2007-06-08

Capitalism in a Free Society #1

There are criticisms of Capitalism which are so widespread and so plausible that they must be addressed, before we can hope to establish a Libertarian society. These criticisms generally come from the Left, but there are those on the Right who make similar arguments. This article will attempt to address some of these issues from a Libertarian perspective.

Q: Who coined the term Capitalism?
A: An excellent question. Who came up with the word "Capitalism"? It doesn't sound very nice. It sounds as if Capitalism is designed to benefit those who provide the capital. It sounds as if Capitalism might well be very bad for others who live under the system, for example workers and consumers. Why would the creators of Capitalism have chosen such an emotionally loaded word to describe their idea? The reason is simple: the word Capitalism was not coined by Capitalists. It was coined by socialists, and thus the emotional loading is purely intentional. Capitalists adopted the word Capitalism in much the same way that Americans adopted the phrase "Yankee Doodle", which was originally a British slur, and made it a term of honor.

Q: What is Capitalism?
Capitalism is a system with two essential characteristics: Private property, and free markets. Both of these characteristics are considered by most Libertarians to be expressions of natural rights. The right to exist, combined with the human need for material goods in order to live, implies a moral right to private property. It also implies a right to defend this private property from those who would confiscate it for their own ends, as otherwise, one would have to depend for survival on the hope that nobody would come and take from you those things which you need to live. Free markets are really merely an extension of private property. Since ownership of private property implies the sole right to dispose of that property, and since free markets are merely the sum of all voluntary exchanges in a society, the only way that a society could exist without free markets is to violate the right of private property by forbidding people to trade what they have created.

Please note that these are the only two essential characteristics of Capitalism. Capitalism does not imply the existence of corporations, of democracy, of a government, of copyright, of patents, of large industrial facilities, or any of the other trappings which are frequently associated in the popular imagination with capitalism. If you strand two naked people on an island, and they trade with each other without violence, you have created a Capitalist society.

Q: Who "invented" Capitalism?
A: Capitalism was never invented. As illustrated above, it flowed naturally from the advantages people can gain by trading with each other. The person most referred to as the "father of Capitalism", Adam Smith, described capitalism (without ever using the word) in his 1776 classic "The Wealth of Nations". He was describing what he saw, and advancing arguments for dismantling the state controls of the economy which had characterized earlier economic systems, for example, Feudalism and Mercantilism. We have never, since the establishment of government, come close to the ideals which Smith described, although sometimes we have been closer than others.

Q: What are the classes of people in a Capitalist society?
A: People may play many roles in the economy of a Capitalist society. The three basic roles are:
Capitalist
One who owns capital, and manages it's use in the production of goods
Worker
One who produces goods or provides services
Landlord
One who receives income from the ownership of land
These are not, however, "classes" of people (except in the broadest sense of being classifications which can be attached to people). There are several reasons that these can really not be called classes:
  1. These roles are not immutable. An individual in a capitalist society will more than likely play more than one of these roles in his lifetime. He may well start out as a worker, and choose to refraining from spending some of his income, and to invest it instead. Now he's a capitalist. He may choose to invest in land, rather than tools and equipment, in which case he's a landlord.
  2. These roles are not exclusive. An individual may well play many of these roles simultaneously. Consider a carpenter who owns his own tools. When working, this carpenter is making money through his labor, which would make him a worker. He is also magnifying the effects of his labor, by using tools, which he owns. This, of course, increases his income, making him a capitalist as well. An even better example would be an family farm. Consider the owner of such a business:
    1. He works his own land, making him a worker.
    2. He owns his land, and receives income from it, therefore making him a landlord.
    3. He owns his tools, and thereby increases the income from his labor. This makes him a capitalist.
  3. These roles do not imply different levels of wealth. It is a common misconception that a business owner makes more money then a worker. This misconception does not bear even casual scrutiny. It is quite possible that a business owner or landlord will lose money through error or while ramping up a new business. A worker, of course, runs no risk of losing money through his labors. The worst that could possibly happen would be for his employer to go bankrupt, and fail to pay his wages. Even in this case, though he has not been paid, and rightly feels he has been cheated, he has not actually lost anything he already had. He has failed to gain his rightful due. This is bad, but not nearly as bad as having built a business and then lost it.
  4. These rules do not imply different levels of power. In a command economy, like socialism, the various roles imply a level of power over others. If a member of a subordinate class fails to obey his master, his master can have him killed, imprisoned, or otherwise punished. This creates a tremendous power differential. In a market economy, like capitalism, however, there is no difference in power. Any person can make whatever offer he chooses to any other person, but there is no way for him to punish those who refuse to obey his request. He can, of course, refuse to pay those who refuse to work for him, but he cannot take from them their lives, their liberty, or their ability to pursue happiness.

This is probably enough information to absorb in one sitting, and it is as much as I choose to write right now, so I will sign off, and return later to expound further on the joys of capitalism and freedom.

4 comments:

KCrouch said...

