What is Capitalism?

Capitalism is the Only Moral Way to Organize Human Society.

Capitalism is the only moral way to organize human society. It is the freedom of every individual to do more than simply survive day-to-day—it is the system that protects an individual’s right to pursue the kind of life they want to live!

Free will is an essential component of human nature, and capitalism is the only system that honors and protects the individual’s right to exercise their free will and decide what is best for them.

For each individual to survive and thrive, their basic rights to life, freedom and property must be protected from interference or violation by other individuals or by their government. Rights do not come from government. In fact, they are not created or given by any human or group of humans. Rights belong to every man, woman, and child around the globe from birth to death.

Though they are sometimes violated by acts of evil carried out by other individuals, rights can never be taken away – this is the meaning of “unalienable” in the Declaration of Independence. The best way to protect these rights is for a government to enforce laws objectively and consistently, punishing those who violate the rights of other individuals.

Freedom from the forceful and violative actions of others is a good thing by itself! This is the view of “government as a necessary good” IF it stays in this proper role, and it is the moral basis for capitalism as a system. As a consequence, capitalism has also proven to be directly responsible for lifting billions of people around the globe out of poverty. That is something that no other system could ever accomplish.

When individuals know that their rights to life, freedom and property are protected from violation by others, society achieves seemingly miraculous (see Adam Smith’s Invisible Hand) activity and results. These individuals figure out that the best way to ensure their survival and pursue their own prosperity is by trading values and, often, cooperating/collaborating with other individuals.

The most ambitious, creative, and productive people come up with ideas for things they can make or services they can provide that will help other people with their survival and pursuit of the lives that they want to live. They create value that they can then trade with someone else voluntarily, making both better off.

They will only make this kind of life-improving trade—especially with total strangers—if they have the confidence that they will not be harmed, stolen from or defrauded. They will only produce the valuable product or service in the first place if they know that they will be able to keep and benefit from the fruits of their labor. Contrary to what many believe, profits and profitable activities are virtuous.

What Capitalism is NOT

Capitalism is often associated with corporatism, greed, and exploitation of the “little guy.” It is seen as a dog-eat-dog competition for a fixed amount of resources or wealth in society, with a privileged few winning, and the rest of us struggling to get by.

This perception is completely misguided and untrue.

First, while profits (corporate or individual) are one of the results of capitalism, they are not the only or defining aspect to capitalism. As we’ve stated, it’s the concept of rights, properly understood, that is essential.

Bill gates had an idea to make personal computers accessible to the masses, so he built that idea, sold it to millions of people around the world, and became a billionaire.

Oprah Winfrey had a vision to reach a much wider audience with her TV show, book clubs, magazine, cable network, bringing new ideas for women’s lifestyle and independence and became a billionaire in the process.

Steve Jobs thought that people would want to carry lots of music with them in a portable form, so he invented the iPod. Later, he had a vision for a phone becoming an interactive, pocket-sized computer, so he invented the iPhone. He sold both of those to the masses, and he too became a billionaire.

From Jeff Bezos to Elon Musk, and millions of other, smaller examples of entrepreneurship throughout history, these visionaries created value, traded that value with us, made our lives better, and were rewarded with wealth.

Their corporate wealth, as it is evidence of their providing enormous value, should be celebrated rather than being seen as greedy!

Further, in creating these amazing products and services, they created millions of jobs in which people could trade their own labor for income they may not have had the opportunity to earn, thereby making their lives better too!

Because of the way our political system has evolved in the United States and because most people do not understand government’s proper and limited role, it has become possible for corporations to “buy influence” with governments. They lobby to secure large government contracts, implement regulations that impose disadvantages on their competitors, and even get direct payments and subsidies from the government, which are ultimately paid for by the common taxpayer.

This is NOT capitalism—this is cronyism and political corruption. It is a symptom of the government outgrowing its only legitimate role… the protection of the rights of individuals.

History

From several hundred years B.C. through the end of the 18th century, modern human history is characterized by varying degrees of tyranny and slavery. Most humans were little more than the subjects of monarchs, aristocrats, and oligarchs, with little ability to own property, improve their circumstances, or even think for themselves.

Even in the Greco-Roman and British Empires—the greatest, most prosperous civilizations to exist prior to the 19th century—citizens could be enslaved, and property could be confiscated with no respect for individual human rights. Slavery was not only viewed as acceptable, it was the norm!

Fundamental views of what it means to be human started to change in the seventeenth and eighteenth centuries. Pre-Enlightenment and Enlightenment thinkers such as John Locke and Adam Smith saw the natural state of humans as free and endowed with individual rights that protect that freedom.

