Free market capitalism vs. State capitalism

It would be nice if people in America were to know what the meaning of the term “capitalism” really is. Many Americans have no real clue what the word means. I have read that the term was coined by its most famous enemy, Karl Marx. What modern statists call “capitalism” is really two extremely different and even contradictory concepts fused together in such a way as to totally confuse the average man in the street. I think we should explore the definition of “capitalism” a bit. The two contradictory concepts I mentioned are what are often called “free-market capitalism” and “state capitalism“. They are not the same thing at all.

Free-market capitalism (or laissez-faire capitalism) is the peaceful and voluntary exchange of goods and services among people without the intervention of any third party or group. In other words exchanges without the intervention of the ruling elite through the violence of the state. State capitalism, on the other, hand is violent expropriation and intervention by the state forcing people to do what the state wishes and what the people would not do of their own free will.

The difference between State capitalism and free-market capitalism is the difference between two parties reaching a voluntary and mutually agreeable transaction or trade, and being held up at gunpoint. State capitalism is the control of corporations by the sovereign government; it is a hybrid form of public and private business. State capitalism means bureaucracy, central planning, and encroachments on our freedom and liberties. Those who stand in defence of free-market, laissez-faire capitalism and against state-capitalism stand in defence of the greatest engine of material prosperity in human history: the real capitalism. Free-market capitalism is the very fount of civilization, peace, progress, and prosperity.


State-capitalism on the other hand is just another term for the economic system called fascism or corporatism. Another newer name for State-capitalism that has arisen is “crony-capitalism”. All of these terms refer to state control of the economy. While most governments realize that going too far with central planning will yield the economic collapse of the old USSR or that of modern North Korea, the rulers still desire control like an addict wants crack cocaine. The USA is far down the path of State Capitalism even as the lying politicians claim we have a capitalist system. The term State Capitalism “is also used by some advocates of laissez-faire capitalism in reference to a private capitalist economy controlled by a state, often meaning a privately owned economy that is subject to statist economic planning.”

The fact is that capitalism, even hampered by the vast interventions of the state, has brought most of the world out of the pitiful poverty that characterized human existence in past times. Capitalism has gotten such a bad name that even many libertarians are beginning to prefer the term “market anarchy”, “the freed market”, or perhaps some other term. Many libertarians don’t want to defend capitalism outright. But capitalism is crucial to peace, prosperity, and liberty.

Mises, Hayek, Rothbard, and many others have been clear about what “capitalism” means. It is the individual’s freedom in property rights and the freedom to exchange title to those property rights unmolested by the state or any other group. This is a simple concept, but the enemies of the free market have been disingenuously conflating free enterprise with state-sanctioned privilege for decades. Mises said, “A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society.”


If we are to keep the term “capitalism” at all, then, we must distinguish between “free-market capitalism” on the one hand, and “state capitalism” on the other. The two are as different as day and night in their nature and consequences. Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by force and violence.

The enemies of freedom and liberty have long tried to confuse the issues by adopting well respected terms and using them for their own purposes. It you allow the other side to set the terms of the debate you have lost before you have begun. Take the term “liberal” for example. The socialists adopted the term long ago and now a real liberal must call himself a “Classical Liberal” to separate himself from socialists. I once wrote that I wanted the term “liberal” back: you can read that here. I think we should use the term “capitalism”, but we should be well educated on exactly what that term means and, more importantly, what it does not mean.

3 thoughts on “Free market capitalism vs. State capitalism

  1. Pingback: RLM News Show Blog - 2013-02-01 | Real Liberty Media

  2. Pingback: The fallacy of liberty without property rights | On the Mark

  3. Interesting. To me, what you and Rothbard are calling state capitalism would be better-termed Statism referring to either socialism of fascism. IMHO, the real difference between socialism and fascism is the level of militarization and the “strength” of the police state apparatus. How much redistribution of wealth can the majority afford, before heavy-handed or strong-armed enforcement is required to mitigate the rebellious and insurgent? All nation-states end up being confiscatory cartels, so it is just a matter of how much.

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