Why Capitalism?

That’s a question which I’ve asked myself quite a lot over the years. I used to be in the camp of most on Communism: if it worked, it’d be paradise. I hardly now think this is the case. Maybe that’s because the earliest human societies were essentially Communist, and these were by no means perfect, indeed we know very little about man’s early origins. Furthermore, historically, the means of production- which I would say is the decider of what is socialist and what is capitalist- have almost always been owned by government, feudalism being a great example. The most productive and expansive eras in modern human history- the nineteenth and early twentieth centuries- were primarily capitalist in nature. Now, just because something is historically defensible doesn’t mean it is philosophically defensible.

Of course, socialism is philosophically defensible, the idea that a community should share its resources through economics and government-controlled concerns and institutions could be said to be admirable. However, free market capitalism is both historically and philosophically defensible. Capitalism generally leads from freedom, and thus it can be called a consequence and not a symptom of freedom: countries like China show this dichotomy to be all too true, even if it is subtle. To answer the question of ‘Why Capitalism?’ it is necessary to define what ‘Capitalism’ is. That is, capitalism is the control of the means of production by businesses ran by private citizens and individuals in the name of their self-interest. What makes a free market is if government has the least control over economic affairs directly, and thus individuals are free to make legal contracts between each other in the name of mutual co-operation.

The fact of the matter is, is that government is incredibly inefficient- the out-competing of government by corporations even when such government concerns have the deep pocket of the tax-payer illustrates this. Furthermore, capitalism as I understand it helps freedom and liberty to stay whole, as it enforces the need for co-operation and strong contract keeping.

Imagine that government made it law for every citizen to purchase an alarm clock to increase economic productivity and efficiency. Now, in principle this would be fine on such grounds of government controlling the economy. But, what of the percentage of those who don’t need an alarm clock to wake up? The argument could then be made that they don’t have to use the alarm clock if they don’t want, that the choice starts there. However, the same principle operates with national health, national schools and many other areas of government.

The fact of the matter is government is taking some of your capital and using it. I’m not saying government is fundamentally bad, but it controlling economic areas is directly prohibitive to freedom, and by the very nature of demanding and controlling in the alarm clock case limits choice; away from maintaining the good of the nation’s machinery for the citizenry’s interests with taxes, citizens have the fundamental freedom to spend their income on what they want within law. Government, then, simply shouldn’t intrude in this area. Even if you simply want to redistribute wealth, then Milton Friedman’s school voucher system provides for this- that each citizen would be issued with, when appropriate, a voucher which would pay for a year’s education in a government school. Therefore, citizens can earn and economise so that they can send their children to schools they want. The opposite case is true now, in that I would have to immediately feed them into the state system- what with the cost of the alternative being immediate. If I wanted to send my child to a private school costing, say, £20,000 a year, then I would have to fulfil that cost completely in the current system. If I wanted, I could send my child to a state school at no extra-cost to my pocket- having already paid the taxes. But in the voucher system, if I wanted I could focus my effort and productivity in getting my child into an excellent school- rather than purchasing a new car or television- I could within reason however low-incomed I am. Indeed, this sort of effort is not unlike non-governmental socialist organisations such as Co-operatives and charities- the difference is that they are ran by private individuals and not from the seats of parliament. Capitalism, then, leads from freedom, as it is simply the exchange of private resources under private interests and between private individuals. The fact of the matter, is that even if forcing an alarm clock on every citizen was beneficial, I would have no right to as a government, unless I took it to the people and got a 100% poll result. Now, such results never happen, and the reason why Communist countries and other socialist parties (I’m including far-right parties here, numerous intellectual studies highlight the complete parallel between the two extremes) have instituted single-party rule is for such a reason, because such a breach of freedom and democracy is wrong, and because they would lose if the people were presented the two alternatives bluntly and plainly.

You can even think of democracy as a fundamental form of Capitalism- you could say it is the political form, and that it is free market in nature. The rationale behind this, is that if I vote for the Conservative Party in an election, they have a contract from me (a vote) which gives them power for a certain amount of time until the next election, when that contract is automatically broken with the forming of a new government and my assigning the contract once more. I am free under such a free system to vote for whatever party runs, and even to abstain and not award my contract to anyone. The defect, however, in this reasoning in current examples, is that more people voted for Al Gore than for George W. Bush in terms of numbers of votes- this, then, shows that representative democracy is not good enough: only direct democracy truly is free. The ultimate and extreme end of representative democracy was the ‘Rotten Boroughs’ in Eighteenth and Nineteenth-Century Great Britain, which I urge people to research as a lesson of how bizarre things can really get.

