This post’s title is the title of the book I coauthored with Stephan Bannas, which will be published by Routledge in early 2027. The book is a thoroughly revised English edition of our German book “Marktwirtschaft: Zu einer neuen Wirklichkeit” (Bannas and Herrmann-Pillath 2020), which will be available as open access thanks to the generous support of the Bauersachs family.
The book presents the systematic outline of a new form of market economy in which critical institutions differ fundamentally from contemporary capitalism. The German book did not receive much attention, and many people I spoke with did not acknowledge one of its central, simple ideas: to revolutionise capitalism, abolish the institution of limited liability! In our modern society, we are stuck in a set of ideas deemed almost natural, which prevents us from doing something really new. However, when it comes to capitalism, the “new” is partly recognising the fact that the market economy is a universal form of complex human cooperation that existed independently of capitalism for millennia: Capitalist institutions also existed very early (Jursa 2014), but like a virus, they spread gradually, and then exponentially, like an epidemic in the past millennium (Beckert 2025). The introduction of limited liability and the modern public corporation as a legal person culminated this institutional transformation. However, in current debates about definitions of capitalism, these are not seen as primary features, compared to wage labour, private property, or the drive towards accumulation (Harris and Delanty 2023). They are mostly treated as aspects of the financial infrastructure of capitalism, which raises the question of whether capitalism emerged relatively late in history (Hodgson 2016). Together, these views offer a legal perspective that traces capitalism back to specific institutions in common law, such as the trust, in which arrangements of liability and distinct forms of property beyond mere private property play a central role (Pistor 2019). These analytical clarifications become salient when we set aside Western-centred views of economics and sociology and look at capitalism from the vantage point of the economic histories of other societies, such as Islamic (Azhar 2010) and Chinese (Arrighi 2007). Both specific forms of finance and limited liability seem to be the differentia specifica of societies that, in Weber’s sense, failed to develop capitalism (as distinct from certain capitalist practices related to money and finance, the original viruses of institutional diffusion and transformation).
One difficulty in accepting the argument in our book is that both economists and much of the social sciences do not distinguish between market economy and capitalism, while maintaining a disciplinary divide in naming what they see as the same animal. This is particularly pronounced in Germany. Economists regard capitalism as a “Kampfbegriff” of the Left and as specific to sociology, and prefer to speak only of the “market economy” as a generic term. In Anglophone economics, the term capitalism is more widely accepted and even seen positively (for example, it is mostly used in the liberal newspaper The Economist); however, most people treat it as equivalent to the market economy. Sociologists mainly use capitalism as a key feature of Western modernity, often seeing it as lacking alternatives within the market economy. When it comes to visions of transformation, these ideas often focus on specific institutions while keeping the general framework intact, such as workplace democracy or universal basic income. The “Market Economy Manifesto” radically departs from these views and presents a detailed exposition of a market economy that follows rules different from modern capitalism. Our argument is informed by economic history, opening the view to alternative trajectories of institutional change, and specifically by Fernand Braudel’s (Braudel 2022) brilliant and empirically detailed argument that capitalism is the “non-market” (Wallerstein 1991).
I cannot discuss all our proposals here, but I will focus on limited liability. Why is this so central to the book? Limited liability was introduced in Britain after intense controversy, with many businessmen and lawyers opposing the concept (Ireland 2010). Critics argued that limited liability would dilute the principle of personal responsibility, which they regarded as essential for maintaining trust and stable business relationships. Limited liability was seen by many as strange to common-law traditions, which are grounded in strict ethical principles of full accountability of a (male) person for his actions. At the same time, and paradoxically from hindsight, limited liability was also pushed by progressive movements of the times to enhance workers’ rights and communities’ potential to launch independent economic and social projects (Djelic 2013). This reveals the multitude of potentialities emerging in real-world institutional change. In the case of limited liability, we meet a paradox that happened many times in history: The capitalist expansion was driven by usurping progressive causes (other examples include the idea of free enterprise in the first decade after the abolition of slavery in the US (Glickman 2019) or the promotion of universal home ownership by enhancing access to mortgages before the financial crisis (Calomiris and Haber 2014)).
Eventually, the legal transformations of the mid-19th century cemented a key defining feature of capitalism: the role of financial investors, whose main interest was to reduce personal risks while maximising choices among investment opportunities (Preda 2005). This group includes different types; in the 19th century, initially mainly the rentiers, but increasingly the “capitalists” in Weber’s sense, that is, actors pursuing the accumulation of financial capital and profits. This evolution resulted in the dominance of financial capitalism today, or Wall Street over Main Street.
Knowing the details of this historical transformation, we can envision a counterfactual history informed by the economic history of non-Western regions such as China. Economics mostly suggests that there was a historical necessity to develop institutions of limited liability and the corporation, since they foster efficiency, innovation, and growth. After all, prosperous Islamic societies did not enter the stage of continuous growth of GDP per capita (Kuran 2018). But what would happen if we simply abolished limited liability today?
Clearly and necessarily, the entire edifice of modern finance would collapse, and we would see private banking revive as the dominant institution. Shareholding as we know it would end or be replaced by full-liability shares (which existed historically, such as the “Kuxen” in the German mining industry). However, that would look like a nuclear option, wiping out most of what makes our modern economies work.
However, in our book we argue that one can maintain the institution of limited liability by returning to principles established by Adam Smith, who was a fierce critic of public corporations. Granting limited liability to a person or organisation is a privilege that must be reciprocated by a contribution to the common good and society: In other words, a “public” corporation would be a “public interest corporation”. This was a central idea of the so-called father of Japanese capitalism, Shibusawa Eiichi, who argued that shareholding companies must serve the aim of mobilising citizens’ capital to pursue a shared public interest (Fridenson and Takeo 2017). Most businesses would be organised as private firms with full liability, regardless of size.
Our book proposes transforming all corporations that wish to maintain limited liability into foundation-owned companies, thereby following the institutional logic of the “stewardship economy” (Ciepley 2025). Whether a company’s purpose is in the public interest remains a political decision: a pharmaceutical company is probably in the public interest, while a luxury carmaker is not. This has concrete consequences for the institutional and organisational design of such corporations. Pursuing a public interest may require giving voice to employees who would identify with the public purpose, thus turning the corporation into a community committed to shared ethical norms (Collier 2019). Or, remuneration schemes would be drastically different from the current models of incentivising managers in the interest of shareholders: For example, salaries of top executives could match the salaries of other leading positions in society, such as government officials and elected office-holders (Frey and Osterloh 2007).
All this can happen without abolishing the other institutional components of current economic systems, such as wage labour, private property, or market competition. However, if only abolishing limited liability suffices to launch a radical transformation of capitalism into a market economy, what if we add the other components discussed in our book, such as Universal Basic Income? The concrete utopia of a non-capitalist market economy is possible!
References
Arrighi, Giovanni. 2007. Adam Smith in Beijing: Lineages of the Twenty-First Century. Verso.
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Bannas, Stephan, and Carsten Herrmann-Pillath. 2020. Marktwirtschaft: Zu einer neuen Wirklichkeit: 30 Thesen zur Transformation unserer Wirtschaftsordnung. 1. Auflage. Schäffer-Poeschel Verlag.
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