Is capitalism the last best hope for wordwide peace and prosperity? Or is capitalism inherently exploitative, polluting, dehumanizing? Here is an argument that has raged unchecked in the hearts and minds of society for centuries. Indeed, it is said that a twenty-one year old who is not a liberal has no heart, and a fifty year old who is not a conservative has no mind. But is it possible to unite heart with mind, justice with freedom, equity with efficiency in a single argument — or a single economic system?
We'll never come to grips with such questions until we can properly define our terms. The word "capitalism" is used in two distinct senses — may or may not be incompatible, but they are certainly different. Is capitalism
an economy which preserves the power relationships of the status quo, reducing workers to mere automatons denied both the value and the dignity of their work, and which seeks growth, of markets and profits, above all else?
Or is it
an economy which respects the rights of workers to the fruits of their labor, and uses the natural benefits of the free market to allocate goods and services in the most efficient way?
True Believers of either the right or the left may think the difference between those two statements is merely rhetorical, but it is not. They depend on entirely different conceptions of what capital is. If capital is simply tools and equipment, made by labor and used in production, then how can it be an instrument of exploitation?
Not only that: these two opposing views of capital contain different underlying assumptions about economic behavior itself. Can we trust ourselves to cooperate? Or are human beings doomed to foul up their communities and their environment, if left to their own greedy devices?
Markets, after all, spring up spontaneously wherever people gather. None of the essential features of a market economy — trade, specialization, entrepreneurship, monetary systems — require conscious direction; they just happen. This central fact is what Adam Smith called the "invisible hand," and Henry George dubbed the "body economic" — which exists prior to the "body politic," and out of which political systems come into being. The inexorable tendency toward greater specialization and more intricate forms of trade naturally leads to a market in which workers sell their labor power, and entrepreneurs will take risks and undertake capital investments. These developments are quite predictable and natural — which led Karl Marx to see an unavoidable "historical materialism" at work.
If the power relationships of the status quo have arisen out of the private ownership of capital, then how can capitalism be just? And if these evils of capitalism arise from natural processes of history, then eventually the capitalist system must become intolerable!
Obviously, these two views lead us toward different strategies for fixing our social problems. Before we can sort out what capitalism is as an "ism," we have to recognize that there is great confusion over what capital is. Basically, there are two competing definitions, and they don't mix.
Mainstream economic thought conceives of capital, generally, as assets — that is, of things subject to ownership, and expected to yield an income. This can include a whole smorgasbord of stuff, such as plant & equipment, bonds, stocks, real estate, exclusive licences and college degrees. "Capital" can even include intangible assets like "goodwill" and "name recognition." In everyday argot, a business is said to be "undercapitalized" if it lacks enough savings to weather a period of slow sales. Or: the country's stock of "human capital" is weakened by poor public schools.
For Henry George (and classical political economy), the definition of capital is precise. Capital is "wealth used to produce more wealth, or wealth in the course of exchange." Capital is wealth: that is, material things, produced by human labor, that satisfy human desires and have exchange value. This unambiguous definition allows us to understand what payments go to this factor of production.
Unfortunately, most of the world, most of the time, doesn't define capital this way. A 'capitalist system" allows people to own anything they want (if it's legal) and "those with the gold make the laws."
Apologists for "capitalism" assert that there is no place in either theory or practice for "values." They proclaim that economics should be a "value-free science" and that (despite the best of intentions) no good can come from restricting the freedom of the market's "invisible hand" to create efficiencies. For example, two things that are constantly identified with capitalism are the free market and competition. Wonderful processes; they make the world go 'round — capitalists love 'em, right?
Not so much. People seek to satisfy their desires with the least exertion. Entrepreneurs seek to gain the most profit from the least labor and risk. Income from other people's labor (such as land rent, or monopoly income generally) is the easiest of all. Thus, entrepreneurs will seek to capture rent whenever they can. In current economic parlance this is known as "rent-seeking behavior" and it is pervasive in "free-market" economies.
This is the logic that led Marx to conclude that an inevitable historical dynamic is at work. What will stop the process of big business getting bigger, securing its control over resources and workers? What can stop the juggernaut of "capitalism," save a worldwide workers' revolution, to seize the means of production and banish competition?
Here is why Henry George's ideas are so crucial to the whole discussion of the just society. George showed that the community's fair share of social wealth is not an endlessly-debatable matter of amount, but an eternally certain, clearly measurable matter of kind. The value of natural opportunities is created by the community, and belongs to it. If we collect that value for public revenue, the rent-seekers can go ahead and seek all the rent they can seek. Occasionally they might get lucky, and find some — but not at the workers' expense. If we make sure that the community collects its rightful share of the social wealth, capital"ists" would be unable to capital"ize" on privilege. They'd have to make an honest living.