Saving Capitalism summary

Unless you happen to live under one of the world’s few communist regimes, you will be well-versed in the workings of capitalism – an economic system of private property and markets, ordered by supply and demand.

And if you live in a country with a conservative political majority, these markets are likely “free,” that is, unencumbered by undue government regulation.

However, there’s a problem with the conservative zeal for so-called “free” markets, namely that it doesn’t account for the fact that governments are actually creators of markets.

Nonetheless, the commonly held belief is that government intervention distorts markets, thereby reducing their efficiency. People who hold this belief assume that the market knows best, and thus that government oversight should be minimal.

But here’s where we run into problems.

There simply can be no free markets without government. Markets do not exist in a vacuum, and governments write the rules that create both markets and define societies. So, just to exist, every market needs a government that writes and enforces its rules – rules which shape the building blocks of capitalism.

These rule-based building blocks include property, monopoly, contracts, bankruptcy and enforcement.

Property refers to rules regarding what can be owned. That’s because making or buying something doesn’t necessarily mean you can own it. For instance, we have laws that prohibit owning a nuclear bomb. But it’s also necessary to have rules governing intellectual property, such as music.

Monopoly is a set of rules defining how much market control any one entity can have. For example, these rules govern how large and economically powerful society will let a company become.

Contracts define what can be bought and sold while agreeing to the terms of sale. That’s because buying and selling commodities require more than merely setting a price. When selling regulated commodities such as drugs or food, for instance, it’s essential to have a contract that dictates clear rules for the conditions of the sale.

Bankruptcy is the rule responsible for handling situations when purchasers can’t pay up. And finally, enforcement is necessary to ensure that people abide by all the other rules.

Now that you know the five building blocks of capitalism, let’s take a look at how they play out in America’s economic system.