What is capitalism?

The best definition of capitalism is given by philosopher Ayn Rand:

“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.”

Rand’s description highlights the key aspects of capitalism on several different levels.

Ethically, the moral base of capitalism is the principle that the individual has an inalienable right to their life, i.e., as a sovereign being.

Politically, 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.

Objective control highlights the essential characteristic of capitalism’s legal system. Legally, capitalism is a legal system of objectively defined laws based on 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., the government is not a regulator (dictator) but a referee.

Economically, when such freedom under a “rule of law” is applied to the sphere of production and trade, its result is the free-market. Under capitalism, there is a separation of economics and state, just like there is a separation of religion and state. A free-market is entirely dependent on a specific ethical, political, and legal foundation; without that foundation, it is only free in name.

The goal of this site is to elaborate on the nature of this foundation and then to answer the errors behind the popular arguments against capitalism. When one does examine them one will find that the source of the error is the influence of one’s philosophy.

What is a capitalist?

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, Frederique Engels 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 does philosophy have to do with capitalism?

“Philosophy is not a bauble of the intellect, 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.” – Leonard Peikoff (Objectivism: The Philosophy of Ayn Rand)

An economic system 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: how one should live and what should one 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 to live together in, depends on how one views human nature, and how one grasps the world one lives in — that is it depends on one’s philosophy — an integrated, systematic view of existence.

If one’s philosophy is that one lives in a world of miracles, where truth is by revelation, and morality means sacrificing oneself, one’s politics will be very different from someone who believes in a world of cause and effect, that one can understand rationally, to achieve personal happiness.

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 state’s rights (democracy), then the individual has no rights but lives by permission of the state (the majority of 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 modern 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 today’s culture.

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It is these ideas 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.”

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).