FE1993-v2—The Origin of Socialism—Revisited
In the original essay, I wrote that Communism failed in part because “the true engine of capitalism, the free market, was overlooked and left out of the plan.” Unfortunately, I worded that passage poorly. Even then, I understood that the free market isn’t something that can simply be added or planned—it was never a mechanism to be engineered. The free market is not a standalone feature; it is an emergent result—a byproduct of deeper principles.
For a free market to emerge, three things are essential: clear and enforceable laws (legitimacy), a system for adjudicating crimes and disputes (equity), and the liberty to act without seeking permission (opportunity). These are the preconditions—not the byproducts—of economic freedom. Like living beneath the shelter of a great tree, the free market exists only under the protection of these three branches: Legitimacy, Equity, and Opportunity.
What I should have articulated more clearly in 1993 is that it wasn’t just capitalism—or even the free market—that made prosperity possible. It was a culture of constitutionalism. Also even then, I recognized that the structure of limited government—with checks and balances among the Legislative, Judicial, and Executive branches—mapped directly to those same economic preconditions: laws, adjudication, and liberty.
Constitutionalism is a framework of structural restraint and distributed power that protects individual rights—including property rights—and limits the reach of the state. That framework didn’t merely allow the free market to exist; it created the very conditions that made it possible. Since that time the term capitalism has undergone a cultural drift—so much so that people now seem to be speaking entirely different languages when they use it. This is because it literally means something different to different people.
To some—particularly younger generations or those on the political left—the word capitalism has come to symbolize a system associated with growing inequality, corporate dominance, and barriers to opportunity. Rather than seeing it simply as a theory of private ownership and voluntary exchange, they often view it as shorthand for structural injustice or oppression. And observing from their perspective, and to my great discomfort, I must admit they’re not wrong.
To others—especially older generations or those on the political right—the word still carries mostly positive associations: innovation, opportunity, and prosperity. And thankfully, they’re not wrong either. Yet the divide between these perspectives is no longer just a difference of opinion—the term capitalism may never be universally embraced, because its cultural meaning has fractured beyond repair.
Let me be absolutely clear: this is not an endorsement of socialism, communism, or any other “ism” that has been tried and failed in the past. No other system in history has brought humanity as far—materially, technologically, or socially—as capitalism has. Its extraordinary contributions to prosperity, innovation, and human freedom are unparalleled.
But that doesn’t mean it’s perfect, or immune to corruption, cronyism, or regulatory capture. Since writing The Origin of Socialism I’ve come to see that many of the negative views of Capitalism are actually due to its reliance on a centralized monetary system. Businesses are engines of value creation—they transform raw materials and labor into outputs of greater value. Yet they operate within an economic environment where that newly created value is not directly reflected in the currency system. As a result, the rewards of value creation are often siphoned off by those who contribute nothing to the productive process. In fact, many accumulate wealth by extracting value from the system without adding any—effectively stealing from those who do. This truth is missing from both the positive and negative perspectives of capitalism.
If we hope to go beyond the term capitalism we must do more than merely support private ownership over capital and the means of production. We must also account for the currency systems that represent value creation and exchange. Capitalism’s flaw isn’t that it’s entirely wrong—it’s that it didn’t go far enough. Its focus is too narrow to describe both the positive productive forces and the negative destructive forces that together shape our economic reality. That imbalance helps explain the growing divide between capitalism’s proponents and its critics. Thus, in addition to a system of checks and balances, similar to that demonstrated by constitutionalism, we also need a decentralized monetary system—something that would have been difficult to achieve before the game-changing innovations of cryptocurrency.
Nevertheless, instead of Capitalism I’m now seeking for a more comprehensive term—perhaps EconStitutionalism or maybe Prosperism—to more accurately describe the societal benefits that arise when constitutional checks and balances are applied not only to government, but also to business and to decentralized currency systems.
Notes:
1. Endnote 1 Title. Endnote 1 content.” See Federalist No. 51, Library of Congress.[Return]
2. Endnote 2 Title. Endnote 2 content. Wikipedia.[Return]
3. Endnote 3 Title. Endnote 3 content. Unlinked Reference.[Return]
4. Endnote 4 Title. Endnote 4 content. Unlinked Reference.[Return]
5. Endnote 5 Title. Endnote 5 content. Unlinked Reference.[Return]
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7. Endnote 7 Title. Endnote 7 content. Unlinked Reference.[Return]
8. Endnote 8 Title. Endnote 8 content. Unlinked Reference.[Return]
9. Endnote 9 Title. Endnote 9 content.Wikipedia.[Return]
10. Endnote 10 Title. Endnote 10 content. Wikipedia.[Return]