Rebirth of Reason

Aka 'the Minarchist Capitalism FAQ'

Copyright Marc Geddes

Original version, February 5th, 2004
This is version 4, February 12th, 2004

This FAQ may be reproduced for non-profit purposes provided it is reproduced in full with this header included

This FAQ examines and rebuts dozens of bad arguments commonly used by critics of capitalism, especially socialists. Based on years of experience debating socialists, each rebuttal succinctly cuts to the heart of the issue, including facts where appropriate. It also serves as an introduction to Minarchist Libertarian Capitalism.


General Questions for the Author
The Morality of Capitalism
Basic Principles of Capitalist Economics
Public Goods and possible Market Failure
The History of Capitalism and Privitization programs
Comparisons between Capitalism, Communism and Socialism
The Environment
Food and Drug Safety


Question: How about some definitions to begin with? Are you liberal or conservative? And how would you define capitalism and socialism?

Answer: Labels like 'liberal' and 'conservative' can be misleading and unhelpful, because they mean different things in different places and are 1-dimensional pigeonholes. A 2-d scale popular with political scientists for classifying a person's political views is the Nolan scale: One axis represents the degree of social freedom. The other axis represents the degree of economic freedom.

Conservatives (U.S usage) generally favor a high level of economic freedoms (free market capitalism), combined with a lower level of social freedoms (social conservatism). Liberals (U.S usage) generally favour a high level of social freedoms (socially liberal) combined with a lower level of economic freedom (typically leaning towards more socialist economic models).

The position defended in this FAQ is not 'liberal' or 'conservative'. It is what is known as Libertarian. Libertarians (U.S usage) generally favor high levels of social freedoms (socially liberal) and high levels of economic freedom (free market capitalism). So Libertarians are free market capitalists with liberal-left social views.

The term 'liberal' originally meant what the term 'libertarian' does today. Classic liberals were fans of individual liberty and the free market. 'Liberals' in the modern sense are actually authoritarian, in that they favor communal political models in which the group is more important than the individual, and the government substantially intervenes in the running of people's lives. Libertarians are the only true liberals.

'Conservative' is really a derogatory word used to try to portray Libertarians as authoritarian defenders of the status quo. In fact, Libertarians are anything but conservative. They are revolutionaries who believe that the political systems of the world need to be radically altered. Another derogatory term used to attempt to smear Libertarians is 'right wing'. People often associate this word with odious forms of social conservatism, such as racism. Libertarians are not right-wingers. They believe in equal rights for every person, regardless of skin color, sex, sexual orientation etc.

Socialists like to describe themselves as 'progressive'. As this FAQ will attempt to show, there is nothing progressive about socialism. It is a regressive, failed ideology.

Not all forms of capitalism are good. What is being defended in this FAQ is a specific form of capitalism: Minarchist Libertarian capitalism. This is a political system defined by democratic rule of law in which the sole purpose of the law is the protection of property rights: it is a democratic regulated free market. Socialism is here defined for the purposes of this FAQ to mean any government redistribution of wealth, any degree of government ownership of the means of production or any regulations which restrict freedom of choice beyond that necessary to protect property rights. These definitions will be clarified in the following entries.

Question: Have you read 'The Non-Libertarian FAQ' by Mike Huben?

Answer: Yes. Mike's FAQ is actually a good refutation of some poor arguments for Libertarianism. But Mike is attacking a straw man. He appears to equate Libertarianism with anarchy. Whilst the word 'Libertarian' originally was used in the same sense as the word 'Anarchist', the modern sense of the word is quite different. The type of Libertarianism being defended in this FAQ is regulated capitalism, with rule of law and extensive regulation to protect property rights. (See the entries on regulation). Quite contrary to what Huben seems to think, Libertarianism is perfectly compatible with regulation. He thus shouldn't have called his FAQ 'The Non-Libertarian FAQ'. It should have been more properly called 'The Non-Anarchist FAQ'.

There are variety of links and references at Huben's site, pointing to a range of critiques of Libertarianism. These are filled with the all the common faulty socialist arguments refuted in this FAQ.

Question: What are your motives? How do I know you're not just a corporate mouthpiece or a rabid right-wing conservative? Who's financing you?

Answer: In the interests of full disclosure, the author of this FAQ was born in New Zealand to a middle class family. Neither he nor any of his family has any connections with corporations or the United States at this time this FAQ was written (circa 2004). The author is a writer but was not paid to write the FAQ. The author is generally Libertarian, not right wing. He favors liberal-left social policies.

Question: Aren't you a hypocrite? You're arguing for capitalism but you've drawn on government benefits and public services. Why don't you leave the country?

Answer: If it can be established that the society a person living in is unjust, the onus is not on the person to leave, the onus is on the society to change. Would it make sense to call Jews hypocrites for not leaving Nazi Germany? Of course not.

People have to work within the society they find themselves, and follow laws that they sometimes disagree with. This doesn't make them hypocrites, it just makes them pragmatists. It's the nature of democracy, and is true for everyone, whatever their political leanings.


Question: There is no moral basis for capitalism. It's just based on human selfishness isn't it?

Answer: There is a moral basis for capitalism - individual liberty. A basic moral principle for Libertarian capitalism is that every individual is entitled to utilize the resources he owns as he sees fit - including his own mind and body. This is defined as his 'property right'. Another common Libertarian term is 'self ownership', meaning that every individual owns his own mind and body and no one else can dictate to him how he should use them.

These principles enable a definition of Libertarianism as a political system not just an economic system. The key legal limitation on behaviour is the notion of 'non-initiation of force' - one person may not initiate force against another except in self defence (initiation of force can include things like fraud). The legal basis for interaction between parties is the 'contract' - an implicit or explicit mutual agreement as to what obligations each party has towards the other. The aim is to attempt to define exactly what each party really wants from the exchange - each person's volition - or free choice is the key.

Libertarian capitalism is based on the ethical principle of reciprocation, not short-term selfishness. There is a difference between taking advantage of somebody (bad selfishness) and making an equal trade with somebody to gain something you want (enlightened self-interest). In the free market people work to fulfil each other's needs, trading value for value. This process is as much about helping others as it is about helping oneself. In a fair trade there are no conflicts of interests - helping oneself is not done at the expense of others. The books are balanced.

To sum up: the moral principles underpinning capitalism are individual liberty, the work ethic, reciprocation, and enlightened self-interest, implying contracts between parties defining mutual obligations to help each other fulfil their desires.

There is a very large body of well developed philosophy which provides a strong moral underpinning for capitalism. Greek philosopher Aristotle was one of the first to establish an individualist virtue ethics. Thomas Hobbs and John Locke explored the idea of 'Contracts' as the basis for social interaction. Mills was one the first Libertarians, and Adam Smith published the seminal 'The Wealth of Nations'. Russian philosopher and novelist Ayn Rand developed an 'Objectivist' philosophy based on enlightened self-interest and capitalism.

Question: Isn't it the case that capitalism is slavery because people have no choice but to work to make ends meet?

Answer: Having to work to make ends meet is the nature of the universe. Businessmen don't dictate this - reality does. Under any political system at all, people will have to work to create wealth.

In his critique of capitalism, Marx spoke of the 'alienation' of those forced to engage in repetitive, dehumanizing kinds of works. But socialism is far more alienating than capitalism, because the state expropriates the fruits of workers labor, and the group runs rough-shod over the desires of the individual. Socialism leads to centralization and uniformity. A striking example of this is the experiences of health care workers under the socialized systems of Britain and Canada. Both patients and doctors have noted the 'conveyer belt' feel of the systems. A genuine sense of satisfaction can only occur under capitalism, when people have a personal stake in what they are doing and they're free to work as they would like, rather than in ways that bureaucrats think are good for them.

There is nothing alienating about productive work. It's the very expression of the human spirit - the freedom to utilize ones own mind and body to create things of value which contribute to individual flourishing. This is precisely the meaning of 'property rights'.

Question: Isn't it the case that there's no place for communities under capitalism?

Answer: There's plenty of room for communities under capitalism. Socialists often try to portray Libertarians as selfish adolescents and capitalism as an evil force tearing communities apart. In fact capitalism is what enables communities to flourish, since people the basis of capitalism is voluntary interaction. People are quite free to join whatever communities they wish. Non-profit organizations, charities and families are all examples of private communities. In the major cities of most developed nations you'll find a multitude of community groups, civil societies and private organizations.

Question: Isn't 'customer society' materialistic? Surely money isn't everything. Money can't buy happiness. What's so great about getting more and more toys that we don't really need?

Answer: The material and the spiritual cannot be separated. Goods and services of value are an expression of the human spirit. Each good and service produced begun as an idea and a desire to create. Wealth is human creativity made concrete. Capitalism is art.

Capitalism delivers what people want. And people can change that at any time. Not all the 'stuff' being produced is physical. Aside from the 'trash', customer society also produces the works of Shakespeare, the C.D's of the music of Mozart, the science books containing the theories of Charles Darwin, Isaac Newton, and Albert Einstein, and the latest editions of the Holy Bible. And the 'big companies' selling you things 'you don't need' are also the ones producing all the medicines like aspirin and anti-biotics.

It is said that money is the sixth sense, because without it you can't enjoy the other five. As more goods and services appear, more choices become available to people- there are a greater range of wants and desires that can be fulfilled. Money may not make an unhappy person happy, but it can buy a better class of unhappiness. Wealth makes a person free to choose.

