Rational Judgment and American Capitalism

The type of capitalist system that exists today is not even close to what pure capitalism could represent. The ideologies behind pure capitalism favor those who wish to work and compete for their lot, not those who wish to legislate or redistribute. In this form of capitalism, government protects people from physical harm and from coercion, but allows the market to set its own competitive rates.

As an example, let us consider the current banking system. Banks must have a certain reserve of cash on hand to protect from large losses, but banks are not free to choose who they can lend to. The government mandates that the bank must take on risky loans, what most people would know of as sub-prime, in an effort to encourage home ownership at all income levels.

When those low-income or poor credit buyers eventually do default, the taxpayers are left to bail out banks for their poor investment decisions.

Pure capitalism is about making choices and living with those consequences. In a purely capitalist society, the taxpayer would not have been at fault for the bank’s decisions, just as the government would not have mandated the banks lend to borrowers outside of its preferred profile.

A purely capitalist society doesn’t need government interference, because the market governs itself. There is incentive to remain competitive. Going back to the example of banks, staying competitive on interest means competing for borrowers. Banks would be able to compete on price, rate and more if they were freer to choose who they lend to. For those under-serviced, smaller startups would spring up to handle short term loans where larger banks were unable to respond. Rational judgment and the willingness to survive all contribute to a pure capitalism.