Freedom Discussions

Is it Really Capitalism?

by Amelia Vreeland, C4L

Most people will agree on what the general goal of social organization is: the greatest good for the greatest number — either through a collectivization of this idea or an individualized one. Unfortunately, people’s misunderstanding of property and economic systems make them overlook the evidence, both a posteriori and a priori, and though we agree on the what, there is much debate over the how to get this done. There are many different answers but right now, the two dominating world powers — China and America — are in competition to prove which kind of capitalism works best: authoritarian or liberal capitalism?

I. The Roots of Property and Capitalism

Deciding between two types of “capitalism” means first that we must understand what the foundation for this type of economic and social system is. It means that the production and distribution of economic goods are privately owned and the consumption of goods and rate of savings are determined by the individual decisions of economic actors, allowing a price system to emerge, which steers entrepreneurs and capitalists into the sectors of the economy which will most satisfy consumer wants and consequently give them the highest margins of profit. As differing from all other economic systems, the capitalist system puts its focus on the choices of individuals and the harmonious relationship that is obtained between them on a voluntary basis. Other theories use a collectivist methodology to understand the world, either the whole of humanity or of certain classes, whether we mean the socialist doctrine of the bourgeois and proletariat or the mercantilist practice of focusing on the merchant class as a means to attain national greatness.

With this differentiation in mind, we can grasp that even outside of the utilitarian understanding of capitalism, it is a moral system that respects the sovereignty of each person within the realm of their own life, so far as those actors agree not to infringe on the sovereignty of others. Self-ownership is the foundation of a system of true capitalism on both a moral and practical basis. If a person does not own one’s self, cannot even claim as property their internal resources, how can they or anybody else suppose that they can own external resources? What does it mean to be able to do whatever you please with those things that one owns, but not exercise ultimate dominion over oneself?

II. State Capitalism and Economic Calculation

Whatever we call it, there is no doubt that since the 1978 market reforms, China has become one of the greatest engines of economic growth in the modern period, selling consumer goods at cheap prices the world round and it isn’t showing signs of slowing down. This raised standard of living is attributed to John Smith’s invisible hand that creates the proper incentive structure, so that economic actors according to their own self-interest accidentally do what is the best for the common good. Another way of saying this is that the freedom to pursue ones’ own ends by whatever non-violent means raises the quality of life for all of those participating in the same market structure and beyond. Being that no man or group of men is omniscient or omnipotent, it is better to allow each person to work within his own abilities and his own body of knowledge in the only world that he has ultimate domain over: his own. As opposed to centralized control where a group of men who make decisions at the expense of other who have highly diverse tastes and value systems, the decentralized authority of every individual in their own lives must bare the losses of his decisions and he also may reap the profits. That is, in a system that truly respects private property as an end and not means, each actor must calculate between the costs and benefits of each choice he makes while trying to attain his goal, whether material or non-material.

Working outside of the economic means where each person must make decisions based upon the price system and their own values, there are those who use the political means to achieve their ends. Once we have a public sector, no matter how large or small, we will begin to see what von Mises meant by the socialist calculation problem and what mainstream economists will call market failure. There are two separate problems with governmental decision making in whatever form. First, we have the aforementioned problem: those operating within the realm of government decision-making work without a true price system because they cannot know how much value they have extracted from the economy to fund the project through taxes or how much benefit they are creating for the consumer. Because the government lacks competition when it undergoes a project, and even further, those “purchasing” the good cannot even look for substitute goods or choose not to buy, it is not working on a profit and loss system, which is the mainstay of capitalism. Secondly, when people go into the public sector, we are not only being subjected to those political decisions, but those employed by the state have diverted their immensely important human capital into an industry that is not only unprofitable but is a drain on the economy.

III. Capital Accumulation and Leisure Time

In order to analyze whether authoritarian capitalism is a viable alternative to liberal capitalist states, we should look at historical evidence that shows where the current Western form of social and economic organization has arisen. Before the Western world become more lassiez-faire (which has diminished greatly since its founding but it should be noted was never completely “hands off”), we did live in a mercantilist system.

As people circumvented governmental forces in order to allow the workings of the market, we had a more productive economy. This means people could work less hours, and much less back breaking hours due to capital accumulation, savings, investment and advancement, they had more leisure time or else choose to work more if that is what mattered most to them. The larger and more complex the economy gets, the more people can diversify what sort of jobs are available, to the point in America now where less than 2% of the population is in the farming industry because of the productivity per person and “open” trade with other nations’ farmers. As more leisure time comes about, people have more time and resources to (a) go into a sector of the economy that focuses solely on thoughts such as education, philosophy, language and literature, “sociology” and (b) those who do not pursue such ambitions as a career still have the energy to think about the problems with the social structure.

If our understanding is that capitalism is a system that upholds the rights of individuals, then it is impossible to categorize China, Singapore or Dubai as capitalist countries. If under the current regimes in those countries it is not understood in either principle or practice that each person owns himself, then they have socialized the single most important factor in the production process: human capital, without which there would be no economic exchange to speak of. Focusing on China, the aim of the government in allowing the market to work is national greatness and not the individual, that in so aiming they have used monetary and fiscal policy to manipulate the value of the yuan and quotas and tariffs that allow for more exports than imports. Neo-mercantilism would be a more apt description of the economic policies pursued by the nations’ government.

If our understanding is that capitalism is not just an economic system, but a moral system, then we cannot say that Western liberal capitalism exists, either. Schumpeter saw the future of capitalism as self-negating because of the destruction of the protective political strata, the institutional order, and the eventual obsolescence of entrepreneurship. The latter I believe is inaccurate — for men’s wants are never satisfied and ambition and innovative possibility does not die with technology. But so long as each person does not legally own the exclusive right to use and dispose of their bodies as would happen in a voluntary society, we can say that authoritarianism is the only governmental and economic system that exists and that the free market will go through a recurring cycles of decay so long as we uphold an institutional order that will not uphold our right to self-ownership.

Copyright © 2010 Campaign for Liberty