Capitalism: V. Orval Watts

Private ownership means that individuals control their own per sons, their own energies, and the products of their energies. It pre vails to the extent that individuals do not restrain or interfere with one another as they use, exchange Dr. Watts, author and lecturer, is Burrows T. Lundy Professor of the Philosophy of Business at Campbell College, North Carolina, and Di rector of Economic Education for Northwood Institute, with headquarters at Midland, Mich igan. This article is from a chapter of a new and revised edition of Free Markets or Famine selected readings by various authors showing how freedom for private enterprise allows busi ness to abolish famine and raise levels of living. This book, and a companion volume, Politics vs. Prosperity, showing the results of regulation and controls, are published by Pendell Publish ing Company, P.O. Box 1666, Midland, Mich igan 48640.

V. ORVAL WATTS (sell) or give away what they find unclaimed or abandoned, what they make, and what they get from other persons by gift or exchange (purchase) . ORIGINS Capitalism has its origins, there fore, in individual freedom and in all of the ideas, sentiments and modes of conduct that establish this freedom. Freedom implies that individ uals do not coerce, intimidate or cheat one another. This means that they do not use violence or fraud to injure one another or to deprive one another of posses sions obtained by peaceful means, and that they do not threaten to injure one another in their per sons or properties.

1975 CAPITALISM: DEFINITION-ORIGINS-DYNAMICS 629 'this freedom develops as in dividuals learn that, over a per iod of time, they gain more from cooperation motivated by hope of reward than they do from services performed under threat of vio lence. In other words, they gain more in the long run by produc tion and exchange of goods and services than they can get by steal ing, fraud, banditry or other forms of predation. In short, capitalism arises as individuals (a) learn the advan tages of division of labor and vol untary exchange, and (b) dis cover and live by the moral laws (rules of conduct) necessary for peaceful relations, one with another. This progress requires growing understanding of the nature of man and the meaning of justice, together with appreciation for honor, truth, and goodwill toward more and more of their fellow humans. The elements of moral law are set forth in what Judeo-Christians refer to as the "Ten Command ments" and the "Golden Rule."

The negative form of the Golden Rule expresses the first principle: "Do not do unto others what you would not have them do unto you." This restrains and casts out forced sharing, which is a form of en sllavement. A later corollary and supplement of earlier statements-"Whatso ever ye would that men should do unto you, do ye also unto them" - arose out of recognition that we benefit, not merely by avoiding injury to others and the ensuing conflicts, but by voluntary ex change of services and by develop ing habits of mutual aid and neighborliness. (Cf., the neigh borly barnraisings and other forms of mutual aid in pioneer days, and the parable of the Good Samaritan.) Insofar as individuals cease to steal from one another, cease to cheat (lie), cease to coerce or intimidate one another, and keep their agreements (including those establishing the monogamous family), they gain freedom. But this freedom develops only gradually with increasing under standing and self-restraint. No "man on a white horse," no dicta tor or government can give it to us. Individuals must learn to understand it, accept its responsi bilities, and teach it to oncoming generations.

DYNAMICS A. Production and Exchange In such absence of coercion, more and more persons attain prosperity, which Frederic Le Play defined as a "multitude of good acts." They let one another keep or exchange or give away 630 THE FREEMAN October what each produces or gets by voluntary exchange or gift. They then produce more, accumulate more, trade more, and give more to others. They give more to their cus tomers and fellow workers in ex change for what they get; and they give more to their offspring, their friends, their neighbors, and victims of misfortune. (Note that the early Plymouth and Jamestown colonists were more charitable toward their neighbors, as well as more industrious, after they abandoned forced sharing.) Free persons invent and adopt ways of mutual aid that are be yond the devising or imagination of sla ve masters and poEtical planners. Therefore, they prosper. B. Individuation - Competitive Cooperation - Large-Scale Organization (1) In freedom, humans show increasing variability in capaci ties and responses. Therefore, cap italistic (free) enterprises develop an increasingly great range of changing occupations, commodi ties, services, and opportunities for self-development and satisfac tion of individual wants.

(2) Because of the enormous ~ advantages of cooperation, more and more individual members of a capitalistic society show increasing regard for the interests, de sires, tastes and opinions of other persons, increasing sensitivity, sympathy, and fellow-feeling (em pathy), along with increasing in dividuation in ways of expressing these attitudes. Some individuals go to extremes in trying to please everybody and consequently truly please nobody. ("The surest road to failure - try to please everybody.")· Others use or abuse their free dom by displaying (or pretending to display) an exaggerated indif ference to prevailing (popular) customs, sentiments,. and manners, and a lack of concern for the opinions of other persons. In freedom, however, indi vi duals cooperate more' readily with such peaceable persons as have more or less similar standards in morals, manners, and tastes, but with complementary (rather than identical) interests and abili ties in work. The word "comple mentary," or "supplemental," de serves emphasis, because many or most forms of cooperation arise out of differences in abilities and interests rather than out of sim ilarities (e.g., farmers and manu facturers, merchants and bankers, truckers and mechanics).

