Giving Capitalism a Bad Name

Linguistic Perversions
While the whole world is waiting with bated breath whether the bureaucrats running the Federal Reserve will alter, remove or retain a single adjective in their monetary policy statement today, it occurred to us to think a bit about the use of language in the context of economics and financial markets.
Many a word has seen its true meaning altered in our Orwellian age. One example we frequently cite in these pages is the term ‘inflation’. It once used to mean only one thing: An increase in the supply of money. It is the only way in which the term actually makes logical sense. And yet, in modern times its meaning has been altered to designate what is in fact only one of the many possible consequences of inflation, namely rising prices of consumer goods.
As Ludwig von Mises pointed out, this means that we actually no longer have a single word to describe what the term ‘inflation’ once used to describe. By calling rising prices ‘inflation’, sight is lost of the root cause of rising prices. This is of course deliberate, as the instigators of inflation are now no longer seen for what they truly are. As a result of this it has become fashionable to call central banks ‘inflation fighters’. This is akin to calling an armed robber a saint, or calling an arsonist a firefighter.
Capitalism is another term that has been under siege for quite some time. Once upon a time, it was the term used to describe the free market economy. Nowadays, one has to add descriptive adjectives to ensure that one is not misunderstood when talking about capitalism. If one wants to use the term in its original sense, one has to amend it by saying ‘free market capitalism’. How else can one be certain that people realize one isn’t talking about the ‘state capitalism’ or ‘crony capitalism’ which prevails today? Ironically, the latter two probably have more in common with socialism than capitalism, so one should e.g. really speak of ‘crony socialism’.
Contrary to popular wisdom, central banks are definitely not ‘pillars of the capitalist system’. They are socialist institutions engaged in central economic planning. Not a single aspect of these institutions has anything to do with free markets or capitalism. In fact, as a result of the linguistic confusion about the term capitalism, they are actively contributing to giving capitalism a bad name with their interventionist policies. Whenever the artificial booms their interventions create turn to busts, the media will blame the free market instead of putting blame where it belongs. We have last seen this quite starkly in 2008. As George Reismann pointed out at the time:

This post was published at Acting-Man on March 18, 2015.