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What Is Capitalism?

I have described myself here as “amateurish” when it comes to economics. However, I know and understand enough about some things to write cogently about them. But to this day, most people still don’t know what “capitalism” is, and actually believe that the system we currently have in place is a capitalist system. No, not in the least.

A few days ago, NPR’s Tom Ashbrook of the show On Point rebroadcast a show from April, “A Second Look at Capitalism.” It should have been called an ignorant look at capitalism because, frankly, that is what it was. If you go to that link and listen to the interview, get ready to cringe. The reason I’m doing this post is because I feel bad for all the “anti-capitalism” folks out there whose views are based largely on ignorance and myths.

One of Ashbrook’s guests was a Julia Ott, a professor of history (certainly not economics!) at the progressive New School in New York. The other guest was a professor of labor relations, law and history. Hey, Tom, you think the next time you want to discuss “capitalism” you might want to invite an actual economist? (Just a suggestion.)

So right off the bat, Professor Ott says that capitalism “involves the accumulation of capital, it involves the accumulation of the means of production” … BUT, she asks, “Where does owning people … individuals who are capital and owned by other people … How does that fit into capitalism?” And I felt compelled to respond to that one already.

“Owning people” doesn’t fit into capitalism. “Owning people” is what the State does under socialism. If by “capitalism” you mean “free market capitalism,” then the “capitalists” do not “own” — nor can claim any kind of ownership of — their workers, their employees. In actual free-market capitalism, no one is forced to have any association with or to do any labor for any employer one doesn’t want to work for. In free-market capitalism, your contracts with other associates or your employers are voluntary, and you are free to go work elsewhere if you don’t like that employer. In a free system, you own yourself.

Claiming actual ownership of others is the enslavement of them. And that’s what socialism does, by the State’s (regardless of its using the rhetorical guise “the public”) seizing ownership of industries, wealth and “the means of production,” which includes the people. The people are the most important amongst the means of production.

And by the State’s “seizing ownership of industries,” I am referring also to control. If the State takes control over your supposedly privately owned business or property (with regulations, mandates, restrictions, etc.) then that is the indirect way of the State’s seizing ownership. If you don’t fully control your own property, and another entity has forcibly seized control over it, then you don’t really own it.

We don’t really have free-market capitalism in America, and we never did. What we have had is State capitalism. The collusions between the big corporations and the government, supported along the way with protectionist wage and price controls, confiscatory taxation, business regulations, licensure, and fees and fines to pay to babysit non-productive government bureaucrats — these are the dysfunctionalizing aspects of State capitalism, but America has not really had actual totally free markets.

And then Ashbrook asks Ott to take us through some of those big chapters in the history of capitalism. Ott responds by referring to the early 19th Century: “… the new nation is a political culture that is grounded in the belief that broad-based ownership of the means of production, namely land, is really the key economic attribute that’s required for a democracy to function effectively,” and Ashbrook adds: “the Jeffersonian idea…”

Ugh. First of all, Thomas Jefferson had been quoted as seeing “democracy” as “nothing more than mob rule.” And, according to economist Thomas DiLorenzo, “(As for democracy per se, Jefferson was hardly a fan of it: He believed it needed to be ‘bound by the chains of the Constitution.’) It was Lincoln, not Jefferson, who made a ‘god’ of ‘democracy.'”

And secondly, Democracy has nothing to do with capitalism or markets or anything to do with economic life, except being a system in which some people are given the power to seize the wealth and property of others by force, under color of “law” via State power. As Hans-Hermann Hoppe has pointed out, Democracy is the “God That Failed.”

Now, the excerpts from that edition of On Point that I pointed out were only just a little less than 8 minutes into this hour-long show. I continued to hear just the first half-hour, but that was enough for me. You can click on the link at the top if you want a real cringe-fest featuring two authors who were apparently introduced as experts on capitalism.

And I’m really just an amateur at all this, and even I have a better understanding of these things.

Some other explanations of what capitalism really is, certainly by those with far more expertise than I have, include writings and discussions by Sheldon Richman of the Future of Freedom Foundation. After all, all this stuff about “free”-markets vs. the controlled markets of State capitalism is really about “freedom.” Here is Richman’s in-depth essay on the history of capitalism that includes a discussion of the distinction between free-market capitalism and State capitalism.

And here is Richman’s lecture on Capitalism vs. the Free Market (starting about 5:30 into the video), in which he argues that we should actually oppose using the term”capitalism” when referring to free markets because of the connotations associated with “capitalism,” which in modern society really refers to State capitalism, the collusions between business and government. Other phrases describing the same thing include “crony capitalism” and “corporatism.”

In fact, just today, FFF’s Jacob Hornberger has this post on how the chaos of our current medical system shouldn’t be blamed on the free market or “free enterprise” because it is actually based on a socialist (anti-capitalist) system.

Also, here is Ron Paul’s essay, Has Capitalism Failed? (from his book, Pillars of Prosperity), in which he clarifies that we haven’t actually had capitalism, at least not in the context of the government-controlled monetary and banking system we have been enslaved by. Here is an excerpt:

Capitalism should not be condemned, since we haven’t had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It’s not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!

You can also read The Anti-Capitalistic Mentality and Planned Chaos by Ludwig von Mises; Making Economic Sense, and Herbert Hoover’s Depression (from the book America’s Great Depression) by Murray Rothbard; Capitalism and the Historians edited by F.A. Hayek; and Capitalism, Socialism, and Democracy by Joseph Schumpeter. Even Ayn Rand’s Capitalism: the Unknown Ideal can be helpful.

In my view, by “capitalism,” those great authors are really discussing the kind of free-market capitalism that folks such as Thomas Jefferson had in mind. (In contrast to the actual Jeffersonians, it was the centralists, mercantilists and corporatists Alexander Hamilton and “Honest Abe” who really got the ball rolling in corrupting once-free markets by turning capitalism into State capitalism in their imposing the State’s further intrusions into private economic activities and what used to be considered actual private property, especially in money and banking.)

And if you want to read a more radical view on the differences between actual free-market capitalism and State capitalism, you can check out Charles W. Johnson and Gary Chartier’s book “Markets Not Capitalism. Here is the very informative introduction and table of contents as provided by Johnson. Their book comes from a uniquely “market anarchist” perspective, and they emphasize decentralization of markets as well. They reject the top-down authoritarian social order view typically taken by the anti-market Left and the pro-capitalist right. In Johnson and Chartier’s view, markets which are freed from government-capitalist controls are based on:

  • ownership of property, especially decentralized individual ownership, not only of personal possessions but also of land, homes, natural resources, tools, and capital goods;
  • contract and voluntary exchange of goods and services, by individuals or groups, on the expectation of mutual benefit;
  • free competition among all buyers and sellers — in price, quality, and all other aspects of exchange — without ex ante restraints or burdensome barriers to entry;
  • entrepreneurial discovery, undertaken not only to compete in existing markets but also in order to discover and develop new opportunities for economic or social benefit; and
  • spontaneous order, recognized as a significant and positive coordinating force — in which decentralized negotiations, exchanges, and entrepreneurship converge to produce large-scale coordination without, or beyond the capacity of, any deliberate plans or explicit common blueprints for social or economic development.

If Tom Ashbrook wants to have another discussion on On Point of capitalism, then he should consider having as guests Sheldon Richman or the other aforementioned, or economic historians Robert Higgs and Tom Woods, to provide a better understanding of what capitalism is and what it is not.

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