(3) The many similarities of abilities and tastes, however, make a free society highly competitive 1975 CAPITALISM: DEFINITION-ORIGINS-DYNAMICS 631 as well as cooperative. Competing individuals and competing groups offer similar (though seldom iden tical) services to consumers, and similar (hut not identical) jobs to wage earners (e.g., coal miners and oil producers, savings banks and stock brokers, or manufac turers of different sizes and makes of cars). Among free and peaceful persons (Le., in a compJetely capitalistic, or free-market, voluntaristic soci ety), this <competition consists in tJ:',ying to offer more satisfactions innrder to induce cooperation rather than in threatening others with inj ury in order to compel submission and obedience. 1 (4) In freedom - in the absence of coercion - individuals keep and control without coercive inter ference what they acquire in peace ful ways. That is, they may keep, control, consume, give away or trade what they find in nature, what they make or invent, what they get by gift (as from parents), and what they get by voluntary exchange, including the temporary uses of things for which they pay rent or interest.

1 Socialists confuse inducement or per suasion with coercion. They fail to see that freedom to cooperate exists only in sofar as there is freedom not to cooper ate, along with freedom to communicate without harassment. The rights of private ownership are the rights to enjoy and use wealth and the services of free persons without physical interfer ence or threat of interference from other persons. These are rights of adverse possession, that is, the rights of exclusive use and dis posal (along with the responsibili ties of control and care). Therefore, capitalism (private ownership) is individuaUstic. That is, what one person owns, no one else may own. He has _exclusive control of it. But he als'o has ex clusive responsibility for it: to care for it, and to see to it that use of it does not interfere with the freedom (property rights) of other persons. 2 The indescribably complex agreements as to property rights (protected by law, morals, cus toms and manners) constitute freedom. That is, freedom means 2 Socialists commonly confuse this ex clusive control by property owners with the very different type of monopoly which may be obtained by restricting the free dom of would-be competitors in use of their own energies and properties. For example, the United States Post Office maintains its monopoly of distributing first-class mail by using the police pow ers of govern men t to suppress competi tion. Coercive interventions by govern ment or immoral and illegal private vio lence, or both, are necessary to maintain such monopolies. This is not freedom. It is not laissez-faire capitalism. It is cur tailment of free enterprise. It is a nega tion of the rights of private owners.

632 THE FREEMAN October agreements, implicit or explicit (Le., tacitly accepted or formally stated) among members of a so ciety, agreement that individuals shall have undisturbed control of their persons and the fruits of their energies, skills, thrift and enterprise in trade. c. Equity V5. Equality In freedom, there is equity (justice), not equality of rewards for effort. When individuals are free to choose with whom they trade and how much they offer in exchange, some individuals and groups acquire greater aggrega tions of wealth than do other in dividuals and groups. A particu larly productive group of pro ducers (e.g., a business firm), then, may become so industrious, inventive, cooperative and efficient that they supply most of certain commodities or services for a large proportion of a given com munity or nation. So concerns like Ford Motor Company grow to giant size; or a group of firms, like those making up the General Motors Corporation, cooperate in some respects (e.g., in obtaining capital) while competing in others (e.g., sales).

But, in appraising these giant concerns, we should keep in mind that: (1) They get and hold their economic power only to the extent that they serve a correspondingly large number of their fellow hu mans. No company becomes great in free markets by catering to a few rich capitalists. They grow to giant size only as they help raise levels of living for thousands or millions of other producers and their dependents - unless they are favored by anti-capitalistic policies of government engaged in war, currency inflation or suppressing would-be competitors (as, for ex ample, the United States Govern ment suppresses competitors of the Post Office). (2) Increasing abundance and diversity of goods make the de mand and supply of every product more and more elastic. Buyers find a growing diversi ty of goods com peting for their patronage. Wage earners find a growing number of employers with capital seeking to employ them. Capital owners are besieged by inventors and pro moters seeking backing for new ways of satisfying wants or ways of satisfying wants of which con sumers are as yet scarcely aware.

