What is capitalism?

“Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” — AYN RAND

Writes philosopher Ayn Rand in her essay “What is capitalism?”:

“It is . . . by reference to philosophy that the character of a social system has to be defined and evaluated. Corresponding to the four branches of philosophy, the four keystones of capitalism are: metaphysically, the requirements of man’s nature and survival—epistemologically, reason—ethically, individual rights, politically, freedom.” [1]

Ayn Rand’s comment highlights several important characteristics of capitalism on several hierarchical levels.

1. Ethically, capitalism is the moral social system as it leaves the individual free to pursue their rational self-interest.

Ethically, capitalism is the moral ideal, as it is the only social system that leaves the individual free to be moral — to act by reason in the pursuit of one’s rational self-interest. Such freedom is necessary, writes Ayn Rand,

“Since knowledge, thinking, and rational action are properties of the individual, since the choice to exercise his rational faculty or not depends on the individual, man’s survival requires that those who think be free of the interference of those who don’t. Since men are neither omniscient nor infallible, they must be free to agree or disagree, to cooperate or to pursue their own independent course, each according to his own rational judgment. Freedom is the fundamental requirement of man’s mind.” [2]

2. Politically, capitalism is the social system based on the principle of individual rights.

Politically, capitalism is the system of freedom (laissez-faire) that regards the individual as a sovereign being with an inalienable right to their own life (individualism). Capitalism is a social system based on the principle of individual rights, i.e., freedom (from the initiation of physical force). It is to banish the initiation of physical force (and its corollary fraud) from all relationships that governments are instituted.

“Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.

The recognition of individual rights entails the banishment of physical force from human relationships: basically, rights can be violated only by means of force. In a capitalist society, no man or group may initiate the use of physical force against others. The only function of the government, in such a society, is the task of protecting man’s rights, i.e., the task of protecting him from physical force; the government acts as the agent of man’s right of self-defense, and may use force only in retaliation and only against those who initiate its use; thus the government is the means of placing the retaliatory use of force under objective control.” [3]

3. Legally, capitalism is the objective legal system as it is based on a rule of law under a constitutional republic with a government limited to the protection of individual rights.

Objective control highlights the essential characteristic of capitalism’s legal system. Legally, capitalism is a legal system of clear, unambiguous, objectively defined laws based on the principle of individual rights, i.e., the rule of law (legislation) as opposed to the “rule of man” (regulation). Under such a legal system one is free to act so long as one does not violate the rights of others, i.e., voluntarily. The government is not a regulator (dictator) but a referee (impartial judge and policeman), i.e., the state is not a master but a paid public servant. By banning the initiation of physical force (and fraud) from all relationships, capitalism leaves individuals free to regulate their own affairs and freely associate and exchange values with other individuals on a voluntary, peaceful, mutually beneficial basis. It is a contractual (as opposed to a coercive) society. Again quoting Ayn Rand:

“In a capitalist society, all human relationships are voluntary. Men are free to cooperate or not, to deal with one another or not, as their own individual judgments, convictions, and interests dictate. They can deal with one another only in terms of and by means of reason, i.e., by means of discussion, persuasion, and contractual agreement, by voluntary choice to mutual benefit. The right to agree with others is not a problem in any society; it is the right to disagree that is crucial. It is the institution of private property that protects and implements the right to disagree—and thus keeps the road open to man’s most valuable attribute (valuable personally, socially, and objectively): the creative mind.” [4]

4. Economically, capitalism is an economic system based on the principle of individual rights, characterized by a free market in goods, services, and ideas.

Economically, when freedom under the rule of law, under a system that protects the right to private property and the freedom to contract, is applied to the sphere of production and trade, it results in a free market. Under capitalism, there is a separation of economics and state, just like there is a separation of religion and state. What is important to observe is that a free-market is entirely dependent on this specific ethical, political, and legal foundation; without this philosophical foundation, it is only “free” in name. Quoting Ayn Rand:

“In a free economy, where no man or group of men can use physical coercion against anyone, economic power can be achieved only by voluntary means: by the voluntary choice and agreement of all those who participate in the process of production and trade. In a free market, all prices, wages, and profits are determined—not by the arbitrary whim of the rich or of the poor, not by anyone’s “greed” or by anyone’s need—but by the law of supply and demand. The mechanism of a free market reflects and sums up all the economic choices and decisions made by all the participants. Men trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment. A man can grow rich only if he is able to offer better values—better products or services, at a lower price—than others are able to offer.

