What is Capitalism?

mises-bitches

The dictionary isn’t going to tell you. I remember asking a similar question as a child: what is economy? What is capitalism and what is the economy? Before you read any further, erase your mind of any prior conceptions you had of economics because the answer may confuse you. The answer to these questions is simple on the surface: economics is about human action. That’s it. But, human action is a very complex subject. That’s where the complexities of economics comes in, and the intimidation one feels when researching economics. I am here to tell you that economics is not a subject left solely to males or masters, and it is our duty to understand what it is and it is something that affects our everyday lives.

Before we begin to understand what capitalism is, based off of new information, we must first define what capitalism is not. Capitalism is not wealth accumulated through corporations and government subsidies. Capitalism is not going through the government to get a business license, adhering to strict tax laws and government regulation. A capitalist economy does not thrive with the advent of government.

Wealth accumulated through corporations and government subsidies where the economy is controlled by legislators working hand-in hand with these corporations is called CORPORATISM! The first known use of the word, “corporatism” goes back to the 19th century, Adam Muller of France devised an economic system whose collectivist leanings provides protection to the political class but not the individual.  Muller’s thought was that if markets and private property were regulated by the state (a blanket term for government), then human greed could be regulated. However, if you have legislators and corporations in control of the country’s money supply and what certain businesses can and cannot do, then you have created three separate classes: the corporations, the politicians, and the consumer. Bankers and businessmen took hold of this idea, and in the early 20th century with the Federal Reserve Act of 1913, America took its first step towards corporatism by imposing a forced income tax and transferring control of the money supply to a bank whose practices are kept secret, even from Congress. Did you know that the Federal Reserve is not even federal? It is a corporation that created money whose value is based off of the money that is already in circulation — not sound money. The Federal Reserve Act of 1913 was authored by bankers in a secret meeting on Jekyll Island, Georgia, so it is safe to say that this was the first turning point into America’s corporatism (not capitalism).

If you wish to verify any of that information, go ahead. Now you have all of these great ideas and you want to start a business but don’t know where to start. Hey! It’s hot outside, why not go set up a lemonade stand and make some extra change from some thirsty customers? So, you go construct a stand with a perfect banner on top. We will call your business Cold Ass Lemonade. It’s not just cold… It’s cold as shit. Anyway, so everything’s perfect you got your lemonade stand all set up and ready to go with mom’s secret lemonade recipe, and guess what? It’s cold as shit. You made $50 today which makes your total capital gain $20 with supplies and all. Congratulations! You just made money from your first business! Except for that you’re gonna have to pay $3 in taxes, $2 for Social Security, $1 for Medicare, $10 in fees for not getting a business license,  oh and $1 for Ma. Now all you got is $3 dollars. Don’t spend it all in one place. You did not choose to pay these fees, it was chosen for you before you were even born. YOU! set up the stand, got Ma’s help, and made that super sweet Cold Ass Lemonade banner, but the government took $17. That is what corporatism is. Actually, the FCC is going to charge you $2 for your business name and slogan being offensive, so you paid $19 to the government. That’s corporatism. Let’s look at Cold Ass Lemonade’s profits if the government was not involved.

Well, first of all, Ma could be paid more, let’s raise her payment to $5 — the same amount paid in taxes and Social Security. That leaves you with $15. Keep $5 for yourself, and invest the rest in awesome cups for the customers since they said the cups were boring. Now you have a growing business, something that is 10 billion times harder to do under corporatism. Maybe the next day you will make $30 in profit and you can donate some to charity. Ma, your helper, was able to get paid more, YOU were able to be paid more, AND you were able to invest in your business to satisfy your customers. All you had was a recipe, sweet banner, and a stand without having to worry about paying anyone else. As long as you are just and ethical, the customers will come, and you can build your business. This is capitalism. This is laissez faire.

Imposing taxes and regulations on business via the government make it harder for the business to operate because it has to adjust its prices around the taxes and regulation. For instance, if you wanted to still make $5 while paying taxes, then the lemonade price needs to be higher even though the quality is the same. Ever wonder why almost everything we buy is made in China? This collectivist type of regulation raises prices and ENCOURAGES greed due to criminals dodging and good citizens following the regulations… In a REAL capitalist society, only the fair businesses with the highest quality for the smallest price thrives. That’s when you introduce Frosty Lemonade, new competition on the block. Cold Ass Lemonade and Frosty Lemonade will compete for the highest quality product for the smallest price to bring in the most customers. Maybe Frosty Lemonade will put Cold Ass Lemonade out of business, but that is the risk you take in starting  a business. This is the simplest way I can explain capitalism: business ran without government interference.

