What Is Capitalism?

by Ayn Rand
From Capitalism: The Unknown Ideal
Capitalism: The Unknown Ideal
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This essay was first published in the November — December 1965 issues of The Objectivist Newsletter and later anthologized in Capitalism: The Unknown Ideal (1966 and 1967). An edited version was given as a talk in November 1967 at the Ford Hall Forum in Boston.

The audio lecture lasts 47 minutes.

This talk also became the core of an ARI Campus lesson called “What Is Capitalism?” which features an outline and quiz, recommended readings and supplemental video elements such as images, graphics, diagrams and summaries of key points. A link to it appears in “Related Lessons” below.

The disintegration of philosophy in the nineteenth century and its collapse in the twentieth have led to a similar, though much slower and less obvious, process in the course of modern science.

Today’s frantic development in the field of technology has a quality reminiscent of the days preceding the economic crash of 1929: riding on the momentum of the past, on the unacknowledged remnants of an Aristotelian epistemology, it is a hectic, feverish expansion, heedless of the fact that its theoretical account is long since overdrawn — that in the field of scientific theory, unable to integrate or interpret their own data, scientists are abetting the resurgence of a primitive mysticism. In the humanities, however, the crash is past, the depression has set in, and the collapse of science is all but complete.

The clearest evidence of it may be seen in such comparatively young sciences as psychology and political economy. In psychology, one may observe the attempt to study human behavior without reference to the fact that man is conscious. In political economy, one may observe the attempt to study and to devise social systems without reference to man.

It is philosophy that defines and establishes the epistemological criteria to guide human knowledge in general and specific sciences in particular. Political economy came into prominence in the nineteenth century, in the era of philosophy’s post-Kantian disintegration, and no one rose to check its premises or to challenge its base. Implicitly, uncritically, and by default, political economy accepted as its axioms the fundamental tenets of collectivism.

Political economists — including the advocates of capitalism — defined their science as the study of the management or direction or organization or manipulation of a “community’s” or a nation’s “resources.” The nature of these “resources” was not defined; their communal ownership was taken for granted — and the goal of political economy was assumed to be the study of how to utilize these “resources” for “the common good.”

The fact that the principal “resource” involved was man himself, that he was an entity of a specific nature with specific capacities and requirements, was given the most superficial attention, if any. Man was regarded simply as one of the factors of production, along with land, forests, or mines — as one of the less significant factors, since more study was devoted to the influence and quality of these others than to his role or quality.

Political economy was, in effect, a science starting in midstream: it observed that men were producing and trading, it took for granted that they had always done so and always would — it accepted this fact as the given, requiring no further consideration — and it addressed itself to the problem of how to devise the best way for the “community” to dispose of human effort.

There were many reasons for this tribal view of man. The morality of altruismWhat is the moral code of altruism? The basic principle of altruism is that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value...
Faith and Force: The Destroyers of the Modern World, 61View Full Lexicon Entry
was one; the growing dominance of political statism among the intellectuals of the nineteenth century was another. Psychologically, the main reason was the soul-body dichotomy permeating European culture: material production was regarded as a demeaning task of a lower order, unrelated to the concerns of man’s intellect, a task assigned to slaves or serfs since the beginning of recorded history. The institution of serfdom had lasted, in one form or another, till well into the nineteenth century; it was abolished, politically, only by the advent of capitalism; politically, but not intellectually.

The concept of man as a free, independent individual was profoundly alien to the culture of Europe. It was a tribal culture down to its roots; in European thinking, the tribe was the entity, the unit, and man was only one of its expendable cells.

