Foundation #2: Definitions

This post defines a couple of terms used quite a bit on this website.

What is Free-Market Capitalism?

Capitalism is an economic system in which private individuals own all or most of the property and businesses. It is sometimes referred to as the ‘free enterprise’ system.

The heart of free-market capitalism is economic freedom, which basically means that buyers and sellers are free to transact or not, as they each freely choose. Economic freedom necessarily requires that the role of government be limited.

To correct a misperception held by some, capitalism is not just about large corporations. Capitalism encompasses all businesses, from the largest corporation to the smallest mom-and-pop shop, and even the one-person web designer working from home. Capitalism also encompasses every consumer who buys products and services and every worker who produces them. In short, capitalism involves all of us.

Pure free-market capitalism is somewhat of an ideal. Few countries have embodied this ideal perfectly or have done so consistently for a long period of time. Historically, the U.S. may have been the best example of free-market capitalism, but we have drifted further away. Certain Asian countries have come near to the ideal. Many European countries came somewhat near the ideal, but then veered away to differing extents in the early to middle decades of the twentieth century. Most countries in Africa and South America have never come close to the ideal, which explains why they remain poor to this day.

What is Big Government?

The definition of Big Government is a bit more vague. There is no precise definition or common understanding. Broadly speaking, government is Big Government if it dominates the economy and takes away too much economic freedom from the people. Big Government belongs on the totalitarian side of what I call the Liberty Spectrum.

The most extreme examples of Big Government are communism, socialism, and fascism. Some consider communism and socialism more or less the same thing, while others think they are quite different. For this purpose, this distinction does not really matter since both dominate the economy and both should be considered Big Government.

We can also find Big Government in countries that are not considered communist, socialist, or fascist. Here are some signs of Big Government:

  • Government interferes in the economy too much, taxing and spending too much, or regulating too much.
  • Government owns significant properties and businesses.
  • Government significantly controls what types of products or services people are allowed to buy and sell, or restricts the times or places when people are allowed to buy or sell, or establishes official selling prices.
  • Government subsidizes many products or services.
  • Government does not respect the property rights of its citizens.
  • Government enforces its laws in an unpredictable and unreliable way

I encourage you to enter comments or questions below. Two rules: 1) be reasonably polite, 2) address the issue and avoid personal attacks.

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