I guarantee that if you go to your political and economics professors tomorrow and tell them what real capitalism is, they will tell you that you are wrong, that the current system we have is capitalism and that’s why things are so messed up. It is important to stand up for what you believe in. Do not be afraid to challenge authorities such as professors and teachers and to stick out from the crowd. Be a leader full of different knowledge.

If you are interested in learning more about real capitalism, sound money, and the business cycle, visit: http://www.mises.org and click on “Literature.”

Advertisements

32 Comments

Filed under Freewrite, Uncategorized

32 responses to “What is Capitalism?

  1. The “incidental taxes” that you describe have long been a bugaboo for me. Most people don’t care to see that when corporate taxes are raised, the price of their products are raised and we all end up paying those new, raised taxes for them. It is the most popular way to raise taxes, because constituents respond favorably to our politicians sticking it to “the man”, but they fail to see that corporations have one of four ways to pay those raised taxes: lower dividends, and thus lose stockholders; eat the new expenses, and thus damage their profit margin, and lose stockholders; lay off employees to recover that new “expense”, and thus do damage to the corporate brand when the press informs the public that the corporation has had to endure layoffs; or raise the price of their products, and pass the new expenses onto the consumer. The latter is the most favored by corporations, because their competition usually faces the same dilemma of how to pay for the taxes, and they usually arrive at the same answer. It is the most popular way to raise taxes, as evidenced by the U.S. now having the highest corporate taxes in the world, because the politician that vows to raise corporate taxes is usually left unscathed when compared to those politicians that raise more direct taxes, like payroll taxes, individual income taxes, or even property taxes. Corporate taxes are paid incidentally by the consumer.

  2. I enjoyed your explanation of capitalism. It sure demolished what the political and financial establishment attempts to feed you. I like to distinguish between the 3 types of social systems, something I learned from the great economist Ludwig von Mises. Here it is.

    Capitalism (free enterprise) is an economic concept of civilization based on private ownership and control of the means of production.

    Socialism is a system of social organization that calls for public (state) ownership of the means of production. The totalitarian state owns everything and everyone’s life.

    Interventionism is the practice of government interference on the marketplace. Government legally hampers the market economy.

    As you can see, our current system of government interventionism is quite destructive and eventually leads to totalitarianism.

  3. I enjoyed reading the article, but I disagree with an important statement you made – “capitalism: business ran without government interference.”

    The purpose of government is to make people’s lives better than they would be without government. They’re supposed to manage the conditions which allow people to prosper (through capitalism).

    If the government holds too many rights, such as the exclusive right to own and run a lemonade stand, then they have a monopoly and other people who would make better lemonade (and more of it) wouldn’t be allowed to enter the market.

    If the right to own and run a lemonade stand is given to a small group of people, they can form a monopoly and produce very watery lemonade (to save on costs). The regulations may even allow them to have their employees work for 60 hours per week and pay them a wage which isn’t enough to live on.

    For capitalism to flourish, the government has to make sure that there’s a balance of rights so that everyone has a fair chance to start a business and enter the market, or to benefit from their labour in a way which is fair.

    In the absence of rules, people make up their own rules. Without government interference, the conditions exist for exploitative behaviour. With too much interference, there can also be exploitation. Harmony is found in balance.

    • penston, I think you misunderstand unhampered capitalism. For instance, in an unhampered market, competition for labor actually drives the wage rates up to the maximum employers can pay and still be profitable. Competition for customers also lower prices to costs + the rate of interest (time). Any business that pays it employees too little would lose them. Any business that charges too much would lose customers.

      What causes corporations to become abusive and defy labor and consumers is government interventionism, which favors special interests. The Federal Reserve System also favors special interests with its easy money policies. The only thing we need from government is objective laws that protect an individual’s life, liberty and property.

      Extreme government interventionism has created a fascist economic system that benefits big business, big finance and big government. That’s why you see Wall Street benefit at the expense of Main Street.

      • Hi, Robert! If you re-read what I wrote, I think you’ll see that you and I actually agree on this.

