Bitcoin is free market money independent from governments – a perfect example of capitalism. But what exactly is capitalism? By Frank Schäffler
Capitalism and market economy seem to be the same thing, but the terms describe different aspects. “Market economy” means the decentralized planning and management of economic processes, coordinated by the price mechanism. But this does not say anything about the ownership structure. Capitalism is about ownership. In capitalism, businesses, farmland and real estate belong to private individuals or companies, not to the government.
Theoretically, one could imagine a market economy without private ownership. In the old Federal Republic of Germany, before the privatizations of the 1980s and 90s, most companies in the postal, telecommunications and energy sectors were owned by the state. As we know, that didn’t work out very well. Their services were poor and expensive and the companies inefficient.
One predominant characteristic distinguishes capitalism: it is adaptive. In capitalism, no one follows a “grand plan”. It is an iterative, continuously decentralized process. Trial and error are inherent elements of the capitalist system.
Entrepreneurs ultimately need to satisfy the needs of their customers through their products or services. In capitalism, the customer is king. Entrepreneurs cannot succeed if they disregard the needs of their customers. A company that does so will disappear from the market, no matter how big or how well-funded it is. It might just take a bit longer.
This is the main mistake of the so-called ordoliberals who advocate the intervention of the state in the market economy: they distrust the power of customers. They believe that if a company is big and powerful enough, it can dictate prices to customers and fleece them like a Christmas goose. That’s why they grant the state powers of intervention.
In Germany, steel and cement companies used to be suspects of market domination. Now there are no longer any steel companies worth mentioning, and the cement industry has to compete internationally, burdened with high energy prices. Today, the German Antitrust Authority is bothering brewers and coffee roasters if they take ten cents more, as if that had any real significance.
The dispute around companies like Google, Facebook/Meta and Amazon is more interesting. One could argue that network effects in digital markets could lead to a dominance that needs to be countered by regulation. But isn’t regulation responsible for their temporary market power? If the barriers to market entry are high, these are natural protective walls against new market participants and new ideas. It’s the big incumbent players who have a vested interest in extensive regulation!
However, in most cases these protective walls do not hold up for long anyway. Will all these billion-dollar companies survive the evolution to blockchain-based Web3? They would not be the first global champions to be overrun by technological development. Who can still remember AOL or Yahoo? Capitalism is not about “who made it”, but who will make it tomorrow and in the future.
Classical liberals, in the USA often called libertarians, should not hide or dress up the concept of capitalism. In doing so, we would fall prey to the opponents of capitalism, the socialists. They dislike private property and especially entrepreneurship because they are not interested in satisfying customer needs. However, they do want to have a say in people’s life decisions. Their goal is the “democratization” of all areas of life, which means that any economic activity should be controlled by the government, both on the producer and on the consumer side. As a result, the substance of property is being eroded and the consumer degraded to an immature being. This is a frontal attack on our individual freedom.
Let’s not tolerate this and defend capitalism!
Frank Schäffler is a member of the German Federal Parliament and an advocate of a free competition of currencies as proposed by the Austrian Economist Friedrich August von Hayek. He has been successfully fighting against anti-Bitcoin laws in the EU and Germany.