The Fight to Keep the Definition of Capitalism Definite


Too often these days, I find myself in conversations explaining to people that the things they are angry at aren’t quite what they are angry at. Whether this is caused by massive ignorance or a targeted campaign to deceive and confuse people is a mystery to me.

Capitalism is generally thought of as an economic system based solely around making profits. While that goal may be true, there is a lot unsaid for what lies behind that statement. A profit in capitalism is only a true profit when gained through the free trade between private businesses and private people. Millions of free people making millions of decisions all at once in a system where free trade is protected leads to a growing and prosperous nation. Fair trade involves healthy competition and even trading outside national borders with other businesses or nations themselves.
The problem arises when government starts to take on bigger and more imposing roles in that market. Many of the things government does, or affects, change the market and send signals to people and businesses which may change their behavior in the market – and this is NOT capitalism.

While this is obvious to any libertarian, it isn’t so with much of the public. Take this response I received from a person when discussing capitalism:

There is no such thing as a morally upright capitalist. True capitalism does not recognize religion, political affiliation or common human decency… the banks got bailouts while homeowners with ridiculous upside down mortgages got nothing, the automakers got bailouts while autoworkers had their pensions cut, eminent domain is being used against landowners throughout Kentucky right now to build a natural gas pipeline that no one wants, and corporations throughout the nations are getting billions in subsidies while working families are seeing foodstamps cut. All of these are examples of capitalism trumping the rights of people…..and all the products of capitalism.

There is a lot to digest in there. While the statement of a nonexistent “morally upright” capitalist is both ridiculous and irrelevant, the rest is very backwards.

Stating that true capitalism does not recognize religion, political affiliation or “common human decency” has no basis in reality because true capitalism IS the people themselves. Unless you believe that all human beings are corrupt and evil, then you can’t possibly carry that to the next logical conclusion – that those who get elected to higher office are immune to the corruption.

A free people participating in free trade inherently recognize all of those things. Television stations that court people of all cultures and languages will exist if there is a demand for it. Specialized religious bookstores, gluten-free grocery stores and websites that sell only film noir movies can flourish because there is a demand combined with desire for making a profit (though non-profits can exist as well for alternate reasons). Only two things can prevent that; not enough demand from consumers and government decree.

The rest of the response goes on to list plenty of complaints that all of us can agree with. The problem is that NONE OF THOSE THINGS are products of capitalism; just the opposite, they are wealth redistribution schemes that are part of the inner workings of socialism.

Banks getting bailouts is NOT capitalism. Bailouts are not part of capitalism, nor are the perks or subsidies that those businesses received in the first place. Same goes for the auto industry. Both of those industries were propped up by decades of smaller bailouts combined with government subsidies that allowed those businesses to make bad decisions that lead to them needing a bailout. None of that is capitalism. In a capitalistic environment, none of those businesses would have received any special treatment, grants or subsidies in the first place… and if the inevitable failure were to come, then capitalism would have allowed it to happen.

With regards to homeowners, of which I am one with an underwater mortgage, the government spent decades giving banks below average interest rate loans (cheap taxpayer dollars) to support people buying homes – more homes than could have been fulfilled by the public. Thus, with there being such a demand for home ownership (one propped up by taxpayer dollars) the price of homes skyrocketed (as is basic economics). Then when the “bubble burst” (more than 10% of people defaulting on their mortgage payments) the banks crashed out and the value of everyone’s home plummeted. Suddenly banks needed bailouts. There is NO CAPITALISM anywhere in that equation.

A business cannot be accused of taking anyones “rights” away – only one institution exists that can do that. Businesses may spend their money and use their resources to their advantage in any way they can – but as soon as they start lobbying government, they create the relationship that changes from capitalism to socialism. As soon as a Congressman issues a bailout, supports a subsidy or crafts a law to give one business an advantage over their competition, you leave the realm of capitalism.

The confusion of these two economic theories cannot be allowed to happen. When a populace believes that a bank bailout happened in a free market and screams for the solution of more government to stop it, the problems will only persist and grow over time. Our ruling class is always finding new ways to change terminology, making bailouts a more permanent structure written into law so that they can’t technically be called a “bailout” anymore.

If we fail to be honest with ourselves about government’s role in our economy, then we’ll only have ourselves to blame. As libertarians, part of our duty is to keep this debate fresh in people’s minds and to make sure people know what they are seeing and know where to direct their anger.

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