The reason why Capitalism is fundamentally defensible is that it leads from and maintains freedom. I have never advocated getting rid of government all together- central government exists for ancient reasons which should be preserved:-

Providing a legal framework for citizens to change laws by votes; to use the courts to hold disputes between each other; government exists to uphold the law and to stop persons from violating law- whether that violation be physically, by fraud or in the name of other crimes; to provide a basic level of education and health (hopefully through the means of vouchers) to help maintain social stability and growth; and lastly, and perhaps the most ancient reason: to protect the citizenry from outside attack by hostile governments.

Once you begin operating on rules which impinge on freedom like the NHS or state schools (which were once completely defensible but now do not function as they should, or they serve to run effective monopolies- and all this to the detriment of patient and student- see There Are Lies, Damned Lies and There’s Taxes) then you open a can of worms which raises the ugly head of the Alarm Clock thought experiment. Imagine the communist agricultural paradise- that the government would own the land (the means of production), and every worker would be employed on the land in the area, and seeing as I would give my products to the government and receive what I need then I would be contributing fundamentally to society as a whole. Now, imagine the feudal paradise- that the lord owns the land and employs everyone on the land, and in exchange for a portion of their resources would be allowed to be a tenant on the land. The two sound remarkably similar don’t they? They both have the exact same result- create a privileged few who own the means to control everyone else. Of course, Communism always has intended fundamentally to make the Government a government of the majority, of the worker. But, any real delving into thought on the position of politicians shows that the politician and the voter are not one and the same. Communism, then, violates Lord Acton’s law- “power corrupts, and absolute power corrupts absolutely”.

What about socially?

In a free market system, you can be a Socialist and I can be a Conservative. Even though our political views may differ, all it matters to you and I is how much money we make, and therefore I am compelled to deal with you, and you are compelled to deal with me. It is the true system of co-operation- and both of us benefit from this, and that is the game theory fact here. You and I may compete with other traders who have similar partnerships or networks, and this is the beginning of corporations- which are simply legal entities, frameworks so that people are free to do what they like (within the law) in co-operation. A reasonable portion of the capital we earn is taken out of our incomes in the form of taxes to pay for the maintenance of law, defence and other subsistent concerns. The majority of our capital is free to use wherever we like. That’s what I call freedom. And the very fact it’s a product of society as a whole organically means it maintains free speech, free business and civil liberties- because any violation of this would truly lead to zero-sum games. The principle is: Every man should be allowed to pursue his self-interests so long as he does not harm another directly. It’s up to government to reduce indirect effects. Furthermore, it’s in my fundamental interest to help and co-operate with my fellow man, because it accrues me profit. If it’d be beneficial to build a town with good housing and good shops and schools around my factory, I would do it because it’s profitable (Port Sunlight and Bournville would never have been built out of the sheer will of the people so quickly)- if we look at the Nineteenth and early-Twentieth centuries when compared with any other period, the explosion in philanthropy, and the scale of its increase and reach, is immeasurable when compared to any other period- and the reason I believe this happened, was because it was born out of freedom, and not out of equality- freedom, then, leads to equality, but equality does not lead to freedom: the distinction here is subtle, and requires a trained nose.

The reason why money exists is that it allows resources and products to be freely exchanged between each other at agreed prices- money in itself isn’t the root of all evil, it is simply the means to make evil or good, just as its replacement would be. Its very nature shows and facilitates how successful I am, and so being profitable is of fundamental concern to any businessman. Being profitable means that I want to reduce unnecessary costs, which means I want to pollute less etc.. On the same point, and as an example, it would also be profitable if I was a pharmaceutical company to not kill people with my drugs. I don’t need, if I run on logical principles, a government to force on me such measures.