Responding to the comment you made on my page:

The War in Iraq is justified in the fact that we toppled Saddam's dictatorship and set the people free. Besides. We couldn't leave now even if we wanted to. I understand that we need to force the responsibility onto the Iraqi government, but right now is not the time to drop it on them. They are too weak to hold it.

We never attacked Afghanistan as a whole. Osama Bin Laden's organization Al Queda and it's sister group the Taliban were HQ'd in Afghanistan. The Taliban was the government there.

Don't say we randomly attacked Afghanistan because again, we did not attack the nation as a whole, and we certainly didn't attack the people.

pHundle said...

Now, the Libertarian Party, is a *capitalist* party. It's in favor of what *I* would regard a *particular form* of authoritarian control. Namely, the kind that comes through private ownership and control, which is an *extremely* rigid system of domination -- people have to... people can survive, by renting themselves to it, and basically in no other way... I do disagree with them *very* sharply, and I think that they are not..understanding the *fundamental* doctrine, that you should be free from domination and control, including the control of the manager and the owner.
Noam Chomsky

There isn't much point arguing about the word "libertarian." It would make about as much sense to argue with an unreconstructed Stalinist about the word "democracy" -- recall that they called what they'd constructed "peoples' democracies." The weird offshoot of ultra-right individualist anarchism that is called "libertarian" here happens to amount to advocacy of perhaps the worst kind of imaginable tyranny, namely unaccountable private tyranny. If they want to call that "libertarian," fine; after all, Stalin called his system "democratic." But why bother arguing about it?
Noam Chomsky

How did Europe and those who escaped its clutches succeed in developing? Part of the answer seems exceptionless: By radically violating approved free market doctrine. That conclusion holds from England to the East Asian growth area today, surely including the United States, "the mother country and bastion of modern protectionism," economic historian Paul Bairoch observes in his recent study of myths concerning economic development. The most extraordinary of these, he concludes, is the belief that protectionism impedes growth: "It is difficult to find another case where the facts so contradict a dominant theory," a conclusion supported by many other studies... Putting the details aside, it seems fairly clear that one reason for the sharp divide between today's First and Third World is that much of the latter was subjected to "experiments" that rammed free market doctrine down their throats, while today's developed countries were able to resist such measures.
Noam Chomsky, "Old wine in new bottles: A bitter taste"

... an essential feature of a decent society, and an almost defining feature of a democratic society, is relative equality of outcome -- not opportunity, but outcome. Without that you can't seriously talk about a democratic state... These concepts of the common good have a long life. They lie right at the core of classical liberalism, of Enlightenment thinking... Like Aristotle, [Adam] Smith understood that the common good will require substantial intervention to assure lasting prosperity of the poor by distribution of public revenues.
Noam Chomsky on The Common Good

Anarcho-capitalism, in my opinion, is a doctrinal system which, if ever implemented, would lead to forms of tyranny and oppression that have few counterparts in human history. There isn't the slightest possibility that its (in my view, horrendous) ideas would be implemented, because they would quickly destroy any society that made this colossal error. The idea of "free contract" between the potentate and his starving subject is a sick joke, perhaps worth some moments in an academic seminar exploring the consequences of (in my view, absurd) ideas, but nowhere else. I should add, however, that I find myself in substantial agreement with people who consider themselves anarcho-capitalists on a whole range of issues; and for some years, was able to write only in their journals. And I also admire their commitment to rationality -- which is rare -- though I do not think they see the consequences of the doctrines they espouse, or their profound moral failings.
Noam Chomsky

In the United States, around the turn of the century, through radical judicial activism, the courts changed crucially the concept of the corporation. They simply redefined them so as to grant not only privileges to property owners, but also to what legal historians call "collectivist legal entities." Corporations, in other words, were granted early in this century the rights of persons, in fact, immortal persons, and persons of immense power. And they were freed from the need to restrict themselves to the grants of state charters. That's a very big change. It's essentially establishing major private tyrannies, which are furthermore unaccountable, because they're protected by First Amendment rights, freedom from search and seizure and so on, so you can't figure out what they're doing.
Noam Chomsky, in "A Corporate Watch Interview With Noam Chomsky"

But, that's the whole point of corporatization -- to try to remove the public from making decisions over their own fate, to limit the public arena, to control opinion, to make sure that the fundamental decisions that determine how the world is going to be run -- which includes production, commerce, distribution, thought, social policy, foreign policy, everything -- are not in the hands of the public, but rather in the hands of highly concentrated private power. In effect, tyranny unaccountable to the public.
Noam Chomsky, in "A Corporate Watch Interview With Noam Chomsky"

-R

cxx_guy said...

to KCrouch ...

There are a couple of problems with the theory that we can justify a war by toppling a government we don't like.

1) To say that we should topple all governments we do not like is to say that we should impose our values on the entire world. It was a bad idea when Russia wanted to impose it's values on the rest of the world. It is a bad idea when we want to impose our values on the rest of the world. It is a bad idea for anyone to impose their values on anybody else. The earth is large. There is room for people to disagree to live, without killing each other.

