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.