TGIF: What Is Capitalism?

So, what is capitalism? The answer will depend on who's being asked. Language, like markets, basic law, and customs, is a spontaneous order. No one plans it. Words drift in their meaning in ways that probably can’t be fully explained. Language is a tool that people use to think and communicate, so it’s adapted according to needs, changing circumstances, and even confusion.

That doesn’t mean we can say nothing about words like capitalism. My views on that word have changed over the years; I once contributed to a book called Markets, Not Capitalism. The book was meant to show that the free market differs from capitalism. Is it right? Again, that depends on how one defines capitalism. As far as I can tell, most people who dislike capitalism also dislike the idea of a market-based society. Some prominent pro-market thinkers, Nobel laureate F. A. Hayek among them, disliked the word for a variety of reasons. 

At any rate, the word is not going away. Since no one controls the language, we should put communication before personal preferences. Let's define our terms clearly and then talk about reality.

Despite variation in the definition of capitalism, most people would agree that market orientation is at its heart. They evaluate the market differently, but it is the market that they are evaluating. So we have some common ground, even as we disagree over whether capitalism is a good or bad social arrangement or whether it conceptually includes or excludes a given practice.

I, along with many others, consider capitalism to be the social arrangement in which people are free to engage in the production and exchange of goods and services, typically for money. Left unmolested, that is what people do. Those activities generate prices, which reflect supply and demand and guide further action. To live is to act, which is to aim at ends by deploying means, which is to value. The root of this never-ending process is the wish to sustain life and to live in a particular way. (See the work of Carl Menger, Ludwig von Mises, and Ayn Rand for details.)

The institution of interpersonal exchange logically has presuppositions. It stands on a foundation. It presupposes that persons own themselves and the things they nonaggressively obtain; it also presupposes the security of contracts. These things can be violated in practice, but they are departures from the logic of the system. Historical capitalism developed over a thousand years as persons, their property (including their bodies), their contracts, and their enterprises came to be more and more respected—that is, as political power decentralized and, consequently, diminished, thanks in part to jurisdictional competition, that is, the power to vote with one's feet. (People disliked paying taxes for war and having their trade and investments disrupted.) Growing religious toleration played an important role in this process of individual liberation and spreading cooperation.

Where property and contracts became more secure, per capita wealth dramatically increased, setting an example for others. As Adam Smith put it, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”

This is not to say that injustice and aggression disappeared abruptly and completely. Of course, it did not. Who could have expected that? It would take time. Another way of saying this is that capitalism—to be clear, that means laissez-faire or free-market capitalism—was not fully achieved anywhere. It still hasn't been. But it would be wrong to attribute the great wealth generated by capitalism to injustice such as slavery and conquest. Advanced civilizations of the past conquered, plundered, and enslaved, but they did not produce astonishing, sustained, and widespread wealth. Capitalism and classical liberalism in Western Europe and America did something different, something special.

Societies can be judged by how close they came to achieving capitalism. We can distinguish particular practices and institutions as either capitalist or anticapitalist. It follows that crony capitalism, state capitalism, and political capitalism, etc., are not capitalist variations but moves away from capitalism (that is, from self-ownership, property rights, contract, and free exchange). Those labels are contradictions in terms because they entail limits on peaceful, productive market interaction. The predatory, which supposedly acts in the name of the collective, in effect makes itself the senior part-owner of what was or should have been private property. The system is no longer a fully market system, even if people who own capital ask for the intervention. Thus free-market capitalism is a redundancy.

For example, a political arrangement in which slavery and slave markets exist does not qualify as capitalism. Why not? Because in that basic respect, the arrangement does not fully embody self-ownership, property rights (which flow from self-ownership), and free exchange. Southern slave holders claimed that "their" slaves were property, but that was a category error because persons can be property owners, not property. Good Lockeans, the abolitionists called the slave holders "man stealers." 

Similarly, a political system in which politicians and bureaucrats may interfere with people’s property and free exchange through taxation, regulation, trade barriers, subsidies, government ownership, etc., should not be called capitalist. It would be a mixture of capitalism and interventionism or socialism.

We can sum up by saying that only laissez-faire capitalism—the consistent separation of state and economy—qualifies as real capitalism. Anything less than laissez faire is less than capitalism. The government cannot regulate an economy, which is an abstraction. What it can do is restrict real individuals in their peaceful, productive market interactions. Restriction requires the use or threat of aggressive force and violence. In contrast, a capitalist society is a humane society.