        The difference is the terminology you use. Would I be correct in saying that you identify yourself as an anarchist (I think the term they’re using now is social libertarian, or something)? I’m guessing you are as you seem to be looking at this through the lens of authority being an undesirable thing.

        You’re correct that one way in which corporations may become exploitative is when government “interventionism” favours them. Using my terminology, this is when too many rights are allocated to the private sector (by government). We both seem to agree that this is what has happened.

        Government can solve this by reallocating those rights so that they’re more evenly spread out. This would result in what I call a balance of rights and would look the same as what you call an unhampered market.

        In my view, the problem isn’t the system – it’s how the system is being misused. In my view, this can be corrected by electing public officials who haven’t been sponsored by corporations for the election campaigns (or anything else). How difficult would that be with social media and a broad coalition of social movements?

  4. pickledjesterinc

    I enjoyed this explanation of capitalism, but I disagree, in part, with your views regarding the role of government. Capitalism, as practiced in the US, is a blight on society and on small businesses, while being a tremendous boon (an immoral and unethical, not too mention unfair boon) to big business. I agree with your condemnation in this regard.

    Where I disagree is on the point that capitalism does not thrive with the advent of government. Even in America, prior to Reagonomics, not only did capitalism thrive, but our nation did as well – because the tax load was more fairly distributed. Shoot forward to the modern day and the tax load is unfairly distributed in America – the top earners pay a disproportionally low percentage of taxes while the middle and low income earners pay the majority of taxes. The tax policy – not withstanding the numerous bullshit taxes you describe (which I agree are nonsense and place limitations on small business) – is the domain, and the fault of government. Our elected officials may be in the pocket of big business and moneyed interests, but the blame for tax policy lies squarely on the government – it needs immediate revision.

    Finally, I think that capitalism and government can be beneficial to society and to business. The so-called Nordic Model of the Scandinavian nations illustrates this point. Free market business policies combined with strong social support systems have made the region not only profitable, but happy as well – Scandinavia consistently comes in as the happiest region on the planet.

    I suppose my point is that government is required for the well-being of society – not simply a portion of it. The Nordic Model takes the best of government and capitalism and presents a fusion that works nearly perfectly, and it deserves more research and, in my own humble opinion, emulation.

  5. Hi Cassandra,

    A couple of notes to stir the pot.

    “Capitalism,” to me defines the shift that first took place (more or less) in 18th-century England, a shift in which capital and not land became the primary platform of the economy (i.e., things like “productivity” and “profits” were now defined as functions of capital, not of land).

    “Socialism,” as it’s used today (at least as it’s meaningfully used, as there are many wacky usages floating around out there also), refers to how much of a country’s economy rests in government or public spending. By this measure, the U.S. is about 22-26% socialized and Germany is about 40-45% socialized, depending on how you crunch the numbers. Among other things, this means that capitalism and socialism are NOT opposites, even though that would be convenient for my Neanderthal sports fan friends who want to see everything as a zero-sum, us vs them, game. Most if not all modern countries are a tapestry that is somewhat capitalist and somewhat socialist, although the emphasis is different in different countries.

  6. Capital is necessary for the investment to produce goods and sometimes services that are needed at a scale bigger than the Moms and Pops. Even socialist states are “capitalist” in the sense that they own the capital and apply the capital to production. But Marxist regimes (N Korea, Venezuela) don’t have to worry about the efficiencies and incentives that completely free-market actors do. Maduro starts starving, he orders the Army out to bull-whip the farmers into growing his food. The guy with a big ranch in a land without a gang with an enforced monopoly, he has to compete for his labor and for the market. Force warps it. Everybody values different things.

    Good article.

  7. I agree but what happens when (as it did) you have a business owners who having the power of the employment and a key stake in the transaction then grow and take on employees but do not pay them a realistic living wage and allow/arrange for benefits and require a six or seven day a week work day? Historically you have the entrance of unions. Then unions grow and real friction and literal battles/fighting occur and people lose lives or are physically hurt. In some places where owners are most powerful unions are not able to enter the market so people don’t receive any relief from the poor employment agreement which leads activists and lawyers to push Congress to make federal employment laws demanding better circumstances for the employee such as a so called better living wage (denominator), five day work week, eight hour work day and so on. Etc. Etc.
    My point being though I am a capitalist and believer of laissez faire at heart – I also realize because of the nature of the human being – greed is a very real force in the equation of economics. The necessary evil of unions at the time led to federal labor laws that moved toward other legislation that has naturally entered the fray of the economic transactions. Again – being human and the proclivity to want “one more” whether it be dollar, betterment, benefit, etc.
    All that “said” between what you wrote and my comment — I believe the biggest detriment to the economic transactions of every day is (in the USA) the reality and above the law status of what some people call TPTB (the powers that be) which are the families/institutions that are the foundation of what is called the Federal Bank. It is there that greed has permeated every fiber of their philosophies, living and practices. It is THERE that we (citizens of the USA) need to cut-out and uproot the poison that is flowing through out our society.
    Thoughts?