Question: Surely capitalism is about profit but socialism is about people? Surely we should value people not profit?

Answer: Any reasonable system has to fulfil the needs of people. But the socialist means of government control of the economy is a proven failure, whereas the capitalist means of private enterprise geared to making a profit is a proven success. For instance private health care is of a far higher quality than public healthcare, private education is of a far higher quality than public education and so on. Companies trying to make a profit generally produce goods and services of a far higher quality at lower prices than government run companies. So the slogan 'People not Profit' is suggesting a false choice. A 'profit' is a sign that a business is creating goods and services that people want, and is generating employment. Thus making a profit is the best way to help people.

Question: Suppose someone builds a private road to entirely surround a man's house. The man can't leave the house without trespassing on the road. Doesn't that show that property rights are an unfair restriction on the man's freedom?

Answer: The man's freedom would only be restricted if the owner of the road refused him permission to use it. The road wouldn't have sprung up over night and the homeowner could have negotiated with the road builder. A reasonable road builder would never build such a road in the first place, or he would allow the homeowner free access. An unreasonable one could be challenged in a civil law suit. As last resorts, the homeowner could appeal to other reasonable people to try to boycott the businesses of the road builder, or the homeowner could simply fly over the road or tunnel under it. Libertarian critics are forever coming up with thought experiments to try to demonstrate that property rights would somehow restrict freedom in absurd ways. Give them points for trying hard ;)

Question: Doesn't luck play a major role in success or failure in life? People are born with good looks, extra abilities, inherited wealth and connections, which will affect their ability to make money. So why do the rich deserve to be rich, and the poor poor?

Answer: Of course luck plays a role in life. Some people are born into far more favorable circumstances than others. Inequalities such as inheritance, family connections etc, are often touted as a justification for socialism, in order to 'make things fairer'. The mistake here is to confuse what a person is entitled to, with what a person deserves. Here's an example that clarifies the difference: say a bank robber wins the lottery. Did he deserve it? No. Is he entitled to the money? Yes. Similarly, no one necessarily deserves to be poor. No one necessarily deserves to be rich. But if a person has earned their money fairly under a free market, they are entitled to it. Differences in ability and good luck should be celebrated. To do otherwise is simply envy. As the rest of this FAQ argues, the free market is the best system for everyone; fortune and unfortunate alike, and coercive attempts to make things 'fairer' just end up making everyone worse off.

Question: Isn't capitalism inherently elitist and hierarchical? It's anti-democratic because people don't get to have a say in what goes on. Why should elites get to run the place?

Answer: The free market is the purest way to express democratic values ever devised. Under fair capitalism a person's sex, race, religion, background or any other externality needn't be a barrier to success. Any one can fulfil their dreams, what matters is hard work and ability. All kinds of investment markets such as stocks and futures are capitalistic ways of expressing preferences and making decisions, and they're open to everyone. For instance you can support and have a say in the running of any publicly listed company by buying shares and attending investor meetings.

Contrast this with socialism, where some public authority holds the means of production, supposedly 'for the people'. In fact, the people are not in control. Instead politicians get to decide what's best for everyone. They can be voted in and out of course, but the people' certainly aren't making the day and day decisions.

There are of course power and wealth inequalities under capitalism, but under fair capitalism they established on the basis of merit, and they can easily change. For instance a lowly clerk can with hard work rise to become CEO of a company, and bosses don't remain bosses forever. Ultra wealthy people like movie stars only stay ultra wealthy as long as they are working to produce successful movies. Most 'famous' people quickly fade to obscurity once their '15 minutes' is up. This 'class mobility' under capitalism means that there is no fixed 'upper class', 'middle class' or 'lower class'. Socialist talk a 'corporate cabal running the world' is just paranoid fantasy.

Democracy and 'having a say' sound like fine ideals, but the trouble is that more often than not they are venues through which special interest groups impose their views on others. This is ironic; since this is the very charge socialist's level against capitalists. Most people think of 'democracy' as good, but there are many different kinds of democracy. The world's biggest democracy, the United States. is actually a Constitutional Republic. There is Constitution defining individual rights, which is interpreted by the judiciary. Simple majority rules democracy is not compatible with property rights. Consider how you would like it if a majority vote decided what color you should paint your garage, whom you should marry, or where you should work. What if a majority decided that they wanted you dead? Those who bleat loudly about democracy and the need 'have a say' are most likely the very people who want to control others. They are people who think they know what's best for everyone else. They are the true elitists.

Some kind of democracy is a good and proven way to provide accountability of course, and Libertarianism is perfectly compatible with Constitutional democracy. Some Libertarians are what is known as anarcho-capitalists, in that they believe that all functions of government could be handled by private organizations. However most Libertarians are Minarchists, meaning they accept Democratic government.

Question: Surely we need regulations to protect us from thugs and fraudsters. Deregulation would just take us back to the 19th century. Too much capitalism is no better than anarchy is it?

Answer: The form of capitalism being defended in this FAQ is not anarchy. Minarchist Libertarianism was defined to be a political system in which the purpose of the law is the defence of property rights. A strong legislative and judicial system is a legitimate part of this. The purpose of the government would be to elucidate and enforce property rights, including protections of one's own person and protections from all kinds of initiation of force, including fraud. There would be plenty of regulations in such a system. In addition, as new circumstance arose, new laws and regulations would continue to be crafted to deal with them. It's true that there would in general be fewer regulations; because the role of the legislative branch would be sharply proscribed (The next entry contains further explanation). But Libertarianism would still be an evolving system, in which there would always be scope to make things fairer. In addition, as new circumstances arose, new laws would continue to be crafted to deal with them. Far from taking us back to the 19th century, as critics suggest, Libertarianism is the system that can move us into the future, towards societies both fairer and freer.

Question: Capitalism might give people what they want, but not all desires are good. How about the trade in drugs, tobacco, alcohol, pornography, fast food? Don't we need to strictly regulate things like this?

Answer: Why should the state dictate to people what they can do with their own minds and bodies? There is a difference between legality and personal values. The defining legal principle of Libertarian capitalism was the non-initiation of force principle: the only role of the law is the elucidation and enforcement of property rights. It is not the role of the law to impose personal values on people.

This doesn't mean that 'anything goes', or that people shouldn't have personal values, it just means that under a free market personal values are left up to the private sphere. People can tolerate the values of others without having to agree with them. People can try to persuade each other of their values, including public education through non-profit organizations. People can also express their preferences by supporting businesses that operate in keeping with their values, and boycotting businesses that provide goods and services not in keeping with their values.

In short, if a person wants to knock themselves out with porno movies, fast food, kinky sex and bondage with Russian hookers or even hard drugs, that's their business. Making things like this illegal is an initiation of force and a violation of property rights (the right to control ones own mind and body).

There are some important provisos: (1) if someone is selling a product which they know is potentially damaging to peoples health and they do not inform the consumer of this fact then they are engaging in fraud, which counts as an initiation of force. The consumer can demand compensation and if necessary take the business to court. Civil law suits will work to make businesses behave. For instance it was legitimate for smokers to sue tobacco companies in cases where information about the deleterious effects on health was concealed. (2) The product must not harm anyone other the person choosing to take it. For instance some hard drugs such as 'P' (pure meths) may cause violent behaviour and should rightly remain illegal. A strong judicial system is a legitimate component of Libertarian capitalism.

Question: Doesn't the government have the right to regulate the economy for 'the social good'?

Answer: The term 'Social good' is ridiculously vague. Unscrupulous people can misuse this term to win power and justify human rights violations. Almost any bad law could be passed in the name of the 'social good'. The historical evidence suggests that appeals to this term are not acceptable because people can be totally mistaken as to what is in the 'social good'. More often than not what is claimed to be the 'social good' doesn't help society at all, but it just a cover for the agenda of some special interest group or individual.


Question: Karl Marx believed wealth is created through the labor of the workers and that capitalists (business owners and investors) are effectively stealing wealth that rightly belongs to the workers when they 'profit take' (reap the profit or 'excess' made by the business). Was he right?

Answer: Karl Marx's thesis forms the main justification for communism or socialism, the idea that the state should completely or at least partially own the means of production, so that the wealth generated by businesses can be fairly distributed to workers. His was contention that 'profit taking' by business owners is equivalent to 'exploitation'.

Firstly, it's clear that the investors and business owners are contributing capital. This is a risk, because the business could fail, in which case they lose their money. By supplying capital they are providing a service and therefore they are entitled to some share of profit as payment for this. But most fundamentally, the investors and business owners supply knowledge.

Labor has two components: physical and intellectual. Work takes physical effort and brainpower. Of these, know-how is the more important. Indeed in the 20th century in the U.S the amount of GDP (Gross Domestic Product) generated through activities with a high component of physical labor (agriculture and manufacturing) has been decreasing, and the amount of GDP generated through intellectual work and services has been increasing. In today's 'Information age' in the U.S less than 20% of GDP is in agriculture and manufacturing.

Marx was operating off a false theory of wealth creation known as 'the labor theory of value'. This is the idea that the economic value of goods and services produced somehow resides in the material characteristics, such as length of time worked, or quantities of things produced. In fact this theory is false. It is the usefulness (utility) of the goods and services that determines the value. This will be a function of demand. Determining which goods and services will be useful requires brainpower, which is supplied by the business owners. Investors and business owners have to make decisions about where to allocate resources and how to run the business. It follows that they are adding substantial value to the goods and services created. Thus the 'profit' reaped by the capitalists is the rightful payment for this.