“Wealth, in a free market, is achieved by a free, general, “democratic” vote—by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself “the voice of the public” and to leave the public voiceless and disfranchised. [5]

5. Culturally, capitalism leads to human flourishing, peace, and progress.

Culturally, when such freedom is applied to personal relationships, the arts, technology, and the sciences, it leads to human flourishing, peace, and progress.

Again quoting Ayn Rand,

“Capitalism has created the highest standard of living ever known on earth. The evidence is incontrovertible. The contrast between West and East Berlin is the latest demonstration, like a laboratory experiment for all to see. Yet those who are loudest in proclaiming their desire to eliminate poverty are loudest in denouncing capitalism. Man’s well-being is not their goal.” [6]


Capitalism is the moral (rational-self-interest), political (individualism), legal (rule of law), economic (free-market) social system based on the principle of individual rights that results in peace, progress, and human flourishing.

In summary: capitalism is the moral (rational-self-interest), political (individualism), legal (rule of law), economic (free-market) social system based on the principle of individual rights that results in peace, progress, and human flourishing. Historically, economically, legally, politically, and morally — in theory and in practice — capitalism is the unknown ideal.


[1] Ayn Rand “What Is Capitalism?” Capitalism: The Unknown Ideal 19.
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] Ayn Rand “America’s Persecuted Minority: Big Business” Capitalism: The Unknown Ideal 47.
[6] Ayn Rand “Theory and Practice” Capitalism: The Unknown Ideal 136.

What is a capitalist?

Politically, a capitalist is an advocate of laissez-faire capitalism, regardless of how rich or poor they are.

The words capitalism and capitalist are used in two different but related senses: one in a compartmentalized sense within the specialized science of economics (that studies the nature of production in a division of labor society), the second in a wider sense in the encompassing science of politics (the branch of philosophy that examines the fundamental nature of social systems).

Within the specialized domain of economics, a person who invests capital in a business concern is recognized as a capitalist, regardless of whether he advocates capitalism politically or not, e.g., Frederique Engels, Warren Buffet, and George Soros are economically capitalists.

More broadly, that is philosophically and politically, only an advocate of laissez-faire capitalism is as a capitalist, e.g., philosopher-novelist Ayn Rand is politically a  capitalist, factory-owner Frederique Engels (and co-author with Karl Marx of The Communist Manifesto) who advocated communism is politically anti-capitalist.

Though economically Engels came from a wealthy background, politically he is recognized as a socialist/communist because of his ideas.

Similarly, billionaires Warren Buffet, Ted Turner and George Soros — can be economically compartmentalized as capitalists — but philosophically they are not capitalists as they do not advocate capitalism on principle, but are advocates of “mixed economy” statism (capitalism combined with anti-capitalist elements) to various degrees. Soros being more anti-capitalist than Buffet.

Soros, like billionaire Ted Turner, is a “socialist at heart.”

What is the philosophy of capitalism?

Capitalism does not exist in a vacuum but is an expression of a specific intellectual foundation — a particular “integrated, systematic view of existence” — a philosophy. That philosophy is Objectivism: the philosophy of Ayn Rand.

An economic system (in our case, the free-market) does not exist in a vacuum but is the expression of a specific ethical-political-legal foundation.

Economics is not a primary. It is ones legal-political system that sets the ground rules for any economic system. Yet, neither is politics a primary. Politics is the application of ethics to social issues.

What is ethics? Ethics is the science — or branch of philosophy — that defines a code of values that one should live by. It answers the question: “what should I do?” Yet, neither is ethics a primary.

One’s ethics depends on the branch of philosophy known as epistemology. Epistemology (epistēmē is the Greek word for knowledge) is the branch of philosophy that studies the nature and means of human knowledge, of grasping reality; it answers the question: “how do I know it?”

Finally, epistemology depends on the branch of philosophy known as metaphysics. Metaphysics refers to the branch of philosophy that studies the nature of reality (that which is); it answers the question: “what kind of world do I live in?”

In summary, one’s view of what is the proper social system for human beings depends on how one views human nature, and how one grasps the world one lives in. It depends on one’s philosophy — an integrated, systematic view of existence.

