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Capitalism in Repose: A Portrait

What is capitalism? I have mulled this over multiple times and even published articles wondering what exactly capitalism is and what it is not. The reason is because while nobody agrees on an exact definition, by and large folks agree that it is something fairly new, that has only been practised over the last few hundred years.

Capitalism is not, in itself, private ownership of the means of production, otherwise everything in a sense is capitalism, even communism, but it relies on the existence of private property rights in things, including things that can be used to make other things.

It's time to end the confusion as to what capitalism actually is and be very very specific. Capitalism is a set of economic activities/processes whereby entrepreneurs meet financiers and -both motivated by money profit & loss- implement a never-tried-before plan for the allocation of labour and capital in the production of a good or service. This means money must exist, and therefore private property rights must be at least mostly respected.

It doesn't matter whether it's a completely new good/service or just a new way to put together an existing one. It's the allocation plan, stupid! Why a new plan?

Once production kicks in and units are sold the success or failure of the plan is assessed based on the team's total profit margin - that is income after production, payroll, compliance and administrative costs. But this team of entrepreneurs and financiers are not the only ones making that assessment...

Sure enough, as per the second part of the diagram above, other teams implement the same allocation plan and so market crowding becomes a foreseeable or real problem for all the teams participating in the race. Meanwhile the old ways that this allocation plan has surpassed (in efficiency and productivity) are abandoned - this is creative destruction; death of allocation plans and their replacement in real-time by new ones.

Therefore, at some point somebody lowers their prices.

If the price goes down, availability has also gone up, and since it's produced goods and services that offer people the chance of survival, safety, comfort and finally leisure then by definition capitailsm is ushering in an age of universal easy access to all of these things, or affluence!

Rinse and repeat this process to explain every permanent increase in the general welfare of people from 1800 to the present day. It's not hard to see what's going on here, and it's not hard to see why this process is so vital to human flourishing.

This should basically kill any criticism of capitalism itself, as opposed to particular actions by particular people. Limited liability, corporate personhood, bans on unionisation, and events like the Haymarket massacre are now demonstrably not intrinsic to the definition or performance of this capitalism.

Enjoy Capitalism!


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