The concept of man as a free, independent individual was profoundly alien to the culture of Europe. It was a tribal culture down to its roots; in European thinking, the tribe was the entity, the unit, and man was only one of its expendable cells. This applied to rulers and serfs alike: the rulers were believed to hold their privileges only by virtue of the services they rendered to the tribe, services regarded as of a noble order, namely, armed force or military defense. But a nobleman was as much chattel of the tribe as a serf: his life and property belonged to the king. It must be remembered that the institution of private property, in the full, legal meaning of the term, was brought into existence only by capitalism. In the pre-capitalist eras, private property existed de facto, but not de jure, i.e., by custom and sufferance, not by right or by law. In law and in principle, all property belonged to the head of the tribe, the king, and was held only by his permission, which could be revoked at any time, at his pleasure. (The king could and did expropriate the estates of recalcitrant noblemen throughout the course of Europe’s history.)

The American philosophy of the Rights of Man was never grasped fully by European intellectuals. Europe’s predominant idea of emancipation consisted of changing the concept of man as a slave of the absolute state embodied by a king, to the concept of man as a slave of the absolute state embodied by “the people” — i.e., switching from slavery to a tribal chief into slavery to the tribe. A non-tribal view of existence could not penetrate the mentalities that regarded the privilege of ruling material producers by physical force as a badge of nobility.

Thus Europe’s thinkers did not notice the fact that during the nineteenth century, the galley slaves had been replaced by the inventors of steamboats, and the village blacksmiths by the owners of blast furnaces, and they went on thinking in such terms (such contradictions in terms) as “wage slavery” or “the antisocial selfishness of industrialists who take so much from society without giving anything in return” — on the unchallenged axiom that wealth is an anonymous, social, tribal product.

That notion has not been challenged to this day; it represents the implicit assumption and the base of contemporary political economy.

As an example of this view and its consequences, I shall cite the article on “Capitalism” in the Encyclopaedia Britannica. The article gives no definition of its subject; it opens as follows:

capitalism, a term used to denote the economic system that has been dominant in the western world since the breakup of feudalism. Fundamental to any system called capitalist are the relations between private owners of nonpersonal means of production (land, mines, industrial plants, etc., collectively known as capital) [italics mine] and free but capitalless workers, who sell their labour services to employers. . . . The resulting wage bargains determine the proportion in which the total product of society will be shared between the class of labourers and the class of capitalist entrepreneurs.1Encyclopedia Britannica, 1964. Vol. IV, pp. 839-845.

(I quote from Galt’s speech in Atlas Shrugged, from a passage describing the tenets of collectivism: “An industrialist — blank-out — there is no such person. A factory is a ‘natural resource,’ like a tree, a rock or a mud-puddle.”)

The success of capitalism is explained by the Britannica as follows:

Productive use of the “social surplus” was the special virtue that enabled capitalism to outstrip all prior economic systems. Instead of building pyramids and cathedrals, those in command of the social surplus chose to invest in ships, warehouses, raw materials, finished goods and other material forms of wealth. The social surplus was thus converted into enlarged productive capacity. 

This is said about a time when Europe’s population subsisted in such poverty that child mortality approached fifty percent, and periodic famines wiped out the “surplus” population which the pre-capitalist economies were unable to feed. Yet, making no distinction between tax-expropriated and industrially produced wealth, the Britannica asserts that it was the surplus wealth of that time that the early capitalists “commanded” and “chose to invest” — and that this investment was the cause of the stupendous prosperity of the age that followed.

About the Author
Ayn Rand
Ayn Rand
Learn more about Ayn Rand’s life and writings at AynRand.org.

Ayn Rand, Capitalism: The Unknown Ideal (New York: Signet, 1967).

  • 1 Encyclopedia Britannica, 1964. Vol. IV, pp. 839-845.
  • 2 Ayn Rand, “The Objectivist Ethics,” in The Virtue of Selfishness.
  • 3 For a fuller discussion of rights, I refer you to my articles “Man's Rights” in the appendix, and “Collectivized Rights'” in The Virtue of Selfishness.
  • 4 For a fuller discussion of this subject, see my article “The Nature of Government” in the appendix.
  • 5 For a discussion of the philosophers' default in regard to capitalism, the title essay in my book For the New Intellectual.