Inspired by thinkers such as Aristotle, Descartes and Frances Bacon, Locke described the importance of Natural Rights—rights to life, freedom, and property— and the capacity for reason that every human is born with. Though one must choose to use their mind for productive purpose and though these rights are sometimes violated, they can never be taken away. Rights can be forfeited by violating the rights of others.

Adam Smith wrote about how, when left free, humans work together to establish mutually beneficial trade practices. As individuals work to improve their own circumstances, they produce value that benefits others, and everyone ends up better off.

The founders of the United States of America brought the ideas of Locke and Smith to North America, and they created a society that more closely approached true Capitalism than any other society that has ever existed.

Founded on the ideas of individual rights, equal justice under objective law, and voluntary trade, the United States became the most just, prosperous country ever to exist!

Though it took a nearly century after America’s founding, America was the first country in the history of humankind to abolish slavery. The ideals of the enlightenment, as articulated in the Declaration, would make slavery a problem, rather than the norm, and the Americans were to solve that problem by recognizing the rights to all human beings.

The freeing of the human mind led to the ideas that made the Scientific and Industrial Revolutions possible, resulting in massive numbers of people rising out of poverty. Individuals were no longer doomed to remain in lower classes.

Though pure capitalism has never existed, the United States and other countries that implemented socio-economic systems close to it have proven to be the wealthiest and most just countries in human history. Now, this is contingent: if you have a system of objective law designed to protect individual and property rights, you will by consequence have justice, real progress, and prosperity. If, on the other hand, you have collectivist/utilitarian/altruistic systems, you will have the erosion of the rule of law and descend toward uncivility, injustice, stagnation, and wealth destruction.

The Role of the Human Mind

How does a human survive in a world with limited resources, extreme weather, predators, and other life-threatening challenges?

Through sheer effort? Through unbounded cooperation with other humans? Through pure luck?

Effort alone is not enough for survival. Effort must be directed at something that helps with survival, otherwise it is mostly wasted energy.

A person could spend a great deal of effort mindlessly stacking boulders, while another person could spend much less effort hunting or picking berries, and the second person would have a better chance of survival because of how they used their mind to direct their effort toward something productive.

Effort, physical labor and hard work can all be good things, but without the mind to direct them toward something meaningful, they are essentially worthless.

Similarly, cooperation with other humans is meaningless all by itself. A group of humans could all cooperate to share a certain amount of food, but if nobody in that group is applying their mind to figure out how to find or produce more food when the initial supply runs out, then cooperation has done little good.

Cooperation works extremely well when individuals apply their minds to produce something of value that they can then trade with other individuals to get something else they need. That way, each individual can use their mental and physical effort on what they are best at, using their time and talent efficiently.

With enough rational self-interest and trade, humans can move well beyond mere survival and actually pursue more sophisticated problem solving, enjoyment, leisure, luxury and prosperity.

Though physical effort is necessary to implement the mind’s ideas, ultimately all wealth—for both survival and prosperity—is created in and from the mind!

Fear paralyzes the mind. An individual who fears that the fruits of their mental and physical labor will be taken by another individual, by a government or by some other authority will never take any action at all. Not only will their own survival be in jeopardy, but all the other individuals who would have been better off through trade are also deprived of those life-improving transactions.

The best chances for human survival and prosperity occur only when the human mind is free from fear and control.

The Nature of Man

Virtually every living organism—person, plant, animal, or otherwise—has instincts geared toward survival. On an instinctual level, we want to not only survive as long as we can, but also to replicate our genes so that they may live on long after we are gone.

Humans, however, are unique in that our survival instinct does not provide the means to survive, as it does with other species. Whereas other animals have automatic aptitudes for their survival, humans must think, learn, figure things out and adapt their environment to their needs. We also have a capacity for enjoyment and pleasure that few other creatures have.

How is it that our species has moved from a hunter-gatherer lifestyle to subsistence farming, to modern times where we can travel the globe and exchange information instantly from pocket-sized computers?

The human mind: more precisely, some free and creative human minds, i.e. certain individuals, have shown us the way.

The source of our ability to survive is the human mind’s ability to apply reason to our circumstances. The source of our ability to innovate to make survival easier and more enjoyable is also the human mind’s ability to apply reason to our circumstances.

We all use our minds to act in our rational self-interest to do our best to survive and to do whatever brings us enjoyment at the same time. The most efficient use of resources for survival and enjoyment involves each individual using their mind to specialize in producing something that others value for their own survival and enjoyment, then trade that produced value with them for something that they produced.

It cannot be understated: the human mind is the source of all human survival and all wealth.

The mind is rendered virtually worthless, however, if it is not protected from interference by others. To protect the mind, man is endowed with a set of rights, including:

Life
Liberty
Property

In one sense, all rights are one – the right to life is wellspring from which all other rights are derived. In a capitalist society, these rights are protected by objective laws. These laws deter other people from threatening an individual’s life, freedom or property, and outline consequences if they do. Notice also that rights, properly understood, are rights to action, to pursue your life’s goals and keep, trade, or dispose of the results, the products, of such action.

