Dictionaries usually define “capitalism” as a political/economic system in which individuals or corporations are said to have the right to “own” things and therefore get to decide pricing, production and distribution of goods produced or services rendered. There are three different kinds of ownership: 1. The right to the fruits of one’s own labor 2. Ownership of land or other finite resources, which the individual has purchased but does not create through labor 3. Ownership of material assets which have been created through labor such as capital improvements.
Ownership of Fruits of One’s Labor
Individual ownership is the foundation of the Libertarian and “free market” outlook. Libertarians like to say people “own” their bodies and minds. Consequently, they also believe that they own the fruits of their physical and mental labor, and that’s why they are against income tax. This seems pretty straightforward, to me. I do not believe that government has the right to tax labor, mental or physical. 
But what about ownership of the means of production and land?
When 18th century “free market” economists first starting writing/thinking about these things, they were rebelling against a system in which the king or the aristocracy owned all the land and taxed the workers, took a piece of their labor. These early “free marketers” defended the rights of artisans, farmers, merchants to own their own property and the fruit of their labor without being taxed and controlled.
Soon came the advent of industrial manufacturing which increased the productive capacity of individual laborers, and the person(s) putting up the capital to build the factory and the machines claimed right to the “profit” above and beyond what he paid the laborers for their time. Owners of the means of production enable labor to work efficiently. This kind of profit can be the direct result of the owner’s talent for organization and management, and, in this sense, some of the capitalist’s profit can be considered income from labor, some of it from investment.
As long as the labor can expect to be paid more if he/she works better than other workers, this respects the idea of a free market. As long as the owner puts his capital investment at risk to be able to earn a profit, this respects the idea of a free market. As corporations grew larger and merged with other corporations, they began to assume the same role over laborers as the aristocracy had had over peasants. If a laborer increased production rates by a certain percentage, he/she should expect to be rewarded.
In our age, the largest corporations have merged with government, which is controlled by wealthy corporate lobbyists. Ordinary workers and consumers aren’t able to get the government to enforce laws against large corporations, which may contribute to damaging public health or the economy. As we saw with the bank bailouts in recent years, sometimes business owners are not expected to assume the risks and consequences of bad investments. We have returned to a feudal system, in many respects in which those who do not have control over capital have less freedom and limited access to the courts.
Alternatively, the industrial age could have been funded in part by capital and in part by sweat equity, and all participants in manufacturing could have claimed a right to the full fruits of their own labor, according to their skill and talent. We can try to gradually switch to the employee-owned and -run corporate model, perhaps by offering co-ops lower corporate tax rates. The co-operative business really and truly embraces the “free market” philosophy in a way that the typical big corporation does not.
So what happened to those original “free marketers” is that, once free of aristocratic ownership, they sought the right to own and control others’ labor themselves, producing a kind of modified hierarchical system that included, at least, social mobility. Some people may be fine with earning wage income, allowing their corporate owners to take a profit off their labor — maybe because they dream of kicking up their feet on a desk some day while others work. I have nothing against this dream of easier living. But maybe this kind of income, from profit rather than from labor, needs to be treated differently in our tax system, and by “differently” I don’t mean taxed at a lower rate, as it is now.
I’m sort of a Green-Libertarian hybrid, who supports grassroots democracy and sees the value in protecting both the community and the individual. Some have complained, quite rightly, that I’m not an orthodox Libertarian because I do not think that large corporations, if left to govern themselves will naturally and inevitably produce a fair economy. This faith in Corporate Capitalism seems as unrealistic as Communism which supposes that a government with concentrated powers can produce a fair economy. As long as power is concentrated in the corporation or in the state, the individual is not really free. I think I actually out Libertarian a lot of Libertarians who don’t see that we live in corporatocracy.
