BANKNOTE – The Ethics of Capitalism as an Economic System

The deepest principles of capitalism are found in the definition of free trade: “A willing buyer and a willing seller deciding on a transaction without outside coercion.”   Two individuals arrive at an agreement.  This point is critical.  Capitalism only exists in individual freedom to choose.  True capitalism doesn’t spring from any law or any government.  The economic system called capitalism arose naturally from the individual freedom on which our nation was founded.  

For eons mankind has bartered, the first seeds of capitalism; but all nations were subject to their more powerful neighbor taking through force.  Free markets didn’t reach their full power until our nation was founded on the concept of the sanctity of the individual.  No other nation codified the concept of inalienable rights, from our creator, not man: Until our Declaration of Independence and Constitution were forge.  The entire concept of capitalism is that free trade and individual rights inexorably united our nation and the sanctity of the individual into one concept. 

Therefore, the single role of government is to protect the individual freedoms that accrue from our creator. 

Capitalism has been maligned for decades.  The main arguments against are greed and avarice.  No doubt some capitalists are guilty, however, the vast majority of business owners, inventors, and founders created a better way that other people want.  In a capitalist economy, individuals decide, not governments.

Cronyism:

Is not capitalism.  Cronyism uses the power of government to subvert free enterprise.  It creates unfair advantage through manipulation of a market.  While it is legal for Musk or Buffet to use government contracts to keep a market to themselves, it is not ethical to do so.  For instance, the subsidy EV’s get from the government distorts the market; it takes money in the form of taxes from one person to pay off another.

The subsidy that EV buyers get is actually taken from other people, through taxation, to benefit one small group, thus costing the majority.  If the EV is desirable in a free, capitalist market, then it would not need a federal subsidy.  

Taxation:

All federal revenue comes from taking from the indiviual.  The government is not capable of generating profit, so it must tax its citizens.  Government is antithetical to individual freedom and therefore, to capitalism.  It’s a zero-sum game: what government has, it must take and the individual must give up.  There must be a limit, a balance.

Citizens realize that some portion of their income should go to supporting our government.  But when a certain group pays the vast majority of taxes, and when another group pays no taxes, the burden is not equally partitioned.   The high wage earners are disproportionately impaired, while low wage earners pay almost nothing, the system will not long sustain itself.  

There is a point at which the tax burden becomes untenable.   At that point, businesses and the wealthy will seek tax shelters or even move their product lines off shore.  This is self limiting since tax revenues are dependent on profits and business profits will decline as tax rates increase.

Our nation’s founders recognized the need for limited government.  Therefore the compromise, so brilliantly executed in our Constitution, is to limit government activity to highly restricted avenues.  They gave taxing authority only to a body that regularly must stand for re-election by the very people they tax.  

“Big-Government” politicians found a way around the Constitution by “robbing Peter to pay Paul.”  So they could always get Paul’s vote.  But this is a highly limited endeavor, since Peter, the producer of wages and taxes will eventually rebel.  Ayn Rand wrote volumes on this topic.  As did Milton Freedman and the entire Austrian Schools of Economics.

Federal Debt:

Is really your debt, since every wage-earner must pay it back.

When the government, especially the Administrative State and Congress spend more that they take in through taxes, the government places every citizen in our nation into debt, just so the politicians can continue to spend other peoples money.

The solution is to force government, through elected politicians, to stop and reduce  spending.  How many more welfare programs do we need?  How effect are the programs in place?  Would not private enterprise better serve the needs of the needy?

Profit:

Allows a business to self-perpetuate.  Profit requires that the business owner balance employee satisfaction with other costs, sells his product or service for a price above his total cost and thereby create profit.  Remember that capitalism requires a willing buyer.  If the seller doesn’t provide a product or service that satisfies the buyer, the seller won’t sell.   And the business will fold.  The key point is freedom to choose, free of government influence, perpetuates capitalism.

Because capitalism is available for everyone, it has propelled the majority of citizens out of subsistence living to relative wealth.  Even the poorest among us benefits greatly from free markets.  It’s too bad that the government wants to pay people to remain in poverty, using welfare and entitlements.  Instead we should encourage people to engage in the uplifting process of fending for themselves.  Entitlement breeds dependency.  Free enterprise, capitalism, bredds independence.

The Golden Thread:

That unites freedom, capitalsm and our nation is the sanctity of the individual.  Whose rights are noted in the Declaration of Independence and bestowed by our Creator.  Our Constituitional Republics allows, and even demands, that we exercise our rights as individuals to limit and balance our government.  We have a golden opportunity to right the wrongs and bring order to the chaos. 

Jay Davidson is founder and CEO of a commercial bank.  He is a student of the Austrian School of Economics and a dedicated capitalist.  He believes there is a direct connection between individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.