Capitalism and a Free Market

Contrary to popular belief, "capitalism" and "free market" are not synonyms.

Capitalism is an economic system in which the capital portion of the capital-labor partnership is owned by individuals, not by the society collectively or by the government.

A free market is, literally, one free of government intervention.

I submit that, rather than being synonyms, or even inextricably intertwined, capitalism and a completely free market are mortal enemies. Anyone who believes in and supports the capitalist economic system of generating new wealth ought to be scared to death of a truely free market.

Capitalism is an amazingly efficient system for creating new wealth. Part of the reason it is so efficient is that it is driven by a powerful engine, fueled by a powerful motivation: greed.

Unfortunately, greed is an emotion that, if not evil in itself, leads to evil outcomes if left unchecked.

In the case of capitalism, it leads to an imbalance in the sharing of the wealth between the capital contributor and the labor contributor. More specifically, it has always lead to more and more of the wealth going to the capital contributor and less and less of it going to the labor contributor.

Whether one is a capital contributor or a labor contributor, one ought to fear this outcome, because it eventually leads to the breakdown of the capitalist system. In the mildest case, it simply results in the labor contributor being less willing to contribute as efficiently as he might do if he were receiving his fair share of the wealth he helped to create. In the most severe case, it leads to revolution, the goal of which is the destruction of the capital contributor, the effect of which is the destruction of the capitalist system.

Unfortunately, as foreseen by the founders of the American republic, humans, left to their own devices, cannot be trusted to self-regulate when the opportunity arises for them to use power for their own benefit. This is not only true of government, it is true of economics.

Therefore, some force must intervene - on behalf of the capitalist system - to keep the fuel that so powerfully and efficiently drives the capitalist engine properly regulated so that the engine does not accelerate out of control and blow all its gaskets.

The obvious force, the only one powerful enough to intervene, is government. The form of this intervention is to regulate the "market." The government cannot leave all economic decisions in the hands of individuals, because they will in almost every case choose to maximize their own benefit, even at the expense of the system that creates that benefit. Therefore, they must be forced, in some cases, to make decisions which benefit the system, at their personal expense, for the benefit of all who stand to gain from a properly balanced, properly functioning system.

The most obvious example of this type of regulation are the system of laws extant in the United States which endeavor to prevent the creation of a monopoly, either vertical or horizontal. Another example, unfortunately not so clear to our policy makers, is the need to prevent banks from engaging in activities that destroy the banks.

History has shown convincingly that the hypothetical "invisible hand" of the market does not, in fact, regulate the economic decisions of those in positions to make them sufficiently to prevent them from destroying the system itself.

Admittedly, the power to regulate the market must be used wisely, and with restraint, just as must any power. Reasonable minds can differ on how such power should be used or how much of such power should be exercised in order to properly regulate the capitalist system for maximum health and efficiency, but one cannot reasonably argue that no regulation of the market is needed to preserve capitalism.

Intervention in the market is an absolute necessity for the survival of the capitalist system. Those who argue in favor of a capitalist system and a completely free market do not have the best interests of any of us at heart, even themselves, or else do not understand the ramifications of the state for which they argue.