Question: Isn't sport a good analogy for capitalism? Isn't one man's gain another man's loss? If someone gets richer doesn't someone else have to get poorer? Doesn't capitalism require that everyone has to compare against each other and it's 'dog eat dog' or 'survival of the fittest'? That being the case, shouldn't the state intervene to protect the weak and make sure that everyone gets their 'fair share' of the wealth pie?

Answer: Sport is not a good analogy for capitalism. In a sports match, one team/player has to win, the other has to lose. In capitalism that simply isn't the case. Everyone can win. In fact there is more co-operation in capitalism than there is competition. It simply isn't true that one's man gain has to be another man's loss. This follows from the fact that the root source of wealth is human ingenuity. This has no known bounds, so the amount of wealth in existence can always be increased. That's why capitalism is called 'making money'. Over a twenty-year period 1972-1992, the world economy grew at an average rate of 2.8%, nearly doubling in size and comfortably outpacing population growth. Economic growth creates more jobs, and by specializing sufficiently, people do not need to compete with each other. As Ayn Rand hypothesized, amongst perfectly rational people there would be no conflicts of interest at all! (See the entry on employment).

Question: But doesn't capitalism create inequality?

Answer: Yes, but so what? One person's gain does not mean another person's loss. (See the Answer: to the previous question). A person can generate wealth without taking it from someone else. So long as a rich person has earned their wealth legitimately there is no reason to demand 'equality'. That would simply be envy. So long as everyone is getting better off the amount of inequality doesn't matter. The record shows that the rich are getting richer and the poor are getting richer as well.

More fundamentally, if it weren't for inequality the economy would stop growing because people wouldn't have any incentive to work. Resources have to be distributed to the people who can use them most effectively. Example: A genius can use resources more effectively than a drunken bum. A person with a good business plan can use resources more effectively than a person who would fritter resources away at gambling. And so on. State redistribution of wealth actually ends up making everyone worse off, because resources are going to people who are using them less efficiently. Wealth is not something that is sitting there waiting to be distributed. It has to be created through on going work. And that work requires that resources are not allocated equally - the resources have to go to the people who can use it the most effectively in order for wealth to go on being produced. Capitalism creates the incentives for resources to concentrate in the hands of the most talented people.

Question: Capitalism may be great at production, but there's a distribution problem. Sure, people have to be rewarded for what they do, but aren't the top earners making disproportionate sums?

Answer: Socialists often say that they admire the ability of capitalism to produce, but wish for a 'fairer' more equitable distribution. However this assumes that it is possible to alter distribution without affecting production. In fact distribution and production can't be separated. Any attempt by the government to change distribution results in a reduction in production. In the limit that wealth was distributed equally (communism), the wealth would soon simply melt away, reducing everyone to the poor-house (equally of course).

To understand why distribution has to be unequal, carefully read the entries in this section. Wealth is a product of human ingenuity and human labor, it is not some concrete 'thing' sitting waiting to be distributed. People have to be free to utilize the fruits of their labor (property right) as an incentive to continue working. Resources have to concentrate in the hands of the people who can use them the most effectively to create things that fulfil people's needs. Pricing and profits are the market signals creating the conditions for this to occur.

CEO's of listed companies affect the livelihoods of all the other people in the business with the decisions they make, as well as the people the business sells goods and services to. With globalisation, businesses can potentially affect greater numbers of people. This 'leveraging' effect is the reason for the enormous relative increases of CEO salaries. It is not how good the CEO is that determines his income level. It is the 'leverage' of the business, or its ability to positively affect large numbers of people. The greater the number of people potentially positively affected, the greater the value of the business to society. The flip side of this is the greater risk to the CEO if something goes wrong, because he is the one that will be held most accountable. The salaries are rightful payment for being exposed to this level of risk.

The market determines income levels. For someone else to think that they could determine the levels more fairly, implies that they could do this more accuracy than the market, an unlikely proposition. If income levels are not set at the correct levels, the incentives to attract the best people for the job will be lost. In addition, recall the difference between entitlement and what is deserved. Are sky high salaries deserved? Who knows? But that's not the issue; the issue is whether someone who works fairly for them is entitled to them. And the Answer: is yes.

Question: Capitalism just benefits corporations. Who wants corporations running the place?

Answer: It's a favourite rhetorical trick of socialists to paint all fans of the free market as corporate lackeys. In fact the vast majority of businesses are not corporations. The definition of a business is that which produces goods and services. Charities and non-profits are businesses. A doctor is a businessman. Even most of the for-profit businesses are quite small, employing 10 people or less. It is these dedicated entrepreneurs that are really the heart of capitalism. There can be an overlap of interests in a free market - that which is in the interest of a corporation can be in the interests of everyone else as well. Too many regulations can end up harming small businesses more than corporations. Corporations can afford to comply with government regulations, but small businesses may not.

Question: What of 'advertising'? Surely this involves companies manipulating people into buying goods and services that they don't need?

Answer: Advertising enables businesses to make claims about their goods and services. It's true that they may be lying, but if so then customers will find that out the first time they try out the products. Advertisements which are not reasonably accurate will not last, because customers will not continue to buy the products and the company will have to change its ways or go out of business.

Question: What's wrong with government welfare? Capitalism is great for those with money but what about those who are poor? Why shouldn't the poor have the right to decent health-care and education?

Answer: If you claim that someone is entitled to be provided with something, then you are also claiming that someone else should be forced to provide it. Money is a medium of exchange invented to take account of the fact that at a given time x, there is a finite supply of goods and services, and some method of distribution is required. Either people have to fight over the distribution (socialist politics) or people can trade peacefully through the use of money (capitalism). Money is supposed to measure how much a person is entitled to by virtue of services rendered to others. So why should someone be forced to provide a good or service to someone without money?

Wealth doesn't grow on trees. It has to be created. Governments generally don't generate much wealth: they take it from the populace through 'taxation' then redistribute it. Taxation is the fruit of other people's labor and it's not something that is freely given: even in democracies the government generally has direct control over tax rates and where most tax dollars goes, although there are of course tax deductibles. Not everyone will have voted for the government in power. Failure to pay taxes will generally result in seizure of wealth by force. Forcing people to supply goods and services for others can be little different to slavery if carried to extremes. Government redistribution of wealth is forced and indirect, and therefore not true charity, which is something voluntary given and directly transferred from the giver to the recipient.

Circa 2004, Total taxation levels in advanced countries had risen to enormous levels. Even in the supposedly free-market United States, total taxation exceeded 55% of wealth produced. In Finland the figure the figure was 75%! Few dispute that some level of taxation is necessary for the government to operate, but should the government be taking such a huge share of its citizen's money?

Governments are notorious for corruption and inefficiency. People cannot be certain that their money is going to worthy causes at all. In fact in practice much of it will go to special interest groups whose only merit is the ability to get organized. Any one who can manipulate the government effectively can get a piece of the pie. So forced charity results in people being taken advantage of. U.S Economist Frank Forman, who worked for the U.S government for many years, estimated that less than 5% of tax dollars were going to the poor. He guessed that: '80% of tax dollars go to special interest groups who have no other merit than the ability to get organized'

The biggest flaw of all in government run services is the fact that they rob people of individual freedom of choice. The government centralizes and imposes uniform standards. Interactions between citizens and service providers are now governed by bureaucrats, rather than the free choices of individual. For instance, under fully socialized education, parents have less say in the education their children receive. The state effectively claims ownership of the mind of the child, as parents are less free to choice the school the child goes to and the curriculum is state determined. Under socialized health-care, bureaucrats will determine which health-care providers a patient can see, and the state can effectively claim ownership of a persons mind and body - for instance if the state is paying for someone's health-care, the state can start telling them what they should be eating etc. An apt expression here: 'He who pays the piper calls the tune'.

Question: Capitalism is great for those who can look after themselves. But wouldn't it be awful for those who can't? The sick, the elderly, they'd be out on the street without welfare wouldn't they?

Answer: The cost to the poor is the biggest argument for welfare. The mistake is to imagine that under capitalism everyone has to be self-sufficient. Critics think that we would all have to be rugged individualist super-men. Nothing could be further from the truth. A society where the strong didn't look after the weak would be repugnant. It is both good and just that people help each other, and that there be methods of redistributing wealth to those in need. The capitalist argument is that there are market mechanisms to accomplish this far more effectively than government welfare.

Communities can look after each other without the need for the government (See the previous entry on communities). The first line of defence for those in need is family. After that, friends. After that private charities, non-profits and civic groups such as Church.

Aside from private charity, there is a range of private services to help people handle misfortune. The most obvious are the numerous forms of insurance. Prior to welfare unemployment insurance was common, and even today it is obtainable in some countries. For instance in Canada circa 2004 you can purchase unemployment insurance, which will provide 60% of your working wage if you lose your job. Health insurance, of course, is big business, and an excellent way to obtain quality health-care should one become sick.

Loans can also be provided for those in urgent need. There is a range of moneylenders and some health providers (for instance dentists) allow one to place large bills on account, to be gradually repaid.

Without welfare, people would be paying less tax, so they would have far more money to give to charity and non-profits. Government welfare is generally far more inefficient than private charity. If all welfare was privatized, the same quality of service could be achieved with less money.

In fact, Libertarian capitalism is the best way to help those in need. Quite simply, wealth has to be created before it can be redistributed, and Libertarian capitalism is the system that would grow the economy the quickest. A better economy not only means more jobs (hence less people needing welfare) but with more money in hand, there's obviously more available to give to charity and non-profits.