The most inelastic factor in a free society of responsible indivi duals is likely to be in the supply of wage earners (job seekers). Therefore, they benefit most from the competition of capital seeking investment, and. they get an in creasing share of the total pro duct. Wages and wage rates tend 1975 CAPITALISM: DEFINITION-ORlGINS-DYNAMICS 633 to rise, therefore, while rates· of interest fal1.3 D. Progress : Rising Levels of Understanding, Morality, Prosperity, Vision Individuals in freedom prosper as they win the freely given co operation of their fellows. Therefore, their self-interest and family interests provide strong incentives to develop habits and concern for the qualities that other persons want in their co-workers and suppliers. These are such qualities as industriousness, cour tesy, and sensitivity to the inter ests of other humans. As a result, free persons tend to buy goods (commodities and ser vices) which contribute to their efficiency as producers and enable them to discharge their countless responsibilities.

For this reason, the output of "industry" in freedom tends to 3 The rise in interest rates during the past 60 years has been due to the anti capitalistic policies of governments wars, inflation of currencies, waste of resources, and fOl'ced redistribution of wealth and income. The rise in certain land values has been aggravated by socialistic policies, which tend to concentrate populations in favored cities, thus retarding the de velopment of less densely populated areas, whose small populations lack po litical power. Most of the world's land area is still sparsely populated and is cul tivated only by extensive methods. become more wholesome; the health and vigor of the population improve ; life expectancies tend to lengthen; and tastes in art, drama, music and literature rise. Accustomed to these rewards of progress, members of a free so ciety tend more and more to ex pect and strive for improvement in the lives of their neighbors as well as in their immediate circle of family and friends.

At this point, a dangerous ideol ogy may. become fashionable. It has been well named, "the Utopian Heresy." Impatience with the real or .fancied shortcomings of other persons may prompt efforts to hasten improvement by use of a little legal coercion -on a few at first, and on more and more of their supposedly backward fellows as time passes. In this way, free and prosper ous individuals may combine to infringe the freedom of their neighbors while intending only to do them good. And, as they set precedents by such coercive "re forms," others use the same argu ments for more and more infringe ments for similar "good" ends. Thus, freedom declines. This loss of freedom deprives individuals of opportunities and responsibi:lities. Therefore, it gives rise to worse conditions, which the . confirmed ideologists attribute to what freedom remains. Long ago, 634 THE FREEMAN October a now-forgotten philosopher ob served that "Mankind is a race which binds itself in chains - and calls each fresh lir1k progress."

A wealthy society - prosperous be.cause of a longer period of free dom - can afford more waste (idleness, paternalism, wars, para sitism and socialism) than a society that is poor because its people have had little freedom. But for any community or na tion, a continuing decline of free dom must at last bring on a collapse in bankruptcy, chaos, rev olution and/or subjection to politi cal tyranny. Prosperity has its perils, not least of which is the peril of for getting how it was achieved. I IDEAS ON LJBERTY The Fruits of Capitalism IN THE FEUDAL SOCIETY the economic situation of every individual was determined by the share allotted to him by the powers that be. The poor man was poor because little land or no land at all had been given to him. He could with good reason think - to say it openly would have been too dangerous - : I am poor because other people have more than a fair share. But in the frame of a capitalistic society the accumulation of additional capital by those who succeeded in utilizing their funds for the best possible pro vision of the consumers enriches not only the owners but all of the people, on the one hand by raising the marginal productivity of labor and thereby wages, and on the other hand by increasing the quantity of goods produced and brought to the market. The peoples of the economically backward countries are poorer than the Americans because their countries lack a sufficient number of successful capitalists and entrepreneurs.

A tendency toward an improvement of the standard of living of the masses can prevail only when and where the accumulation of new capital outruns the increase in population figures. The formation of capital is a process performed with the co operation of the consumers: only those entrepreneurs can earn surpluses whose activities satisfy best the public. And the utiliza tion of the once accumulated capital is directed by the anticipa tion of the most urgent of the not yet fully satified wishes of the consumers. Thus capital comes into existence and is employed according to the wishes of the consumers. LUDWIG VON MISES, The Elite under Capitalism A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN My SEVENTEEN -YEAR-OLD SON had a semester of. economics as part of the history requirement for the eleventh grade. The text - you've guessed it - was Samuelson. As far as I could determine, the course was well-taught. The ques tions of "what," "for whom," "how much," etcetera, may have blurred the prime matter of economic mo tivation, but they did not quarrel with the ideas that the end of production is consumption or that the study of economics circles around the utilization of scarce means. The instructor betrayed no bias; it was not treated as a sin when a boy, referring on a term paper to the condition of England, made a derogatory remark about the ineptitude of labor govern ment "planning."