Improving Our Standard of Living (Wattpad Edition)

Chapter 7: What Is Capitalism?

A free market is also referred to as capitalism. It's an economy in which people are free to acquire property and use it to produce and sell goods and services. In other words, a free market allows people to own businesses and conduct business with others.

Capitalism is private ownership of the means of production. The term "means of production" is just a fancy way of saying "business property." It's the tools, lands, resources, and workers used to produce the goods and services of society. When academics say that the means of production are privately owned in a capitalist system, they're saying businesses belong to private investors. An investor can be a business owner or someone that buys company stock.

Public ownership of the means of production means that the government owns the tools, lands, resources, and workers used to create the goods and services of society. That's what socialism is. There are no private businesses in a socialist system. The state produces everything, and everyone works for the government.

Socialism is the same as communism for all intents and purposes. The end-goal of both is identical, so I use the two terms interchangeably.

In a capitalist system, the government doesn't stop individuals from buying lands, buildings, tools, and services of workers to produce goods. And the state doesn't prohibit individuals from conducting business with others, domestically or internationally.

Socialism prohibits such activities. Socialists believe that business owners exploit employees and take too much of society's income. The idea is that if we ban people from starting businesses, exploitation will become impossible. Inequality will vanish.

That's the theory.

I discuss socialism in more detail later. For now, let's focus on capitalism.

There's a reason we call capitalism a free market economy. It's the freedom to conduct business with anyone in every way one can imagine.

For instance, an employer might say, "I have money and land, and I want to start a business. I'll hire you. You won't own the business, but I will because I'm footing the bill to get it going. That's the deal. If you don't like those terms, you don't have to accept. You can work for someone else. Feel free to save money, take out a loan, or attract investors and start your own business someday if you want."

Here's another example:

"I'll lend you $1,000. After one year, give me $1,000 back plus $100 in interest."

The above scenarios may or may not be fair. But that's irrelevant, and fairness is subjective. The right to come to a contractual agreement with other people is integral to a free market. If a government habitually says people cannot make this or that type of deal—even if it's to protect them from themselves (as if they're children)—then that nation doesn't have a free market.

Under capitalism, individuals have the right to make deals with other people. Businesses have the right to do the same with other firms and with customers. Individuals have the right to work, save money, and use that income to start their own businesses. They can take out loans, raise funds from investors, friends, co-workers, or family members.

In a free market, people have the right to own businesses collectively. Today, we do that through the stock exchange. Stocks are deeds that represent partial ownership of a company. They grant a share of its profits. The more shares of stock someone owns, the more of the company they own.

The stock exchange makes starting businesses easier. That's because several people can pull their resources together. Furthermore, if a business goes bankrupt, the loss isn't as severe to each investor because they share risk.