Call it what you will, the system that respects our freedom to engage in mutually beneficial market relations—and its prerequisites—is worth defending against its Classic Marxist and Marxist Lite detractors, who have to distort categories like “exploitation” to make their spurious case. Capitalism, despite not being fully embraced, ushered in an era of unprecedented personal freedom and sustained, widespread wealth. Capitalism is anti-exploitationism.

(I have not reinvented the wheel. Thus related reading: “The European Miracle” by Ralph Raico, “Reconsidering Gabriel Kolko: A Half-Century Perspective” by Robert L. Bradley Jr. and Roger Donway, "Capitalism, Socialism, and 'The Middle Way': A Taxonomy" by Bradley and Donway, "Beyond 'The Money-Making Personality': Notes toward a Theory of Capitalist Orthopraxy" by Roger Donway (Journal of Ayn Rand Studies 21:1 July 2021) and The Libertarian Mind by David Boaz (especially chapter 2: "The Roots of Libertarianism.")

TGIF: Immigration and Free Association

Immigration. Despite other headline-grabbing news, this issue persists.

How could it not? Trump's masked goon squad, ICE (Immigration and Customs Enforcement), abducts peaceful people off the streets, from their workplaces, and from Home Depot parking lots, then shuttles them without due process to detention centers, including the ominously named Alligator Alcatraz, and prepares to deport them to third countries deficient, shall we say, in their devotion to individual rights. Many detainees have been unable to contact family and attorneys. Even American citizens have been swept up, subjecting them to the trauma of confinement until they demonstrate that they "belong here." Trump's quota of 3,000 detainees per day creates the most perverse of incentives for ICE agents. He reportedly has berated ICE because the arrest numbers are too low.

Need I say that this should not be happening in America, and Americans should not forget that it is happening? Fortunately, some glimmers of hope penetrate the dark clouds. The latest to come to my attention is the reported bad morale among ICE agents. Apparently, they don't enjoy "arresting gardeners." Why don't they quit?

Moreover, recent polls indicate that a growing number of Americans dislike how Trump is handling immigration. Naively, they seem surprised that Trump did not confine his hunt to real criminals (that is, murderers, muggers, rapists, thieves, etc.) but is going after people who hold jobs, live normal lives, behave neighborly, and bother no one. (And, alas, pay taxes.) We're also seeing federal district judges smack down ICE raids and Trump's autocratic bid to rewrite the Constitution on birthright citizenship. (See the 14th Amendment.)

For example, ABC reported the other day, "A Los Angeles federal judge issued a pair of temporary restraining orders today limiting the ability of U.S. immigration-enforcement agents to detain people absent reasonable suspicion beyond merely their race, ethnicity or occupation, while also requiring that detainees be given access to legal counsel." (Emphasis added.) No profiling, that is. It's a start. Yet it still might be good policy for people with accents and darker skin tones to avoid Home Depot parking lots, car washes, restaurant kitchens, and farms. 

We can hope that future generations will look back on this terror with shock and shame.

I've heard it said that libertarians should favor government control of immigration in principle (and so such roundups) because free movement constitutes "forced integration." Specifically, it has been said that laws against discrimination in employment, housing, and public accommodations violate our freedom of association and, hence, a property owner's right to exclude immigrants, among others. Freedom of association, of course, should be respected, and it logically includes the freedom not to associate, or the freedom to exclude, even when it takes irrational and bigoted forms. Freedom must be defended—even when it is exercised obnoxiously. Absolutely true.

But would open borders increase coercion in America by prohibiting discrimination and exclusion? Before I answer that question, let me pose another one. If all the antidiscrimination laws were repealed tomorrow, would the libertarian restrictionists withdraw their opposition to open borders? I think not. 

As a practical matter, free immigration under today's laws would not effectively compel individuals to associate. Open-borders champion Bryan Caplan explains why in his newest collection of blog posts, Pro-Market and Pro-Business: Essays on Laissez Faire ("Association, Exclusion, Liberty, and the Status Quo").

Caplan writes,

One of my conservative friends keeps telling me that, “The right to associate is the right to exclude.” As a libertarian, I agree.  But the subtext of his slogan is that libertarians focus far too much on government regulations that abridge the freedom of association—and far too little on government regulations that abridge the freedom of exclusion. His claim, in fact, is that the only feasible way to protect the freedom to exclude is to restrict the freedom to associate. Since discrimination laws make it impossible for voluntary contracts to keep foreigners out of a neighborhood, for example, it’s OK for immigration laws to keep foreigners out of the country entirely.

