The Essential Ingredients of Capitalism

Economics essentially studies the transformation of scarce resources through time and space into the products that best meet the unlimited wants and needs of market participants. Broadly speaking, a robust economy requires respect for property and the profit motive, impartial application of the law, a people of substance and sound money.

Thus free, the market unveils a natural canvas allowing its participants to create masterpieces enriching and beautifying life.

Ludwig von Mises highlighted property as the cornerstone of sound economics. Property, the accumulated capital of those who produce, represents the basis for a functioning market. Surely producers should enjoy the benefits of their production. This includes not merely the right to trade in what manners seen fit, but also the right to not trade, not hire or not deal in manners found unfit.

Unencumbered property rights should also allow the free movement of prices as the guiding signal instructing producers how to focus their efforts. When government obstructs the fluctuation of prices, it smears the tapestry. Shortages and other distortions inevitably result.

The sanctity of private property also demands moderate taxes and a minimally invasive regulatory infrastructure. We must be allowed to retain our lawful gains and be free to employ our property accordingly. Taxes must be sufficient to protect and enforce the rights resident in our persons and property, but the growth of government invariably comes at the expense of liberty. As Ronald Reagan warned, “Governments don’t control things. Governments control people.” A primary control mechanism involves dictating the use of our property.

Without property rights, there cannot be a free market in the exchange of goods and services.

Without a free market, without a willing buyer and a willing seller, it is IMPOSSIBLE to know the real price of anything.

Without the price, it is IMPOSSIBLE for anyone to make the necessary economic calculation, that is to know when the inputs to an activity (labor or raw materials) costs more or less than the output of an activity (the value of the thing produced or service performed).

Without the economic calculation, it is IMPOSSIBLE for an economic activity to make a profit and thus be sustainable. Conversely, it is IMPOSSIBLE for an unprofitable economic activity to be sustainable.

Without profit, it is IMPOSSIBLE to have resources from which to feed, clothe and house those who are involved in the activity.

Without profit, it is IMPOSSIBLE, to have excess resources to set aside in the form of savings.

Without savings, it is IMPOSSIBLE to have capital to invest in new economic activities.

Without the ability to have property rights to those savings, it is IMPOSSIBLE to evaluate all of the other possible economic activities to find the ones that carries the least risk when compared to their anticipated return, and to properly allocate savings to the most promising investments.

Without new economic activity and without the ability for others to invest as it suits the saver, the economy cannot have the opportunity nor the resources with which to adapt to changing circumstances, let alone to provide jobs and resources for the next generation.

Without honest money, government is free to destroy the very means of accounting for and exchanging wealth. Without the assurance that money will retain its value, people will not save but instead will either consume excess wealth or will store it in forms like fixed assets that preclude investment in new economic activity.

In other words, without property rights, a free market, price information that allows economic calculation of profit, the ability to save with the assurance those savings are free to be invested when and where the saver sees fit, and without honest money, a sustainable economy is IMPOSSIBLE.

Without a sustainable economy, it is IMPOSSIBLE for humans to exist. This is exactly the reason that North Koreans are reduced to foraging for bark and grass to fill their empty stomachs. Their government forbids property rights, forbids a free market, destroys price information, confiscates savings, forbids investment and has no economic growth.

Liberty, property, profit, investment, capital and honest money are the only means of creating a sustainable economy. All other ways have been tried and have failed utterly. Yet, somehow, property rights, profit, capital and honest money are still considered to be evil, particularly in the thinking of people still yearning for the perfect socialist Utopia. Socialism is in reality the economy of death.

The entire price system and all of its laws and harmonies depend on one essential fact: the observance of private property rights and thus the freedom of businessmen to act for their own profit. It is private property rights and the profit motive that are the foundation and the motive power that underlie and drive the entire price system. It is they which underlie and actuate all of the benevolent economic laws of the free market, such as the uniformity-of-profit principle, the various principles of price and wage uniformity, the cost-of-production principle, the principle that prices are set high enough to limit demand to the supply, and the principle that factors of production are channeled to their most important employments All of these laws and all of their benevolent consequences are the result of just one thing: private property rights and the profit motive.

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