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CHAPTER 2: CAPITALISM Capitalism is an economic system based on private ownership, the protection of property rights, rule of law, and voluntary exchange. Capitalism is the economic component of Locke’s liberalism, 1 which starts with the concept of self-ownership. Because people own their labor, they come to own property when they combine their labor with unowned resources. Property ownership implies that owners can use their property as they want, as long as they do not violate others’ rights. They can sell or trade it, give it away, or lend it to others. Transfers of economic resources under capitalism occur through voluntary agreement and voluntary exchange, and because people have the right to decide how they will use their property, they may make any exchanges they want to. The role of the government in a capitalist economy is to protect individuals’ rights. While Locke offered a moral foundation for a capitalist economy based on self-ownership, this moral foundation is not necessary for capitalism to be understood as the economic component of liberalism. Capitalism is economic liberalism because it protects property rights, because interpersonal interactions are voluntary, and CAPITALISM 15
ecause it permits voluntary exchanges as long as they do not violate others’ rights. Modern capitalist economies do not meet this ideal description of capitalism because they have incorporated elements of coercion into economic activity. Labor laws, such as the minimum wage law and professional licensing requirements, restrict labor transactions; taxes and transfers take property from some people to give to others; and the government restricts or prohibits many types of exchanges. The government requires that automobiles have seat belts, air bags, and more; it restricts the sale of prescription drugs and prohibits the sale of many recreational drugs; and it heavily regulates industries ranging from air travel to banking. The government heavily taxes some businesses and subsidizes others. Through these activities, capitalism has been combined with other economic systems, perhaps for the public interest, perhaps not. Government interventions to protect people’s economic well-being fall under the heading of progressivism. Government direction of economic activity falls under the heading of industrial policy. Government ownership of economic activity—electric utilities, roadways, and schools are common examples—is socialism. 2 Is a pure form of capitalism, with fully private ownership of property and in which people interact only through mutual consent, possible? Two writers who have made persuasive cases that a purely voluntary society is possible are David Friedman and Murray Rothbard. 3 Rothbard uses a liberal moral foundation based on Locke’s ideas to argue that such a political and economic system is not only possible but is the only ethical way in which to <strong>org</strong>anize a society. 4 Friedman, on the other 16 LIBERALISM AND CRONYISM
Page 1 and 2: LIBERALISM AND CRONYISM Two Rival P
Page 4 and 5: LIBERALISM AND CRONYISM: TWO RIVAL
Page 6: CONTENTS Introduction 1 Chapter 1:
Page 10 and 11: INTRODUCTION People often see polit
Page 12 and 13: who have the power to make decision
Page 14 and 15: CHAPTER 1: LAYING A FOUNDATION Befo
Page 16 and 17: hijacking of the term to describe a
Page 18 and 19: esources can be taken from some for
Page 20 and 21: suffers from “market failure,”
Page 22: is a group of cronies in a dictator
Page 27 and 28: people’s economic well-being. The
Page 29 and 30: consumer demands. Examples of rent-
Page 31 and 32: the Politburo and the needs of conn
Page 33 and 34: consider the benefits and costs of
Page 35 and 36: upon state privilege and disproport
Page 37 and 38: their loyalty to the socialist stat
Page 39 and 40: cronyism from gripping every area i
Page 41 and 42: communism are well documented and w
Page 43 and 44: Accountability was embodied by refo
Page 45 and 46: despite comprising only 3 percent o
Page 48 and 49: CHAPTER 5: FASCISM Fascism, the pol
Page 50 and 51: use the sword of the Nazi state to
Page 52 and 53: planners created a back door for in
Page 54 and 55: CHAPTER 6: CORPORATISM Corporatism
Page 56 and 57: puts men and their possibilities in
Page 58: that this form of guided capitalism
Page 61 and 62: therefore provide sufficient benefi
Page 64 and 65: CHAPTER 8: PROGRESSIVISM Progressiv
Page 66 and 67: people who argue for limited govern
Page 68: Security, Medicare, and Medicaid do
Page 71 and 72: the direct election of senators, ch
Page 73 and 74:
argue for narrow individual interes
Page 75 and 76:
their roots to diverse sources of i
Page 77 and 78:
promises to assume a company’s de
Page 79 and 80:
enefits for his former venture capi
Page 81 and 82:
prices of firms within the textile
Page 83 and 84:
ment the power to make decisions an
Page 85 and 86:
of social justice, cronyism has an
Page 87 and 88:
for women in the twentieth century,
Page 89 and 90:
ecause it advocates granting these
Page 91 and 92:
should pay the same as comparable b
Page 93 and 94:
way, the US government replaced the
Page 95 and 96:
an individual, social justice advoc
Page 98 and 99:
CHAPTER 12: CRONY CAPITALISM AND DE
Page 100 and 101:
subsidies, political connections di
Page 102 and 103:
CHAPTER 13: INDUSTRIAL POLICY The t
Page 104 and 105:
“cottage industries” that clust
Page 106 and 107:
of complex systems. He applied this
Page 108 and 109:
South Korean industrial policy gave
Page 110:
The degree to which Japan’s and S
Page 113 and 114:
to get involved in lobbying to prot
Page 116 and 117:
CHAPTER 15: LIBERALISM VERSUS CRONY
Page 118:
that power will arise with another
Page 121 and 122:
with power support each other to ma
Page 123 and 124:
an incentive to cooperate for the b
Page 125:
environmental movement often advoca
Page 129 and 130:
6. Ludwig von Mises, Human Action,
Page 131 and 132:
12. James Heinzen, “The Art of th
Page 133 and 134:
CHAPTER 5: FASCISM 1. Peter Temin,
Page 135 and 136:
CHAPTER 8: PROGRESSIVISM 1. Terry L
Page 137 and 138:
16. Bruce Yandle, “Bootleggers an
Page 139 and 140:
3. Eamonn Fingleton, “Japan’s I
Page 142 and 143:
FURTHER READING Acemoglu, Daron and
Page 144 and 145:
ABOUT THE AUTHORS Randall G. Holcom
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