Some otherwise-libertarians make the same argument. Since we are not free to exclude foreigners from our personal affairs, we must not let them in.

That prompts Caplan's question: "To what extent do existing policies that restrict freedom of association and exclusion actually bind? In other words, how different would the modern U.S. look if people were free to live, work, and play anywhere if and only if the property owner consented?" He responds:

Let’s start with exclusion.  Many existing laws restrict the right to refuse to hire workers and serve customers. In real estate, restrictive covenants and home owners’ associations are common, but if you try to use them for racial exclusion, courts won’t enforce them.  Single-gender clubs also occasionally face lawsuits.

I’m against all of these limitations on the right to exclude, but how much do they actually change behavior in the modern U.S.?

His answer: "Only slightly, for a long list of reasons."

Among his reasons are: businesses want money too badly to exclude people without good cause; most people frown on exclusion and would feel funny about a business that practiced it; and alternative methods of exclusion are available, such as "high prices..., dress codes..., and educational credentials." Where there's a will, there's a way.

"I don’t deny, he says, "that laws against exclusion occasionally have important effects.  But their main effect in the modern U.S. economy isn’t to reduce exclusion, but to pressure businesses" to find workarounds.

So much for the consequences of mostly paper violations of freedom of exclusion. What about the consequences of government limits on free association, that is, immigration control? Remember, border restrictions prevent Americans from selling to, renting to, buying from, employing, befriending, dating, and marrying would-be immigrants.

"Indeed," Caplan responds, "they [border restrictions] probably have a bigger effect than all other regulations combined."

It’s simple. Billions of people around the world live on a few dollars a day or less.  Under open borders, tens of millions of them would migrate to the U.S. every year.  Remember: Even if you’re an illiterate peasant from Bangladesh, credit markets and/or employers would be happy to front the money for airfare.

This immigration flow wouldn’t stabilize until real estate prices massively increased and low-skilled wages drastically declined. The U.S. population could easily increase by 50% in a decade. New cities would blanket the country. The level of output would skyrocket—and its composition would rapidly change, too. Whether you love this vision or hate it, you can’t deny that free association would radically and rapidly reshape the face of America.

The upshot: "restrictions on the right to associate are massive, and there is enormous pent-up demand to migrate. Hundreds of millions of people want to move here, landlords want to rent to them, employers want to hire them—but the law won’t allow it.... While restrictions on exclusion are occasionally irksome, they rarely ruin lives. Immigration laws, in contrast, usually condemn their victims to life—and often early death—in the Third World."

Like free trade, free immigration is overwhelmingly win-win.

 

Bryan Caplan and Me

 I sat down recently for a chat with my old friend Bryan Caplan.

TGIF: Israel and Jabotinsky's Iron Wall

Vladimir (Ze'ev) Jabotinsky (1880-1940) was a key figure in the development of the Zionist movement, which led to the founding of Israel in 1948. After breaking from mainline Zionism, Jabotinsky, born in Odessa (Ukraine), established Revisionist Zionism, a more openly militant version.

 What is Revisionist Zionism? Even fellow Zionists saw similarities with fascism. According to Ramzy Baroud and Romana Rubeo, "Before the opportunistic alliance between Germany’s Nazi leader, Adolf Hitler, and Italy’s fascist dictator, Benito Mussolini, in 1936,... a degree of affinity existed between Zionist and Fascist leaders in Rome." Baroud and Rubeo went on:

Vladimir Jabotinsky, the founder of Revisionist Zionism, of which Israel’s current Likud party and other right and far-right groups are the offspring, saw in Italy “a spiritual homeland.”

“All my views on nationalism, the state, and society were developed during those years under Italian influence,” Jabotinsky wrote in his autobiography, referring to his ideological formation years in Italy.

In return, Mussolini had expressly spoken in support of Zionism and of Jabotinsky in particular: “For Zionism to succeed, you need to have a Jewish State with a Jewish flag, and Jewish language. The person who understands that is your fascist, Jabotinsky,” Mussolini said ... in November 1934.

TGIF: Liberty Requires Nationwide Injunctions

The government is always a threat. This we must never forget.