2) We cannot afford to police the entire world. We need to spend our time and energy making America better, not killing those who disagree with us, or even defending those who agree with us.

I never said that we attacked Afghanistan randomly. We did not. The war in Afghanistan was a defensive war, they were responsible either intentionally or through negligence in policing their own population, for 9/11.

Of course we did attack the country as a whole. That is the only way to attack a country. You bomb them or you do not. You invade them or you do not. We did bomb them. We did invade them. We were justified in doing so, just as we were justified in attacking Japan in 1941. Why? Because they attacked us. That's all it takes to establish justification.

cxx_guy said...

pHundle ...

Now, the Libertarian Party, is a *capitalist* party. It's in favor of what *I* would regard a *particular form* of authoritarian control. Namely, the kind that comes through private ownership and control, which is an *extremely* rigid system of domination -- people have to... people can survive, by renting themselves to it, and basically in no other way... I do disagree with them *very* sharply, and I think that they are not..understanding the *fundamental* doctrine, that you should be free from domination and control, including the control of the manager and the owner.
Noam Chomsky

Mr Chomsky is surely a fine linguist. He is a lousy economist. He does not understand what capitalism is, which is why he does not support it. He is exactly the sort of person for whom I started writing this explanation of capitalism, and I hope one day he reads it.

The first problem with his statements is the statement that "private ownership and control" is an authoritarian system. Let us translate that statement: If you control your property, you are not free. If, however, somebody else controls your property, you are free. This strikes me as a rather odd definition of freedom.

The second problem is the statement "people can survive, by renting themselves to it, and basically in no other way. This is obviously false. There are three ways to meet your needs in a capitalist society: one can function as a landlord, as an entrepreneur -- a capitalist, or as a landlord. If someone appears in the world, naked, with no property at all, it is true that he will have to work in order to survive. This would be just as true if he were Robinson Caruso stranded on a desert island. It has nothing to do with capitalism. Of course, in a capitalist society, he will have many advantages over Robinson. One advantage is that he has capitalists to help him. The work that a person can do with no tools is very limited. Capitalists supply tools to workers, and thereby increase the value of their labor. In exchange for this service, they expect to receive some of the benefit the worker gains by his use of their tools. If the capitalist asks too much in exchange for using his tools, the worker has every right either to make his own tools, to work without tools, or to find a capitalist who is offering a better deal. He has total freedom to use his abilities in whatever way he feels most benefits him. This is the opposite of Socialism, where you obey or starve.


First and Third World is that much of the latter was subjected to "experiments" that rammed free market doctrine down their throats, while today's developed countries were able to resist such measures.

There is no more relationship between what the imperialist Europeans did to their colonies and the free market then there is between slavery and employment. They are opposites.


... an essential feature of a decent society, and an almost defining feature of a democratic society, is relative equality of outcome -- not opportunity, but outcome. Without that you can't seriously talk about a democratic state... These concepts of the common good have a long life. They lie right at the core of classical liberalism, of Enlightenment thinking... Like Aristotle, [Adam] Smith understood that the common good will require substantial intervention to assure lasting prosperity of the poor by distribution of public revenues.

Adam Smith was the father of capitalism, and never argued for the welfare state. He argued for freeing the poor from their bondage to the state and allowing them to produce and to keep what they produced. Mr. Chomsky has either failed to read of failed to understand the Wealth of Nations.


The idea of "free contract" between the potentate and his starving subject is a sick joke,

Mr Chomsky is correct, this is the essential problem of trying to deal with an omnipotent government. How it relates to any form of capitalism is beyond me.


In the United States, around the turn of the century, through radical judicial activism, the courts changed crucially the concept of the corporation. They simply redefined them so as to grant not only privileges to property owners, but also to what legal historians call "collectivist legal entities." Corporations, in other words, were granted early in this century the rights of persons, in fact, immortal persons, and persons of immense power. And they were freed from the need to restrict themselves to the grants of state charters. That's a very big change. It's essentially establishing major private tyrannies, which are furthermore unaccountable, because they're protected by First Amendment rights, freedom from search and seizure and so on, so you can't figure out what they're doing.
Noam Chomsky, in "A Corporate Watch Interview With Noam Chomsky"



Corporations are not an essential feature of capitalism, the privileges which are granted to corporations are not essential to the existence of corporations, and corporate personhood did not come into existence until long after capitalism. Adam Smith, for example, was quite wary of "joint stock companies", which were much like corporations, but did not protect their shareholders from liability.


But, that's the whole point of corporatization -- to try to remove the public from making decisions over their own fate, to limit the public arena, to control opinion, to make sure that the fundamental decisions that determine how the world is going to be run -- which includes production, commerce, distribution, thought, social policy, foreign policy, everything -- are not in the hands of the public, but rather in the hands of highly concentrated private power. In effect, tyranny unaccountable to the public.
Noam Chomsky, in "A Corporate Watch Interview With Noam Chomsky"

I don't know about the conspiracy theory, I think old Noam must have had his tin foil hat on crooked that day. None the less, my prior comments on corporations remain true.