The Miracle of Capitalism

Part I: What is Capitalism?

by Loyal to the Word

         Ezra Taft Benson lamented,

 

“Today it seems evident that we are rearing a generation of Americans who do not understand the productive base of our society and how we came by such prosperity. Evidence of this fact is found in surveys taken among some of our high school and college students, the majority of whom, it is reported, believe private enterprise is a failure, although they don't have a clear understanding of what private enterprise is. With them, as with many adults, there is a vague notion that it is some unfair system that tends to give special advantage to big corporations and wealthy individuals....”

(Ezra Taft Benson, This Nation Shall Endure, p. 101-117).

 

         What is capitalism? It is common for the political left to mischaracterize capitalism. They do this incessantly, either because they simply hate it and don’t care to truly understand it, but are content to simply believe the worst about it, or they deliberately tell lies about it, so as prevent people from understanding what capitalism really is. In any case, their report is a false one.

         Capitalism is not what liberals and socialists claim it to be. It is not a system where the government provides special favor to businesses. That is not capitalism. That describes the corrupt system of corporatism, a fascist system that is only possible with big, encroaching government.

         Capitalism is not a chaotic system devoid of law, rules or accountability. That is not capitalism. That is called anarchy.

         Capitalism is not the rich plundering the masses. Such a thing is not possible under capitalism, where money is transferred voluntarily and which is devoid of force. If circumstances are occurring in which the rich are forcing money away from the poor, this could not be called capitalism. Nor would such a condition, even if it existed, be characteristic of capitalism. Nothing could be further from it. And of course, just because there are rich people present, does not automatically qualify a system as “capitalism.”

         Capitalism is not selfishly keeping everything for yourself, and ignoring the needs of others. While in capitalism, people do operate in their own self-interest, there is nothing inherent in the system that makes greed a necessary feature, nothing saying that a capitalist must be selfish, or that a capitalist cannot give charitably. Nor is it necessary or wise to hoard money in capitalism, but rather, investment, which benefits others along the way, is the more profitable course of action. Charitable giving and capitalism are completely compatible. In collectivist schemes of wealth redistribution, however, greed is at the very foundation of the system – the unholy desire to take other men’s goods by force without earning them.

         What is capitalism? Capitalism is a system of economic freedom, in which equal rights are assured, people own their own property, and have the freedom to buy, sell, and enter into business arrangements with a minimum of government restrictions. We will now discuss in some minor depth, the eight fundamentals of free market capitalism. The fundamentals of capitalism are:

  1. Unalienable Rights

  2. The Rule of Law

  3. Private ownership of property

  4. Freedom of action and voluntary association

  5. The Power of monetary incentive

  6. Competition as the fundamental driver of innovation and improvement

  7. The right to do what one will with the fruits of his labors

  8. No special favors or privileges from government

1. Unalienable Rights

         Capitalism is fundamentally based upon the understanding that all people everywhere have the same inherent rights given to them by God. These rights include the rights to life, liberty, and property, the rights to privacy and freedom of speech and opinion. People have these rights because they are human beings, and because God created them to be free, and not simply because the government allows them to have them. They were born with them naturally, and did not have them bestowed upon them by any bureaucracy. The people and their rights existed before any government, and therefore the people and their rights are superior to and pre-eminent over the government. Government exists, therefore, simply to ensure that the individual rights of the people are protected.

         The French political philosopher Frédéric Bastiat, one of the most astute political philosophers of all time, phrased these truths masterfully. He wrote:

 

“Life, faculties, production – in other words, individuality, liberty, property – this is man. And in spite of the cunning of artful political leaders, these three gifts from God precede all human legislation, and are superior to it. Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.”

(Frédéric Bastiat, The Law (1850), par. L. 4-6).

 

2. The Rule of Law

         The Rule of Law is simply the idea that an impartial law designed to protect the rights of the individual should reign supreme. There should be no arbitrariness in the application of the law, but all people, no matter who they are, or how much money they have, are subject to the same laws and protections as their neighbor. There are no special privileges for a select few, and no special classes of people under the law.

         The Rule of Law requires that all citizens respect the rights of others, or be subject to punishment or penalty. This is indispensible to capitalism. In capitalism, a person is protected from fraud by schemers because it is his right to not have his property stolen from him, or taken under dishonest pretenses.

         One of the many noble things about the Rule of Law, is that there are no arbitrary distinctions between citizens. If you are a rich person, you are subject to the same laws and protected in the same rights. If you are a poor person, you are likewise subject and likewise protected. There are no special privileges or entitled classes, but just as God has intended, all people are equal in their rights. The Lord has said, “Ye shall do no unrighteousness in judgment: thou shalt not respect the person of the poor, nor honour the person of the mighty: but in righteousness shalt thou judge thy neighbour.” (Leviticus 19:15).

