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Wednesday, November 30, 2011

Capitalism, a Definition: The Nature and Advantages of the Free Market

Over the last few years, American taxpayers have been on the hook for billions of dollars worth of "toxic" assets from the financial industry in the face of a deepening credit crunch, the failure of several major financial corporations, and triple digit dives in the value of public stocks in American companies. Meanwhile the looming threats of a weak dollar, high oil prices, and global economic recession have cast their shadow across the future of America and the world. The culprit? Many people are blaming capitalism, citing all of the recent phenomena as proof that capitalism has failed us and must be abandoned. Others will say that capitalism isn't all bad, but that we have too much of it, and need to balance it out with some "more oversight and regulation." In order to ascertain the validity of these claims, we have to begin with what we mean by "capitalism."

Capitalism is an economic system to be sure, but to leave it at that would be to miss the point entirely. It is an economic system based off of an ethical premise, the premise that human beings ought to deal with each other on a voluntary basis of mutual consent for mutual benefit. It is the premise that a civil society is one in which human beings accomplish their goals and advance their values in a peaceful way, which is to say, "without forcibly interfering in the lives of others." It is the premise that human beings are social creatures, and that the foundation of society is philanthropy- love for other human beings. By its nature, love is voluntary, meek, patient and never forces its way to its ends.

You may object at this point, saying:

"Wait a second! That's not what I always meant when I said 'capitalism.' I use that word to refer to a system of exploitation, corruption, and dog-eat-dog competition that takes advantage of society to line the pockets of the greedy wealthy classes."

I will agree with you that what we have in America today is in many ways "a system of exploitation, corruption, and dog-eat-dog competition that takes advantage of society... (etc.)." I will disagree that this is anything resembling true capitalism. To explain why, once again it is necessary to define our terms. Why do I believe capitalism is the much nicer-sounding thing that I described in the paragraph above? Because the economic principles at work in capitalism necessarily entail and are the result of the ethical premises I described.

The root of a capitalist economy is the monetary system. What is money? A medium of exchange. Money is a measure and storehouse of value. It is therefore the embodiment of the principles of love, society, and mutual, voluntary cooperation between people. Inherent in the concept of exchange is that human beings ought not to simply take from others and exploit them for personal gain, but must voluntarily exchange value for value in a way that benefits (i.e. creates more value) for both parties involved. Otherwise, the entire concept of exchange is pointless. A monetary system is the product of an attitude of love for others, a respect for their lives and the property that they use their lives and spend their time to create. It is the result of the belief that it is wrong to diminish another person and exploit his life by forcibly taking from him.

The greedy and powerful would have never bothered with creating a monetary system. They would have just appropriated what they wanted (whether food, water, buildings, clothing, medicine, etc.) from the hard work of the serfs they enslaved if they were rich feudal lords or the towns they terrorized and plundered if they were violent barbarians. The monetary system arose through the cooperation and collective action of the men and women throughout history who, whether implicitly or explicitly, understood that a civil society is one of voluntary cooperation between people who trade the product of their skills and labor to obtain the product of other such people in an exchange that is mutually beneficial to both.

The monetary system that underlies capitalism also necessarily recognizes an important part of human nature- that we are each uniquely gifted with different talents, interests, and passions. Necessary to the notion of exchange is the concept that exchange is worth happening. It is only worth happening if different people have different things to offer each other. If you were no better than me at what you do, and I no better than you, there would be no point in exchanging. But if I am an excellent crop farmer and you a skilled blacksmith, then why would you waste your time farming for yourself when you could spend your time doing something you're much better at doing? Then I would trade the product of my labor to feed you and your family for the product of your labor to help me farm in the first place be strengthening and improving my farming implements.

In recognizing this part of human nature, capitalism also recognizes that we are social creatures, it recognizes that it is good for us and part of our nature to work together and apply our different skills sets to different problems. It requires us to depend on each other. It ties the human family together in a relationship of mutual interdependence and cooperation that allows us to achieve greater productive possibilities, soaring achievements, and higher standards of living that would be unreachable to each of us individually. It is in this way that capitalism is true socialism. Socialism as a term to describe controlled (i.e. non-voluntary) economies is a misnomer. Capitalism is the economic system that recognizes humanity's social nature and sets up a true civil society as the context and framework for human interaction.

Last of all, capitalism and its underlying monetary system necessarily assume that human beings can and do produce more than they can consume. Money is a store of value. If I only produced as much as I could consume, there would be no need for money because I would consume the total product of my labor. But because of the vast and limitless power of our creative, reasoning minds, human beings create surpluses-- more than we can consume. Farmers create more food than they and their families eat. They could just let it rot, or they could exchange it with someone for money so that it doesn't go to waste and thereby store the extra value they created to use later in exchange for something else. Storing value prevents waste and allows people to keep all the wealth they create. It does something else too- something really cool:

The store of value in a medium of exchange allows people to pool their stored value together and create capital (assets that increase the productivity of human labor) that is too expensive for any one individual to acquire alone. This is the underlying principle of public corporations and the stock market. Joint ventures are made possible by storing value in a medium of exchange and they allow people to cooperate in ways that they never could without a monetary system. This cooperation has allowed us to create infrastructure and produce goods on a level that would have never been possible without capitalism. It also provides incentives to take risks and explore endless new possibilities by allowing people to share and divide up the risk together. This has been the ultimate source of the wealth explosion in the free, capitalistic-leaning countries of the West over the past two centuries, an explosion that has virtually eliminated poverty and created upward-class mobility at levels unprecedented in our entire history.

For an analysis of what kind of economic system is currently at work in the USA, its flaws, and why it is ultimately responsible for the recent economic troubles we've experienced, keep reading this website. You can also subscribe to this website's updates using the form in the right sidebar to stay updated with less effort on your part. Thanks for taking the time out to read this article and please know that you are encouraged to ask questions, make objections, and discuss this matter further in the comment thread of this post.

Wes Messamore,
Editor in Chief, THL
Articles | Author's Page


  1. ...and then some douchebags decide to inject money from nothing to ensure "liquidity."

    God help us all.

  2. You know your history!

    God helps those who help themselves ;)

  3. Here's my take:


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