Question: Doesn't spending by those on welfare help stimulate the economy?

Answer: No. Welfare is negatively correlated with economic growth. It harms the economy because it reduces the amount of capital available to those who could use it most effectively, and redistributes it into less productive channels. Incentives to work are lowered for both rich and poor.

Question: Tax cuts just line the pockets of the rich and cause deficits don't they?

Answer: No. By putting more money in private hands, tax cuts stimulate the economy. Tax cuts actually benefit rich and poor alike. With more capital available to business, greater productivity is achieved, leading to more jobs being created, which benefits the poor as well as the rich. During the 1980's in the U.S Reagan cut taxes and vastly increased military spending, causing the deficit to blow out in the short term. There is a theory known as supply-side economics, which postulates that cutting taxes can actually increase government revenue through greater economic growth. This theory is controversial and has fallen somewhat into disrepute. But even if supply-side economics is wrong this provides no support for socialism because deficits can be controlled simply by cutting government spending.

The long run effect of the Reagan economic reforms was one of the longest bull markets in American history, and a country with one of the lowest deficits as a percentage of GDP in the world come the turn of the 21st century. The proper approach to a deficit problem is to cut spending, not raise taxes.

The 2003 Bush tax cuts produced a strong economic stimulus, and in fact the statistics for the 3rd quarter economic growth showed a huge rise, to 7.2%, proving yet again the correctness of neo-liberal economics.

Question: Capitalism costs jobs. We once had full employment but increasing automation will eventually cause widespread unemployment. True?

Answer: Capitalism creates jobs. During the 1990's unemployment in the United States was below 5-6% through out that decade, where as the more socialistic European nations like Germany typically had unemployment rates twice this high during the same period. Widespread unemployment only became common with the rise of the welfare state in developed nations. Welfare is negatively correlated with economic growth because it drains wealth from those who can utilize it most effectively, and reduces incentives to work.

The nature of work under capitalism is dynamic. Increased productivity in specific kinds of work will reduce the need for labor in that area, since the same output can be achieved for less work. But this is the nature of progress! Workers displaced from the old field of work can re-skill and specialize in new areas. Every one is better off since is there more work, there is a greater and range of human wants and needs being satisfied. The range of possible human wants and needs is potentially infinite, so new kinds of work can always be opened up. During the Middle Ages farmers might have worried about what everyone would do for a living once agriculture only needed few workers. They could never have imagined jobs such as computer programmer, truck driving, or T.V salesmen. The faster the rates of increase in productivity, the greater the range of specialization that is possible, and the more jobs there are.

Marx totally failed to grasp this dynamic nature of work. He thought that more competition would place increasing pressure on wages, because more people would be vying for a fixed number of jobs. But the opposite is true, for the reasons explained. More people available for work means a greater and greater level of specialization is possible, avoiding excessive competition. There's a niche for everyone, in other words.

The one problem with this process is that it relies on the ability of workers to re-skill and to find new niches, and during periods of rapid transition there might be temporary surges in unemployment.

Question: Natural resources are limited in supply. A famous 19th century American thinker by the name of Henry George claimed that ownership of natural resources like land is wrong because it's a monopoly. Was he right?

Answer: There are a small group of enthusiastic 'Georgists' around the world who classify wealth into three categories: Natural resources, labor and capital. They favor the free market for labor and capital but propose socializing all natural resources, which the government could then rent to raise its revenue. There are also 'Left Libertarians' who think that natural resources need to be redistributed by the state.

These ideas are faulty, because there is really no such thing as a 'natural' resource. All resources are a function of human labour. A thing has no value until someone does work on it, either physical or intellectual. For instance, Oil was simply a 'worthless black liquid' until someone figured out how to use it. Even then, Oil is of no use sitting in the ground - it has to be extracted and refined, a process requiring work.

The supply of 'natural resources' is not fixed. Human beings can find new supplies and substitutes, through work - labor and human ingenuity. For instance new oil extraction techniques have seen oil supplies increase through out the 20th century.

Moreover, the value of a resource is determined by demand. For instance, when cars become more fuel-efficient (which happens because of human ingenuity), the 'effective supply' of Oil increases, because less Oil can now accomplish the same task (Hence reducing the demand). And when new substitute energy sources are discovered (again which happens through human ingenuity) the demand for Oil decreases and the 'effective supply' is increased. As another example, take land: the values of exactly the same areas can vary greatly. Although in the physical sense there may be a fixed land area, in the economic sense more land can be created -the value of land can be increased. The supply of a 'natural resource' is determined by the human mind, and is not a function of material properties.

Question: What about employer/worker relations? Don't we need strong unions and shouldn't the government make sure that capitalists don't 'exploit' workers by setting a 'minimum wage' and reasonable working conditions?

Answer: It is not for the government to try to impose edicts on businesses dictating worker benefits. Terms and conditions should be negotiated between each individual worker and his or her employer, in the form of a contract defining the obligations of the two parties. This allows far greater flexibility, rather than a 'one size fits all' model.

When the government tries to dictate 'workers rights' it is stomping on the rights of the business owners. It is also harming consumers. Forcing businesses to give workers benefits means that businesses cannot produce goods and services as cheaply as they could have. Every one buying the goods and services of the business is worse off. Further, the business owner loses profit and has less incentive to work as hard. 'Minimum wages' cause unemployment as demonstrated by the clear correlation between higher the 'minimum wages' and unemployment in European nations. This is because businesses cannot afford to employ as many workers. So a 'minimum wage' may help workers but it stomps on the rights of the unemployed. In addition, with fewer people employed, each worker has a greater work-load, placing extra stress upon them.

Less work will slow economic growth and cause unexpected problems. For instance, Shortly after the French adoption of the 35 hour week , 14 000 in that country died in a heat wave, with an investigation revealing a shortage of health-care workers due to the fact many were taking time off.

If workers don't like the conditions of their job, the proper approach is to negotiate with the business owner for better conditions. Or they simply refuse to work for employer. So long as they have freedom of choice people will not work for employers that set unreasonable conditions in the long run and the employer will be forced to set reasonable conditions or go out of business.

Government regulation does have some role to play. That role is the protection of property rights (including basic human rights). It is thus appropriate to craft regulations to prevent things such as child labor or other such abuses. It is also appropriate to craft regulations to define and enforce the employment contract between worker and employer. The key principles are human volition and voluntary contracts. The role of the law is to ensure that workers entered to voluntary agreements with employers, they understood the contracts they were making, and the employer honours the contracts.


Question: Isn't it the case that some kinds of goods known as 'public goods' (because everyone benefits from them) are not adequately provided for by the market?

Answer: There are some goods and services which it would be good to have, but are difficult to make a profit from because they are 'public' - available to large numbers of people, who may not bother paying for them voluntarily- these people are 'free riders' because they are getting a 'free ride' (service). An example of this is defence. A standing army benefits everyone in a country. The free rider problem is one of the few arguments against Libertarian capitalism that has any validity.

There is an on-going debate among political theorists as to the question of whether all goods and services can be handled by the market. Anarcho-capitalists believe that they can, and advocate privatizing even things like law enforcement, courts and defence. The Austrian school of economics, championed by Ludwig von Mises, favored this line. David Friedman is a leading modern economist exploring so-called 'privately produced law' (Circa 2004). Anarcho-capitalism is however, a fringe theory.

Most Libertarians do concede the public goods argument, and agree that the government has to provide public goods. This is the 'Chicago' school of economics, championed by Milton Friedman, which conceded that at the minimum defence, police, courts have to be run by the government. However this is really cold comfort to socialists, since very few things are genuine public goods. The Chicago school of economics is well respected, and leading proponent Friedman won the 1976 Nobel Prize for economics.

Socialists often try to claim that things like health, education and the environment are 'public goods' but it just isn't so. By creating the right incentives, the market can handle these things with only minimal government involvement. For instance privatizing natural resources and trading in the relevant shares can deal with pollution problems - the international trade in carbon emissions is an example of this approach. Socialist solutions simply aren't necessary. Quite contrary to what critics of Libertarianism claim, carefully crafted regulation is compatible with capitalism as well as socialism.

Question: Don't we need lots of government departments to handle things like roads and infrastructure?

Answer: Private organizations could accomplish the tasks of many government departments far more efficiently and effectively.

Question: Why would private organizations bother to do things that don't make a profit? Wouldn't private organization charge sky-high prices and rip every one off?

Answer: There are plenty of 'non-profit' organizations in existence, which demonstrates that plenty of people are prepared to denote some of their time and energy to things that they recognize as good outside of paid work. And no one would use private organizations that charged unacceptable prices. Competition works to keep the prices of any business at the lowest practical level.

Question: Isn't it the case that pure capitalism can't work because monopolies form? Look at U.S history! Didn't the government have to break-up past monopolies of capitalist-robber barons such as Rockefeller? And look at 'Microsoft': isn't that a monopoly?

Answer: Capitalism is not 'competition for competitions sake'. It's about letting businesses provide the best services at the best price. If one business grows huge and ends up dominating a given area, it's generally because satisfied customers have decided it's the business that achieves the best service at the best price. Just because a business has no real competition does not mean it's a monopoly.

Historically businesses have sometimes engaged in monopolistic behaviour. For instance a large business may try to eliminate a smaller competitor by attempting to bankrupt it. A big business can afford to lower its prices and deliberately lose money for a while; where as the smaller competitor may not have the money to survive the reduced prices for long. Once the competitor goes bust, the big business can then hike up the prices again.

