Capitalism In One Lesson

8 min readOct 29, 2013

You and nature

Imagine you are all alone in nature. You’ll need to get goods. You can get these by working. If you have time or savings left after feeding yourself, then you can spend that while making tools. These tools can increase your production.

Other people

You come across another person. He has different skills and a different environment. What the two of you can do is that each spends his time doing what he’s best at, and then you trade with each other, making you both better off. This means you’ll be important to each other. After you've specialized, those skills will keep improving.

A third and fourth person show up. You’ll only do a trade if you think it benefits you. Someone has to offer you that good of a price where you can stop making it yourself; and that is based on your skills, environment and wants. This is the way all can coordinate their production, which they also keep adjusting over time. Becoming wealthier here is a case of producing and trading a lot of what the others value.

Interfering with the work or the trading of the individuals means there will be less to trade or it will distort the coordination of work in the group. To prevent this, the concept property can be adopted. It means: what you make out of nature becomes yours, and you are free to trade it.

You can choose to hold your property in common ownership with someone else, but it means you stop checking if you’re materially benefited between you and that person, which would be the case under trading.


Besides trading what you have for what you want, you can also trade what you have for something you can more easily trade for what you want. This is an indirect trade, and it results automatically in one good outperforming all other goods in facilitating trade. This is then the money.

Over time the economy changes, and likewise what the money is changes.

When a money has emerged, you buy and sell in terms of the same good, so calculating profits and losses is much easier, as well as predicting your income if you would make something else.


Besides trading goods, you can also trade your labor. An entrepreneur invests in labor and goods in the hopes of making profits. The laborer earns a steady positive wage.


Goods can be loaned out to another person. Interest is the price paid for it.


Many people can invest in an entrepreneurial project and partake in the profits and losses through the use of stocks.


Insurance is a trade where one party assumes a specific risk of another party. The customer pays a surplus over the averaged estimated payout.


You can provide the service of giving out information about the products of others. Individual consumers have preferences about what degree of uncertainty about offerings they are willing to risk and how much it is worth for them to get more information.


You can buy weapons and hire others to protect yourself against crime. But more fundamentally, you can increase the upside of peaceful cooperation and the downside of crime by establishing the reputation of individuals. Third parties can provide this service of arbitrating on and recording the actions between trade partners.

The environment

Property ownership helps preserve the environment and use it efficiently in a number of ways. You have to carefully manage your waste and chemicals because it’s a crime if it ends up on someone else’s property and causes damage. When you own a resource, then you’re also interested in the value of the resource. This means that you’re not just thinking of the immediate return but also about the returns in the future, and the value of the property itself on the market, which is the estimated returns in the future by buyers.


Socialism is not peaceful trading and sharing under property rights, but a forceful grab of all resources in a certain area by a central power. Production and trade no longer determine ownership. All information from prices disappears. So who is better comparatively at doing what? Which goods are valued and by whom? Are less valuable goods being transformed into more valuable goods?

If a group of men were great at coordinating labor and production, then the proper way of dealing would be to offer these services voluntarily like any other firm. Resorting to violent aggression is an admission that the well-being of the individuals they are dealing with is not valued.


Democracy is not peaceful trading and sharing under property rights, but a forceful grab of security and arbitration in a certain area by a central power. Public voting then determines who makes and interprets the rules. So what happens is that everyone tries to use the rule-making power of the state in their own advantage. It will be a constant push towards the erosion of the freedom to produce, own, trade and act, and very little in way of holding it back.

Intellectual property

Copying an idea or piece of information from someone else is a peaceful act; it does not harm the physical integrity of the property of another. In fact, it is one of the most important ways that producers have to create beneficial offerings, because they can see what works and doesn't work, and produce what does work cheaper or build upon it in a new way or a new place.


There are a number of economists and other figures in history that are associated —by themselves or by others— with the ideology of capitalism. Among these are Adam Smith (1723-1790), Ludwig von Mises (1881-1973), Friedrich Hayek (1899-1992), Ayn Rand (1905-1982) and Milton Friedman (1912-2006).

However, all five were not for individual sovereignty and a voluntary order where security, arbitration and reputation are goods traded on the market. Instead, they advocated a rulership of some over others in the name of peace; a glaring contradiction incompatible with capitalism.

On top of this,

  • Smith was also for the monopolistic state to produce roads, bridges, canals, harbors, coinage, a postal service, hallmarking of gold and silver, quality regulation of wool- and linen cloth, regulation of paper money notes, regulation of bank trades, public and compulsory education, publicly funded religious instruction, protection of intellectual property, and more.
  • Hayek was for the state production of roads, education, a social safety net, theaters, sports grounds, certification of professions, building regulations, food regulations, factory safety and health regulations, restriction on the sale of dangerous goods —including drugs—, and more.
  • Friedman was for the state production of roads, city parks and the protection of intellectual property, and if a state had a central bank —which he did finally end up being against— he advocated it steadily inflate and intervene heavily during a depression.
  • Rand was for the protection of intellectual property.
  • Mises did not advocate additional state interventions.


The problems of poverty, low wages and unemployment can all be ascribed to a lack of capitalism. The only way for people in those circumstances to become wealthier in a sustainable way, is to allow them the freedom to be productive, so they can use their human capabilities in ways that they, and others, find beneficial.

If you look at the areas where people are the poorest you will no doubt find enormous restrictions on all industries, from farming to healthcare to factories to money, the strength of their property rights, from buying to exporting, ..and in their freedom to travel and relocate.


Microsoft has many thousands of software patent privileges acquired from the state which it can use to stifle competition —just do a search for the words: microsoft.. sues.. patent..—. But most of all, its software falls under copyright protection, which means that anyone who copies the software becomes a target of the state criminal system, even if there wasn't an agreement between that person and Microsoft. Such a thing could not happen in a free market.

Copyrights and patents are a way of shielding established businesses from competition. What we need instead is real capitalism.


Used sources

*with permission to post my derivative as CC BY-SA (doesn't apply to the original color versions)


Q: Why didn’t you use better pictures for Milton Friedman and Ayn Rand?

A: Friedman and Rand believed in intellectual property, and the people who are now taking care of their works also do not allow people to freely use it. As such, I was not able to find better pictures that I knew I could use without getting into trouble.

Q: Who did the narration?

A: Derek Shetterly through