         The Rule of Law enables for freedom. Only under these conditions of consistency, predictability, and true equality, will mankind thrive.

3. Private Ownership of Property

         Private ownership of property is the fundamental right that makes capitalism and freedom possible. Were there no private ownership, all people would be tools of the state, subject to the will of a dictator in virtually all of the affairs of life. Private ownership of property allows man to be master of his own domain, his own affairs, and his own destiny.

         The scriptures declare that, “We believe that no government can exist in peace, except such laws are framed and held inviolate as will secure to each individual the free exercise of conscience, the right and control of property, and the protection of life” (Doctrine & Covenants 134:2).

         What constitutes property? Property exists in many forms. It may be in the form of land, which is what people usually consider when we mention property. But this is not the only form of property. Property consists of all assets under the ownership of an individual. It may be in the form of buildings, equipment, vehicles, personal effects, investments, and money.

         Founding Father John Adams said, “The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. Property must be secured or liberty cannot exist.” (As quoted in W. Cleon Skousen, The Five Thousand Year Leap, p. 127). The security of the unalienable right to property through the Rule of Law is an essential feature of capitalism.

4. Freedom of Action and Voluntary Association

         Voluntary free action is the cornerstone of capitalism. In capitalism, no person parts with a dollar of their money unless they wish to. That is to say, each business transaction is voluntary, and each side enters into a transaction because they believe they are better off for doing so. For example, the tailor that makes suits wants $200 more than he does the material for suits which he has on hand, and the customer buying the suit wants it more than his $200, and so the arrangement is mutually beneficial. Both sides get what they want, and so both sides benefit.

         Because of the mutuality of benefit in exchange which is inherent in capitalism, it is as Frédéric Bastiat said: “The profit of the one is the profit of the other.” (Frédéric Bastiat, Economic harmonies, par. 4.118).

         This freedom of exchange is a wholesome and noble state of affairs. It elevates man above what is cruel and beastly in Creation. As Adam Smith remarked, “Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.” (Adam Smith, The Wealth of Nations, Book I, Chapter II, p. 14). To act by use of force is brutish and unbecoming of the nobility that should accompany God’s children. But only freedom of action, with people being entreated by gentle persuasion, should prevail. The scriptures say that the Constitution, with its free market principles, were given “That every man may act in doctrine and principle pertaining to futurity, according to the moral agency which I have given unto him, that every man may be accountable for his own sins in the day of judgment” (Doctrine & Covenants 101:78).

         It is ludicrous to suggest, as many on the political left do, that capitalists force an unwitting public into buying their products and services. Under capitalism, this is impossible. No company can force you to buy their products or services if you do not want them [show McDonald’s picture]. But rather, people buy precisely the goods and services that they desire to have, or that they believe they will be better off with. Instead, it is the government control of the political left that in practice forces people to buy only one option from only one supplier, which is the case with any of the services that have been socialized by the government, which essentially becomes a government monopoly.

5. The Power of monetary incentive

         Those on the political left demonize capitalism chiefly because the main drive for production and innovation is money – the monetary incentive. Liberals and socialists act as though this is a bad thing, and that instead their own motivations are purer. This is not the case, however, and there is nothing evil in the desire to improve one’s living condition. And there is nothing evil about prosperity. There is, however, evil in taking others’ property by force, using coercion to meet the goals of a governing group, and allowing people to have only what the governments deems appropriate for them to have.

         People working in their own self-interest is not a bad thing. It is this very principle, so often maligned by the political left, that has been the chief cause for the rise in standard of living for all people in our modern era. Adam Smith said, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest” (Adam Smith, The Wealth of Nations, Book I, ch. 2, para. 2). Of course, such concern for the self ought to be distinguished from simple selfishness, which of course is wrong. But concern for self is simply acting practically, and is actually in itself virtuous. The Lord expects us to take measures to provide for our own welfare and that of our families. He has counseled us to, “Organize yourselves; prepare every needful thing” (Doctrine & Covenants 88:119) and we are to take concern for our own temporal welfare. The scriptures command us to “cry unto [God] over the crops of your fields, that ye may prosper in them. Cry over the flocks of your fields, that they may increase” (Alma 34:24-25).

         While some may be repulsed by the idea of acting on self-interest, the reality is that this is precisely what people do anyway. The difference is that in capitalism, a person acting in their own self-interest provides true benefit for others. Monetary incentive induces people to work hard to fulfill the interests of others. Since, as we just learned, in capitalism no one is forced to part with their money to satisfy any particular group, it follows that the only way a person can earn great profits in capitalism is by doing an outstanding job of satisfying the wishes and desires of consumers. One of the beautiful things about the capitalist system is that you can take the most self-interested person in the world and cause them to wear out their lives in seeking to satisfy the desires of the masses. You cannot say the same for socialism and other collectivist ideologies. And so people in search of monetary profit create more products, services, and jobs, and therefore a higher standard of living for all people.