Free market capitalism fundamentally- on its very principle of co-operation and mutual growth- erodes barriers between people. If I wanted, I could have a hotel which only allows people to stay there called Neville. But such a ‘Neville Company’ wouldn’t be successful, would it? Whatever colour, creed or sex you are, if it is beneficial for me to make a contract with you then I will under the free market principle, because that is the only basis for me dealing with someone. In the same way as the pharmaceutical company wants to keep its products safe, so too will I not want to deal with people of poor reputation- like Robert Mugabe, or Saddam Hussein, because that would not be beneficial to me! When two people make a contract, it is an act of co-operation. I want to use your services, you want to dispense your services. Thus, the free market creates advantage. And the very fact it recognises that people are selfish and driven by their own interests fundamentally means that as long as you don’t impinge on someone else’s freedom or violate the harm principle (which is, you can pursue your own interests so long as you do not harm others in the process) you can pursue your interests. Free Market Capitalism fundamentally operates on the principle summed by John Stuart Mill: “over his own mind and body, the individual sovereign”. The fact of the matter is that with the harm principle in place to stop truly terrible individuals, it preserves liberty and freedom as a matter of foundation. Doesn’t everyone want to live in a “free world”?

What does the alternative call for, at an economic level? If I need extra capital in a free trade society, I either try to attract new investors, economise on my costs (of course one consequence possibly being that it causes unemployment which is unfortunate), ask investors for more money, or I simply abandon a venture. If I need help in a socialist, protectionist, society, I ask government. It’s up to the tax payer to pay for my mistakes in the case of nationalisation; or in the case of subsidisation and tariffs, I ask government to limit free competition- what this promotes is high prices and power to the subsidised few at the cost of the consumer, and ultimately to the producer: private enterprises out-compete government-backed companies in nearly every case. As I illustrated in Fiddling While Malthus Burns, such protectionism can have terrible effects, and the world food shortages are such an effect. Who was it who demonstrated against the Corn Laws? The very people those tariffs were meant to protect! Those people themselves saw how it raised prices and lowered wages!

The difference between freedom and equality is subtle. But we can discern them by their proponents’ methods. The former, is promoted by free marketeers such as myself. We reduce taxes, reduce government, and limit centralised control in civil liberties- because when you put such centralised power in the hands of the few, in the hands of those voted into parliament, it leads to tyranny and corruption, because when power is distributed between many it means corruption is so much more impossible than when it is the hands of the few, thus why corporations (as described earlier) are the preferred choice. What do the proponents of equality institute? They institute artifical price controls (tariffs and subsidies) to the ultimate benefit of no-one (see ‘Fiddling While Malthus Burns’); they take control of corporations when they’re failing, thus keeping failing projects afloat artificially and at the cost of the taxpayer (Protectionism); they institute special conditions to maintain equality. By that, and I’m going to be controversial here, I mean policies like maternity and paternity leave, a state education system, state healthcare, minimum wages, and all in the beginning are good policies philosophically, and I applaud their objectives. But, in every single case I present there the effects of the policy are damaging. Let’s take maternity leave! What was originally, by principle, a measure to allow mothers to look after their children for a period of time and help construct a family, all under the blessing of the law and the corporation (and by that I mean that the woman could not be fired for this, simply, as before that women were not taken back on because of this). All good things. But what I think has happened, is that it has made businessmen think “maybe I shouldn’t hire a woman because it is unprofitable!” I would say that it’s caused more women to be kept out of high-paid and high-performance positions, causing the ones who do reach those to abandon their hopes of family all together so as to be more like a man in terms of job and career. So, I have demonstrated that this ‘equalising’ policy has in-fact been damaging to everyone! To businesses and mothers and fathers, and as the terms are ramped up higher by governments wanting more votes the situation becomes even more extreme and compromising! After-all, it is a woman’s freedom to have a child. But is it her freedom to curb my profit afterwards? Surely, in principle, these are one and the same, as both individuals (the businessman and the mother) are pursuing their interests, which are both incredibly important to them! However, if you took out maternity leave, I’m sure it would become socially unacceptable (just as it has become socially unacceptable to be sexist) to fire women for responding to their maternal instincts! Freedom, then, would have achieved the goal, whereas the enforced equality (and that’s what it is, enforced and coerced equality) has done damage to everyone! Women, in this case, did not gain their rights by social measures. They gained them by their ability, by taking the place of men in the factories and fields during the First World War.

