter thread recently which argues that the term “capitalism” is inherently misleading. I thought he made some interesting points but questioned whether his conclusions are fully justified, and since I lack the expertise or time to fully evaluate, I asked ChatGPT. Here’s the text of Rothwell’s Twitter thread, followed by ChatGPT’s response.

Rothwell’s original thread:

With socialism in the news again, I want to lay out the case for why no one should use the term “capitalism.” In addition to it being a slur invented by French communists to disparage shopkeepers & entrepreneurs, the term has no coherent logical or historical meaning.

The goal of Marxists is to justify radical political change. They hoped to persuade people by inventing a pseudo-scientific backstory that put workers in a heroic role against a villainous force, “capitalists.”

“Capitalism” — a system with capitalists — had to be thought of as something unprecedented & nefarious. It is much harder to portray long-standing quasi-universal and natural human relationships as inherently problematic. This historic momentum also allowed them to dangle a future paradise — communism — that was meant to be the logical next stage of preceding stages of human progress. There was a huge problem, however. When people looked into this “backstory,” it had huge obvious holes.

Pre-capitalist societies had to be distinguished from capitalist ones with some sort of meaningful definition. This turned out to be impossible. Every time Marxists looked back in history they saw currency, trade, wage labor, and markets. Clay tablets from thousands of years ago posted market prices. Wage labor was all over the ancient world. The Buddha is quoted as recommending masters pay food and wages to workers and offer holidays and sick-leave.

In the face of this evidence, Marxists have argued that it is the scale and domination of wage labor markets that matters and shapes the “mode of production.” This doesn’t save the theory. Wage labor was prevalent at large scale in Rome and throughout the ancient world, and wage labor was not relevant for large swaths of the population in so-called capitalist societies — like 19th Century England and USA. More than half of the U.S. adult population was out of the labor force or did not participate in labor markets. Just as in ancient & medieval economies, they relied on some combination of income from their household (most women & elderly), subsistence farming, or small scale business.

In short, there is no such thing as a “capitalist economy” or even “capitalists.” There are market economies that function at differing levels of sophistication and government control, and there are professional investors and many workers who fully or partly own businesses & invest their “capital” (savings) in brokerage or retirement accounts and use insurance and lending markets. None of these things are historically unprecedented as of 19th Century England (or USA). All of them are normal and reasonable extensions of the voluntary mutally beneficial exchange that has been a major part of human life for ~300,000 years.

I asked, “Is he making a valid argument?”

ChatGPT’s response:

Yes, but only in a qualified sense. Rothwell is right that “capitalism” is a fuzzy historical category and is often used polemically, and he is especially right that markets, private property, wage labor, lending, investment, and profit-seeking did not suddenly appear in eighteenth- or nineteenth-century Europe. But his stronger conclusion—that therefore “there is no such thing as a capitalist economy” and the term has no coherent historical meaning—doesn’t follow.

The central mistake is treating “capitalism” as though historians define it simply as the presence of markets or wage labor. They generally do not.

A useful way to separate the issues is this:

Rothwell’s claim	Assessment
The word “capitalism” originated as a hostile socialist term	Substantially true, but oversimplified
Markets, money, wages, investment and private enterprise existed long before modern Europe	True
Therefore ancient Rome was economically indistinguishable in kind from nineteenth-century Britain	Not persuasive
There is no coherent way to distinguish capitalism from earlier market economies	Too strong
“Capitalism” can mislead people into treating all markets as one particular political-economic system	A good point

1. His etymological point has some truth to it

The modern use of capitalisme is strongly associated with nineteenth-century French socialists. Louis Blanc used it in 1850 to mean roughly the appropriation of capital by some people to the exclusion of others. Earlier French uses of the word existed, however, so saying it was simply “invented by French communists as a slur against shopkeepers and entrepreneurs” is not quite right. Blanc was a socialist, not straightforwardly a “communist,” and his target was a particular organization of ownership rather than shopkeeping as such. (OUP Academic)

There is another important wrinkle: Marx himself did not build his argument around the noun “capitalism.” He usually wrote about capital, capitalists, and the capitalist mode of production. The term became much more widespread later. So Rothwell’s suggestion that Marxists simply invented a handy word as propaganda gives too tidy a genealogy. (Persee)

And even if a term originated polemically, that doesn’t make it analytically useless. “Mercantilism,” “impressionism,” “suffragette,” and many other labels acquired meanings quite different from the circumstances in which they were coined.

