Capitalism and liberalism are among the most misused words in the English language. Some writers often conclude that it is better to replace them with other synonymous. For instance, the late Nobel Laureate John Hicks suggested that we use market economy instead of capitalism. In the case of liberalism, the misuse is even more serious. While in Europe, most people associate liberalism with policies to curb the intrusion of the state in personal lives and the economy, in the US liberalism means exactly the opposite - advocacy for government spending. So let us pick up a dictionary and check both definitions.
Let us start with capitalism. The Webster defines Capitalism as: an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth. While the Oxford Dictionary on Capitalism defines it as a noun - an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. Both definitions leave unanswered the questions concerning the degree of control and the relevance of competitive markets as important qualifiers.
On liberalism, the Webster Dictionary says: suitable for a freeman; not restricted: now only in liberal arts, liberal education, etc. giving freely; generous large or plentiful; ample; abundant a liberal reward not restricted to the literal meaning; not strict a liberal interpretation of the Bible tolerant of views differing from one's own; broad-minded; specif., not orthodox of democratic or republican forms of government, as distinguished from monarchies, aristocracies, etc. favoring reform or progress, as in religion, education, etc.; specif., favoring political reforms tending toward democracy and personal freedom for the individual; progressive designating or of a political party upholding liberal principles, esp. such a party in England or Canada Obsolete excessively free or indecorous in behavior; licentious. And in the Oxford Dictionary: liberal adjective 1 willing to respect and accept behaviour or opinions different from one’s own. 2 (of a society, law, etc.) favourable to individual rights and freedoms. 3 (in a political context) favouring individual liberty, free trade, and moderate reform. 4 (Liberal) (in the UK) relating to the Liberal Democrat party. 5 (especially of an interpretation of a law) not strictly literal. 6 given, used, or giving in generous amounts. 7 (of education) concerned with broadening general knowledge and experience.
Identifying liberalism with left or right wing policies or parties is also misleading. For instance, Marxists and Trotskyites of diverse types try to vilify liberalism by using the pre-fix neo, but they are not clear about to what type of liberalism they are referring. They may be referring to classical liberalism, or just hoping that the neo-prefix will make it look as evil or backward. American classical-liberals are often conservative. Their classical-liberal (or, if you prefer, libertarian) political values are no more than the application to society at large, and to government, of some of the most fundamental and indispensable rules that every decent person learns early in life and adheres to until death. Civil society is possible because almost everyone abides by these obvious rules against theft, cheating, and initiating violence. For classical-liberals, libertarians abhor the notion of reconstructing the world according to academic notions of how society ought to operate. The reason is that such reconstruction inevitably means that some people—those with state power—are exempted from following the basic rules of decency that we teach to our children and that all the rest of us must follow.
Trying to find new words for capitalism and liberalism will not serve clarification. For example, liberalism is better defined within a broad spectrum, ranging from anarchism, libertarian and classical-liberalism (laissez-faire) to forms of liberal socialism (of the new labor type). The later, ultimately advocates forms of crony capitalism through so-called public-private partnerships and similar policies to blur the state and private sectors for the benefit of organized lobbies and partisan friends.
On the contrary, adding a qualifier to clarify the meaning of capitalism and liberalism as applied in a particular country or by specific authors helps to identify the various shades and forms that they have. In relation to capitalism, we may use qualifications such as market, big business, state, Scandinavian, South European, crony, theocratic, and partisan. Similarly, for liberalism, we may use qualifications such as constitutional, classical, new-Austrian, socialist, American, or individualistic.
We believe that only two forms of liberalism and capitalism are key pillars for the good of humankind – constitutional liberalism and market capitalism. These do not need to have a left or right wing connotation and, in fact, both types of parties may support them. However, it is important that they are well defined to avoid being espoused opportunistically by both and be dismissed immediately when the times change.
By market capitalism, we mean an economic system where most economic interchanges are carried out in competitive atomistic markets. Under normal circumstances, this means keeping to a minimum the share of government, the grey sectors and big corporations in the economy. In addition, independent entities (and not self-preserving bodies) should regulate and prevent them from erecting entry barriers.
We define constitutional liberalism, as a political system based on rules granting a maximum of individual freedom and a minimum of social coercion. This must include the rule of law, separation of powers and the protection of individual liberties from the prying of government, religion, race, or any other special interest groups.