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.”