Deirdre McCloskey proposes to replace the term “capitalism” with “innovism.” I agree with her that the former term, because of decades of ignorant propaganda – and because the essence of “captialism” isn’t capital, but entrepreneurial innovation – unfortunately conveys negative impressions to too many people. (For alerting me to the Barron’s piece I thank Steve Kaufman.)
Don
……..
Editor, Barron’s
Editor:
You describe Trump’s vision of the American economy as “state-directed capitalism” (“How a Trade Deal With Japan Could Change the Face of U.S. Energy,” September 16). Although the “state-directed” part is unfortunately accurate, the “capitalism” part is inaccurate if by “capitalism” is meant the innovative and competitive free-market process that alone is responsible for modernity’s prosperity.
Genuine capitalism, by its very nature, cannot be state-directed. It is driven by entrepreneurs and investors, in competition with each other, spending their own (and only their own) money to create goods and services to offer for sale to consumers who are unmolested in choosing how they spend their own (and only their own) money. The result is economic dynamism that incessantly improves the living standards of almost everyone.
What you call “state-directed capitalism” is categorically different. It’s politicians and bureaucrats, facing virtually no competition, spending other people’s money to produce goods and services that these same government officials decide ahead of time must, by hook or crook – through the use of the likes of tariffs, subsidies, and regulatory mandates – be purchased by consumers. The result is economic stagnation that improves the living standards only of politicians, their apparatchiks, and special-interest groups.
“State-directed capitalism” might appear on the surface to be a version of genuine, free-market capitalism. But like a Potemkin village, behind the façade stands only rickety scaffolding held together with the equivalent of spit, string, and children’s glue. Just as no informed person would choose to live in a Potemkin village, no informed person would choose to live under “state-directed capitalism.”
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
