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Capitalism is a free market economic system based on private ownership and entrepreneurship. The investment of capital, and production, distribution, income, and prices are determined not by government (as in socialism) but through the operation of a competitive market where decisions are voluntary and private rather than regulated and mandated by government (see law of supply and demand).


One self-regulating feature of capitalism is competition, which helps maintain fair market value for goods and services. However, unrestrained or pure capitalism may sometimes create a positive feedback loop in which a small number of individual accumulations of capital grow ever larger, eventually becoming so few as to limit effective competition, thus ceasing to strictly be free-market capitalism. In this regard, pure capitalism is unstable. Modern political systems have developed regulation mechanisms in an attempt to render capitalism more stable, including anti-trust regulation, trade tariffs, etc.

Since the fall of communism, and the advent of information technology, capitalism is becoming increasingly widespread.

Adam Smith described the operation of capital accumulation through the productive powers of labor as such,

Smith goes on to describe how the productive powers of labor employed by the owner of a capital allow laborers to reproduce with a profit the value of their maintenance, over and above their own consumption, which then allows for an additional set of hands to be employed. <ref>Adam Smith, Wealth of Nations, Book II, Chapter 3, Paragraph 22.</ref> Smith observes labor is the original purchase price for all the wealth of the world,

system in America before liberals, rinos, and/or members of the progressive movement, such as President Barack Obama, eroded America's economic freedom and prosperity. Recently, President Barack Obama created massive Federal government debt. ]]

Real wealth consists not in money, but in the things money will exchange for,

Since wealth does not consist in money, gold, or silver, and labor is the original purchase price, Smith explains how the capitalist system is then put into motion, complete with natural incentives, only Smith does not use the word “capital” here to describe what is needed. Smith explains how a “store of goods”, or “stock sufficient to maintain” the original capitalist entrepreneur is necessary;

The division of labor is the necessary condition that gives rise to the productive powers of labor that allows for large scale economic growth. By “division of labor”, Smith is referring to “specialization of labor”, where each worker acquires specific knowledge to apply to a specific task.

Capitalism and Society

Historically, capitalism has fostered freedom and an increase in the standard of living and human rights, and vice versa. Societies that have tried non-capitalist systems inevitably fall into tyranny.

For example, Venezuela, while not a perfect country before Hugo Chavez, had freedom and wealth unprecedented in its history. As Chavez has nationalized industries, he has also centralized power for himself, becoming a dictator.

Capitalist societies also generally have higher standards of living compared to their non-capitalist counterparts in terms of per capita GDP, education, healthcare, and poverty rates. China, for instance, has been growing extremely prosperous since it began opening its economy to capitalism in the 1980s.

However, capitalist societies also have seen progressively larger gaps between the upper and middle classes develop, such as the United States where the top twenty percent owned eighty-seven percent of the financial wealth and eighty percent of the total wealth, despite having the largest GDP in the world.


“Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.”

“Underlying most arguments against the free market is a lack of belief in freedom itself.” –Milton Friedman, Capitalism and Freedom, 1962.

“If an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”

Milton Friedman, Free to Choose

“Capitalism is essentially the economic system of poor people. That’s what allowed the people that came from humble origins of the world to have economic rights the way only nobility and the high bourgeoisie had it before. So capitalism is essentially a tool for poor people to prosper.”

–Hernando de Soto, PBS Interview, March 30-31, 2001

(cf: Values - Free Enterprise)

“The only real cure for poverty is production”. Henry Hazlitt, from Man vs. the Welfare State.

“The first condition for the establishment of perpetual peace is the general adoption of the principles of laissez-faire capitalism.”

–Ludwig von Mises, The Ultimate Foundation of Economic Science

“There are two methods, or means, and only two, whereby man's needs and desires can be satisfied. One is the production and exchange of wealth; this is the economic means. The other is the uncompensated appropriation of wealth produced by others; this is the political means.”

– Albert Jay Nock, Our enemy, the State

“Businessmen are the symbol of a free society — the symbol of America.”

– Ayn Rand

See also



! Economics Libertarianism

capitalism.txt · Last modified: 2020/03/12 18:32 (external edit)