In that light, I want to examine the recent U.S. Supreme Court ruling in Trump v. CASA, the 6-3 decision that sided with the Trump administration's position that a federal district court exceeded its congressional authority when it issued a temporary nationwide, or universal, injunction against Trump's executive order redefining the post-Civil War 14th Amendment clause that affirms birthright citizenship.

The Supreme Court did not rule on the legality of that executive order. Rather, it ruled that the district court's temporary injunction against a "likely illegal" government action can apply only to the plaintiffs in the particular case and to no one else.

I will not comment on the ruling as a constitutional lawyer because I am not a constitutional lawyer (or any other kind of lawyer). Rather, I will look at the ruling as a libertarian, that is, as someone who believes that individual rights predate any government, as the Declaration of Independence states, and that, therefore, tight limits on government power are good. In general, when a federal district court rules that the government may not do something, pending final disposition of the case, that is a win for our rights to life, liberty, and the pursuit of happiness, which we theoretically celebrate today, July 4. Of course, under the American system, the executive branch may appeal federal court rulings it does not like to the next judicial level. Whatever the outcome, one of the parties may then ask the Supreme Court for a final ruling.

In certain cases, a lower court can issue a temporary preliminary injunction against a government action if the plaintiff persuades the judge that the executive branch has "likely" exceeded its delegated power and that the exercise of such power (say, deportation) would significantly harm the plaintiff. The injunction stays the government's hand pending appeal. The issue in Trump v. CASA is whether an injunction issued against Trump's ordered reversal of the Constitution on birthright citizenship applies to everyone in the country or only to the parties that brought the case.

Regardless of the current law or the legal history, a libertarian knows what the law ought to be. A preliminary injunction against the exercise of a particular power should apply nationwide. How could it be otherwise? The executive branch has two chances to reverse the lower court, but in the meantime, it should be barred from exercising the power. In other words, the presumption of liberty must be paramount. Any burden should be on the executive who wishes to restrict the activities and status of peaceful individuals. That burden should never be on the people.

Without nationwide injunctions, we could end up with a constitutional provision that applies to one or two people but not to anyone else. A president satisfied with that situation would abstain from appealing precisely to avoid an adverse nationwide ruling. That would be screwy. In effect, we'd have more than one constitution.

To address the situation, every potentially affected individual in the country would have to bring his own case. Think of the cost! Alternatively, affected individuals could potentially combine in a class-action suit, but neither of these is a good solution. Before filing a suit, a class must fulfill certification requirements, and that is no sure thing. Certification could be challenged by the defendant, that is, the president. (Other workarounds exist, but they have similar problems.)

The basic objection to the ruling is that barring nationwide injunctions substantially and unreasonably raises the cost of public challenges to government power. That is wrong on principle. The presumption of liberty dictates that such a burden should always be the government's. 

In Dependent on D.C.: The Rise of Federal Control over the Lives of Ordinary Americans (2003), Charlotte A. Twight deployed history and theory to show that, over many years, the U.S. government has systematically made the public's ability to monitor and challenge the government prohibitively expensive. So much for "democracy."

As I've written about Twight's book:

Twight’s thesis is that the people who run the government have a long list of ways to raise the “political transaction costs” that the taxpayers would have to overcome to keep the state in check....

As Twight puts it: [Political transaction costs] “are the costs to each of us of perceiving, and acting upon our assessment of, the net costs of particular governmental actions and authority.” Besides the inevitable and built-in transaction costs entailed by government, there are also “contrived” costs, that is, those “deliberately created by government officials to increase our costs of assessing and responding to government policies.” The array of devices to raise these costs ranges from needless complexity and secrecy to outright lying. These devices have one thing in common: they obscure the government’s activities, making it difficult to impossible to see what the state is up to. As a result, most people perceive that even trying to lift the government’s veil is essentially futile.

Trump's team contends that nationwide injunctions grind its agenda to a halt, possibly for years, as cases wend their way through the appeals process. That's good, no matter who the president is. But if that's a problem, it should be addressed by changing the procedures according to which "urgent" cases headed to the Supreme Court are expedited.

The U.S. Constitution was theoretically intended to limit government power on behalf of a free society. How has that worked out? (For a fuller story, see my America's Counter-Revolution: The Constitution Revisited.) As things now stand, a president can get away with unilaterally amending the Constitution. Something's wrong here.

The upshot is that the ruling in Trump v. CASA is a blow to freedom. Trump again shows his disdain for individual rights and the rule of law. Six justices have his back.

(See Ilya Somin's "A Bad Decision on Nationwide Injunctions.")