In honor of tax day, I'd like to dredge up some comments I originally wrote for another online forum, stepping back to explain to a libertarian how my ambivalence about capitalism related to my conception of liberty.
I see the creation of the greatest possible liberty of all individuals as the purpose of society. This includes both negative liberties — freedom from constraints — and positive liberties — resources giving the freedom to act.
For the purposes of this discussion, I would define “government” as a set of game rules in the society that create an explicit agent of that society's organizing principles. That's a bit abstract, I know, and there's a risk of defining “government” a little too broadly that way, but it should serve. Similarly, I would define “the economy” as the whole system of creation and distribution of goods and services. The “economic model” is the set of game rules used by the society to run the economy. It should be apparent that these three elements have sloppy boundaries.
If we take liberty as the measure of our society, then how is that expressed in the economy? The first order of business of the economy is providing for the essential needs of the members of the society, because without these needs met those people lack the capacity to exercise any liberty.
Now if you employ the very useful economic game rules of money and private property, you get markets. Throw in corporations as legal entities, limited liability for corporate investors, and industrial technologies and you get an economic model that we call “capitalism;” the exact flavor of capitalism depends upon the specifics of your rules for money, property, corporations, and industry — and how you involve government.
Capitalism is an appealing way to try to provide for people's essential needs because it tends to generate a lot of wealth. It also offers a lot of liberty to how the wealthy act in the economic sphere. These are good things that we should not give up lightly.
But it also tends to distribute that wealth so unevenly that you have a number of people who don't get their needs met. Medical care is the obvious and common example in the American example, but in more extreme cases it can reach to food and shelter. This is doubly distressing in light of the wealth generated by the system. Capitalism also sharply curtails the liberty of many more people who feel that their choices are limited by fear that their resources will be catastrophically limited unless they make significant sacrifices to their employers.
Looking at the obvious options to capitalism, I don't see anything resembling a satisfying alternative, but I do see evidence that alternatives are possible.
On the one hand, sovietism is the most obvious 20th century attempt to offer an alternative to capitalism. (I use the term "sovietism" to dodge the terms "communism" and “socialism” which are loaded with even more multiple meanings than “capitalism.”) Sovietism includes money, limited private property, industry, and government ownership of industrial tools of production. But it turns out that sovietism both tends toward government intrusions against negative liberties and fails to produce much wealth, so sovietism is a double-barreled failure.
Proponents of laissez-faire varients of capitalism, that feature weak governments and strong corporate liability limitations, commonly base their opinion on the argument that this is as different from sovietism as possible, and therefore good.
But I think that this ignores the range of different societies and economic models you can enact. You can have fuedalism, which doesn't really have money as we know it; banditry, which doesn't have industry; nomadism, which barely even has the idea of property; Nazi industrialism and Japanese industrialism, two very different systems that are capitalism in the broadest sense but which have strong government involvement in the economy; Scandanavian socialism which invokes a lot of the same rules as capitalism but with some serious limitations mediated by government on corporations and private property.
All of these alternatives have problems, but they demonstrate that our options are not simply sovietism over here, laissez-faire capitalism over there, and a range of shadings in between. I believe that we can do better than all of these options, if we start by thinking that all of these possible game rules are creations which should be measured by the degree to which they serve our liberty.