6. Competition

         Competition is the cornerstone of capitalism. No one is forced to buy any company’s products or services in capitalism. A company must instead entice the people to buy their products or services, by showing them that such products or services are worth their hard-earned money. But not only that, any person or group of persons is free to set up shop next door, so to speak, and provide the same kinds of products or services. It is through competition between firms and the threat of losing people’s voluntary business that creates the conditions in which firms seek the most ingenious innovations to improve over their competitors. Competition is the formula for innovation, and the parent of the raised standard of living attributable to capitalism.

         It is essential that competition should exist for capitalism to thrive. Many people attribute oppressive monopolies to capitalism, but the most common forms of monopoly do not arise under capitalism, but as a result of government control – that is, government monopoly. This always results in high costs, lack-luster quality and availability, and a relative stagnation of progress and innovation.

         Another anti-competitive action of government is for the government to pick winners and losers among the existing firms in the economy. It is important to understand that capitalism is based on competition within a set of neutral rules – as those provided by the Rule of Law – that neither favor nor wrongfully hinder anyone. By bailing out certain businesses or industries that are thought to be important, poorly-run businesses are kept afloat by pillaging from other businesses and individuals that have been more prudent. This is a form of government tyranny. As political philosopher Frédéric Bastiat observed, “Competition is merely the absence of oppression” (Frédéric Bastiat, Economic Harmonies, par. 10.4).

7. The right to do what one will with the fruits of his labors

         Finally, the fundamental of capitalism that seems obvious and just, but which collectivists would seek to undo – the ability of someone who has worked for what they have, to do what they will with what they earned. It is essential for capitalism that individuals have this freedom and power – to control their own profits, to invest them or spend them or give them away as the individual himself sees fit. This is merely an extension of the unalienable right to property, since profits of an individual’s labor are as much their property as their car, house, or other personal possessions. The ability to do what one will with the fruits of their labors is a basic human right.

         It is the height of arrogance and presumption to assume that a faceless government planning body can better allocate an individual’s resources than the individual himself. Even if a government had the right to reallocate profits – which they do not, because it infringes on the individual’s right to property – the simple truth is, as Milton Friedman often said, that no one spends someone else’s money as carefully as they do their own. To suggest that the government will put it to better use, or spend it altruistically after stealing it, is not only contradictory, it is laughable.

         Not only that, but it is wrong to assume or imply that, left to their own devices, no one would perform acts of charity on any large scale. This common misconception shows an unjustified lack of confidence in the human spirit and Spirit of God that moves upon such people to do good works. Also, it is a misconception that is falsified by the demonstration of history. Milton Friedman said:

 

“The capitalist system – the private enterprise system – in the nineteenth century did a far better job of expressing that sense of compassion than the governmental welfare programs are today. The nineteenth century, the period which people denigrate as the high tide of capitalism, was a period of the greatest outpouring of eleemosynary and charitable activity the world has ever known. And one of the things that I hold against the welfare system most seriously is that it has destroyed private charitable arrangements which are far more effective, far more compassionate, and far more person-to-person in helping people who are really, through no fault of their own, in disadvantaged situations.”

(Milton Friedman in “Free to Choose Part IV: From Cradle to Grave,” 1980).

 

8. No Special Favors or Privileges from Government

Government should not pick winners and losers in the economy. It is not the proper role or responsibility of government to provide for people’s well-being, or to make sure that businesses are financially secure. These are the responsibilities of the respective citizens and businesses. Not only would this be arbitrary and preferential, it also violates the property rights of those who must bear the cost of this special treatment.

            In capitalism, if a business fails, it must be allowed to fail, and not propped up by government action. The profit and loss calculation is a signal, a sign that resources are being allocated either efficiently or inefficiently as the case may be. By not allowing inefficient businesses to go under, government hinders society on the whole. Journalist and economics expert Henry Hazlitt gave us this razor sharp analysis regarding the folly of government trying to prop up failing businesses or industries:

 

“But the result of this subsidy is not merely that there has been a transfer of wealth or income, or that other industries have shrunk in the aggregate as the X industry has expanded. The result is also … that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.”

(Henry Hazlitt, Economics in One Lesson, p. 86-87).

 

Conclusion

            Now we have reached the conclusion of the first installment of The Miracle of Capitalism, called Part I: What is Capitalism? We have now discussed clearly what capitalism is, we have carefully identified what it is not, and we have discussed the eight fundamental principles of capitalism, which we must understand and appreciate, if we are to ever understand this grand miracle called capitalism. After watching this presentation, there should no longer be any excuse for any person to regard capitalism as something that it is not, or to misrepresent it, or to perpetuate blatant falsehoods about it. We are now prepared to continue our study of the miracle of capitalism. Please join us for Part II of The Miracle of Capitalism, which will discuss the moral basis of the capitalist system.


 
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