The accounts of the early uses of the term “capitalism” have not kept up at all with the sources now available for research. For example, on Wikipedia we find:
According to the Oxford English Dictionary (OED), the term capitalism was first used by novelist William Makepeace Thackeray in 1854 in The Newcomes, where he meant “having ownership of capital.” Also according to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the term private capitalism in 1863.
The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850 and Pierre-Joseph Proudhon in 1861. Marx and Engels referred to the capitalistic system (kapitalistisches System) and to the capitalist mode of production (kapitalistische Produktionsform) in Das Kapital (1867). The use of the word “capitalism” in reference to an economic system appears twice in Volume I of Das Kapital, p. 124 (German edition), and in Theories of Surplus Value, tome II, p. 493 (German edition).
We know, for example, that William Batchelder Greene used the term “capitalism” in its “modern sense” in Equality in 1849. And it turns out that there are French uses of the term “capitalisme,” in that same sense, going clear back to 1834.
Many of the early references to “capitalism(e)” are undeveloped or off-hand. However, in an 1839 work by Pons Louis François de Villeneuve, “L’Agonie de la France,” we find this rather lovely bit:
Capitalism and journalism : two new designations for two new scourges; the one dissipating the fortunes that is seems to strengthen; the other evaporating the instruction that it seems to extend; both valuable in their use, and formidable in their abuse.
Didn’t a free market socialist coin the term “capitalism” in order to distinguish a true free market from a state-monopolized one?
I haven’t seen any indication that that was the case. In the material I’ve looked at, it appears to be mostly a case of identifying a new form of feudalism, and the question of a “true free market” doesn’t enter into it at all.