Capitalism

Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned and the state is separated from economics. Objectivism defends it on moral grounds first: it is the only system that treats each man as an end in himself rather than as a resource to be allocated.

“Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.”
~ Ayn Rand, "What Is Capitalism?", Capitalism: The Unknown Ideal

What defines it

Private property and market prices are consequences of capitalism, not its essence. The essential is the political principle: no man and no group may obtain a value from another by force. Once that is enforced, trade is the only means left, and prices, profits and private ownership follow.

Two ways of dealing with people exist, and there is no third: reason or force, persuasion or compulsion. Capitalism is the system that bars the second from human relationships and leaves the first. In it, a man who wants something another has must offer him something he wants more — the Trader Principle institutionalised.

The separation of state and economics rests on the same argument that separates church and state. In both cases the state's power is force, and force is not a means of establishing truth or of creating value. See Politics and Government.

The moral case comes first

Most defences of capitalism are utilitarian: it produces more, so it should be tolerated. Rand held that this concedes the argument, because it accepts the standard of the public good and then pleads that free markets serve it better. Under that standard, any intervention that appears to serve the public better is justified, and the defence collapses at the first plausible case.

Her argument runs the other way. Man survives by reason; reason requires freedom; therefore a system that leaves men free is the one that fits what they are. Prosperity is the result of that, and the Industrial Revolution is the evidence, but the prosperity is not the justification. See Ethics and Egoism.

This is why Objectivism rejects the framing of capitalism as a system of "greed" tempered by regulation. The virtue at its centre is productiveness, not acquisition: the making of things, which is where wealth comes from before anyone can trade or spend it.

What "laissez-faire" excludes

Objectivism holds the position consistently, which means rejecting arrangements that are usually treated as pro-business:

Subsidies, bailouts and protective tariffs, which transfer wealth by law.
Antitrust law, which Rand attacked as non-objective — penalising a firm for charging more than competitors, less than competitors, or the same as competitors.
Central banking and the inflation of the currency. See Inflation and Money.
Any regulation whose enforcement is, in the end, a man with a gun.

A mixed economy is not a compromise position on this account but an unstable one, since every group has an incentive to capture the power that exists rather than to compete. See Statism and Exploitation.

Common misunderstandings

That capitalism has been tried and failed. Rand's claim was that the system she describes has never fully existed. The nineteenth-century United States came closest and was already mixed. Attributing the results of intervention to the free market is the historical error the argument turns on.
That "monopoly" is a natural outcome of free markets. Objectivism distinguishes a coercive monopoly, which requires legal privilege to exclude competitors, from a large firm that keeps its customers by serving them. Only the first is possible without the state. See Antitrust.
That it means the strong exploiting the weak. Force is the means by which the strong exploit the weak, and force is exactly what capitalism bars. Trade is by mutual consent, which means both parties expect to gain. See Exploitation.
That the poor lose under it. The historical claim runs the other way: the periods of greatest economic freedom coincide with the largest rises in ordinary living standards. Rand treated this as evidence rather than as the justification.
That business and capitalism are the same thing. Existing businesses frequently lobby against free competition. Objectivism defends the system, not its current beneficiaries. Rand called businessmen under a mixed economy "America's persecuted minority" while attacking those who sought favours from the state.

Discussion

References

Rand, Ayn. "What Is Capitalism?", "America's Persecuted Minority: Big Business" and "Antitrust: The Rule of Unreason", Capitalism: The Unknown Ideal. New American Library, 1966.
Rand, Ayn. "Man's Rights" and "The Nature of Government", The Virtue of Selfishness.
Peikoff, Leonard. Objectivism: The Philosophy of Ayn Rand, chapter 11.

External links