Capitalism: Part I

Capitalism is often vilified as being unfair, anti-democratic or even immoral, but what really is capitalism?  Capitalism is an economic system where people are able to freely trade for goods and services. A second aspect of capitalism is the private ownership of goods, land, and property in general.  Capitalism is not a perfect system, nor one without government involvement, but it is the most prosperous, most free economic system that we have.

Both the stated aspects of capitalism are displayed in a very common event, a garage sale.  A garage sale is the bare bones of capitalism.  You are trading ownership of an item for an amount of cash that is agreed upon by both people.  In this arrangement it shows the basis of what makes capitalism work, and why it works so well.  If I go to a garage sale and see a bucket on sale for one dollar and buy it because I just happen to need a bucket for painting my house, then I’ve just gotten a great deal. Also, the person who is selling the bucket has had the bucket lying around taking up room in the garage for years and now is glad that some guy gave them a whole dollar for something they would have gladly taken 75 cents (or less) for.  Both people come out of the situation thinking they got a great deal and both people feel they benefitted from the transaction.  This is capitalism.

Nobel Prize winning economist Milton Friedman once said, "The most important single central fact about a free market [Capitalism] is that no exchange takes place unless both parties benefit."  This is the beauty of capitalism.  The garage sale story above is how our entire economy operates.  When we go to Wal-Mart we will only buy things that have more value to us than the money that we will give to Wal-Mart.  This doesn’t mean that we’ll be joyous about the price of everything, but it does mean that we won’t buy anything unless we think the item is worth more than the money they are asking; in other words, we’ll only purchase the item if it is ‘worth it.’  Equally important, Wal-Mart will only sell things to us for a price that is worth more than what it is worth to them.  This does not mean that Wal-Mart is just trying to rip us off by charging as much they can. Wal-Mart has realized that if they sell things for as little as possible, and hence sell a much larger quantity, then they can make more money than by trying to rip everyone off.  So we see that in a market economy where both buyers and sellers are free to purchase and sell as they please both parties will only partake in trade if they both feel they are going to benefit by the exchange.

These exchanges don’t just happen at Wal-Mart, they occur when you negotiate a salary, or an hourly wage.  They occur when you’re deciding whether to buy a cell phone, to get your car washed, or to go see a movie. Every time we spend money we think, “Is this worth it? Or would I rather keep the money and wash the car myself?”  By asking ourselves these questions we do a pretty good job of putting our money where we most value it, and thus maximize the return for our money.

When everyone is controlling their own money, each person can make the decisions that they feel are best.  Will they always spend that money wisely? Sadly, no. (After all, this exists).  But they will likely do a pretty good job, and don’t they have the right to spend their money their money however they choose anyways? For right or wrong?  That is what freedom is all about, the opportunity to do with your life whatever you will.  Capitalism is the only existing economic system that allows freedom of its participants.  Capitalism is an economic system that promotes freedom, frugality, and prosperity, and best of all: it works.