  8. Hello Cassandra, and thank you for following my blog.
    I enjoyed reading your ‘retirement’ plaque from the Marines. I also have a soft spot for the leather-necks.
    Steve

  9. A good perspective. Coming from someone who is anti “Corporatism” (as you have defined, thank you).

  10. Thanks for the follow! Your blog is very interesting and generates great discussion 🙂

  11. Surprisingly, the government sees itself not as an interference but as a facilitator. And they like to think that they have a right to the taxes they charge. And when your taxes are doled out to what the government deems as deserving, they believe it is their own money being handed out.

  12. I do not think anyone could have explained that better. With how complex our economic system is it is hard for people to grasp the concept. Especially when the general public is led to believe our economic system is not what it is portrayed as. My main concern is that when you examine the recent history of the United States in regards to economic policy theres a very steep trend in the favor of big business that is deeply entrenched in Washington. What can we do? Well lets change the imposing of these fees. Start of with the FCC charging $2 for an offensive sign. What interpretation does the FCC have on what is offensive or not. Different people have very different filters on how they interpret information. What is offensive to you may not be offensive to me. So instead of allowing a Federal commission to interpret what is offensive we just leave it up to the customers. You will not make money if you offend possible customers so instead of taking profits away leave it up to the consumer to decide that. With other aspects of fees due to government involvement I would like to try and find more of a middle ground. It would be extremely difficult to reform or eradicate these policy’s but we can find a middle ground. We cannot avoid taxes it is a certainty in life. This is a fact that was publicly accepted by Benjamin Franklin in his letter to Jean-Baptiste Leroy in 1789. Some things may never change. I am no expert but taxes are something we cannot avoid (Unless you plan to be cell mates with Wesley Snipes). This analogy may seem a little far fetched but bear with me instead of the government limiting how many cookies a business has but rather put a limit to whose allowed to take from the cookie jar. I am open to suggestions and comments due to the fact that my ideas and philosophy are in their infancy.

  13. Reblogged this on system of ideas and commented:
    I wrote this comment on this particular piece and figured I would share the comment and the original piece on my page because I feel this topic can provoke many thoughts in regards to the subject and escapes from the mainstream interpretation of Capitalism.

    My Comment-

    I do not think anyone could have explained that better. With how complex our economic system is it is hard for people to grasp the concept. Especially when the general public is led to believe our economic system is not what it is portrayed as. My main concern is that when you examine the recent history of the United States in regards to economic policy theres a very steep trend in the favor of big business that is deeply entrenched in Washington. What can we do? Well lets change the imposing of these fees. Start of with the FCC charging $2 for an offensive sign. What interpretation does the FCC have on what is offensive or not. Different people have very different filters on how they interpret information. What is offensive to you may not be offensive to me. So instead of allowing a Federal commission to interpret what is offensive we just leave it up to the customers. You will not make money if you offend possible customers so instead of taking profits away leave it up to the consumer to decide that. With other aspects of fees due to government involvement I would like to try and find more of a middle ground. It would be extremely difficult to reform or eradicate these policy’s but we can find a middle ground. We cannot avoid taxes it is a certainty in life. This is a fact that was publicly accepted by Benjamin Franklin in his letter to Jean-Baptiste Leroy in 1789. Some things may never change. I am no expert but taxes are something we cannot avoid (Unless you plan to be cell mates with Wesley Snipes). This analogy may seem a little far fetched but bear with me instead of the government limiting how many cookies a business has but rather put a limit to whose allowed to take from the cookie jar. I am open to suggestions and comments due to the fact that my ideas and philosophy are in their infancy.