Philosophy is important. It is not a mere plaything of ivory-tower professors or a “…bauble of the intellect, ” writes Professor Leonard Peikoff, “but a power from which no man can abstain. Anyone can say that he dispenses with a view of reality, knowledge, the good, but no one can implement this credo. The reason is that man, by his nature as a conceptual being, cannot function at all without some form of philosophy to serve as his guide.” [1] Philosophy is a matter of life and death.

If one’s philosophy is that one lives in a world of miracles (religion), where truth is by revelation (faith), and morality means sacrificing oneself for others (altruism), one’s politics will be very different from someone who believes in a world of cause and effect (science), that one can understand rationally (reason), to pursue and achieve personal happiness (self-interest).

To concretize this point further, observe that if one’s philosophy is that of a religious fundamentalist then abortion is murder, and a fetus has the right to live in a woman’s body irrespective of the woman’s thoughts on the subject. Life comes from God, and what God giveth let no man (or women) take away. If one is an advocate of unlimited majority rule (democracy), then the individual has no rights but lives by permission of the state (the majority in power at the moment), and the government can revoke (alienate) this permission at whim. The right to abortion becomes a matter of majority vote, i.e., might makes right. If one is an Objectivist, abortion is an inalienable right, since the woman is an actual being — whose body belongs to her — and the fetus is a potential being — a part of the woman’s body — to be disposed of according to the women’s interests.

Politics is an inseparable branch of the tree of philosophy. Separate a fruitful branch from the living tree of good philosophy, and graft it onto the dying tree of bad philosophy and that once fruitful branch will wither, crumble and die. It is on the withered cross of anti-reason, altruistic-collectivist philosophy that capitalism is being crucified.

In philosopher Ayn Rand’s view, the reason why capitalism is attacked and misrepresented (even by its alleged defenders) is because of the anti-enlightenment philosophies that dominate our culture:

“It is often asked: Why was capitalism destroyed in spite of its incomparably beneficent record? The answer lies in the fact that the lifeline feeding any social system is a culture’s dominant philosophy and that capitalism never had a philosophical base. It was the last and (theoretically) incomplete product of an Aristotelian influence. As a resurgent tide of mysticism engulfed philosophy in the nineteenth century, capitalism was left in an intellectual vacuum, its lifeline cut. Neither its moral nature nor even its political principles had ever been fully understood or defined. Its alleged defenders regarded it as compatible with government controls (i.e., government interference into the economy), ignoring the meaning and implications of the concept of laissez-faire. Thus, what existed in practice, in the nineteenth century, was not pure capitalism, but variously mixed economies. Since controls necessitate and breed further controls, it was the statist element of the mixtures that wrecked them; it was the free, capitalist element that took the blame.

“Capitalism could not survive in a culture dominated by mysticism and altruism, by the soul-body dichotomy and the tribal premise. No social system (and no human institution or activity of any kind) can survive without a moral base. On the basis of the altruist morality, capitalism had to be—and was—damned from the start.” [2]

It is the altruist-collectivist moral base that capitalism must be “saved” from.

Laissez-faire capitalism is a political-economic system that requires a specific philosophical framework. If capitalism is built upon an improper philosophical base, will be like a towering skyscraper built on quicksand.

What is the proper philosophical base? In the words of the American philosopher Ayn Rand:

“It is . . . by reference to philosophy that the character of a social system has to be defined and evaluated. Corresponding to the four branches of philosophy, the four keystones of capitalism are: metaphysically, the requirements of man’s nature and survival—epistemologically, reason—ethically, individual rights, politically, freedom.” [3]

This site holds that the philosophy that provides a proper foundation for capitalism is Ayn Rand’s revolutionary philosophy: Objectivism.

Objectivism holds that one should live by one’s mind and efforts, in the pursuit of one’s rational self-interest, neither sacrificing oneself to others, nor sacrificing others to oneself (ethics); that one can understand reality by reason and logic (epistemology), as one lives in a world of cause and effect where there are no contradictions (metaphysics). A complete, systematic presentation of Objectivism is beyond the scope of this site. For a complete presentation of Rand’s philosophy, I heartily recommend Objectivism: The Philosophy of Ayn Rand by Professor Leonard Peikoff. This book is required reading for all advocates of capitalism.



[1] Leonard Peikoff, Objectivism: The Philosophy of Ayn Rand
[2] Ayn Rand, “What Is Capitalism?” Capitalism: The Unknown Ideal, 30
[3] Ibid.