However there is a market solution to the problem of monopolies. If customers suspect a monopoly all they have to do is boycott the products of the offering business to force it to change its ways.

Socialists complain about free market monopolies but they omit to mention that all government run businesses are monopolies any way! With government services, people are forced to put up with shoddy services and high prices and the government shields their businesses from competition.

It might be appropriate to craft some laws to prevent monopolies. Such laws are known as 'anti-trust' laws. But ironically these laws may actually cause the very thing they were meant to prevent! The laws are meant to stop 'anti competitive behaviour', but this term is so vague it can be misused. Businesses who want to stop competitors can complain that their opponents are 'engaging in anti-competitive behaviour' and manipulate the government into harming them. In other words, businesses can use the anti-trust laws to achieve monopolies, a fact critics of the free market over look.

Question: There's a conspiracy of businessmen. The media has a strong conservative bias doesn't it?

Answer: Here's a statement born of pure paranoia. Most media are strongly liberal leaning. Hollywood is overwhelmingly liberal. As to the great business conspiracy, businessmen are generally strong individualists, not given to co-ordinating their actions.

Question: Doesn't pure capitalism result in destructive cycles of 'boom' and 'bust'? Doesn't the government need to guide the economy to try to reduce the severity of the cycles?

Answer: Cycles of boom and bust are a natural feature of the free market but they don't need to be 'destructive'. They are simply the means through which the market corrects itself to take into account changing circumstances. Barring some sort of global catastrophe that wiped out modern human civilization, in the long run the stock markets must always rise because human knowledge and productivity will always be increasing. Stock market crashes are usually short-lived, and bull markets (booms) always last much longer than bear markets (busts).

It is legitimate for the government to adjust the money supply to match the state of the economy, in order to prevent disruptive bouts of inflation or deflation. Leading economists Keynes (Keynesian economics) and Friedman (Monetarism) developed ideas as to how this was to be done. However this provides no comfort for socialist theories, since it's just as compatible with Minarchist capitalism, which allowed for the government to handle the functions essential for the existence of civil society (including the supply of a medium of exchange like money).

Question: What of the problems with big businesses trying to manipulate democratic governments?

Answer: When governments are in the habit of redistributing wealth and giving favors, there will be special interest groups and lobbyists who will try to persuade politicians to act on their behalf, by hook or by crook. But such governments are precisely socialistic or mixed economies! In fact under mixed economies there is nothing to stop the well off from winning 'welfare for the rich'. Under Libertarian capitalism the role of the government is strictly limited to defining and enforcing of individual rights. Such a government doesn't redistribute wealth, and so is much less prone to manipulation.

To understand this point, consider Bill Gates, one of the world's richest men Circa 2004. Living in the U.S, which has a reasonable respect for the rule of law and property rights, Bill Gates could not succeed in bribing the government into passing laws discriminating against , say, some minority group. That's because individual rights are protected by the Constitution and Civil Rights laws. So despite his massive economic advantage over the average American (he was worth tens of billions of dollars), he can't easily use it to infringe upon others.

But a government which didn't respect property rights much and made arbitrary laws in the name of a vaguely defined 'social good' would be very susceptible to bribery. This can clearly be seen in modern day India, which is one of the most heavily regulated economies in the world. Businesses routinely bribe government officials to get things done in the name of 'the social good'.

The problem here clearly involves the sort of powers the government can exercise, and has nothing to do with the degree of economic inequality.

When governments respect property rights they become immune to lobbyists. Property rights are much more clearly defined than nebulous concepts like 'social good', and when the government redistributes wealth (socialism) a huge incentive is created for people to try to manipulate it.

Question: Look at the spate of corporate fraud in the U.S during the administration of George Bush Jnr! Don't things like 'Enron', 'World com' and all the accounting and stock market scandals prove market failure?

Answer: All these scandals demonstrate is that the market is not perfect. But would excessive government regulation be better? Regulation makes life more difficult for honest businessmen as well as bad ones, damaging economic growth. Ironically regulations can also have the opposite effect to that which is intended, increasing the avenues for fraud rather than decreasing them. Special interest groups can manipulate the government to their own advantage if regulations are too petty or vague. For instance Enron did have government connections. Excessive regulations can also drive business underground, making them more susceptible to criminal elements.

Fraud is of course a violation of property rights and an initiation of force, so crafting some regulations against it is perfectly compatible with Minarchist Capitalism. But only precise regulations which are clearly defined are acceptable. Vague regulations will only harm honest businesses and cause an increase in corruption, not a decrease.

There are market solutions to problems of fraud. Private organizations can monitor and certify businesses and supply information to the public. Once knowledge about fraud is in the public arena, people can simply boycott the business and sell stock to drive down its price if it's publicly listed. Civil law-suits also can reduce fraud and allow victims to obtain financial restitution.

Question: Look at the failure of the United States! 20%-30% of the people are living in poverty. What do you have to say about the hardships of the poor under capitalism?

Answer: There's far less poverty in the United States than most anywhere else. Studies rank the free market countries as having the highest over-all standards of living. For instance the United States ranks among the top 20 according to U.N rankings.

Socialists often make unfounded claims about the degree of poverty in rich countries. The definition of 'poverty' they use is generally faulty, since they are making relative comparisons. For instance a recent (circa 2003) claim was that those making less than $8.70 hour in the United Sates are 'poor'. In fact, even the U.S 'poor' are rich by comparison to those living in less developed countries. For instance in communist Cuba (circa 2003) the average worker only made something like $US 10 per month. By comparison with this, a 'poor' person living in the United States was something like 300x as rich. Capitalism is clearly the most effective anti-poverty device ever devised!

Claims that 20%-30% of the United States is 'poor' are just socialist fantasy. In fact probably less than 4% of the population is living in any real hardship. Circa 2004, something like 1 in 30 households in the United States had free assets of one million dollars or more, a greater proportion of millionaires than most anywhere else in the world. To see what real poverty looks like, try China circa 2004, where 50 plus years of communism had put all but the luckiest in the poor house.

Question: Look at the tremendous amount of poverty in the world! Doesn't that represent a failure of capitalism?

Answer: The poverty in less developed countries would only represent a failure of capitalism if capitalism had actually been practised there for some length of time. Poor countries are poor precisely because they didn't practice capitalism. Think-tank studies show a striking clear-cut correlation between the degree of economic freedom of a country, and the degree of prosperity. Of course, not all forms of capitalism are good, and 'crony capitalism' can result in poverty also. True economic freedom is here being defined as capitalism with a rule of law that protects human rights and a judicial system to clearly define and enforce property rights.


Question: Look at the terrible working conditions that existed in the 19th century! Didn't socialism improve these conditions?

Answer: No. Capitalism was what improved conditions. The conditions that existed in the 19th century were a function of the low productivity and low-tech environment that existed at that time. Productivity and technological savvy can only be enhanced by capitalism. As more wealth is generated, wages can rise and working conditions improve because more things can be done for less effort.

Question: Isn't pure capitalism fascism? Look at Adolph Hitler and Nazi Germany.

Answer: Capitalism is not fascism. In fascist states, business is privately owned but the government can tell the business how it should operate. Under capitalism business is both privately operated and privately owned. Most fascist states were 'mixed' economies. Fascism has more in common with socialism than it does capitalism, because fascism involves the subsuming of the individual for the sake of group identity, whilst the fundamental principle of Libertarian capitalism is individual liberty. The very word 'Nazi' is actually an abbreviation for 'National Socialism' and many socialists were easily converted to fascism. For instance the Italian dictator Mussolini was a former socialist.

Question: Look at the past history of U.S capitalism! Isn't capitalism associated with racism, homophobia and sexism?

Answer: There is no causal correlation between capitalism and racism. Of course in the past there was terrible oppression, but there was oppression under all kinds of systems, not just capitalism. Fascism is not a form of capitalism. In fact the most severe forms of ethnic oppression in history have taken place under communism. For instance Stalin brutally oppressed Jews and many other ethnic groups.

Libertarian capitalism was defined to mean rights equal for all persons, irrespective of sex, sexuality or race.

Question: What of unions? Surely pure capitalism would take us back to the bad old days when employers busted up unions?

Answer: Whatever was practiced in the 'bad old days' was not the kind of capitalism described in this FAQ. The defining principle of Libertarian capitalism given here was the non-initiation of force and the upholding of individual rights. A person should be perfectly entitled to join a union, provided the union is voluntary. However compulsory unions (commonly advocated by socialists) are not acceptable, still this involves coercion (which is an initiation of force).

Unions are a less than ideal way to handle employer/worker relations. Firstly, collective bargaining leads to 'one size fits all' arrangements which fail to take into account differences between individual workers. Secondly, unions can take advantage of workers just as bosses can. It's a known fact that many early unions in the United States and elsewhere had mafia connections. There is a famous expression: 'Meet the new boss, same as the old boss!'

Unions have a history of ugly employer/union conflicts (especially in the U.S) and during periods when unions were powerful (for instance Britain or New Zealand in the 1970's) a great number of days were lost to strikes. Circa 2004, in socialistic France where Unions were still strong, the country was frequency paralyzed by strikes.

The best way to handle employer/worker relations is not unions, but individual contracts (see the entry on employer/worker relations).

Question: Surely the Great Depression in the United States during the 1930's was an example of the failure of capitalism? Isn't it true that bad loans by unregulated banks caused the stock market crash, but FDR saved capitalism with his progressive government policies?

