What Is ‘Capitalism?’

Many people think they know what ‘Capitalism’ is, but I strongly suspect that the majority of them have a confused, incomplete or entirely false understanding of the term.  Well, let’s endeavor to make sure that none of us on this board suffer from ignorance of what ‘Capitalism’ is and what it means.  As is our norm with such things, we will start with the dictionary, but first:

Before we go any further, I want to issue a strong word of caution:

If you look hard enough, you are going to find definitions of ‘Capitalism’ that will either imply or flat-out state that ‘Capitalism’ is a political system.  This is a false definition.  It is not true.  If you doubt me, look up the meaning of ‘political system.’  Invariably, you will find that a political system has something to do with making and enforcing the laws of a nation.  ‘Capitalism’ does not do this!  It neither makes nor enforces the laws of any nation.  In fact, just the opposite is true.  Capitalism is at the mercy of whatever laws happen to exist in whichever nation ‘Capitalism’ is practiced.  Therefore, let us get this locked in our heads before we go any further:

Capitalism’ is not a political system!  Period!

OK, now that this is out of the way, let’s look at how the dictionary defines ‘Capitalism:’

Definition of capitalism

: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

So, what is ‘Capitalism?’  Well, first, ‘Capitalism’ is a system.  One of the most defining characteristics of this system is that  private ownership.  By this, we mean that the ‘capital’ — the property, machines and raw material necessary to market and distribute a good or service — are owned and controlled by private individuals.  This system, is not directed by any government or central planning authority; each individually owned business is responsible for making its own decisions.  These decisions are influenced by the laws of the market: supply and demand, but also competition and other external influences such as taxation and regulation.  All of these characteristics are necessary to the definition of ‘Capitalism.’  However, there are some secondary characteristics that are not necessary to the definition, but which are common enough that we should mention them.

First, ‘Capitalism’ is often found operating in conjunction with the artificial construction known as a ‘corporation.’  Often times, ownership of these corporations is held jointly by many individuals.  These individuals ‘buy in’ to the company buy purchasing stocks and/or bonds.  Essentially, these are investment vehicles that — in theory — make each stock/bond holder an owner of the company with an interest in the company equal to the percentage of the company’s total value that his/her stocks/bonds represent.

Now that we have the definition out of the way, we need to address a few things.  First, the essential characteristics of ‘Capitalism’ can be in line with Natural Law, but they are not necessarily so.  Whether or not a ‘Capitalist’ system operates in line with Natural Law depends largely upon the moral sentiments of the individual owners of every company or business operating within that ‘Capitalist’ system.  As with humanity, in general, where there is a mix of ‘good’ and ‘bad’ people, so too will any ‘Capitalist’ system have a mix of ‘good’ and ‘bad’ businesses.  The matter is further complicated when the nature of the government system under which the ‘Capitalist’ system is forced to operate is factored in to the equation.  But the point here is that ‘Capitalism’ — since it is just a system — is inherently neither ‘good’ nor ‘bad:’ neither ‘greedy’ nor ‘altruistic.’  Those things are defined by morality, which governs people, not abstractions like the ‘Capitalist’ system of trade.

The next thing we need to understand is that the secondary characteristics of ‘Capitalism’ — manly the introduction of the corporation — can also operate under the confines of Natural Law, but it becomes much more difficult.  This is because corporations are artificial entities, and the moment an artificial entity is introduced, it becomes increasingly more difficult for humans to remain inside the boundaries of Natural Law.  Once we start layering these artificial entities (i.e. corporations on top of the ‘Capitalist’ system), then the task becomes all but impossible.  This is because the risk of abuse resulting in the trampling of individual Natural Rights and Liberties becomes all but guaranteed.  But again, this is not the fault of the system, but of the people who are abusing it for their own personal gain.

Finally, the hardest part — the part that most people never recognize:

‘Capitalism’ is not the free market!

Yes, you read that correctly.  I suspect that many readers have been told that ‘Capitalism’ and ‘The Free Market’ are the same things.  They are not.  If you will go back to the dictionary definition, you will see that the proof of this is right there in the definition of ‘Capitalism:’

Definition of capitalism

: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

Why is this important to understand?  Because all those who attack ‘Capitalism’ do so by claiming that it is the free market that is corrupt and immoral when — in fact — it is the infringement of various flavors of tyranny into the free market that are causing all the evils and ills they list to justify destroying the ‘Capitalist’ system. You see, ‘Capitalism’ requires a free market to function.  Once you lose the free market, then whatever system is left, it is no longer ‘Capitalism’  You may call it ‘Crony Capitalism’ or ‘State-Run Capitalism,’ but the very need for the adjective is proof that you are no longer dealing with ‘Capitalism.’  So, to put it another way:

The list of ‘evils’ that is always used as evidence to ‘prove’ that Capitalism is intrinsically corrupt and needs to be replaced by some form of State-Run system are — in reality — nearly always the product of the State meddling in and corrupting the free market to the point that ‘Capitalism’ can no longer operate properly.

Strangely, in a perverted way, this is the ‘product’ that Statists sell to their customers — the masses.  They create a system that perverts and corrupts the free market, then point to the result as proof that the free market — and thus, Capitalism — has failed and needs to be replaced by more of the system they used to pervert and corrupt the free market.  These people are political pushers and their drug of choice is greed and envy, and they create the demand for their product by destroying the very thing that can actually provide a real solution: liberty!



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