When a person’s right to life, liberty or property is threatened, they live in a state of fear.

Fear paralyzes the mind.

The violation of these basic rights threatens survival and prosperity.

Man’s nature is to use his mind to rationally navigate life’s circumstances to ensure survival and pursue prosperity.

Force

As stated above, the mind needs freedom to operate. It is a volitional choice to think and focus. You cannot force a mind and when you try, you create disaster by generating fear, paralysis, and extremely short-term incentives. Force is anti-freedom and therefore, anti-mind.

Rights, properly understood, are known as “negative” rights, meaning they are essentially the right to not have any other individual interfere with them. Freedom means freedom from coercion. It does not mean freedom to coerce, which means you cannot have a right to someone else’s life or property.

The right to life is the right to not be killed by another person.

The right to liberty is the right to not be enslaved or have any activity restricted by another person.

The right to property is the right to keep the fruits of your effort and not have it taken by another person.

The initiation of force is the mechanism for the violation of rights.

If a person kills another person, they have used force.

If a person enslaves another person, compelling them to do work they don’t want to do, they have used force.

If a person steals another person’s wallet, they have used force.

The initiation of force on another individual is evil. The only exception is when the other individual is engaged in a forceful violation of rights.

Governments are ultimately institutions of force. The proper role of government is limited only to protecting the rights of the individuals within its jurisdiction. To prevent individuals from taking the lives and/or property of others, the government may employ law enforcement officers to use force. The same is true from protecting liberty and property.

When the government grows beyond its proper role, it is still backed by force. Further, all force ultimately ends with violence or the threat of it. Think of ALL government action – regulation, law enforcement, taxation, redistribution, etc. – being done with a gun pointed at someone.

For example, imagine a situation where the government implements an unjust law. If an individual refuses to obey that law, the government will try to enforce some kind of penalty. If the person refuses to pay that penalty, they might then be arrested. If they resist arrest, government authorities will threaten them with even more force, perhaps even causing them physical harm or ending their life.

Every government law—just or unjust—is ultimately enforced by the point of a gun.

Not all force is physical. If a person intentionally tells lies about another person to harm their business, for example, they have violated the other person’s liberty in doing business as they would like.

Again, the initiation of force on an innocent individual is evil. The use of force, and even the threat of force inhibits an individual’s ability to use their mind to survive and prosper.

Value-for-Value Trade

The ability of two or more people to voluntarily trade with one another for a mutually beneficial outcome is one of the marvels enabled by capitalism, and it is at the root of economic prosperity.

Imagine a world where every individual had to grow their own food, build their own home, make their own clothes, and provide their own health care. As it was before capitalism and the division of labor, life would be short, busy, and difficult, with little time for rest, contemplation, recreation, or leisure.

The ability for individuals to trade with one-another makes life more sustainable and pleasant! Every individual is born with unique talents and abilities, and the ability to trade enables those individuals to focus their time and energy in the areas where they are most gifted or most interested. They can then trade what they produce with other individuals, and both parties are better off.

By specializing and trading with each other, we can produce a greater quantity of basic goods that are necessary for living, while also producing a wider variety of goods.

Individuals only trade with one another, however, if they are confident that the fruits of their labor will be protected from the initiation of force by another, including the force wielded by their government. No person will attempt to trade with another person if they think that other person is going to steal from them or if they think they are going to receive a poor quality good in return.

Property rights that are protected by a limited government are what allow trade to thrive under capitalism. An individual that feels secure that the government will punish a malicious trade partner is more likely to engage in trade in the first place.

A simple example would be someone who is gifted with a sewing needle and can make clothes. They work hard to make more clothes than they would ever need. A different person is good at growing vegetables, and they too work hard to grow more vegetables than they could possibly eat. Both individuals need what the other person produces, and they each have more of what they produce than they need. The clothes-maker is willing to trade the clothes that he has made for vegetables that the farmer has grown. Both the clothes-maker and the farmer end up better off because they were able to get something that they needed by trading something that they are good at producing.

Our world is obviously more complex than simple farmers trading vegetables for clothes. This complexity is no problem for an economy that has discovered/created money! Money represents the value of the clothes or the vegetables. If there are more than these two individuals in society, the clothes-maker might sell some clothes to another person in exchange for money, then they can use that money to buy vegetables from the farmer. Money as a store of value and medium of exchange solves such problems of complexity and allows for endless specialization and innovation.

Mutually beneficial value-for-value trade is one of the most important concepts behind creating prosperity. It is not possible without the strict definition and enforcement of property rights.