Libertarians also believe individuals “own” their property — houses, land, gold, cars, stuff — and they don’t think the government should be able to take a portion of their property and spend it on programs they don’t like and don’t use. I do not like this either. (There are better ways to fully fund social programs than with property taxes.) Libertarians also don’t want to be told what they can do with their property. Okay, that depends. For example, I question the idea of “ownership” of finite resources, e.g. land, water, and air, which also belong to future generations. If I inherit 1,000 acres of old forest, I may decide to cut it all down and sell the wood to make toothpicks, leaving a Mordor-like landscape. My ancestors, the previous owners, may not have wanted this; my descendants, the future owners, may not want this. The owners of the neighboring lands may not want this. I am not against reasonable land use laws and building codes, that protect the value of the land and surrounding land. These laws are, after all, decided locally and democratically.
Therefore, on the one hand, I can’t defend the ownership of land in the same way that I can defend the ownership of one’s body and other kind of property. On the other hand, I think every human born into the world has a right to use (wisely) a piece of it for his/her own survival. So, if an individual buys an acre of land, builds house on it, puts in a kitchen garden, or runs a small business out of it, he/she has a right to keep that property without being taxed on it. No one should lose their fair share of the planet due to non-payment of property taxes. In most parts of the U.S. an acre is more than sufficient to feed a typical-size family. Most families don’t bother to grow and preserve their own vegetables these days, but allowing people to own an acre of land and a roof over their heads tax-free should/could be seen as the basic fabric of a social safety net.
Owners of more than one acre in the US (or a different amount depending upon the area) should/could be taxed at a progressive rate, in order to pay “rent” to the community from whom the owner takes more than a fair share. But government has no right to tax capital improvements (houses, barns, sheds) since these are the products of labor. This is essentially Henry George’s idea.
Should interest income be taxed? I also want to make a distinction between different kinds of interest income, for example from loans and from stock ownership. If I save up enough money to loan it, at the going interest rate, to my neighbor to build a house, then, maybe, I have a right to that interest income without being taxed on it. I’m putting my hard-earned money at risk, after all. When my neighbor pays back the loan with interest, I no longer have control over his/her property and no claim to his/her labor.
But if I save up enough money to buy a piece of a corporation, stock in a company where I don’t work, I’m buying a permanent claim to part of other people’s labor. Those wage laborers can never profit from their own greater productivity, while I may earn back several times my original investment. I don’t think that’s fair. I do think interest from stock ownership should be taxed, with a progressive tax. In fact, I’d rather see the practice of publicly owned and traded stocks whither away and replaced by a system in which capital investors make loans instead of buying stocks. The Federal Reserve has held interest rates down for so long, that they have killed savings investments and encouraged everyone to put their money in the much riskier stock market.
Above I have used rather simplistic examples to try to make my point. In reality deciding what is labor income or fairly earned income and is not so easy to define. Is making $3,000 per hour as officer of a large corporation the same thing as making $30 an hour as a store manager? They are both wage earners. Maybe a retired woman rents out her large home and lives in a small rental apartment, in order to earn enough to live comfortably and safely. She is a capitalist, making money off her property. How do we think about these differences?
Most households have under $100,000 per year in income (including interest and wage income). Since the top 10% pay 90% of income taxes, I think government could easily just cut the military budget to make up the difference and stop taxing the bottom 90%. Most of the tax all of us pay is just squandered on interest on old war debts and new warfare.
Socialists blame our widespread social injustice on “capitalism,” but I am always confused about what they mean by capitalism. I’m prepared to defend an individual’s right to own a fair share of property and to own the fruits of his/her labor. By defining the “negative” kind of capitalism as interest income from stock ownership and owning an overly large portion of finite resources, I hope to avoid triggering a negative response from people who believe that individuals have rights and the government/corporatocracy does not own them.
See What, exactly, is “Socialism“?
- The 16th Amendment to the Constitution was smuggled through in 1913 to allow the Federal Reserve to operate. If the government provides an individual with a service, such as transportation, roadways, utilities, etc., it has a right to charge a user fee, as it does at the Post Office. But taking a percentage off someone’s labor is to say that the government owns or has a right to the fruits of that person’s labor. This is serfdom. The Federal Reserve has helped create the most extreme economic disparity that the world has ever seen. Therefore, I think the 16th Amendment should be used to levy a progressive tax only on the top 10% (which is almost completely capital gains income, not income from wages/labor) until some of the damage has been undone.