To take another example to strengthen this argument, the minimum wage law. If I want to hire a man to do a job, I will pay him a wage which is competitive and decided by market forces, so as not to lose him to other companies and retain his loyalty. However, if I am forced to pay him a certain amount, I will be discouraged to hire him at all if his worth is below that limit, thus not being of benefit to me because I do not have the worker, and not being of benefit to the labourer because he doesn’t have the possible work! Furthermore, because of my policy there is a potential taxpayer who cannot pay what he could have if it wasn’t for my law! Thus, because it is a special condition, and the fact it is enforced by the central authority, it affects a vast number of people, and by the nature of it this is so. And this example showing, just as the Alarm Clock does, how damaging to all government control of the economy is, I can’t understand why anyone would institute such measures with the data. When I put special conditions on the market, such as a minimum wage, it starts a dangerous game, where I have to shore up failing companies to save jobs in an effort to keep employment high, and then I have to institute subsidies to help my citizens artificially…all of this leads to where wages are low because taxes are high to pay for the measures. It also leads to high inflation, because the economy is to easily bullied and is being artificially grown and propped up. This is why stagnation (or stagflation, the bizarre concoction of stagnated growth and high inflation) follows from such policies.

As a liberal, I understand that people are not, and never will be, infallible. Therefore, I despise and fear tyranny and enforced equality, because no individual no matter how well informed can anticipate the future, because the world is so extraordinarily complex in its macro and micro workings. Therefore, the best way to be a custodian, is not to be a custodian. The overwhelming success story of the New Labour government was making the Bank of England independent! The fact that the Bank has no political power (unlike some central banks) means that it focusses on economic and monetary issues. If the Bank screws up, it’s because of how complex the system is, and because conditions have arisen which are hopefully independent and unique, and not from a government control (such as the erosion caused by tariffs, minimum wage and subsidies).

The Hope for the Future

If we take the first era of free-marketeering, and the effects of it in increasing charity and philanthropy, and raising quality of life, there is genuine hope in the future. In Fiddling While Malthus Burns, I showed that by being fair and maintaining freedom we can solve world food supply and population growth. Private enterprise, too, is the blueprint to replace public welfare. The fundamental rule the world runs on, is that if something is profitable then men will engage in it- whether it be slavery, charity, or even crime. Private pension companies could replace the state pension, and the lowering in taxes caused by the shrinking of government would mean people would be able to contribute more and more. The success story of the welfare state, for me, is National Insurance. But to me, there is no reason why this cannot be replicated on a private level. In-fact, for all intents and purposes it is. I see no reason why it shouldn’t be spun off from government.

The great fear of capitalism seems to be of bogeymen. Of men who ruthlessly make money to no-one else’s profit. Such people rarely exist, and men who did like Rockefellar didn’t have that philosophy arise out of capitalism or liberalism, but out of the vile and negative philosophy of social darwinism. The simple fact of the matter, that a Lex Luthor simply doesn’t exist, and if you look back it is the centralised tyrants who are what people fear, not free market capitalists. The place of Tsar Nicholas II as one of the richest men in history proves this, especially seeing his contemporaries on the list. But what of the opposite? “Surely there isn’t a capitalist who isn’t ruthless and evil?” you ask. Well, I look at the Quaker capitalists Rowntree, Cadbury (Bournville as referenced earlier) and Fry; the Lever Brothers who built Port Sunlight, and whose company Unilever is still running, and is one of the biggest; Bill Gates, once the world’s richest man, who will donate the majority of his fortune to charity when he retires, and who with his wife runs the richest charitable organisation on Earth, the Bill and Melinda Gates Foundation; lastly, I see Warren Buffet, the master-investor and richest man in the world, who not only inspired and convinced Bill Gates to take up his charitable work, but also the man who wishes to give away 83% of his US$62 Billion fortune to the Bill and Melinda Gates Foundation and lives on a relatively lower salary than other men of his power, and probably would live on a lower one if he could. Even with the example of Rockefellar, he himself was incredibly charitable, and his foundation is still one of the richest today. Thus, even the most ruthless of capitalists can be incredibly charitable.

What I fundamentally believe, and what all free-marketeers should do, is that people can manage their own affairs better than someone else can manage that person’s affairs. Thus why freedom is so vigorously defended here. And the effects of it, to me, are clear. It erodes unrelevant discrimination. It promotes working together. It promotes talent. It lowers prices and keeps wages at a stable and sustainable level. It raises quality of life…but also, as I demonstrated above, promotes private charity and helping others.

Why capitalism? Because it works.