Read This Before You Ever Debate "Capitalism" Again

by Paul Mueller: Capitalism is a divisive and misunderstood term—exceeded in its misapprehension only, perhaps, by socialism. While support for socialism has had a resurgence owing to the last election, capitalism still hangs under the dark cloud of notoriety given to it by the coiner of the term, Karl Marx. Writing in the heat and filth of Britain’s industrial revolution, Marx observed massive changes in society—and massive suffering. He identified the catalyst of change as the bourgeoisie creating a capitalist system.

He strongly condemned the capitalists’ exploitation of workers (“wage slaves”). Workers produced the wealth of the capitalists, yet received a mere pittance for their labor. Marx was also critical of the greedy acquisitiveness fostered by capitalism among capitalists and among workers. For example, he said that though a “boundless greed after riches . . . is common to the capitalist and the miser…while the miser is merely a capitalist gone mad, the capitalist is a rational miser.” He added that “as capitalist, he is only capital personified. His soul is the soul of capital.” This is my personal favorite: “Capital is dead labour, that vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.”

But technically, capitalism is only the private ownership of the means of production (factories, hospitals, businesses, schools, buildings, etc.).

That’s it.

Notice the simplicity of this definition. It says nothing about the role and scope of government or the nature of markets. The simplicity of this definition has given rise to several “modifier” capitalisms: anarcho-capitalism, compassionate capitalism, crony capitalism, and free market capitalism.

Anarcho-capitalism has a small but fervent following that includes Murray Rothbard, David Friedman, and Peter Leeson. They take the definition of capitalism at face value. If we have 100 percent private ownership of the means of production, we don’t need anything else, including formal government. The reason, though, is not that people are always nice or virtuous such that we don’t need the services of a government. Anarcho-capitalists simply believe that private companies can perform the services of government better than governments can. Most are not opposed to governance; they simply believe that private arrangements and innovations can best provide that governance. While much can and should be learned about private governance from the anarcho-capitalists, their philosophy will likely never be broadly accepted or implemented.

A more appealing (to many) form of capitalism is compassionate capitalism. There are left-leaning and right-leaning versions. One could argue that we saw this idea of capitalism espoused in the George W. Bush administration. Although there is no precise definition of this type of capitalism, the main idea is that, while its proponents like capitalism, they think it can lead to unpleasant excesses. They want to impose many moral and legal constraints on the operation of the capitalist system—constraints far beyond those enforced by Robert Nozick’s night watchman state that merely prevents force and fraud.

In a conservative vision of compassionate capitalism, governments and businesses can and should be allies in pursuing various social goods. In the Bush administration, those goals included the ownership society and a massive expansion of public funding of private charity—along with major education and healthcare expansions. And on the left, advocates of a compassionate capitalism grudgingly accept capitalism as necessary and useful. Some have been persuaded by the carnage of socialism and communism in the twentieth century in such places as the Soviet Union, Maoist China, North Korea, and Cuba. Others accept capitalism because they acknowledge that it produces huge amounts of wealth. But the goal of the left is to have capitalism while making it look as redistributive and socially conscious as possible.

Unfortunately for us, the outcome of both the public-private partnerships of the Bush administration and the social consciousness and corporate responsibility of the Clinton and Obama administrations has been what people are increasingly calling “crony capitalism.” Under crony capitalism, private owners of the means of production use the coercive power of government to advance their own interests. While we see high-profile cases of large corporations receiving government favors in the news, cronyism runs deep in our society through zoning and permit laws, occupational licensing, and numerous other barriers to free entry into the economy and free competition. These protective rules enrich incumbents at the expense of consumers and would-be competitors. But another effect of crony capitalism has been the increasing power of the Washington bureaucracy to direct economic activity—undermining capitalism itself.

Bringing the simple definition of capitalism into a debate is not enough. It is important to express the conditions under which one thinks capitalism should operate. I’ve briefly presented anarcho-capitalism, compassionate capitalism, and the resulting crony capitalism. Let me now describe the kind of capitalism I advocate: free market capitalism.

Championing private ownership of the means of production because it increases our wealth will not, by itself, appeal to many. The moral, ethical, and spiritual dimensions of capitalism should also be argued.

First is freedom. Free market capitalism means you should be free to pursue what you believe is good, whether that is building low-income housing, brewing beer in your barn, creating a business, or pursuing a profession. This freedom cannot exist in a vacuum. We need laws against fraud, harm, and abuse.

Second, free market capitalism fosters personal responsibility and human dignity. The power of truly free markets, as opposed to crony ones, is that there is a tremendous amount of discipline imposed by current, future, or even the possible threat of competition. Businesses were not able to exploit workers the way Marx feared because of competition for labor.

Thirdly, and perhaps most important in our day and age of social justice, free markets are eminently fair. Markets have improved our standards of living and made everyone wealthy by historical standards. Most of what social justice warriors object to is not wealth disparity as such but rather the massive differences in privilege and opportunity. What they object to, without knowing it, is all the ways in which crony capitalists, politicians, and bureaucrats have rigged the system in favor of the politically and economically connected—in favor of the status quo. The politicization of business should frighten opponents of collectivism and arbitrary political power.

Free market capitalism is not only the best way to break this system of privilege and cronyism. It is the only way.
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Dr. Paul Mueller is an assistant professor of economics at The King’s College in Manhattan. His interests including studying financial markets, money & banking, and classical liberalism, especially the works of Adam Smith. The Intercollegiate Review (IR) published by Intercollegiate Studies Institute (ISI) which is dedicated to advancing the principles that make America free, virtuous, and prosperous. ISI shared this article with the editor of ARRA News Service.

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