The Problem With Capitalism

Contrary to Ayn Rand’s dreams, Capitalism is neither free nor moral. It is a form just another form of statism that differs only in details from Communism. Specifically, it is a complex web of coercive legal structures and controls that abrogates individual freedom and responsibility and enriches some persons at the expense of others. It is a form of authoritarianism (institutionalized violence). Its artificial legal structure destroys and perverts everything that is normal and natural in human life and relationships.  To Ayn Rand, coming from the Communist Soviet Union, Capitalism seemed to be freedom incarnate. It was certainly a better system in some ways. However, she failed to see the coercion in Capitalism. She failed to see the hand of the State.

Historically, Capitalism began with certain basic abrogations of free contract among persons. These created distortions that were answered by new regulations, that created different distortions requiring additional regulations, and so on. I call this the Slippery Slope of Interventionalism. It is an unavoidable problem because you cannot mix incompatible moralities. Human social interaction has two possible forms:  consensual or coerced. Once one introduces an element of coercion into a consensual system, then the consensual self-regulation of society no longer functions properly. The distortions introduced by coercion (laws, rules, regulation, etc.) produce a ripple effect of further distortions, leading to a cry for additional interventions. Society enters into a slippery slope towards total control of all aspects of life--which is the condition of the United States today.  There is no middle ground between consensualism and coercion in our relationships. Force (coercive government) must always expand its powers and its distortion of cooperative society until that society suffers socio-psychological collapse and some new, less destructive government takes its place. Then the slide down the Slippery Slope begins again.

What are the original sins of Capitalism?  What are the coercive interventions that form its foundations?

  1. Granting ownership of land to a small group of persons--this had its beginning in feudalism.  
  2. Granting the monopoly control over money creation, and the profits of money creation to a group of private persons instead of to the government and people—this abomination in America is the Federal Reserve banking system. It concentrates money and therefore power in the hands of a small group.  This MONEY POWER thereby controls the media and the electoral process.
  3. Granting banks the right to engage in fractional reserve banking. This is the ultimate scam whereby banks create loans from thin air and with these loans they enslave the borrowers who must work for 30 years to pay interest on a principal that was created from nothing and disappears when repaid. Slavery has not been banished in Western societies, it has simply taken on a new form that makes it harder for the slaves to realize that they are slaves.
  4. Taxing the citizen-slaves to pay the interests on the governments loans, money the government should have simply created and spent into circulation. It is no accident that the income tax and the Federal Reserve system were created at the same time.
  5. Defining personal relationships as government-enforced institutions—marriage being the more important example.
  6. Granting monopoly privileges to certain groups—as in regulation of the professions, licensing, etc.
  7. Taxing some persons in order to support other persons.
  8. Enforcing a legal system on the population in which fines are paid to the state, not to the victims.
  9. Government enforcing of private contracts and civil liability--thereby reducing personal responsibility for one’s decisions.
  10. Patents and Copyrights: extending the concept of property to ideas in order to enrich the clever at the expense of everyone else
  11. Regulating private interactions and business—which are then no longer private or consensual
  12. Creating government chartered and regulated businesses called corporations—these are for-profit government institutions. Their existence abrogates the private business model and forces private enterprise out.
  13. Laws that regulate their behavior in matters that affect no one but the person involved—i.e. personal safety, drug use, gambling, etc.
  14. Laws that regulate consensual activities—i.e. vice laws, loans, drug making and selling, employment, contracts, etc.
  15. Laws that force children to labor in schools throughout their formative years instead of developing naturally as integral parts of a cooperative society.
  16. Allowing persons to sue other persons in state courts for consequences resulting from their own uncoerced decisions and behavior—violating the logic of personal responsibility and cooperation among persons, and with it the good will among persons in the society.

