Salter: Free enterprise, not capitalism

Political freedom and economic freedom go hand-in-hand. Without economic freedom, political freedom is useless. You may get a vote, but the state ultimately dictates your life and livelihood. Without political freedom, economic freedom is an illusion. Oligarchs dominate society and your “right” to property is merely a government dispensation. Freedom is a package deal. We need both kinds to flourish.

Libertarians vigorously defend political and economic freedom. Properly ordered, markets and government reinforce each other. They have common institutional roots in private property, freedom of contract, and the rule of law. This political-economic model is called free enterprise.

Capitalism is not the same as free enterprise. We commonly use “capitalism” to mean “private ownership of the means of production.” This is dangerously incomplete. We need to take a broader historical perspective. In reality, capitalism looks quite different from free enterprise. The former is ripe with cronyism. It’s the latter we should fight for.

Here’s the essential difference between capitalism and free enterprise. Capitalism is pro-business. Its slogan is, “What’s good for Wall Street is good for America.” But free enterprise is pro-market. Its slogan is, “Property rights for all, special privileges for none.” For defenders of liberty and equality, free enterprise is clearly superior.

The problem with capitalism is it combines privatized benefits with socialized costs. Private property is necessary for freedom, but not sufficient. Capitalists rig the game so that they keep their profits while forcing taxpayers to cover their losses. This is both economically harmful and socially unjust. We saw the pernicious side of capitalism following the financial crisis of 2008. Wall Street got a bailout. Main Street paid the tab.

Historically, the development of several important markets, including financial markets, depended on an alliance between economic elites and political elites. Powerful bankers and merchants comprised the economic elite; powerful aristocrats and bureaucrats comprised the political elite. They struck bargains that enriched them at the expense of the public. Economic elites supplied capital; political elites supplied government privileges. While they reaped immense wealth, the public bore the costs.

Adam Smith, the godfather of modern economics, understood the difference between free enterprise and capitalism. His Wealth of Nations, published the same year America declared its independence, extolled the benefits of free enterprise. Given a level economic playing field and genuine competition, private property is a great boon to national wealth. But political and economic elites constantly try to quash free enterprise. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, ” Smith complained. He was right.

Capitalism vs. free enterprise is an important theme in U.S. history. It goes back to the Founding of the country. During the early years of the Republic, supporters of capitalism and supporters of free enterprise lined up on opposite sides of the ball. The capitalist party wanted a strong central government, a permanent national debt, and protective tariffs. The free enterprise party wanted strong local governments, the swift retirement of national debt, and free trade. Despite occasional setbacks, the capitalists won.

Let’s do a little myth-busting. The conventional wisdom about big businesses hating regulations and taxes is wrong. In fact, big businesses love these things. They know they can cope with these burdens much more easily than their smaller, nimbler competitors. Regulation and taxes don’t promote competition. They stifle competition. If we want to restore free enterprise, we need to reform our byzantine web of economic restrictions. Let people produce and trade freely. Free enterprise means everyone has a right to seek their fortune without big business or big government blocking the way.

When Facebook was small and scrappy, CEO Mark Zuckerberg vigorously defended free expression. Now that Facebook is large and dominant, Zuckerberg appears before Congress to ask for government regulation of social media. This is capitalism in a nutshell. Americans are tired of the wealthy and powerful exempting themselves from the rules the rest of us have to follow. We need a renewed push for free enterprise. Libertarians are leading the charge.

Alexander William Salter is the Georgie G. Snyder Associate Professor of Economics in the Rawls College of Business at Texas Tech University, a research fellow at TTU’s Free Market Institute, and a community member of the Lubbock Avalanche-Journal editorial board. The views in this column are solely his own.

This article originally appeared on Lubbock Avalanche-Journal: Alexander Salter free enterprise, not capitalism