I remember asking this question to my friends. Now Sharpe answers this in his superb interview with AFA:
Q. Continuing with our CAPM trivia quiz, over the years some of my students have wondered if the C and A are redundant. I told them it wouldn’t have made nearly as nice of a title if we called it the AP-M. We need the C in there. (Laugh) But what inspired you to call it “Capital Asset Pricing”, and did you mean to communicate anything other than just asset pricing?
A. That’s an interesting question. I don’t know the answer. I wasn’t thinking about acronyms. I think I was trying to connote the fact that we are talking about assets in capital markets. Whereas with assets, perhaps I was thinking, you would think of cars and trucks.
Q. So traded assets?
A. Yes Securities, perhaps.
So, that is how we have the name- CAPM, one of the most profound ideas of portfolio theory.
Sharpe has a super sense of humor as well (though Avinash Dixit takes the cake when it comes to humor):
Q. Well, I am glad that you [settled on capital assets]… because the buzz word is, CAP-M. With securities, it would be SAP-M, or something. A. Yes, or SPAM, I’m not sure what it would have been.
This is a superb interview form the great mind. It tells you how the main idea came into being (Markowitz got it from a broker), how difficult it was to get the main ideas in finance across to economists, etc.
Highly recommended reading.