Society needs none of these interventions, and each intervention has and must create distortions that require additional interventions.  Each intervention removes people farther and farther from natural morality and cooperation. We can’t see what’s wrong with our regulated society unless can have some sort of vision of what a normal cooperative society would be.  So as a thought experiment, consider a small community of persons cooperating with one another for mutual advantage—a natural human society:

Morality:  As no person ever wants anyone to force them to do things or to surrender their property against their will, this community naturally values cooperation and non-violence above all other values. Every transaction between adults is allowed if and only if there is no use of physical force or threat of same—let’s call this the Prime Directive. The Prime Directive is the necessary but not sufficient basis for all human action and interaction. It means zero tolerance for coercion and complete tolerance for consensual interactions of every kind. (On the contrary, our society tolerates coercion and violence of all kinds, yet is extremely intolerant of freedom in many spheres of life.) Of course, beyond this most basic principle of human association, they also have clear ideas about what behaviors are healthy and productive and what behaviors are self-destructive, but no one is forced to act in any certain way as long as they obey the Prime Directive and are not taking values from others against their will. For instance: the society may disapprove of prostitution and ignorance for good reasons, but it will not resort to force to prevent prostitution. People will see vices as psychosocial pathologies and seek to eliminate the causes and rehabilitate those affected—again not by force. They will not view uncoerced behaviors and interactions as crimes requiring group coercion (government intervention).

The creation and control of the paper/credit money supply is one of the forms of property that government must control, and must use to fund its services to the public. However, fractional reserve banking, as it exists today in most countries, is a criminal syndicate. Bankers have gradually usurped from governments the power to create money from nothing—by manipulating monarchs and then democracies. The struggle between the bankers and prominent American politicians (Jefferson, Jackson) is well-documented:


“I believe that banking institutions are more dangerous to our liberties than standing armies.  Already they have raised up a moneyed aristocracy that has set the Government at defiance.  The issuing power should be taken from the banks and restored to the people to whom it properly belongs." -- Thomas Jefferson (1743-1826)


The bankers triumphed in America with the establishment of the Federal Reserve System and the institution of the income tax to provide the funds to pay for the loans that government had to take out. Governments must take back the right to create money from nothing, and use this privilege to pay for its necessary services so that taxation is unnecessary. The exchange rate of said currency for all commodities and services should remain completely unregulated, as should the exchange rate among the various types of currency. The rate of interest charged for any real loan of real money should also be a completely personal, unregulated transaction between consenting adults. Beyond preventing violence, the other legitimate function of governments is to define property rights. Money is a legally-created, legally-defined medium of exchange. Precious metals are commodities that can be minted and stamped and used as money, but they are not themselves money.  The government should define what is used as money, and should create that money and pay its bills with that money, eliminating the need for taxation and tax-slavery. The government must never grant the power to create money from nothing to private banks or individuals.

Consensual Transactions:  Every interpersonal transaction is identically free and uncoerced, with full and sole responsibility lying with the contracting persons. There is no artificial distinction between public and private. One is just as free to discriminate in one’s choice of employee as in one’s choice of marriage partner—and just as completely responsible for the outcome. There is no government enforcement of private agreements or contracts—when people contract they will agree to arbitration to settle disputes. Surely there will be shared social norms, but no resort to force if private agreements are not carried out. Contract law obviously favors the clever and wealthy at the expense of others—one need only think of England’s historic debtor’s prisons to understand the true nature of government-enforced private contracts. Consider the implications of non-coercive relationships:  without the legally-enforced marriage institution, each woman will know that she will have no redress for support except to the father of the child. She will be far more circumspect in her choice of mate and her decision to bear a child. People will depend much more on research and on reputation in their dealings, not suffering from the delusion that government regulation or institutions somehow “guarantee” a good result. If the other party refuses to honor its end of the bargain, the first party cannot resort to force, either private or public. Each party made an uncoerced agreement and must suffer the consequences of their mistakes. A few moments of contemplation suffice to illustrate how much this would change the nature of human interactions, and for the better. Being solely responsible for the results of their actions, persons will be far more circumspect; they will use their minds to a much greater degree. Public opinion and private arbitration would perform the tasks now assigned to lawyers and judges.

Other aspects of a free and healthy human society are addressed in other articles.  I will be happy to add more detailed treatments of certain issues here if you ask.

Let me know what you think!