A Prècis on Libertarianism and Capitalism
by Tibor R. Machan
Libertarianism is the political system wherein the highest political good is the protection of the individual citizen's right to life, liberty and property. Capitalism is the economic system of libertarianism since in libertarian societies the institution of the right to private property, that is, to own anything of value (not, of course, other human beings, who are themselves owners), is fully respected and protected.
Libertarian law rests on the idea that the individual is the most important member of society, with all groups to be formed by the consent of individual members, including the military, corporations, universities, clubs, and the government itself. What is primarily prohibited in a libertarian society is involuntary servitude. What is primarily promoted via the political administration is the liberty of all persons to advance their own objectives provided they do not in this process violate anyone's equal rights.
There is dispute about the label "capitalism" as the proper way to call the economic order under libertarianism, mostly because its definition is often a precondition of having either a favorable or unfavorable view of the system. Some have insisted on the use of "laissez-faire," in memory of the French entrepreneurs who responded to the king's question as to what the government can do to help the economy by exclaiming: "Laissez-faire, laissez passé," or "allow us to do, allow us to act." Some use F. A. Hayek's term "the spontaneous order" to stress such a system's support of uncoerced behavior. There is also the more popular term "free enterprise." Yet capitalism is most widely used, by both critics and supporters of an economic order in which individuals have the right to own property and to use of it on their own terms.
By itself capitalism is an economic arrangement of an organized human community or polity. Often, however, entire societies are called capitalist, mainly to stress their thriving commerce and industry. More rigorously understood, however, capitalism presupposes a libertarian legal order governed by the rule of law in which the principle of private property rights plays a central role. Such a system of laws was historically grounded on various classical liberal ideals in political thinking. These ideals can be defended by means of positivism, utilitarianism, natural rights theory and/or individualism, as well as notions about the merits of laissez-faire (no government interference in commerce), the "invisible hand" (as a principle of spontaneous social organization), prudence and industriousness (as significant virtues), the price system as distinct from central planning (for registering supply and demand), etc.
Put a bit differently, "capitalism" or "libertarianism" is the term used to mean that feature of a human community whereby citizens are understood to have the basic right to make their own (more or less wise or prudent) decisions concerning what they will do with their labor and property, whether they will engage in trade with one another involving nearly anything they may value. Thus capitalism includes freedom of trade and contract, the free movement of labor, protection of property rights against both criminal and official intrusiveness.
The concept "freedom" plays a central role in the understanding of both libertarianism and capitalism. There are two prominent ways of understanding the nature of freedom as it pertains to human relationships. The one that fits with capitalism is negative freedom: the condition of everyone in society not being ruled by others with respect to the use and disposal of themselves and what belongs to them. Citizens are free, in this sense, when no other adult person has authority over them that they have not granted of their own volition. In short, in capitalism one enjoys negative freedom, which amounts to being free from others' intrusiveness. The other meaning of freedom is that citizens have their goals and purposes supported by others or the government so as to prosper. Under this conception of freedom one is free to progress, advance, develop, or flourish only when one is enabled to do so by the efforts of capable others.
In international political discussions the concept "capitalist" is used very loosely, so that such very diverse types of societies as Italy, New Zealand, the United States of America, Sweden and France are all considered capitalist. Clearly, no country today is completely capitalist. None enjoys a condition of economic laissez-faire in which governments stay out of people's commercial transactions except when conflicting claims over various valued items are advanced and the dispute needs to be resolved in line with due process of law. But many Western type societies protect a good deal of free trade, even if they also regulate most of it as well. Still, just as those countries are called "democratic" if there is substantial suffrage – even though many citizens may be prevented from voting – so if there exists substantial free trade and private ownership of the major means of production (labor, capital, intellectual creations, etc.), the country is usually designated as capitalist.
The most common reason among political economists for supporting capitalism is this system's support of wealth creation. This is not to say that such theorists do not also credit capitalism with other worthwhile traits, such as encouragement of progress, political liberty, innovation, etc.
Those who defend the system for its utilitarian virtues – its propensity to encourage the production of wealth – are distinct from others who champion the system – or the broader framework within which it exists – because they consider it morally just.
The first group of supporters argues that a free-market or capitalist economic system is of great public benefit, even though this depends on private or even social vice, such as greed, ambition, exploitation. As Bernard Mandeville, the author of The Fable of the Bees, put it, this system produces "private vice, public benefit." Many moral theorists see nothing virtuous in efforts to improve one's own life. They believe, however, that enhancing the overall wealth of a human community is a worthwhile goal.
Those who stress the moral or normative merits of capitalism, mostly libertarians, say the system rewards prudence, hard work, ingenuity, industry, entrepreneurship, and personal or individual responsibility in all spheres of human life, and this is all to the good. This alone makes the system morally preferable to alternatives. Yet another other reason given why libertarianism or capitalism is not only useful but morally preferable is that it makes possible the exercise of genuine moral choice and agency, something that would be obliterated in non-capitalist, collectivist systems or economic organization.
Capitalist theorists note that most critics of capitalism demean wealth. Indeed, they virtually attack the pursuit of human individual well being itself and, especially, luxury, anytime there are needy people left anywhere on Earth, as well as, more recently, if any portion of nature is overrun by human beings (as if they were not natural creatures). But, the champions of capitalism argue, this stems from utopian thinking and has the consequence of begrudging anyone a measure of welfare, since some people will always be poor some of the time and nature will continue to be transformed by people.
Yet the capitalist advocate need not be seen as reckless toward the environment. Indeed, arguably the strict and consistent institution of the principle of private property rights – through, for example, privatization and prohibition of dumping waste into other private as well as public realms – may solve the environmental problems we face better than any central planning champions of the environment tend to propose. Libertarians and capitalists think that the environment suffers worst when the "tragedy of the commons" is permitted, whereby commonly owned values are overused since everyone is deemed to have a right to such use while no one in particular is left with the responsibility to care for it.
Capitalism rests in large part on the belief that human beings are essentially individuals and a society's laws must value individuals above all else. Most historians of ideas admit that whether the importance of human individuality should have been recognized in earlier times, it certainly was not much heeded until the modern age. Even in our time it is more often that groups – ethnic, religious, racial, sexual, national, cultural etc. – are taken to have greater significance than individuals. The latter are constantly asked to make sacrifices for the former. In capitalism, however, the individual – e.g., as the sovereign citizen or the consumer – is king. Undoubtedly, a capitalist system does not give prime place to economic equality among people, something that group thinking seems to favor since in groups all are deemed to be entitled to a fair share.
(Excerpt from Philosophy With Meaning [Addleton Publ., 2013])
Tibor R. Machan holds the R.C. Hoiles Chair in Business Ethics and Free Enterprise at the Argyros School of Chapman University.
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