Answer: The Great Depression was most probably caused by severe contraction of the monetary supply. Prior to the stock market crash there was a contraction of the money supply, caused by President Herbet Hoover's faulty monetary policies. After the stock market crash, the anti-business policies implemented by President Franklin D Roosevelt made things worse, not better. For instance: FDR implemented protectionist trade barriers that caused international trade to precipitously decline. It's clear that government mismanagement was a major factor in the Depression. Whilst the Depression did expose some of the failings of an unregulated monetary system, this provides no support for socialism.

Question: Look at past privatization programs in various countries: for instance the Reagan era in the United States, the Thatcher era in Britain, or Rogernomics in NZ. Aren't these examples of failed neo-liberal ideology with huge social costs?

Answer: Most democratic attempts to reform a country in a more free market direction have been spectacularly successful. The Regan reforms in the United States took a country mired in inflation and low growth, and turned it into a country which sustained a decades long bull-market which during the 90's more than doubled the size of economy. The Thatcher reforms in Britain were even more strikingly successful, since when Thatcher came to power decades of socialism had reduced the country to a stagnant backwater on the verge of bankruptcy. Life in New Zealand under Muldoon's brand of socialism had reduced the country reduced to a grey Pacific backwater, with rampant inflation and low growth. The Douglas reforms turned the economy around, as demonstrated by the powerhouse 44% expansion of the economy during the 90's.

If, as the socialists claim, the reforms were wrong, why did voters overwhelmingly vote for Reagan and Thatcher and then return them to power again with huge majorities? Socialists conveniently overlook history. Socialism was extensively tried in the United States, Britain and New Zealand through out the 1970's and it was an abject failure in all three countries, producing inflation, unemployment, and bankruptcy. In Britain during the 1970's, Unions virtually ran the country, as evidenced by the infamous 'tea meetings' they used to have with the government. By the time Thatcher came to power, it had reached the point where rubbish was piling up on the roads uncollected, and sick people weren't getting treatment because workers are continuously going on strike.

Some in the left-leaning Blair government in Britain and the left-leaning Clarke government in N.Z (circa 2004) tried to paint the reforms as 'failed ideology'. But if they truly believed this, why didn't they simply reverse all the 1980's reforms and return to 1970's style socialism? Socialism doesn't work: that's why voters got rid of those 1970's socialist governments.

The 'huge social costs' often talked about are pure mythology. 1980's privatization programs did cause a short-term surge in unemployment, but these were mainly public sector workers from useless, bloated bureaucracies created by the previous administrations. In fact the privatization programs produced huge social benefits, as evidenced by the long term economic growth rates and jobs created. The programs benefited rich and poor alike, quite contrary to the claims of critics.

Question: The electricity crisis under Governor Gray in the U.S State of California was a good example of failure of neo-liberal ideology wasn't it?

Answer: It's common for critics of the free market to point to some historical economic problem as an example of market failure, when in fact the real cause of the problem is government mismanagement. The California electricity crises under Governor Gray made headlines around the world after the price of electricity was hiked to intolerable levels shortly after an apparent privatization program. In fact, only the distribution of electricity was privatized. Production was not. There was a shortage on the production side because of government environmental regulations that had prevented new plants from being built. In addition, the government had purchased futures contracts to freeze prices at a time when prices were at ridiculous levels. The California power crises was yet another example of the failure of socialism.


Question: Was communism really an 'evil empire'? Wasn't that just cold war rhetoric?

Answer: Communism really was an evil empire. Under centralized farming practiced in China and Soviet Union millions starved to death. Communist states such as the Soviet Union and Cambodia executed millions of their own citizens and imprisoned millions more in labor camps.

Just a few specific examples: In the communist Soviet Union, Stalin sent over 27 million people to their deaths in gulags. In Romania under Ceausescu's communism, all women under 45 had to have 5 children, an edict which was enforced by compulsory gynaecological inspections. Hundreds of thousands of orphans were created and poor medical practices such as injecting newborns with extra blood resulted in an explosion AIDS. Chinese communism saw Mao's 'Great Cultural Revolution', during which time priceless aspects of Chinese culture such as temples and museum artefacts were destroyed, foreign art and books burned, and thousands of scholars murdered. The communists of Cambodia, the Khmer Rouge ruthlessly executed or terrorized anyone suspected of 'Western Influence'. It's estimated over 1 million died in the 'Killing fields'.

Under communism people had no individual rights or freedoms and every detail of their lives was controlled by the state. Soviet military spending as a percentage of GDP was far higher than the U.S. Communist states sponsored terrorist group's word-wide and used force to impose themselves wherever they could. The worldwide death toll from communism exceeds 100 million, making it the most destructive political system in human history.

During the Cold War Era these horrendous communist atrocities had plenty of left-wing apologists. For instance well known anarcho-communist Noam Chomsky wrote passages which could be interpreted as sympathetic towards the Khmer Rouge. Even after the collapse of communism in the early 90's and the scale of communist failure, modern Marxists continued to trivialize or gloss over the human rights catastrophe. For instance British leftist Martin Amis wrote a ludicrous book making jokes about the Stalinist purges, and modern (circa 2004) U.S Marxist and social activist Michael Moore mentioned communism in his popular books but could say nothing bad about it.

Question: You must admit that socialist states provided free health-care, free housing, social security and jobs for all. And they did achieve equality. True?

Answer: Socialist states did none of these things. As economist Milton Friedman famously said: 'There's no such thing as a free lunch'. Someone somewhere is paying for it. Communist run services were financed through near 100% taxation.

The quality of communist health care and education was extremely low. The 'free' housing of the former Soviet Republics was shoddy and cramped and people had to wait for years before their entitlements were approved. The guaranteed 'jobs' were mostly 'pretend work', which created nothing of value. And the 'equality' of socialist states was a sham. The party ran the show and every one in disagreement with the officials could be imprisoned without trail. If you strip everyone of their rights they'll all be equal, but this kind if equality is hardly desirable.

The 'world class' health-care and education of communist Cuba was pure fantasy. Circa 2004 Fidel Castro was censoring Internet access for non-party officials, demonstrating that education in Cuba was of a decidedly restricted variety. As to Cuban health-care, there may have been plenty of doctors, but they were lacking in the most basic medicines and equipment.

Question: Sure, there were past abuses under the communist system, but there have been abuses under capitalism as well. Why is the communist ideal inherently inferior?

Answer: The communism ideal is inherently inferior because communism relies on altruism and the nebulous concept of 'social good' to supply human wants and needs. The communist ideal was that everyone pitches in for the 'social good', but the trouble is that workers are effectively 'working blind' - they can't tell whether or not what they are asked to is really helping society or not. They have to take it on faith that the central government is benevolent and knows what its doing. There are no signalling mechanisms to tell them what's working and what isn't. Under capitalism things like profit, prices, supply and demand serve to let businesses know whether or not they are producing a good or service that people want. The economic term is 'market signals'. For instance if a business makes a profit this is a signal that the business is doing something right. Market signals are precise; terms like 'social good' are vague.

In addition, the reliance on altruism is not in keeping with human nature. People will be less likely to work for others when they can't easily see some benefit for themselves. Most seriously of, altruism can lead to people being ruthlessly taken advantage of, as the human rights abuses under communism clearly demonstrate. How can workers be sure that the central authorities are worthy of their help?

Capitalism relies on 'enlightened self-interest' to create incentives to work and ensure that needs are being fulfilled. People are more likely to know what is in their rational self interest than they are to know what is in the 'social good'. Individual rights are more clearly defined and there's less room for abuse.

Question: Communism wasn't genuine socialism. In fact it was 'State Capitalism'. You can't blame socialism for communist abuses can you?

Answer: Communism was tried in multiple countries, under many different variants, and it was an abject failure in all of them. Each country claimed its way was genuine socialism. In Eastern Europe the word 'socialism' is used to mean communism as well as more mild forms. Socialism is as socialism does. Trying to claim that communist nations were practising 'State Capitalism' or weren't true socialism is a ludicrous attempt at semantic trickery. Communist countries had closed barriers, meaning people were not free to emigrate. This alone destroys any resemblance by the state to a business, which is defined as an entity that competes for labor. True, communist states weren't democratic, but the economic politics were similar in nature to those proposed by socialists, so the clear failure of these policies counts as evidence against any kind of socialism. It's clear that socialism itself is inherently flawed.

It's clear that mass murder is built in-to the communist system by its very nature, but Marxists continue to deny it, claiming that Marx would be 'horrified'. In fact it was Marx himself who advocated 'dictatorship of the proletariat'.

Question: Look at the more free market United States health-care system and compare it to the socialized systems of countries like Canada and Britain. The United States spends far more on health-care than most countries, and millions of people are uninsured. Isn't socialized health-care superior?

Answer: The socialized health-care systems cut costs by reducing the quality of care. Doctors are more highly paid in the U.S; there are more expensive treatments and greater availability of advanced medical experiment. The waiting times for operations are longer under socialized care. Under socialized health-care price controls on drugs reduce the amount of innovation, since pharma companies have less money available for R&D. American companies produce over 85% of the world's new drugs. Clearly, spending more on health care is not necessarily bad.

If people are uninsured this is also not necessarily bad. Most uninsured people are in reasonable health or only uninsured for brief periods of time. Market mechanisms such as private charity and loans can also ensure health care those who can't afford it. Forcing people to contribute to health-care can lead to over consumption: for instance the French compulsory health-care system has resulted in one of the highest rates of drug taking in the world.

