The Free Market vs. Capitalism

A lot of people hate capitalism. They associate it with greed, corruption, and big corporations who control everything. All they see are the rich getting richer and the poor getting poorer.

In a way, the people who view capitalism as a failed system are right. Of course, it depends on how you define capitalism. If you define capitalism, as many do, as a system under which the rich can buy off politicians, then yes, capitalism is an awful system. Anytime the rich winners get to keep all of the profits and the rich losers can pawn off their losses on the public, its terrible.

Indeed, the term capitalism was really brought into vogue by Karl Marx. It was used to indicate a class struggle between the rich and the poor. The rich had of all of the assets, the capital, and could impose their will on the poor. Regular people had nothing and could never hope to advance in life as long as the cruel, heartless capitalists were in charge.

I’ll tell you something, Marx was right. Capitalism, when defined as such, is vile. His solution, of course, proved to be just as oppressive. He replaced one group of power-wielding elites with another. All of this was done in the name of the people, but the facts remained just the same. The system he created was violent and destructive like no other.

Again, if you define capitalism as Marx defined it, indeed the way many people define it, nobody can disagree. Capitalism is no good.

That’s why I’m not a proponent of capitalism. In no way do I support the status quo. Huge corporations should not get subsidies. Big banks and Wall St. firms shouldn’t get bailouts. The government shouldn’t have the power to take money from the middle class to subsidize the rich. Down with the capitalist pigs!

What I do support, however, is free markets; very, very, very free markets. Yes, there is a difference between capitalism and free markets. A lot of people view the terms as being synonymous. That is just not the case.

Under a free market system, the rich can only get and stay rich in one way: serve customers in the best and most efficient way. If they can’t do that better than other people can, they’ll go broke. Sure, a kid might be born rich but if has no talent at making people happy, at giving the people what they want, he’ll go broke just like anybody else.

The cornerstone of the free market is property rights. Everybody can do whatever they want with their own property. They just can’t interfere with other peoples’ rights to do the same. Commercial transactions are agreed upon by contract. If the contract is breached, the punishment is decided upon in a court of law and the victim is compensated for his injuries.

In a free market, the government’s only job is to protect property rights and enforce contracts. They are absolutely prohibited from picking winners and losers. Governments are denied the power to do anything other than protect property and run the courts.

The importance of the role of government in a free market can’t be overstated. If the government is not allowed to do anything substantial to influence economic outcomes, buying off politicians becomes pointless.

Here we find the critical error of most arguments against capitalism. We all agree, what goes by the name of capitalism is bad. What should be done? The common answer is to give the government more power to regulate business. But it is precisely the fact that the government has power that causes the problem. If we give the government more power, they’ll use it to legislate in favor of the wealthy. That is the key reason why the rich keep getting richer. That is what makes capitalism a failure.

If the government is protecting property, and is denied the ability to take from the poor and middle class in order to give to the rich, that leaves only one road open to wealth. People with capital have to serve the consumer. There is no other way left.

And the free market is such an honest place. When people are spending their own hard earned money, they buy what they really want. Politicians and lobbyists divert money into projects that suit their own interests best. Assets are invested in plants to build unnecessary war planes. Skyscrapers are built for stock and bond speculators. Government subsidized universities teach completely impractical course material.

Not so on the market. Only those assets invested in products and services that people will pay for voluntarily can turn a profit. You see more cool gadgets like the iPad. Planes are built to take tourists to the moon instead of dropping bombs. Universities are geared towards teaching people how to satisfy the most urgent needs of their fellow man.

With the government out of the business of arbitrarily squandering scarce resources, the standard of living explodes. New projects provide sustainable jobs for people around the world. Increased wealth leads increased to philanthropy. The gap between the rich and the poor shrinks. Sure there are still rich people. In fact, there are lots and lots of rich people. Imagine all of the wealth that a 10 million dollar bomb could provide if it was invested in profitable lines of business.

To recap, there is a huge difference between capitalism and free markets. Capitalism requires an active government to secure the loot. Free markets require only that the government protect property. Capitalism leads to unemployment, economic meltdowns, and welfare for the rich. Free markets lead to an increasing standard of living, economic stability, wealth creation, the release of dynamic human energy, and a fair playing field.

Next time you hear somebody railing against capitalism, don’t forget to explain to them the alternative: free markets. And never forget: more government is never the answer. Government power is the essence and the life blood of what is known as capitalism.

Now get out there and give ’em hell.


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