Recently I had a conversation with a friend who was upset that a corporation was able to get the government to use its power of eminent domain to take the land from several people for a private-for-profit project. This was clearly not a public project such as a road or a sewer (and I’m being intentionally vague because that specific project is not the point of this article). My friend concluded by saying, “and that’s why capitalism is evil.”
I then asked, “Why do you think that’s capitalism?”
My friend replied, “Because it’s a corporation out to make profits.”
I then said, “That project ceased to be capitalism when force was used to take those individual’s property if they did not want to sell.”
I have found over the years that many people are confused about what capitalism is, as well as what comprises the other types of economic systems.
One of the problems I’ve found is that several modifiers are frequently added to the term capitalism which causes a great deal of misunderstanding (and I suspect not without intention). Here are some examples: Corporate Capitalism, Crony Capitalism, Free-Market Capitalism, Laissez-Faire Capitalism, Private Capitalism, Responsible Capitalism, State Capitalism, Turbo Capitalism, and Welfare Capitalism (this is not an exhaustive list).
During his run for President, I heard Bernie Sanders use one I’d never heard before: Casino Capitalism (a term coined by John Maynard Keynes in reference to the fortunes made and lost in the stock market of the 1920s). I have even heard people describing Democratic Socialism as a type of capitalism. A type of socialism as a type of capitalism? No wonder so many people are mixed-up!
Adding to the discombobulation is that most countries today have a mixed economy which is part capitalism and part command economy (a command economy is one in which business activities and the allocation of resources are determined by government order rather than market forces – TheFreeDictionary.com), i.e., communism, socialism, fascism, monarchy, or other dictatorship.
My motivation in writing this article is to do one thing: simplify the concept of capitalism so that anyone can understand it.
I will start by going to TheFreeDictionary.com for an “official” definition:
Capitalism (kap’i-tl-iz’?m) n. An economic system in which the means of production and distribution are privately or corporately owned and development occurs through the accumulation and reinvestment of profits gained in a free market.
This definition properly includes the term free market, which means: an economic market regulated by the forces of supply and demand (TheFreeDictionary.com).
It is the inclusion of the term free market which differentiates how profits are made under capitalism as opposed to any other system. It is the voluntary exchange of goods and services without any government regulation. It is a consensual exchange of goods and services where each party feels they have come out better because of it. If there is force or fraud it ceases to be a free market; a coerced market it is not capitalism.
All other systems of economics support forced exchanges to one degree or another.
The other day, I saw a meme which nicely summarized the difference between voluntary and forced exchanges:
When is sex NOT rape? When it is consensual.
When is a job NOT slavery? When it is consensual.
When is a transaction NOT robbery? When it is consensual.
If an exchange (sale, purchase, trade, swap, share, contribution, donation, gift, etc.) is not consensual or voluntary — then it is forced. If you are not willingly parting with your time, effort, property, or wealth – whatever the circumstances may be — then it is not voluntary, and hence not capitalism.
Capitalism is consensual; and it is voluntary. If there is ANY force involved, then it is NOT capitalism.
So, the next time you hear someone use the term capitalism ask yourself whether or not the exchange and/or the economic system they are describing or referring to includes or involves force.
Since this is generally a column on motivation, I’ll conclude with this question: How would you prefer to be motivated: by force — or by the freedom of choice?