The greatest advantage of private care is that people are free to enter into voluntary contracts, but under socialized care health care bureaucrats determine the interactions of providers and customers. If government is paying for people's health-care, the government can also claim the right to control their minds and bodies.

Question: The U.S health-care system is terribly inefficient! It needs a single-payer socialized system like Canada doesn't it?

Answer: The U.S health-care system is inefficient and has problems, but not for the reason socialists claim. The problem is not too much capitalism, but too little! The U.S health-care system is far from being a genuine free market, but is a mixture of government and private activity. 45% of the money is government directed, and the government runs Medicare and Medicaid.

The main problem with the U.S system is that many people's health insurance is provided through their employers, because the government allows businesses tax exemptions for this. This indirect method of health insurance creates the excessive bureaucratisation and inefficiency seen.

Critics leap on this failure of socialism as a justification for even more socialism! Their proposed solution - the single-payer system - would have the government run health-care and screw it up even more. (See the previous entry for an explanation of what is wrong with socialized health-care)

Question: Surely we need to take a 'balanced view' of matters? Just because extreme state control of the economy has failed, doesn't mean that a more moderate system can't work does it? Socialism is not communism. Isn't it just black and white thinking to think that capitalism is the whole answer?

Answer: The 'moderate' view is not necessary the best one. If two groups of people passionately disagree about something the answer doesn't necessarily lie in the middle! People should not believe something just because lots of people say it's true or because it feels right. Only rational analysis and empirical data can enable us to decide which political system is the best. Socialism advocates a 'mixed' economy, whereby the state redistributes some wealth, regulates for the 'social good' and runs some services. The most common arguments for a 'mixed economy' are examined in this FAQ, and all of them have been found flawed. The economic principles are flawed, and the empirical data provided by a historical examination of communism and socialist states backs this up.

It was never claimed that Libertarian capitalism is 'the whole Answer. The purpose of the FAQ is simply to challenge a range of flawed arguments by socialists. The people who are 'blinkered' are those who those who formulate their views on the basis of ideology rather than reason - like Marxist crackpots or amateur critics of capitalism who lack even the most rudimentary understanding of economics.

Question: There are examples of successful socialist experiments aren't there? How about some of the European nations? What about the Scandinavian countries or the Jewish kibbutzes?

Answer: There are only two kinds of socialist experiments... failed or failing. One needs only to consider the past track record of socialism to be able to assert this with reasonable confidence. If past experiments previously touted by socialists (such as the communist states) keep failing, isn't it reasonable to assume that something is wrong with socialism? Once one of their favourite experiments fails, socialists change their tune and pick new favourites - for instance in the 80's and 90's you often heard them talking about the 'third way', supposedly a successful balance between socialism and capitalism - Japan and socialistic European nations like West Germany were their favourite examples - that was before excessive Japanese regulation locked Japan's economy into a decades long downward spiral, and the German welfare state resulted in years of stagnant growth and looming bankruptcy which forced Chancellor Kohl to begin to reform it.

Kibbutzes are small communes, which could only survive thanks to the wider free market society in which they were imbedded. And even Kibbutzes are now undergoing substantial changes as they recognize the failure of communal economic models. Scandinavian countries will eventually be forced to reform their economies just like every other failed socialist experiment.


Question: What about pollution and global environmental problems like Greenhouse warming? Ever heard of 'the tragedy of the commons'?

Answer: There is less incentive for someone to care about the environment if they can simply export their wastes out in to something which is public and no one pays for (like the air). This 'tragedy of the commons' actually illustrates the failure of socialism, not the free market! It is socialism that advocates public ('common') management of resources. Pollution is a problem precisely because the world has been practicing de facto socialism with regards to many kinds of natural resources such as the air and oceans.

Government mismanagement has caused greater harm to the environment than the free market. More environmental damage occurred under the former communism states than it did under more free market economies. In addition, governments have routinely heavily subsidized environmentally destructive practices such as fishing and farming. In the United States circa 2004, the bigger polluter in the country was the Federal government.

The solution is to create market incentives to care for the environment. As an example of this, take the market in international tradable carbon emissions. The government does have a role to play here, by crafting and enforcing appropriate legislation. But such environmental regulations are perfectly compatible with the specific kind of capitalism being defended by this FAQ, which was defined to be capitalism under a strong rule of law which elucidates and enforces property rights. If someone pollutes and harms another person's health or a natural resource in which others have a stake, they are infringing on the property rights of these other people, and should be made accountable. By setting up markets in various green concerns, like the tradable carbon emissions mentioned, a method of making restitution for property rights violations is established.

Another way to deal with businesses thought to be causing environmental problems is to organize boycotts of the products of offending companies, and support companies producing green products. Companies that harm the environment will have to change their behaviour or go out of business. Large private organizations such as Greenpeace can easily help organize boycotts. Tuna fishing is a striking example of a successful boycott which helped dolphins.

Economic growth under capitalism creates the wealth that can be used for researching new environmentally friendly technologies and private conservation efforts. As technology advances the same things can be done for less pollution. For instance hi-tech filters can cut production from coal burning plants, and hybrid electric/fuel cars have significantly reduced pollution. The developing technology known as nano-technology is creating the ability to manipulate matter at the molecular level. It promises that a totally clean method of manufacturing may one day be possible.

Question: Isn't economic growth unsustainable because resources are finite? Aren't we running out of natural resources?

Answer: A significant disruption to supplies of critical resources can cause temporary problems, but in a free market, if resources start to become scarce, prices rise, leading to a search of substitutes and improved conservation efforts. The pool of resources is not fixed, because human ingenuity can find substitutes or new sources of resources. Supplies of most raw materials have been increasing throughout the 20th century, and the cost has been falling (See the entry on Natural resources). For instance, between 1950 and 1970, bauxite (aluminium source) reserves increased by 279 per cent, copper by 179 per cent, chromite (chromium source) by 675 per cent, and tin reserves by 10 per cent. In 1973 experts predicted oil reserves stood at around 700 billion barrels, yet by 1988 total oil reserves had actually increased to 900 billion barrels.

Production of certain kinds of resources such as fossil fuels may finally be beginning to peak but there are renewable energy sources in development which can serve as substitutes. Simplistic thermodynamic analysis of energy production is misleading, because it's not the quantities of energy used or produced that determine economic value, but the utility, or usefulness if that energy to humans. If energy is being used more efficiently you don't need as much of it, and some forms of energy are more valuable than others- for instance kinetic energy in the form of wind power is less valuable than the same quantity of latent energy in the form of oil. Solar power is a virtually inexhaustible supply of new energy for stationary sources and the hydrogen fuel cell can serve for transportation in place of fossil fuels. Developing these technologies costs money, so to avoid resource shortages a good economy is essential. Libertarian capitalism is the system which generates wealth the fastest.

Question: Shouldn't 'The Precautionary Principle' be applied to applications of new technologies such as G.E or Nano-Tech, in order to avoid environmental disasters?

Answer: 'The Precautionary Principle' is an absurd proposal by luddites to shut down scientific progress. It may superficially seem reasonable, but it's so vague that in practice it would mean high-tech goods or services such as G.E foods would have to be shown to be completely safe before they were allowed. This is impossible, since nothing is completely safe. The onus is not on a business to show that something is completely safe; the onus is on critics to prove that it's unsafe. The reason is that bans on things are restriction on people's freedom of choice, and could prevent advances of huge value from becoming widely available, so restriction should err on the side of freedom. If such a sweeping restriction had been in place during the 20th century, it's doubtful whether many scientific advances would have reached fruition. Germany's application of the precautionary principle for instance, saw the Bio-Tech industry in that company shut down for over 30 years.

Too many regulations will harm the development of good technologies as well as bad. Nothing is free of risk. All actions have risks but so do inactions! Regulations which slow down the development of potentially life saving technologies are placing the lives of those people who could benefit at risk.

In fact, regulations will actually increase risk if they are bad regulations! Regulations only make sense if there is a strong body of knowledge regarding the technology in question. Supporters of the Precautionary Principle typically advocate 'public consultation'. But it makes little sense for non-experts to make judgement calls about complex technologies. How do you imagine the space shuttle would turn out if everyone had a say in the design? Ignorant panic is no basis for restricting the freedoms of other people. Attempting to ban things outright will only drive them underground, where they will fall into the hands of criminal elements.

There are market solutions to the problem of risk. Private organizations can work to monitor and certify safety. Insurance can be purchased. The threat of civil law suits creates incentives to avoid disaster.

Rouge technology can be countered with what are known as 'active shields', technology designed for defence. There's an expression in football: 'Every offence has a defence'. For instance biological weapons can be stopped by effective vaccines; nuclear missiles can be shot down by a missile defence system and so forth.

Obviously, an environmental techno-disaster (for instance a nuclear melt-down) could be a major violation of property rights. It is appropriate to craft regulations to ensure safety where the activity in question has definitely proven risks, and a firm body of technical knowledge has been established. But not other-wise.


Question: What about regulation of food and drugs, like the work the FDA (Food and Drug Administration) does in the U.S?

Answer: Some degree of regulation would seem to necessary with regards to the safety of food and drugs. This is entirely consistent with Minarchist Libertarianism, defined to be characterized by a rule of law elucidating and enforcing property rights (the non-initiation of force principle). If someone purchases a food or drug and they do not get what they would expect (for instance their health is unexpectedly harmed), this counts as fraud and an initiation of force.

