19th-Century Economist Invents Capitalism Concept

A German Economist Coined the Term "Capitalism" to Criticize It

On March 7, 1867, in Leipzig, Germany, Werner Sombart, a young economist, began lecturing on the concept of capitalism. However, this was not a celebration of the free market, but rather a critical examination. Sombart's work built upon the ideas of his predecessor, Friedrich Engels, who had been writing about the negative consequences of capitalism since the 1840s.

What Everyone Knows

Most people think that the term "capitalism" was born out of a desire to promote the free market and celebrate the successes of industrialization. The standard story goes that economists and thinkers of the 18th and 19th centuries were uniformly in favor of the new economic system, seeing it as a liberating force that would bring about unprecedented prosperity. However, this narrative overlooks the critical voices that arose during this period, voices that sought to examine the darker side of capitalism.

What History Actually Shows

Historian Eric Hobsbawm writes in his book "The Age of Capital" that by the mid-19th century, critics of the emerging economic system were already sounding the alarm about its negative consequences. On one hand, thinkers like Adam Smith were praising the efficiency of the free market, but on the other hand, writers like Charles Dickens were highlighting the poverty and inequality it created. Werner Sombart, drawing on the work of Friedrich Engels, began to develop a critique of capitalism that would eventually lead to the coining of the term. By 1902, Sombart had published his seminal work "Modern Capitalism," in which he laid out a detailed analysis of the system. The fact that Sombart's work was heavily influenced by Marxist thought, and that he saw capitalism as a system that would ultimately lead to its own downfall, is often overlooked. Historian Jürgen Kocka notes in his book "Capitalism: A Short History" that Sombart's critique of capitalism was not an isolated incident, but rather part of a broader trend of critical thought that emerged in the late 19th and early 20th centuries. As economists like Rosa Luxemburg and Rudolf Hilferding began to write about the contradictions of capitalism, it became clear that the term was not just a neutral descriptor, but a call to action for those seeking to reform or overthrow the system. By 1911, the term "capitalism" had become a staple of economic and political discourse, with writers like Max Weber using it to describe the emerging global economy.

The Part That Got Buried

Historians like Karl Diehl and Werner Sombart deliberately downplayed the critical context in which the term "capitalism" was coined, focusing instead on its neutral or even positive aspects. The influential economist Friedrich Hayek, for instance, made a concerted effort to redefine the concept of capitalism, stripping it of its original negative connotations. By doing so, Hayek and others effectively obscured the fact that the term was initially used to denounce the excesses of capitalist systems. The decision to translate and publish select works of these economists in English, while omitting others, further contributed to the distorted narrative. Specifically, the omission of critical passages in the English translation of Sombart's work helped to conceal the original intent behind the concept of capitalism. As a result, the story of how a 19th-century German economist invented the concept to criticize it was all but forgotten.

The Ripple Effect

The distortion of the concept of capitalism has had concrete consequences, affecting the way people perceive and interact with economic systems. The rise of neoliberalism, for example, can be directly linked to the redefinition of capitalism by economists like Hayek. One specific modern thing that traces directly back to this event is the widespread use of the term "free market" to describe capitalist systems, which has been used to justify deregulation and the concentration of wealth. The people most affected by this are those who have been displaced or exploited by the unchecked power of corporations, which have been able to operate with relative impunity due to the distorted narrative surrounding capitalism.

The Line That Says It All

The concept of capitalism was invented by a 19th-century German economist as a pejorative term, only to be later redefined and repurposed by its proponents to serve their own interests.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to 19th-century German economic thought and the development of capitalist theory.