Capitalism is not a philosophy devised in the mind of man. It is not the invention of Adam Smith. Capitalism is the natural means whereby man creates, works, serves his fellowman, and is then reciprocated allowing all to survive and prosper. It is a “bottom up” economic system since it does not depend on intellect or power from elsewhere to function. All other economic systems are devised by man and are “top down” in nature, with non producers in some way exerting power over producers, especially the power to confiscate and redistribute.
Capitalism begins with giving.
George Gilder in “Knowledge and Power” explains the simple process. From the creative mind of man, called an entrepreneur, comes an idea. To develop and present this idea to others requires sacrifice. He forgoes consumption, perhaps borrows money, explores the marketplace, accumulates knowledge, invents jobs, rents or builds production space, accumulates inventories … all the while never sure but hopeful that his giving will meet the needs of others. In deciding which new products to create and offer, the entrepreneur must focus on the needs of others more so than upon his own needs.
If the idea, now a product or service, is acceptable and valued more by the recipient than by the giver (sales price exceeds production price) the giver makes a “profit”. In a monetary economy, capitalist “gifts” are called investments. Entrepreneurs sacrifice “in the hope” of receiving new value to be reinvested. It is the absence of a certain return, the possibility of no return, and the likelihood of a delayed return that creates the essence of “giving”.
What motivates the entrepreneur?
Is it greed? Or is it the desire to do what they do best and keep doing it? Their skill is to understanding the needs of others and knowing how to fulfill those needs. Profit is their reward. They are no more or less greedy than a brilliant professor whose skill is teaching students, or a writer whose skill is creating a bestseller, or a skilled and dedicated doctor. These all are rewarded according to their efforts and like the entrepreneur, wish to keep doing what they do best.
The entrepreneur does not consume all his “profit” but seeks to reinvest it. To deny an entrepreneur the opportunity to reinvest his profits and repeat the cycle of giving is like denying the professor or writer his research material and the doctor his instruments to continue their respective work.
What happens when the government takes profits?
To the extent profit is taken and redistributed by the government; profit is destroyed as the source of reinvestment. No longer does the wisdom of the market determine the investment of wealth but the agenda of the bureaucratic intelligentsia. Crony capitalism, manipulation, corruption and waste replace the efficiency of the market.
Given the power of government, the confiscation and transfer of money is easy; but the transfer of value inherent in that money is not. Besides the investment loss, the transfer of money without its true value can destroy in the recipient the will to work and create addictive dependency. Without its true value, unearned money is easily wasted and can be destructive.
A far better system of giving is one that abides by the law of reciprocity; recipients of free gifts are expected to offer a return. The law of reciprocity requires that one must supply in order to demand, save in order to invest, and consider others in order to serve oneself. This encourages the spread of giving and strengthens character rather than harming it. True generosity does not mistake softness for wise compassion and responsible giving.
What role does “the market” play in capitalism?
The substance of capitalism is combining knowledge with power in the creation of value. Knowledge is the creative idea. Power is the means to convert the idea into something useful to fellow man. The market serves capitalism as the conduit for the giving. The market is only the means of giving; it is not the substance of capitalism.
The economic “intelligentsia” makes the mistake of elevating the subordinate activity of the market (measurement and exchange) over the higher and more complex activity of the creation of value. This mistake leads the intelligentsia to falsely believe they can regulate prosperity by regulating the market. Within this model, their mechanistic concept of “homo economicus” has no choice but to comply. This model is appealing since (they believe) it offers them ultimate power, power even over the creators.
What is the source of human creativity?
The heart of capitalism however is not the market nor “homo economicus” … but the creativity of man and a willingness to give before receiving. The intelligentsia has no power of itself to create and can only regulate and or impede the creative power of others. This must be frustrating for them, since in effect, their only real power to prevent others from creating.
God once alluded to the power of the human mind to create when He said: “… nothing that they imagine to do will be withheld from them” (Gen. 11:8) Powers of creativity are greatest when people are unified: “… the people are one and they all have one language”. Great inventors (such as Isaac Newton) at times remarked they “stood on the shoulders of giants”.
Humans are made in the image of God. The human mind must therefore in some respects and in a limited way (of course) resemble the mind of God. This includes the ability of the human mind to “create”. No other creature on earth can “create” in the sense of bringing into existence something that did not exist before. We are referring to ideas and “recipes for assembling matter” rather than matter itself who’s only Creator is God. God gave humanity the gift of a creative mind … and the gift of free will that enables self rule. Capitalism is the economic extension of these gifts.
It is a means whereby mankind can attain prosperity, which is what God wants for all mankind.
Part of a series defending Capitalism: Is Capitalism a Moral Force for Good? … Are Billionaires Good for America? … Does Income Inequality Matter? … The Solution to Poverty: Capitalism or Social Justice? … How can Capitalism become Corrupt?