2. His strongest point is that markets are ancient

Here Rothwell is on very solid ground.

Trade, money, credit, interest-bearing loans, wage payments, partnerships, commercial investment and sophisticated prices existed thousands of years before the Industrial Revolution. Modern scholarship even debates how extensive genuine wage labor was in Greek and Hellenistic societies precisely because there is substantial evidence for it. (Cambridge University Press)

Joseph Schumpeter made essentially this observation decades ago: many individual features associated with capitalism can be found in the Greco-Roman world. (Taylor & Francis)

So this argument is indeed bad:

Ancient society had no markets.
Capitalism introduced markets.
Therefore capitalism began when markets appeared.

No serious economic historian needs to defend that proposition.

And Rothwell is pointing toward a genuinely useful distinction that often disappears in political rhetoric:

Markets ≠ capitalism.

Markets can exist under many different systems of ownership and political authority. Even the Stanford Encyclopedia of Philosophy explicitly distinguishes markets from capitalism: markets are one component of capitalism, but markets can exist under other property arrangements, including conceivable forms of market socialism. (Stanford Encyclopedia of Philosophy)

3. But this does not mean capitalism is meaningless

Imagine making a parallel argument about industrialization:

People used machines in ancient Rome.
Watermills existed in antiquity.
Therefore the “Industrial Revolution” is an incoherent concept.

The premises are true; the conclusion isn’t.

Historical categories usually describe configurations, proportions, institutions and feedback mechanisms, not the first-ever appearance of their individual ingredients.

Modern definitions of capitalism generally combine several characteristics. One prominent formulation includes:

• predominantly private ownership of productive assets;
• extensive markets for goods and services;
• widespread labor markets;
• firms producing primarily for sale and profit;
• substantial private investment and credit markets;
• systematic capital accumulation and reinvestment.

The Stanford Encyclopedia notes that each feature individually has very ancient precedents. The historically interesting question is precisely what happens when they become mutually reinforcing and society becomes organized predominantly around them. (Stanford Encyclopedia of Philosophy)

Economic historian Geoffrey Hodgson makes almost exactly this argument. Markets and private property are too old to define capitalism adequately, so he adds widespread employment relationships and sophisticated financial institutions. (OUP Academic)

That is a much better response to Rothwell than denying his evidence.

4. Rome is actually a good test case

Rothwell says large-scale wage labor existed in Rome, so widespread wage labor cannot distinguish capitalism.

But this conflates the existence of wage labor with an economy principally organized around wage-dependent households and firms hiring labor through markets.

Roman society certainly contained paid workers. But enormous parts of Roman production depended on:

• slave labor;
• tenant farming;
• household production;
• patron-client relationships;
• taxation and tribute;
• military conquest;
• aristocratic landholding.

A modern capitalist corporation can employ 100,000 people who are legally free to leave, finance expansion by issuing securities, borrow from an institutionalized banking system, own intellectual property, reinvest retained earnings, acquire competing companies, and sell into global markets.

You can find ancient analogues of many of those things individually. What you don’t readily find is the entire institutional ecology operating at comparable scale and predominance.

That distinction is why current scholarship on ancient wage labor explicitly emphasizes disagreement over its frequency, conditions and economic significance, rather than merely asking whether somebody somewhere received wages. (Cambridge University Press)

5. Rothwell’s nineteenth-century labor-force argument is also somewhat misleading

His observation that many nineteenth-century Americans and Britons were not wage workers is certainly true. Agriculture and self-employment remained very important, and women doing unpaid household labor weren’t counted as wage workers.

But saying that more than half the adult population was “out of the labor force” doesn’t establish what he wants it to establish.

A society can be substantially organized around capitalist institutions without every adult receiving wages. Children, homemakers, retirees, landlords, shopkeepers and farmers exist in twenty-first-century America too.

More importantly, “outside the labor force” is a modern statistical category, not synonymous with “economically independent of capitalist relations.” A homemaker whose household income came from her husband’s factory wage was not thereby living in a separate subsistence economy. Modern employment statistics themselves distinguish paid employment, self-employment, family work and unpaid household production. (Our World in Data)

So the relevant denominator isn’t simply:

What percentage of every adult received wages?

