Capitalism

What is capitalism? It is the system of economics that assumes capital to be the essential element of economy. (Actually, it assumes much more, which we’ll get to.)

So, what is capital? It is seed grain.

Here are two wheat farmers. Both harvest their wheat, but Jake saves some portion of the harvest as seed for the following year, and Amos grinds all his wheat into flour. The following year, Amos trades some of his flour for seed from Jake. Now Jake has more flour than Amos, and is able to plant just as much wheat as he was the year before. But Amos is able to plant too, so both gain form the transaction.

Capital is the seed that Jake saved, and Jake is a capitalist. Now, it’s a good thing that Jake is a capitalist, otherwise, both Jake and Amos would have starved the next year.

Got it?

“Oh, that’s so simplistic!” Right! That, by the way, is the key to knowledge. It is a basic principle of epistemology. Tough word? Just philosophy jargon for the study of knowledge, that is, what knowledge really is, and this is what it really is:

Knowledge is simplification. It is isolating from the infinitely complex field of perception, specific entities and events and their relationships so we can remember and use them. Of course, that is simplistic too, so if you want details, I refer you to Introduction to Objectivist Epistemology by Ayn Rand.

Capitalism, in the general use of the term, assumes a state or government. In this context, capitalism usually means laissez-faire capitalism, which means an economy completely unregulated by government. It is possible to have an unregulated economy that is not capitalistic, but it is not possible to have a capitalistic economy that is regulated. The extent to which an unregulated economy will be capitalistic depends on how business men choose to do business. Classical capitalism assumes that in an unregulated economy most business men will choose to be capitalists, like Jake. Historically, there has never been an unregulated economy, and therefore there has never been a purely capitalist economy, but there was very nearly one, and it lasted about 200 years.

During the first two Centuries, the United States enjoyed the least regulated economy in history since the industrial revolution. (This excludes those countries that had nothing to regulate.) During that same period, the economy was indeed capitalist, resulting in the greatest growth in economic prosperity and quality of life ever witnessed on this planet. Most honest observers contend the rate of growth has nearly stopped, and may actually have begun to decline. A careful study of the history or our economy clearly demonstrates that the general long-term slowing of America’s prosperity growth is directly proportional to the growth in government regulation of business and the economy.

Capitalism, meaning an unregulated economy, means freedom. A free society and a regulated economy are a contradiction in terms. The “economy” is just a snapshot of what men are doing to produce what they need to live and enjoy their lives. To “regulate the economy” means “interfere in what men are doing to produce what they need to live and enjoy their lives.” There is no freedom in a regulated economy. A regulated economy makes slaves of its citizens and impoverishes them.

Ayn Rand describes it this way, “The moral justification of capitalism does not lie in the altruist claim that it represents the best way to achieve “the common good.” It is true that capitalism does–if that catch-phrase has any meaning–but this is merely a secondary consequence. The moral justification of capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protect’s man’s survival qua man, and that its ruling principle is: justice.”

Capitalism is a bad word because it is inextricably tied up with the concept of government. A free market and property rights under the protection of government is akin to safe chickens under the protection of the fox.

It is not the idea of an unregulated economy that is a problem but the idea that a government is needed to have one or that under a government one is possible. Obviously, without a government, the economy is unregulated. Most people cannot imagine life, much less an economy, without government, however, and, at least for now, government is inevitable. (See early societies and Government.)

The closest thing to an unregulated economy ever to exist was the American economy during its early history. An unregulated economy (read, free society) was the purpose of this country’s founding, its government was designed to ensure it and the Constitution was written to document it. The result of that one and only noble experiment is before us. In spite of its obvious success and universal benefit, it was scrapped. Why?

“The people,” did not want it. Oh, they wanted the prosperity it brought, the success, and the benefits. The did not (and do not) want freedom. As George Bernard Shaw wrote, “Liberty means responsibility. That is why most men dread it.”

Most people are terrified of freedom. Even when America was at her zenith of freedom and universal prosperity, the people were afraid, afraid it would not last, afraid they would not get a piece of it, afraid, mostly, of what they did not know. They would follow anyone who would promise them security, by which they meant, the assurance that the prosperity would not end and that they would get their share. If they would just put him in power, he, the politician would see to it that everyone got what was coming to them.

So they did, and so he did, but something unexpected happened. There was less prosperity. That was because they had not given the politician enough power, the politician assured them. He needed more power to control the evil businessmen who were getting rich themselves instead of creating the universal prosperity they were supposed to create.

So they gave the politician more power and he used it to control the businessmen, but it was not quite enough, so there was more power, but somehow, it was never quite enough, because the universal prosperity seemed less and less likely and the businessmen kept getting rich, though not as rich as formerly, and there were less and less of them. And the people were less prosperous than ever, and they felt less secure than ever. How were they to know that they were destroying the one class of people that could make them prosperous? How were they to know you can’t have your security cake and prosperously eat it too?

What you mean by capitalism is free enterprise, but it is not what others mean, and it is the others who are going to keep you from having it, free enterprise, that is. If you want capitalism, what they mean by capitalism, you can have that, so long as you contribute to their campaign fund.

Then another strange thing happened. Suddenly there began to be more businessmen again. But these were not the capitalist businessmen that did better when there was no government regulation, although these new businessmen called themselves capitalists. These new businessmen were not opposed to government regulation, except in the very narrowest sense, as when some regulation directly affected them. In fact, these businessmen supported the regulations. These businessmen depended on the government to make the regulations, and provide the subsidies, that made their businesses a success. Now, surely, with all these successful business en cooperating with the government, prosperity would once again flourish. And it did, for some, that is, the politician and the new businessmen, but, alas, not for, “the people.”

The problem is government itself. There will always be government, because people will always want it. Government is an agency unique in that it is the exclusive form of agency based on force and coercion. Governments will always grow in power and intrusiveness. Government will never willingly surrender any power it has acquired, and will constantly be gaining new power. Government creates nothing of value itself, therefore it must exist by confiscating what other’s have produced. Now it cannot confiscate from those who have not produced anything. Guess who the victims of a government always are.

Laissez-faire capitalism and government are antithetical. They cannot co-exist. One or the other must go whenever the attempt to have both is tried. Laissez-faire capitalism despises the use of force and avoids using it at all costs. Government loves force and uses it at every opportunity. In a conflict between laissez-faire capitalism and government, guess which one will win.