A lot is said of capitalism. Libertarians want capitalism. America is capitalist. China is not. Wal-Mart is an example of capitalism. Is any of this true? Do the people saying these things operate on a meaningful, concrete definition of the word 'capitalism'. I will explain what economists and (educated, objective) political pundits usually mean when they say 'capitalism'. When your Liberal-oriented American History teacher or the Democrat speaking at a press conference on CNN uses the word 'capitalism', she is not operating on this definition, or any definition, for that matter.
In this article, 'capitalism', 'the free market', and 'laissez-faire' are essentially synonymous.
It's When You Buy Things
In a capitalist society, the only method of acquiring things of value from other people is a form of voluntary contract agreement called 'purchase.' A purchase is simply the term for an exchange of two items between two individuals or associations in which one of the items is liquid currency (basically, money) and the other item is some product, service, entitlement, or other valuable. By definition, the price (the amount of liquid currency necessary to complete a purchase) of an item must be satisfactory to both parties involved when capitalism is the doctrine of an economy. It is a fallacy to claim that consumers have to pay whatever prices businesses want to charge in a free market - in fact, the exact opposite is true. The free market is the only economic system in which consumers agree to all the prices they pay.
If either the purchaser or the retailer of an item is restricted by force in his capacity to determine what he thinks is a fair price, the system fails to be capitalism. In this context, 'force' implies the use of coercive tactics that endanger one's self or one's possessions, such as government action, violent threats, et cetera. Necessity is not an example of force - that is, it would not be correct to say that hunger forces a person to buy food. A person may feel a very strong need to buy food, but that is the result of the person's own state as a human, and is not at all the same as coercion from an outside force. In addition, persuasion should not be confused with coercion. If a person witnesses a television advertisement and, as a result, buys a product he would not otherwise have bought, he cannot be said to have been forced to buy that product.
The primary pragmatic advantage to the capitalist concept of purchase is that it is rapid and fluidic, since the only parties involved are the retailer and the purchaser, and no unnecessary third parties must approve or even be made aware of the transaction. Much more importantly, the moral advantage is that the retailer gets to decide how much money he expects in exchange for his item, while the purchaser gets to decide how much he is willing to pay for it. If either party does not feel the other's price is fair, or simply doesn't want to do business with the other for any reason, he is free to refrain from making a transaction.
It's When You Make Things
There are only two means of acquiring wealth (i.e. currency or valuable property) in a capitalist society. One is by gift, which 'essentially begs the question', since gifts can only come from people who have previously acquired wealth, and the other is by production. 'Production' refers to the labor, of man or of machine, involved in converting raw nature into valuable commodity. Mining copper from the Earth, manufacturing wire from that copper, and installing that wire in a house are all forms of production. The former two involve increasing the value of a material by altering its state; the latter involves performing useful work to build that which otherwise would not exist in exchange for wages. One way or another, the unifying theme is that thought and effort are applied by a human worker, and the result is an increase in value that is beneficial to the worker.
All other systems of economy in some way allow for a gain in wealth by means other than production or gift. Many involve a grant from a government, which people treat as a gift, but which cannot be considered a gift, because the contributors of the original wealth do not give up their property willfully. When a person's money or commodities are taken from him by force and bestowed upon another person, what occurs is not a gift, but an act of compulsory self-sacrifice. Some systems purport to eliminate the concept of individual wealth and replace it with a more moral and pragmatic community wealth. This is a farce, in every sense of the word. In most cases, it is not actually implemented. To the extent that it is implemented, it could just as easily be labeled personal wealth that is simply not protected by any laws. The classic example of this is termed the 'tragedy of the commons', in which each person draws from a community source of wealth and no one contributes, because it is in everyone's interest to take and in no one's interest to give. That is to say, everyone treats the so-called 'community' wealth as their own personal wealth when they are spending and consuming, and someone else's personal wealth when they are producing value. Humans simply were not built to function on an idea of community wealth – it is our individual mind and individual interest that separates us from colonies of ants. Those societies which have tried to force self-interest out of man's mind and community interest in have invariably found that it is simply not human nature to live in that manner, and that intelligent, capable people would rather die than live for anyone but themselves.
That collectivist economies fail and capitalist economies succeed is not an unfortunate side note in human history – it is possibly the most significant empirical evidence that man is inherently conscious and discrete, and that evolution favors the self-interested man. The lesson to be learned is that capitalist societies succeed because of, not in spite of, the tendency of man to work for his own success. People want to live happy lives. To do this, they need property. People need food, shelter, and various other things that cannot simply be found; they must be sought and constructed. That is to say, productivity is an absolute necessity to life for a human. To be most productive, man must see a purpose, an ultimate end in his work. In a capitalist society, the ultimate moral and physical end of a man's work is the benefit it brings to his own life. However, in a collectivist society, the end of a man's work is the community – which he may or may not like or care about at all. In a collectivist society, the effort that man applies to his work is a result of how much he loves complete strangers, but, in a capitalist society, the effort that man applies to his work is a result of how much he loves himself. Clearly, it is in the nature of man and of the universe that he should function in his own interest, reap as he has sewn, get out of life what he puts in to it, and be held responsible only for himself. No man capable of producing anything significant will ever work as hard for the benefit of others as he will work for the benefit of himself – no man worth living will ever live for anyone but himself.
It's When You Keep Your Word
The free market revolves around the principle of the legally-enforceable contract. Exactly how contracts work is not hard to understand; it reduces to essentially that, where money and property is concerned, including all commodities and services of value, parties that indicate consent to a certain transaction must uphold and maintain all to which they agree, and all transactions are final unless all parties involved mutually agree to alter or eliminate them. In the simplest example, a customer is not entitled to demand a refund on an item he purchased if the item lived up to exactly the standards set for it, unless the retailer explicitly guaranteed the right to a refund. Conversely, if the item did not satisfy the standards promised by the retailer, then the retailer has no right to refuse him a refund. The former case operates on the principle that transactions are final unless agreed otherwise, while the latter utilizes the requirement that all parties involved in a contract make good on their word. By selling a faulty product when an operational one is advertised, a retailer fails to uphold his end of a bargain, and must compensate for this failure or face legal charges.
The existence of a stable government to enforce contracts between private parties is an absolute necessity to the laissez-faire system, not a hindrance as some erroneously claim. It is the objective, third-party to oversee transactions that sets capitalism apart from anarchy as a socioeconomic system. Those who argue for a system without government miss the tragic flaw that businesses and people can and will cheat if given the opportunity; that contracts occasionally require force to be fulfilled. Some suggest paying companies to oversee transactions, but it is hard to imagine why, if others would cheat, the moderating companies themselves would not cheat. What sets a government apart from an overseeing company is that a government is granted a monopoly by default over the service of enforcement of rules in a geographic region. A government lacks competition, and, if properly controlled by a balanced budget and a democratic process, it can be kept under the thumb of ethics. A business, if given the same task as a government, would, in very short order, cease to see any reason not to simply use its military against its own people for the benefit of the corporate owners, because citizens don't vote on how a company is run. To enforce mutual agreements and avoid coercive tactics, a small but powerful government must exist, with an absolute monopoly over the use of physical force and confiscation of property against citizens and businesses.
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