All Commentary
Wednesday, October 1, 1975

Capitalism: Definition–Origins–Dynamics

Dr. Watts, author and lecturer, is Burrows T. Lundy Professor of the Philosophy of Business at Campbell College, North Carolina, and Director of Economic Education for Northwood Institute, with headquarters at Midland, Michigan.


Capitalism, according to the dictionaries, commonly means private ownership of the means of production.

Private ownership means that individuals control their own persons, their own energies, and the products of their energies. It prevails to the extent that individuals do not restrain or interfere with one another as they use, exchange (sell) or give away what they find unclaimed or abandoned, what they make, and what they get from other persons by gift or exchange (purchase).


Capitalism has its origins, therefore, in individual freedom and in all of the ideas, sentiments and modes of conduct that establish this freedom.

Freedom implies that individuals do not coerce, intimidate or cheat one another. This means that they do not use violence or fraud to injure one another or to deprive one another of possessions obtained by peaceful means, and that they do not threaten to injure one another in their persons or properties.

This freedom develops as individuals learn that, over a period of time, they gain more from cooperation motivated by hope of reward than they do from services performed under threat of violence. In other words, they gain more in the long run by production and exchange of goods and services than they can get by stealing, fraud, banditry or other forms of predation.

In short, capitalism arises as individuals (a) learn the advantages of division of labor and voluntary exchange, and (b) discover and live by the moral laws (rules of conduct) necessary for peaceful relations, one with another.

This progress requires growing understanding of the nature of man and the meaning of justice, together with appreciation for honor, truth, and goodwill toward more and more of their fellow humans.

The elements of moral law are set forth in what Judeo-Christians refer to as the “Ten Commandments” and the “Golden Rule.” The negative form of the Golden Rule expresses the first principle: “Do not do unto others what you would not have them do unto you.” This restrains and casts out forced sharing, which is a form of enslavement.

A later corollary and supplement of earlier statements—”Whatsoever ye would that men should do unto you, do ye also unto them” — arose out of recognition that we benefit, not merely by avoiding injury to others and the ensuing conflicts, but by voluntary exchange of services and by developing habits of mutual aid and neighborliness. (Cf., the neighborly barn raisings and other forms of mutual aid in pioneer days, and the parable of the Good Samaritan.)

Insofar as individuals cease to steal from one another, cease to cheat (lie), cease to coerce or intimidate one another, and keep their agreements (including those establishing the monogamous family), they gain freedom.

But this freedom develops only gradually with increasing understanding and self-restraint. No “man on a white horse,” no dictator or government can give it to us. Individuals must learn to understand it, accept its responsibilities, and teach it to oncoming generations.


A. Production and Exchange

In such absence of coercion, more and more persons attain prosperity, which Frederic Le Play defined as a “multitude of good acts.” They let one another keep or exchange or give away what each produces or gets by voluntary exchange or gift. They then produce more, accumulate more, trade more, and give more to others.

They give more to their customers and fellow workers in exchange for what they get; and they give more to their offspring, their friends, their neighbors, and victims of misfortune. (Note that the early Plymouth and Jamestown colonists were more charitable toward their neighbors, as well as more industrious, after they abandoned forced sharing.)

Free persons invent and adopt ways of mutual aid that are beyond the devising or imagination of slave masters and political planners. Therefore, they prosper.

B. Individuation — Competitive Cooperation — Large-Scale Organization

(1)         In freedom, humans show increasing variability in capacities and responses. Therefore, capitalistic (free) enterprises develop an increasingly great range of changing occupations, commodities, services, and opportunities for self-development and satisfaction of individual wants.

(2)        Because of the enormous -advantages of cooperation, more and more individual members of a capitalistic society show increasing regard for the interests, desires, tastes and opinions of other persons, increasing sensitivity, sympathy, and fellow-feeling (empathy), along with increasing individuation in ways of expressing these attitudes.

Some individuals go to extremes in trying to please everybody and consequently truly please nobody. (“The surest road to failure — try to please everybody.”)

Others use or abuse their freedom by displaying (or pretending to display) an exaggerated indifference to prevailing (popular) customs, sentiments, and manners, and a lack of concern for the opinions of other persons.

In freedom, however, individuals cooperate more readily with such peaceable persons as have more or less similar standards in morals, manners, and tastes, but with complementary (rather than identical) interests and abilities in work. The word “complementary,” or “supplemental,” deserves emphasis, because many or most forms of cooperation arise out of differences in abilities and interests rather than out of similarities (e.g., farmers and manufacturers, merchants and bankers, truckers and mechanics).

(3)             The many similarities of abilities and tastes, however, make a free society highly competitive as well as cooperative. Competing individuals and competing groups offer similar (though seldom identical) services to consumers, and similar (but not identical) jobs to wage earners (e.g., coal miners and oil producers, savings banks and stock brokers, or manufacturers of different sizes and makes of cars).

Among free and peaceful persons (i.e., in a completely capitalistic, or free-market, voluntaristic society), this competition consists in trying to offer more satisfactions in order to induce cooperation rather than in threatening others with injury in order to compel submission and obedience.’

(4) In freedom — in the absence of coercion — individuals keep and control without coercive interference what they acquire in peaceful ways. That is, they may keep, control, consume, give away or trade what they find in nature, what they make or invent, what they get by gift (as from parents), and what they get by voluntary exchange, including the temporary uses of things for which they pay rent or interest.

The rights of private ownership are the rights to enjoy and use wealth and the services of free persons without physical interference or threat of interference from other persons. These are rights of adverse possession, that is, the rights of exclusive use and disposal (along with the responsibilities of control and care).

Therefore, capitalism (private ownership) is individualistic. That is, what one person owns, no one else may own. He has exclusive control of it. But he also has exclusive responsibility for it: to care for it, and to see to it that use of it does not interfere with the freedom (property rights) of other persons.’

