Capitalism

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Capitalism is a social system based on the principle of individual rights.

There are exactly two ways for men to deal with other men. The first is by force, and the second is by reason, which in practice means by voluntary trade. For examples of the first, look at the anarchism of the period after the fall of Rome but before Feudalism ruled Europe, Christian rule after that point, fascist rule, communist rule, Muslim rule, tribal rule, etc.

The second is known as capitalism. It is the only social system based on a rational, usable moral code, namely that a man has a right to live. Moreover, his life is not a means to any other or others' ends; it is an end for its own sake.

The proper name for a social system based on political freedom is capitalism. The essence of capitalism is not private property or market-based prices -- these are the consequences, not the essentials of such a system. A capitalist society is based on the recognition of individual rights, including property rights. Under capitalism, all property is privately owned, and the state is separated from economics just as it is from religion. Economically, capitalism is a system of laissez faire, or free markets.

In a human society -- one that recognizes the independence of each man's mind -- each individual is an end in himself. He owns his life, and no one else's. Other men are not his slaves, and he is not theirs. They have no claim on his life or on the values he creates to maintain his life, and he has no claim on theirs. In a free society, men can gain immense values from each other by voluntarily trading the values they create to mutual gain. However, they can only create values if they are free to use their minds to exercise their creativity. A man is better living off on his own than as a slave to his brothers. Individualism is the recognition that each man is an independent, thinking being. An individualist recognizes no authority higher than his of judgment of the truth, and no higher standard of value than his own life. That which furthers his life is the good, while that which destroys it is evil. Individualism is opposed to collectivism, the idea that man does not have an independent mind, does not own his life, and lives as a slave to his brothers. Collectivism holds the evil idea that man's life has value only so far as it servers the society, State, or race.

To pursue the values necessary for his life a society, man requires only one thing from others: freedom of action. Freedom does not mean the freedom to act by permission of a state or a dictator, but the freedom to act however one pleases as long as one does not infringe on the same and equal freedom of others. To live in a society, man requires rights to protect the actions necessary to sustain his own life. All rights derive from a man's right to his own life, including the rights to life, liberty, property, and the pursuit of happiness. Thus, rights are moral principles defining his freedom of action in a social context. Rights are inalienable --" they are not given to man by any government and may not be morally infringed upon. A man may have his rights violated by a criminal or a corrupt regime, but morally he remains in the right, and the dictator and criminal in the wrong. Rights are not guarantees to things or obligation placed on others, but only guarantees to freedom from violence (the right to life), freedom of action (the right to liberty), and the results of those actions (the right to property). The only obligations one's rights impose on other men is to respect the same and equal rights of others -- the freedom to be left alone.

In a political context, freedom means solely the freedom from the initiation of force by other men. Only by the initiation of force can man's rights be violated. Whether it is by a theft, force, fraud, or government censorship, man's rights can be violated only by the initiation of force. Because man's life depends on the use of reason to achieve the values necessary for his life, the initiation of force renders his mind useless as a means of survival. To live, man must achieve the values necessary to sustain his live. To achieve values, man must be free to think and to act on his judgment. To live, man must be free to think. To be free to think, man must be free to act. In the words of Ayn Rand, "Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries."

The proper name for a social system based on political freedom is capitalism. The essence of capitalism is not private property or market-based prices – these are the consequences, not the essentials of such a system. A capitalist society is based on the recognition of individual rights, including property rights. Under capitalism, all property is privately owned, and the state is separated from economics just as it is from religion. Economically, capitalism is a system of laissez faire, or free markets.

Democracy and the politics of statism

It is worthwhile to consider the ideal model of democratic government and the reality of what happens when politicians come into the scene. Ideally, citizens demand government actions to “fix” situations of “market failure” – cases where the market leads to less-than-efficient outcomes, such as when a used-car salesman lies about the quality of the cars he sells. Ideally, taxpayers consent to the use of their money to correct the asymmetrical information problems (in other words, crooked car salesmen who know more about the car than the consumer and have an incentive to lie about it) by say, mandatory information stickers on used cars. Politicians rarely have the sole interest of the public in mind because human nature dictates that man is self-interested, and when he cannot compete for customers, he competes for power. The bureaucrat who makes his living inspecting car dealerships is unlikely to suggest to his superiors that a consumer protection agency would be better at his job, or that bringing a mechanic to the dealership is a cheaper solution to government intervention. He is more likely to suggest that more regulations be placed on used car lots so that he may hire assistants or increase his work hours. Meanwhile, the consumer knows little of such inefficiencies in the inspector’s work, because the best judge of the efficiency of inspecting used cars – the government inspector himself is the one least likely to reveal the inefficiencies of his job -- because they may lead to his demotion or loss of work. The point is not that regulation of used car dealerships is harmful to consumers, but that government bureaucracy is inherently inefficient and self-promotional, and the costs of such inefficiencies must always be balanced with the potential benefits.

There is another, more dangerous aspect of government regulation. The used-car dealership rarely takes regulation lying down. Rather, it will hire lobbyists, create ad campaigns to raise public support, court politicians, and in various other ways attempt to influence public policy. It is undeniable that business has such influence with the policy-makers of the United States. The problem is that as soon as an industry seeks to influence the government, it begins to compete on two levels – the competition for market power and the competition for bureaucratic power. Firms no longer strive to produce the best product at the lowest price, but for political “pull” – and the ones that win the war of pull are rarely the ones that are the most efficient. Thus, firms try to out-regulate each other out of existence rather than out-compete each other. Such is the inevitable side-effect of government regulation. What this means, is that for every government action, there will be a reaction by business, or in other words, if you want to get business out of government, you must get government out of business.

It is crucial to recognize that government is not especially good at producing any one good – it is only capable of forcibly transferring wealth from one party to another. Taxes, tariffs, licenses, and regulations either take wealth or create barriers to market entry, and private and corporate welfare, agricultural subsidies, tax-breaks, and regulations give wealth and monopoly powers to other parties. There are many arguments for such transfers of wealth, and it is impossible to answer them all in a short space, but it is sufficient to consider the previous two arguments, as they inevitably corrupt any good intentions legislators have when they enact such legislation.

When one considers the above effects of market regulation, it is easy to see why politicians have such a bad reputation. Many reformers propose further regulations and agencies to oversee politicians’ actions and finances – but this only increases the size of government. The real solution was provided to us by the Constitution of the United States -- while imperfect, it contained built-in limits on the power of government to intervene in the market. When the government remains small and stays out of the regulation business, businesses have little interest in lobbying government because their livelihood is not at stake, and consumer groups have little success in imposing regulation because of court oversight of legislation. Such is the ideal size of government. When it strays into the market, it immediately becomes too big and acquires tremendous incentives to expand more and more.

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