It is closer to:

What institutions principally organized production, investment and exchange, and upon what sources of income did households ultimately depend?

6. Where Rothwell has a deeper philosophical point

I think his argument becomes more interesting if weakened.

Suppose he said:

“Capitalism” tempts us to imagine a single thing that replaced a fundamentally different predecessor, whereas actual economic history consists of gradual changes in institutions—property rights, corporations, finance, labor markets, technology, state capacity, trade and household organization.

That is a quite defensible position.

Indeed, historians argue endlessly over when capitalism began:

• medieval Italian city-states?
• sixteenth-century Dutch commerce?
• English agrarian capitalism?
• Atlantic slavery and colonial trade?
• eighteenth-century industrial Britain?
• nineteenth-century corporate capitalism?

That disagreement is not imaginary. The Cambridge History of Capitalism explicitly treats earlier societies as possessing different subsets or precursors of modern capitalist institutions, rather than imagining that markets suddenly appeared around 1800. (Cambridge University Press)

You could therefore reasonably prefer more precise language such as “market economy,” “industrial economy,” “private-enterprise economy,” “corporate economy,” “commercial society,” or “market-oriented mixed economy” when those terms describe the particular thing you mean.

7. But “market economy” doesn’t fully replace capitalism

This is the biggest weakness in Rothwell’s proposed solution.

He says essentially that there are only “market economies that function at differing levels of sophistication and government control.”

But consider two hypothetical countries.

Country A

Factories are privately owned. Companies compete for investment. Entrepreneurs can start businesses. Workers sell their labor. Companies retain profits and reinvest them. Banks allocate private capital.

Country B

Factories are publicly owned. Their managers receive production targets from the state. Investment comes from government planning agencies. Most prices are administratively set. Private ownership of productive enterprises is extremely limited.

Calling both simply “market economies with different amounts of government control” conceals something economically important.

Conversely, imagine market socialism, in which firms compete and prices are determined by markets but productive capital is collectively or socially owned. That possibility demonstrates why market economy and capitalist economy aren’t synonyms. (Stanford Encyclopedia of Philosophy)

Ownership and control matter independently of markets.

8. Nor does widespread stock ownership make “capitalists” meaningless

Rothwell has another interesting point here: contemporary societies blur Marx’s nineteenth-century distinction between workers and capitalists.

A teacher with a pension fund may simultaneously be:

• a wage worker;
• indirectly a shareholder;
• a homeowner;
• a borrower;
• an investor.

That makes a simple two-class sociology much less descriptively satisfying.

But it doesn’t make capital ownership irrelevant. Someone with $80,000 in a 401(k) and someone who owns a controlling stake in a $20-billion corporation are both technically capital owners, but their economic positions and powers are plainly different.

“Capitalist” as a rigid social identity can therefore be misleading.

Capital ownership remains a perfectly measurable economic phenomenon.

Where I land

I would separate Rothwell’s argument into two propositions.

His weak thesis is quite good:

We shouldn’t equate capitalism with markets, commerce, entrepreneurship, money, wage labor or investment, because all of those are much older than modern capitalism. Calling all of them “capitalism” badly distorts economic history.

I agree strongly.

His strong thesis doesn’t hold:

Because the components of capitalism existed previously, there is no historically meaningful phenomenon that can be called capitalism.

That is a non sequitur.

A more defensible definition would be something like:

Capitalism is an economic order in which productive assets are predominantly privately controlled, production is extensively organized through firms purchasing inputs and labor through markets, investment is substantially allocated by private owners and financial markets, and enterprises systematically seek profits that can be accumulated and reinvested.

Nothing in that definition requires claiming that markets, wages, merchants or investment were invented in 1800.

And interestingly, this definition doesn’t require accepting Marx’s politics at all. Schumpeter, Weber, Hayek, Friedman and many other decidedly non-Marxist thinkers found “capitalism” a meaningful category. The disagreement was over how it worked and whether its consequences were desirable—not whether the phenomenon existed.

So I think Rothwell has identified a genuine conceptual abuse of the word “capitalism,” but then overcorrects by declaring the category itself nonexistent. The better lesson from his historical examples is not “capitalism isn’t real,” but rather “capitalism and markets are not the same thing.” (Stanford Encyclopedia of Philosophy)