The indescribably complex agreements as to property rights (protected by law, morals, customs and manners) constitute freedom. That is, freedom means agreements, implicit or explicit (i.e., tacitly accepted or formally stated) among members of a society, agreement that individuals shall have undisturbed control of their persons and the fruits of their energies, skills, thrift and enterprise in trade.

C. Equity vs. Equality

In freedom, there is equity (justice), not equality of rewards for effort. When individuals are free to choose with whom they trade and how much they offer in exchange, some individuals and groups acquire greater aggregations of wealth than do other individuals and groups. A particularly productive group of producers (e.g., a business firm), then, may become so industrious, inventive, cooperative and efficient that they supply most of certain commodities or services for a large proportion of a given community or nation. So concerns like Ford Motor Company grow to giant size; or a group of firms, like those making up the General Motors Corporation, cooperate in some respects (e.g., in obtaining capital) while competing in others (e.g., sales).

But, in appraising these giant concerns, we should keep in mind that:

(1) They get and hold their economic power only to the extent that they serve a correspondingly large number of their fellow humans. No company becomes great in free markets by catering to a few rich capitalists. They grow to giant size only as they help raise levels of living for thousands or millions of other producers and their dependents — unless they are favored by anti-capitalistic policies of government engaged in war, currency inflation or suppressing would-be competitors (as, for example, the United States Government suppresses competitors of the Post Office).

(2) Increasing abundance and diversity of goods make the demand and supply of every product more and more elastic. Buyers find a growing diversity of goods competing for their patronage. Wage earners find a growing number of employers with capital seeking to employ them. Capital owners are besieged by inventors and promoters seeking backing for new ways of satisfying wants or ways of satisfying wants of which consumers are as yet scarcely aware.

The most inelastic factor in a free society of responsible individuals is likely to be in the supply of wage earners (job seekers). Therefore, they benefit most from the competition of capital seeking investment, and they get an increasing share of the total product. Wages and wage rates tend to rise, therefore, while rates of interest fal1.³

D. Progress: Rising Levels of Understanding, Morality, Prosperity, Vision

Individuals in freedom prosper as they win the freely given cooperation of their fellows.

Therefore, their self-interest and family interests provide strong incentives to develop habits and concern for the qualities that other persons want in their coworkers and suppliers. These are such qualities as industriousness, courtesy, and sensitivity to the interests of other humans.

As a result, free persons tend to buy goods (commodities and services) which contribute to their efficiency as producers and enable them to discharge their countless responsibilities.

For this reason, the output of “industry” in freedom tends to become more wholesome; the health and vigor of the population improve; life expectancies tend to lengthen; and tastes in art, drama, music and literature rise. Accustomed to these rewards of progress, members of a free society tend more and more to expect and strive for improvement in the lives of their neighbors as well as in their immediate circle of family and friends.

At this point, a dangerous ideology may become fashionable. It has been well named, “the Utopian Heresy.” Impatience with the real or fancied shortcomings of other persons may prompt efforts to hasten improvement by use of a little legal coercion — on a few at first, and on more and more of their supposedly backward fellows as time passes.

In this way, free and prosperous individuals may combine to infringe the freedom of their neighbors while intending only to do them good. And, as they set precedents by such coercive “reforms,” others use the same arguments for more and more infringements for similar “good” ends. Thus, freedom declines.

This loss of freedom deprives individuals of opportunities and responsibilities. Therefore, it gives rise to worse conditions, which the confirmed ideologists attribute to what freedom remains. Long ago, a now-forgotten philosopher observed that “Mankind is a race which binds itself in chains — and calls each fresh link progress.”

A wealthy society — prosperous because of a longer period of freedom — can afford more waste (idleness, paternalism, wars, parasitism and socialism) than a society that is poor because its people have had little freedom. But for any community or nation, a continuing decline of freedom must at last bring on a collapse in bankruptcy, chaos, revolution and/or subjection to political tyranny.

Prosperity has its perils, not least of which is the peril of forgetting how it was achieved.

This article is from a chapter of a new and revised edition of Free Markets or Famine —selected readings by various authors showing how freedom for private enterprise allows business to abolish famine and raise levels of living. This book, and a companion volume, Politics vs. Prosperity, showing the results of regulation and controls, are published by Pendell Publishing Company, P.O. Box 1666, Midland, Michigan 48640.


1 Socialists confuse inducement or persuasion with coercion. They fail to see that freedom to cooperate exists only insofar as there is freedom not to cooperate, along with freedom to communicate without harassment.

² Socialists commonly confuse this exclusive control by property owners with the very different type of monopoly which may be obtained by restricting the freedom of would-be competitors in use of their own energies and properties. For example, the United States Post Office maintains its monopoly of distributing first-class mail by using the police powers of government to suppress competition. Coercive interventions by government or immoral and illegal private violence, or both, are necessary to maintain such monopolies. This is not freedom. It is not laissez-faire capitalism. It is curtailment of free enterprise. It is a negation of the rights of private owners.

³ The rise in interest rates during the past 60 years has been due to the anti-capitalistic policies of governments —wars, inflation of currencies, waste of resources, and forced redistribution of wealth and income.

The rise in certain land values has been aggravated by socialistic policies, which tend to concentrate populations in favored cities, thus retarding the development of less densely populated areas, whose small populations lack political power. Most of the world’s land area is still sparsely populated and is cultivated only by extensive methods.

  • Dr. Watts (1898-1993) , author and lecturer, was the Burrows T. Lundy Professor of the Philosophy of Business at Campbell College, North Carolina, and Director of Economic Education for Northwood Institute, with headquarters at Midland, Michigan.