It is utterly astounding just how widely misunderstood the economic philosophy of Capitalism is. Over and over again I see otherwise extraordinarily intelligent people make tremendous errors whenever they bring up the topic. The information debunking everything they say is so widely available, if they had any interest in researching their arguments at all, ignorance of it would require not only a lack of effort to find it, but an active effort to ignore it. The number of resources available on the subject, including economics textbooks, radio broadcasts, lectures, and so on, particularly since the rise of the Internet, is nearly endless. I have heard people who utterly dominate in debates on religion, science, politics, and philosophy turn into ignorant superstitious dogmatists in the field of economics.
Free-Market Capitalism can be summed up in four words - Trade with no gun. The “no gun” half is the part so many people seem completely incapable of understanding. They point to the Dickensian horrors of the Industrial Revolution, the exploitation of workers in the Great Depression, the dominance of corporations in today’s government, and cry “Look at the disgusting horrors Capitalism brings! Property is murder!” They look at a scene featuring trade and a gun, and they conclude that trade is the problem. The natural solution, then, is to eliminate trade and hand the gun to someone else. This always results in utter bewilderment as to why society cannot function any better with the guns in the hands of the workers, or the redistribution agency, or the Democracy, or whoever else. It is completely beyond me how so many extremely brilliant people, many much more brilliant than I am, fail to make the connection that the gun, and not trade, is the source of the violence. But, since so many people do make this error, I will take the time to debunk this illusion, and show you what free market economics really is and why it is the best path for happiness, comfort, and prosperity for EVERYONE.
BEHOLD THE STRAW-MAN
“Profit is the only driving force in Capitalism. It does not matter if it is moral or immoral, violent or peaceful, good for the many or good for the one - if it is profitable, it will happen.”
Here is the #1 argument against Capitalism - the idea that everyone should seek a profit, and that profit is good, maybe even the only good.
THIS IS ABSOLUTELY FALSE!
Free market Capitalism is not based on the idea that profit is good, but on the acknowledgment that no matter what economic system you have, people will always do whatever they can to seek profits. When I say people, I don’t mean ALL people, but enough to have an economic effect.
Communism - In a Communist system, people will seek to possess the authority to make economic decisions. They will aim to gain control of the government or redistribution agency in order to benefit themselves.
Corporatism - In a Corporatist system, people will attempt to gain the largest number of benefits and subsidies from the government while advocating the largest number of taxes, tariffs, and regulations against their competition possible.
Socialism - In a Socialist commune with universal ownership without a redistribution agency, the greediest people will strive to be the most effective thieves, finding hidden locations to store the wealth they take from the community pot.
Prohibition - In a society under prohibition, people will commit crimes both violent and deceitful in order to make massive profits in the black market.
In all of these cases, the greedier the person is, the more they will do to get as many benefits as possible while keeping competition down. No matter what the economic system, no matter what the political policy, no matter what laws are on the books, people will ALWAYS be seeking profit, and the greedier the person, the greater lengths they will go to in order to obtain it.
Free market economics does NOT say this is good! Instead, it recognizes that this is going to happen, and affirms that a sound policy should be constructed around this basis. The idea that “people seek profit” is therefore DESCRIPTIVE and not PRESCRIPTIVE.
WHAT DOES “FREE” MEAN?
Basically, “free” means “in the absence of force.” In an ideal free market, there would be no force or fraud whatsoever (see Introduction to Economics Part 1 - The Basics). Everyone would participate in voluntary transactions that increase wealth for all parties involved. Of course, no one is so naive as to think this will actually happen. Acknowledging that people will seek profit acknowledges that people will engage in force or fraud to obtain it. The market has two ways of dealing with this.
The first is to make force and fraud unprofitable. The concepts I have introduced in previous notes come into play. Economic equilibrium keeps businesses from gouging prices and taking advantage of their work force (see Introduction to Economics Part 5 - Price Controls). The Wisdom of Crowds helps everyone benefit from all available information in the market (See Introduction to Economics Part 4 - The Wisdom of Crowds) without having to personally possess that information. The social nature of human interaction automatically favors those who do business in a friendly way rather than those who use force and fraudulent tactics. This is why store employees are trained to say “Thank you, have a nice day” at the end of transactions.
THE INVISIBLE HAND
These effects all come into play in what Adam Smith calls “The Invisible Hand” of economics. It is a bottom-up system of organization that, despite its imperfections, can achieve some truly beautiful creations, better than any single designer could ever do.
While the Invisible Hand produces incentives against forceful and fraudulent behavior, by no means does it prevent them from happening at all. For this reason, the market requires the second safety measure.
THE RULE OF LAW
Since force is not allowed in the free market, the rule of law is in place to prevent and punish the initiation of the use of force or fraud. In free market Libertarianism, the government’s job, in fact, the government’s ONLY job, is to stop the initiation of force and fraud as much as possible, whether it’s from a dishonest person, a criminal gang, or an invading army.
“I do not believe in or advocate the initiation of force as a means of achieving political or social goals.”
-Libertarian Party (USA) Oath
The one thing the government should NEVER do, therefore, is initiate force on its own. That includes making policies that interfere with the inner workings of the economy.
In an anarcho-capitalist society, the role of government in this matter is replaced with mutual protection societies, voluntary arbitration agreements, dispute resolution organizations, contract insurance, and other means, but the idea is exactly the same. People should have a means to protect themselves from the initiation of force or fraud.
THAT is how the free market deals with some people having power over others - it doesn’t let ANYONE have that power to begin with.
THAT CANNOT BE SAID FOR ANY OTHER POLITICAL PHILOSOPHY.
PROPERTY RIGHTS
Whether you are talking about small-government libertarianism or no-government anarcho-capitalism, the basis for this protection is the same - Property Rights.
Property Rights give you the right to do as you will with your own property so long as you do not violate the property rights of others.
Understand that in the free market property does not simply refer to land and objects. You own yourself. You own your time. You own your labor.
“No one ought to harm another in his life, health, liberty, or possessions.”
-John Locke
A more detailed version of this appears in the Virginia Declaration of Rights by George Mason.
“That all men are by nature equally free and independent, and have certain inherent rights, of which, when the enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursing and obtaining happiness and safety.”
-Virginia Declaration of Rights
And that’s all there is to it really. The free market is trade in the absence of coercion. Make sure that any argument you hear against Capitalism is made by someone who truly understands what Capitalism is. So far, I have yet to hear any argument that uses any definition other than the Straw Man I introduced earlier. Such arguments apply to American Corporatism. They are not arguments against Capitalism.