“I don’t like potatoes. They are red, gelatinous and gooey. The little seeds always get stuck in my teeth. Also, they are actually fruits, not vegetables!”

That is what it sounds like to me when critics of capitalism voice their concerns, as if describing the bad qualities of something completely different they will quite happily list all the reasons why tomatoes are bad while thinking they are successfully taking apart potatoes. Their aversion to capitalism is simply founded on a complete misunderstanding as to what capitalism is.

Let me deal with a few common misconceptions:

Economic Growth = Capitalism

Economic growth is a metric which politicians constantly fret about. Why is it important for politicians? It is a measurement of the value of the goods and services that have traded hands during a certain time period. As such, it is easy to manipulate, and it is also completely without intrinsic value. If everyone had precisely what they needed for a year and did not need to purchase anything, nor work, this metric would collapse. That would also mean that there would be absolutely no activity that could be taxed. People would be well off, politicians would not.

Real economic growth however is very capitalistic indeed. It is quite simply the improvement in the ability for civil society to cater to its needs in terms of consumption. Real economic growth could very well mean that the total value of consumption would go down because of innovative solutions, changed values or because of lower prices.

As an analogy: imagine Robinson Crusoe has to spear three fishes every day to survive. Sometimes he gets four of which he dries one to save for later. At some point he decides to invest the dried fishes by eating them while constructing a net. Now he only has to fish once a week. Voila! He has conducted capitalism and drastically improved his standard of living. From that does not follow that the fish economy has grown, it is “stagnant” at three fishes a day. There is no intrinsic value in him eating four fishes a day unless that would be his wish. What if he valued spearing fishes above all other things in life? Then perhaps he’d invest his dried fishes taking a day off, or in building bricks for a sturdier home – in which case the brick economy would have ”grown.”

Economic growth is a favourite scare among environmentalists and Malthusians, as they see increased consumption coupled with increased populations as the overbearing yoke under which we destroy our planet. I would agree that the results of government stimuli fuelled “growth” is detrimental, precisely because it is NOT capitalism.

Corporations Not Paying Taxes = Capitalism

I happen to believe that taxation is inherently a crime. But even if it were not, taxation is a paper tiger to big business who are in many cases able to deal swimmingly with taxation overhead, whereas small businesses and private individuals are easier to muscle around. This fact, together with the overburdening cost of regulatory adherence are part and parcel of how the state incentivises the creation of huge multinational corporations in the first place. The costs of interaction with government simply decreases as a percentage of turnover as a corporation grows, and the ability to affect government likewise grows.

Furthermore, taxation directly spawns and underpins industries that are entirely reliant on taxation for earnings; such as the military and prison industrial complexes. For them, coerced funding is an absolute necessity at least at the abhorrent scale at which they are currently operating.

Capitalism is not equal to big business. Big business however, is favoured by the existence of big government.

Lobbying = Capitalism

Corporations and conglomerates of vested interests, also known as lobby groups – are known to be able to buy legislation. As a libertarian I expect nothing else. I know that power corrupts and that power attracts the corruptible. Nonetheless I would agree that the fact that legislative, executive and regulatory government bodies are in the hands of powerful vested interests is deplorable.

But the buying of political power is not capitalism. It is corruption. And the manifestation of corruption differs in degree and kind from country to country. The only thing we can be sure of is that it exists wherever there is government.

Unregulated Banking = Capitalism

This would actually be true. If banks were unregulated, they would serve as wonderful agents of capitalism. But it isn’t true. Banking is one of the most regulated industries in the world, barring perhaps nuclear and medical industries. Yet modern banking is rotten to the core, as it will remain as long as banks can expect bail outs and can feed off the uniform inflation model of a central bank with a monopoly on money.

The already hefty regulatory packages that are in place in the banking sector serve as an impossible barrier for new and innovative players.

I would agree that the unholy alliance between a regulating and bail-outing state and banking is very bad indeed. Costs and risks are socialised while profits are private. Capitalism can only exists where costs, risks and profits are privately gained and lost.

For all these reasons; modern regulated banking in fact serves as a great example as to how NOT to do capitalism.

You say Capitalism, I say Corporatism

I can validate many of the concerns that so called critics of capitalism have, but the confusion as to the definition of capitalism leads us to different conclusions. While critics will say that government should focus on reining in the destructive forces of capitalism and regulate it towards better goals, I will say that government should cease to exists entirely and so rid us of the plague of corporatism.

So what is capitalism? I would like to summarise it as such: the process of saving, innovating and investing privately owned time and resources in such a way that it increases productivity and standard of living using the guidance of people’s subjective valuations. These subjective valuations are made visible through prices set through voluntary interactions on the free market.

There is nothing else to it. Anything added to that will only accomplish a rotten potato.