  14. Every economic system has its advantages and disadvantages. That’s the reality. In addition, our economy has a front end and a back end. The front end is, as pointed out, corporatism, at least to some degree. The power derived from these behemoths propels rules and regulations to favor those powers. On the back end is more of a textbook, simplified consumerism (e.g. supply and demand). In the end, we are left with a system far too complex to aggregate in a blog entry. The same conclusion can be made of a “freer” economic system as well as socialism (or communism, as is commonly known)

    • But how can we attempt to change this? How can we make oursleves less dependent of the services of these huge coroperations that seem to have a significant input on the global economy.

      • Politicians are supposed to represent the electorate, in other words the consumers. Yet, the resources that are used to market their skills (or imagined skills) comes from the corporations. In other words, the corporations dictate who gets and who doesn’t get the money. In my opinion, campaign money should be pooled together for all candidates, then split evenly. By so doing, the politicians have no incentive to appease the corporations inappropriately and more inclined to represent the people. This is a pipe dream. Corruption is just too prevalent in our (and every) political system. Realistically, we need to minimize corruption, because corruption will never be completely eliminated. Theoretically, the decision to re-structure the whole lobbying system would have to be bipartisan and popular. Will there ever be enough political heroes out there to initiate change? I doubt it. The majority of these people are lawyers and bullshitters, not marines.

      • You could take a look at Wolf PAC and maybe become involved?
        http://www.wolf-pac.com/

  15. Krist Hollow

    A fantastic post, I learned from this post, and easily, because you were thorough and comprehensive. This is where I will send anyone in my network wanting to understand Capitalism. I will seek to cross-examine the info given here, but please keep up the writing, you have a knack for deconstruction to offer insight into the Machine’s that grind us.

  16. phadde2

    My personal thoughts,

    Diamond Theory of Economics explains that a society becomes a financial powerhouse when the government creates an environment that protects private property. In 1913, this trend stopped in our nation, and further in 1971. Every system may have advantages and disadvantages but the monetary system within the workings of an economic system alters the state of the economy. When the FED was created in 1913 and the Bretton Woods system ended in 1971, what is usually not noted is that this is at pods with the Diamond Theory of Economics protection of private property because it’s never conceived that currency is one’s property. Taken off of a standard transferred everyone’s property to the FED much like explained above, and of course the FED and its creation in 1913 isn’t even part of the infrastructure of the state. It was a seizure of property in disguise of protecting the monetary system.

  17. I really like reading through an article that will make men and women think.
    Also, thank you for permitting me to comment!

  18. Thank you for the refreshing defense of free markets. I’m glad that you mentioned the federal reserve. It’s impossible to achieve a true “free market” with the fed controlling interest rates and money supply… End The Fed!
    http://shotofliberty.com/2014/06/21/the-federal-reserve-explained-in-3-minutes-and-2-seconds/

    • You say that there can’t be a true free market with the Fed controlling the money supply, but did you know that over 90% of US dollars are created out of nothing by banks every time they make a loan?

      Check out Positive Money.

      • Yes, I did know that. No doubt fractional reserve banking is terrible. That’s why I’m in favor of competition in money. Legalize gold and silver by removing the taxes on it and repealing the legal tender laws. Commodity money coupled with full reserve banking would be exponentially better.

      • The U.S. did very well with full reserve fiat currency until the British revoked the right to produce it.

        A non-fiat digital currency concept I like is Money 3.0.

  19. “This is the simplest way I can explain capitalism: business ran without government interference.”
    Business run without government interference translates into “international corporation”, as they are largely run without government interference, worldwide (I truly wish, we had government interference on them). Corporations are exclusively about “wealth accumulation”, ergo “capitalism = corporations=wealth accumulation”.
    I really don’t get your hatred against government. If your government is lousy, it doesn’t mean government as an institution is lousy. If economics is about human action, then government should be about creating rules for human actions that allow people to live peacefully and thrive (without trashing the planet). You Americans can only think in quantity, less government, more government. It’s about QUALITY.

    My attempt at an explanation of capitalism: Capitalism is the reign/dominance/governance/kleptocracy of head/mind over body (humanity over Earth, Man over woman etc.). The word “capita” is Latin and means “the heads” (Plural). Heads are technical devices, they don’t have hearts. The quality of heads determines the quality of human actions, one reason for difficult circumstances on the planet. Heads controlling human action = capitalism.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s