With regards to drugs, the customer has to be aware of the degree of risk they are taking. It's not the safety of the drug that is the important issue for the transaction. It's the freedom of choice of the customer. The only valid role for government regulation then, is labelling of the drug. Information has to provided stating to what extent the drug been tested, and the estimated risk. Then it should then be entirely up to the individual whether to try it or not.

By forcing new drugs to be tested, the FDA is a government monopoly that restricts people's ability to try new drugs. Private organizations could do drug testing. The Underwriters Laboratory, for instance, is an example of a very successful private company engaged in certification.

The FDA also requires that drugs be tested for efficacy. This too is not necessary. If a drug is safe, but doesn't do what is claimed, it's still fraud, only now no harm to health can been done. The civil courts can deal with this. It's a simple breach of contract and the customer simply claims compensation.

Having a government agency test for safety and efficacy restricts freedom of choice, raises the costs of the research and development of new drugs and delays the length of time it takes to bring them to market. People may be dying from lack of treatments that could have saved their lives in the meantime.

Critics of the free market complain about the high costs that Pharma companies charge for drugs, but omit to mention that it's the government that is the cause. Pharma companies have to make a profit to survive but forcing them to have their drugs tested by the FDA adds huge additional costs, which they can only recover by raising prices. Circa 2003 a Tufts study estimated that it cost a drugs company over $US 800 million to bring a new drug to market, and only one third of all new drugs generated enough revenue to exceed the research and development costs.

Tests for safety and efficacy of drugs should be handled by private organizations, with the only government regulations required being labelling to state the degree of testing and the estimated risk if the drug is new, labelling describing the known effects, and a strong judicial system to punish businesses who perpetuate fraud.

It is appropriate for the government to craft some basic regulations to ensure food safety. But the purpose of these regulations should only be to protect people from fraud.

Examples of regulations which would not acceptable under Libertarianism are restrictions on advertising, extra taxation on tobacco, alcohol and the proposed 'fat tax' of food Nazis. This because these regulations are restricting freedom of choice, by increasing expense. If people understood what they were getting it is not the role of the government to moralize to them, even if they may be damaging their own health. Again, individual volition is the key. Prior to proper labelling of tobacco, customers had a case for suing tobacco companies, because they may not have understood what they were getting. About after the tobacco products were labelled with health warnings, there was no more justification for this.


Question: Workers in developing countries are just being exploited by Multinationals for cheap labor and resources aren't they? There are no proper health and environmental regulations either!

Answer: The conditions that exist in developing countries are a failing of the governments of those countries. Its true multinationals are getting cheap labor, but this benefits the workers of those countries as well as the multinationals. If the multinationals weren't there, the workers would be worse off, not better. 1st world standards cannot be applied to third world conditions. Take Nike in Vietnam circa 2003 for instance. If Nike was running an immoral sweatshop as anti-globalization activists claimed, then so was virtually every local business in Vietnam! Imposing 1st world health and safety standards on Vietnam would put virtually everyone out of business, since hardly any businessman there would be able to absorb the costs of complying with these regulations. Circa 2003 Nike was paying double the average wage of workers in Vietnam, and people wanted to work there. It's win-win situation helping to lift Vietnam out of poverty. As the economy grows, local wages will rise and businesses will be able to afford to give more consideration to environmental and safety factors.

As to the old paranoid idea that third world countries are some how being 'exploited' for natural resources, recall that it is human know-how that creates resources (See the section on Natural resources). The example was given of Oil, which would be a worth-less black goo to someone would did not understand how to use or extract it. By supplying 'know how' to add value, it would be more accurate to say that natural resources are being created by companies, not stolen.

Question: International financial organizations like the WTO, the IMF and the World Bank are hugely unfair aren't they? Aren't rich countries just using them to impose neo-liberal agendas on the poor?

Answer: It would be naive to imagine that there isn't some degree of unfairness in the way global financial institutions work. Even free market think tanks acknowledge that it's not a level playing field. The sort of capitalism occurring on the global level is not actually the sort of capitalism being defended in this FAQ. Libertarian capitalism was defined as capitalism under a rule of law to protect individual rights. At the global level there is no consistent rule of law, so the situation is technically anarcho-capitalism.

But the fact is that poorer countries would be even worse off if these global institutions weren't present. There is a coincidence of interests among nations. In so far as the global institutions promote genuine economic freedom, they improve life for rich and poor alike. Studies show that globalization is on balance good for poorer nations, and the people in these countries are generally in favor of it.

The global financial institutions have sometimes had to work with dictatorships (Indonesia is often cited by anti-globalization activists) but business can hardly be blamed for the abuses of bad governments can it? In fact the WTO, the IMF and the World Bank are all governmental organizations. Poor countries should negotiate in order to secure fairer deals, and activists should work towards governments that better protect human rights.

Question: There was terrible exploitation and repression during the colonial era. Isn't that the reason that poor countries are poor? Isn't 'globalization' just a continuation of imperialism?

Answer: There were undoubtedly dreadful human rights abuses under colonialism, but that is not the reason poor countries are poor. They are poor mainly because of their own bad governments. (See the entry on global poverty). To compare 'Globalization' to imperialism is ridiculous paranoia. Globalization is the process of increasing ties between nations, occurring mainly through peaceful trade and exchange of culture. Although some abuses have occurred, studies suggest the process is on balance good for the poor (See the entry on financial institutions). Actual imperialism is something mainly involving the initiation of force by governments.

Question: What is capitalism doing for indigenous minorities? Isn't their past treatment a disgrace?

Answer: The most terrible oppression of minorities was sponsored and carried out by governments. It was the U.S government that put Indians in reservations. It was the Australian government that oppressed Aborigines. It was the British government that warred on the Maori of New Zealand. Libertarian capitalism with rule of law to protect and enforce property rights is the best means through which restitution can be made for past wrongs. Theft of lands was a property right violation, and where the judicial systems can definitely establish specific claims, compensation can be given.

A recent example of race relations in New Zealand (circa 2004) demonstrates how socialism actually robs minorities of their rights. The left-leaning Clarke government had effectively nationalized the foreshore and sea-bed, by stating that no one could own these natural resources. This is a violation of property rights, not only for Maori, but for any one who can establish rightful ownership. Both Maori and others should rightfully be able to own any sections of the foreshore or sea-bed for which they can clearly establish property rights in a court of law.

Question: Doesn't capitalism destroy diversity? Surely we don't want a bland MacWorld? There are so many different cultures and viewpoints. Isn't it foolish to suggest that one system would work for everyone?

Answer: It is government control that destroys diversity, not capitalism. Government restricts freedoms and enforces standards. Libertarian capitalism aims to maximize human freedom, by making individual liberty the foundation of the system. It's precisely the system celebrating diversity and creating the opportunities for every cultural group to flourish. It's true that different nations are becoming more similar due to globalization, but that's because of an increase in diversity within these nations... more of the culture and goods of different nations become available in one place.

It is not being suggested that one system fits all. Only that there are some features that every successful political and economic system have to have in common. Isn't this reasonable given that there are some things that all humans have in common?

Question: Doesn't capitalism encourage violence and war? The U.S has overthrown democratic governments for the sake of capitalism. The U.S is aiming for global dominance. Haven't you read any Noam Chomsky?

Answer: What encourages violence and war is not capitalism, but the opposite: big government. Most wars in the 20th century were fought for largely political and not economic reasons. In fact the era in history that was the most free-market (the latter half of the 19th century) was also the peaceful.

Noam Chomsky's works do raise serious questions about past American foreign policy. But politicians, not businessmen, drive the foreign policy of the United States. Wars are generally bad for business. For instance, circa 2004 the U.S government had spent well over US $100 billion on the invasion, occupation and reconstruction of Iraq. This is far more than any revenue it could recover from Iraqi Oil supplies over the coming years. Although some specific business interests might benefit from wars, wars generally cost ruinous amounts of money and are rarely fought for purely economic reasons.

It is strange that critics of free markets sometimes point to war time governments as 'successful' examples of more communal models of political organizations. One needs only ask what governments at war were doing to see the absurdity of this. During the 20th century, World War I and World War II were basically government sponsored programs of mechanized murder on a scale which beggars belief. Over 10 million lost their lives at the hands of governments in the First World War, whilst 50 million people were exterminated by the government machine in World War II.

Governments all around the world have committed human rights abuses, and the more powerful a government grows, the greater the potential for abuse. That is precisely why Libertarians advocate sharply limiting the powers of the government.

Question: Shouldn't free trade be fair trade? What's wrong with tariffs on imports from countries engaging in unfair practices?

Answer: The question of free trade is a complex issue, on which there is disagreement even among fans of the free market. For instance circa 2003 there was a major debate in the U.S about whether or not to allow reimportation of cheap drugs from Canada, which had imposed price controls when they purchased them from American pharma companies. Where it can definitely be established that there is an unfair trading practise occurring in the country of origin, it would seem reasonable to retaliate by imposing tariffs. For instance government subsidies for national businesses give an unfair advantage over overseas competitors not subsidised by their governments. Circa 2004 the European Union and American governments heavily subsidized their farmers, making it difficult for farmers in the developing world to compete. Another reason for imposing trade restrictions with a country would be human rights abuses. There is no international rule of law, only international convention, a situation that is technically anarcho-capitalism. The only way to resolve these issues is through international negotiation. For course, under genuine free market capitalism with rule of law to enforce property rights, there would be no justification for trade barriers.