Capitalism (from the Latin word capta, meaning “head”) is a social system based on individual rights that unleashes the power of the human mind.
The term capitalism is used here in the broader political sense, i.e., a free society, and not in the narrower economic sense, i.e., a free-market.
Capitalism is not just an economic system that can be grafted onto any political structure, but is a complex, integrated social system that depends on a specific ethical, political, legal, economic, and cultural foundation:
1. Morality: Rational Self-Interest
Capitalism is based on the moral philosophy of rational self-interest (rational egoism): a code of morality based on what a rational being requires to achieve happiness living on earth. Such a moral code is part of an integrated philosophy that in Ayn Rand’s words holds up “the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute”.
2. Politics: Individual Rights
To rationally pursue one’s own happiness (self-interest) in reality requires only one thing from others: freedom from coercion. Capitalism regards the individual as a sovereign being with an inalienable moral right to take the actions necessary to support one’s life, so long as one respects the equal freedom of others to do the same.
3. Legal System: Objective Law
Capitalism operates according to a rule of objective law in both form (a republican government operating with a separation of powers and a written constitution to limit those powers) and function (government’s function is the protection of individual rights by banning the initiation of physical force and fraud).
4. Economics: Free-Market in Goods, Services, and Relationships
Freedom protected by objective law, applied to the sphere of production and trade, results in a free-market in material — and spiritual — values. In such a division of labor society, one pursues one’s own self-interest by specializing in the production of goods and services for mutually beneficial trade with others.
5. Culture: Peace, Prosperity & Progress
Culturally, this freedom in the economic and personal sphere leads to innovation in the arts, technology, and sciences, leading to peace (by banishing force from all relationships), progress (by unleashing the power of the rational mind, the source of all progress), and prosperity (by the ability to create more wealth with less time, work, and resources).