What is Capitalism at its Core?

A Steelman of the Four Beliefs That Shape Our World


Capitalism is more than just an economic system; it’s a philosophy built on a powerful set of assumptions about human nature, progress, and justice. We often argue about its effects—inequality, innovation, environmental impact—but rarely do we examine the foundational beliefs that drive it. This post puts the heart of “capitalism” under the microscope. We will try to “steelman” its core principles, presenting them in their most robust and persuasive form.

It’s important to note that we are talking about the philosophical core of modern capitalism, the theoretical engine that powers the systems seen in most Western countries. In reality, no country is a pure capitalist or neoliberal state. They are all mixed economies. Even the United States has massive government programs like Social Security and Medicare, alongside enormous state subsidies.

Chapter 1: The Engine Room - Acknowledging the Power of the System

This chapter starts by giving capitalism its due. As an engine for wealth creation and poverty reduction, its historical track record is undeniable. It has been instrumental in lifting billions out of poverty, unleashing unprecedented innovation, and creating a level of material abundance unimaginable to previous generations.

Our goal here is not to attack a caricature (“strawman”) of capitalism, but to engage with its strongest arguments. We are here to understand the machine’s design before we critique its performance. To do that, we must examine the four foundational beliefs that serve as its operating code, building the argument from the ground up.

Chapter 2: The First Belief - The Sanctity of Private Property

Before you can have markets, trade, or incentives, you must have ownership. This is the logical starting point, the non-negotiable prerequisite of the entire system.

  • The Core Question: Why should anyone create, build, or care for anything if it can be taken from them at any moment?
  • The Argument: The right to own and control property is the bedrock of all other economic and personal freedoms. It provides the stability necessary for long-term investment and the incentive to be a good steward of resources. Why would a farmer plant a crop if they have no assurance they will own the harvest? Why would an inventor spend years on a project if the resulting patent could be arbitrarily seized? Property rights create a sphere of personal sovereignty, a protected space where individuals can plan, labor, and benefit from their efforts without fear of expropriation.
  • The Implication: Without secure property rights, there is no long-term investment, no stability, and ultimately, no freedom.

Core Assumption: Progress and prosperity are impossible without the guarantee that individuals can keep the fruits of their labor.

Chapter 3: The Second Belief - The “Coin-Operated” and “Capable” Individual

With the rule of property established, we must now define the player: the individual. This belief combines a pragmatic view of human motivation with a deep faith in human agency.

  • The Core Question: How do you motivate millions of strangers to cooperate productively and get the world’s essential, and often undesirable, work done?
  • The Argument: The philosophy of liberalism that underpins capitalism is built on two observations about human nature:
    1. On Motivation (The “Coin-Operated” aspect): It looks at the spectrum of human motivations and dismisses most as insufficient for organizing a global economy. Altruism and duty are powerful in families and small tribes, but they don’t scale. Passion and mastery drive artists and scientists, but they can’t fuel the entire system. The philosophy lands on one incentive that is universal, reliable, and infinitely scalable: financial self-interest. It’s not that money is the only thing people care about, but it’s the only thing everyone cares about enough to build a predictable system on. It is the universal language that allows the Colombian coffee farmer to cooperate with the London barista without ever needing to know, like, or trust each other.
    2. On Agency (The “Capable” aspect): It argues that these self-interested individuals are also the best judges of their own needs and desires. A free market is the ultimate expression of this respect. Every purchase is a vote. Every business venture is a proposal. The system works best when capable individuals are left free from the paternalistic hand of the state to make their own choices, take their own risks, and reap their own rewards.
  • The Implication: The genius of capitalism is that it accepts human nature as it is—largely self-interested and self-directed—and builds a system to channel that energy toward productive cooperation without centralized coercion.

Core Assumption: Individuals are the best judges of their own needs, and their rational self-interest is the most reliable incentive for organizing large-scale cooperation.

Chapter 4: The Third Belief - The Crucible of Competition

We have the rules (property) and the players (self-interested individuals). Now, how do we determine value and drive progress? How do we decide how many “coins” to allocate to person X versus person Y?

  • The Core Question: How do we ensure that individual self-interest leads to societal progress instead of just selfish hoarding?
  • The Argument: Competition is the system’s disciplined process of discovery and quality control. It is not a brutal, pointless fight for survival; it is a Darwinian system for ideas, products, and services. When firms compete, they are forced to innovate, improve quality, and lower prices to win the “votes” (the money) of capable individuals. This relentless process of “creative destruction” is the engine of all progress, weeding out inefficiency and rewarding excellence. It ensures that capital, talent, and resources are constantly being reallocated from failing ideas to successful ones.
  • The Implication: Progress is born from struggle, not from comfort. A system that protects businesses from failure also protects consumers from improvement. Competition is the engine that converts individual self-interest into collective advancement.

Core Assumption: Competition is the most effective way to discover what is useful, determine what is valuable, and drive human progress.

Chapter 5: The Fourth Belief - The All-Knowing Market

This is the capstone. The previous three beliefs—property, self-interested individuals, and competition—all combine to create this emergent and profoundly intelligent phenomenon: the market.

  • The Core Question: How do we solve the ultimate economic puzzle: allocating scarce resources to satisfy the desires across a society of billions?
  • The Argument: A central planner would find this task difficult. To decide how many pencils to make, they would need to know the availability of graphite, the supply of lumber, the capacity of factories, and the desires of millions of people—an almost infinite amount of constantly changing data. This is the “knowledge problem” famously articulated by economist Friedrich Hayek. The capitalist answer is that we don’t need a central planner, because the market acts as a giant, decentralized information-processing system. It solves the allocation problem through one elegant mechanism: the price signal.
    • If a resource becomes scarcer, its price rises. This instantly tells thousands of producers, “Make more of this!” and millions of consumers, “Conserve this!”
    • If a resource becomes more abundant, its price falls. This instantly tells producers, “Stop making so much!” and consumers, “Use this freely!” No single person needs to understand the whole system. The coffee farmer in Colombia doesn’t need to know about a frost in Brazil; he just needs to see that the price for his beans has gone up. The market price aggregates the knowledge and preferences of billions of people automatically, directing resources to where they are most needed.
  • The Implication: The market, through its price mechanism, is the most effective tool humanity has ever discovered for solving the problem of scarcity and coordinating complex economic activity on a global scale.

Core Assumption: Decentralized information, aggregated through price signals, is our best solution to the resource allocation problem.

Conclusion: The Map and the Territory

These four beliefs—Private Property, the Sovereign Individual, the Crucible of Competition, and the All-Knowing Market—form the coordinates on the capitalist compass. Together, they create an internally consistent and intellectually powerful worldview. They present a system that is not designed to change human nature, but to harness it; a system that does not rely on a central authority, but on the emergent wisdom of crowds.

Finally, we should remember that these are beliefs, not facts. There may be other answers to the questions posed. Other ways to; organise, motivate, solve allocation, incentivise …