“It takes money to make money”

“It takes money to make money.” An old, oft-repeated saying, it is certainly true enough as a statement describing the functioning of capitalism. The idea is that once one possesses capital, she can loan it to others for interest or rent, or else invest it in some productive enterprise to earn profits, sitting back and watching her money pile up. On its face, there is nothing inherently wrong with any of this, with saving, investing, lending and getting rich. But our little maxim also suggests something of a problem.

After all, why should it take money to make money? Arguably, anyone with the principle of parsimony and a willingness to work hard ought to be able to make money. To get at the basic truth contained within it, we should consider the phrase at its most literal, boiled down to the abstract principle it is meant to illustrate. Put simply, the notion that “it takes money to make money” is just the claim that wealth is able to reproduce itself without work — that rubbing two coins together will make them mate.

Seeing this principle at work, 19th century libertarians such as Benjamin Tucker regarded capitalism as a system of privilege that “gives idle capital the power of increase.” Tucker challenged the capitalist myth that the great fortunes of his day were purely and simply the result of the virtues of hard work and saving. Far more often, capitalists’ riches were a product of “cleverness in procuring from the government a privilege” through which competition could be prevented. Such deep-rooted, systematic suppressions of competition consolidated wealth in the hands of the few.

Today’s market anarchists argue that these free market critiques of capitalism remain relevant, perhaps more than ever given, for example, the role of intellectual property in the global economy. A genuine free market transaction is positive-sum, a benefit to both exchanging parties. Conversely, exchanges in capitalism are zero-sum, one party benefiting at the expense of the other. The latter system is one of exploitative exchange, based on systematic bargaining power imbalances instituted by the State.

While markets exist in capitalism, they are not its defining feature, which is rather monopolism. The fundamental principle of capitalism is indeed quite simple: use the coercive power of governmental authority to monopolize everything of value, compelling workers to labor for whatever bosses deem appropriate. To call such a system a “free market” is to commit oneself to the most obviously absurd fiction, to use language to obfuscate the true, statist nature of capitalism.

Among free market libertarians, much turns on whether unbridled, voluntary exchanges will lead to the “power of increase” that worried Tucker. Many believe that genuine free markets will in fact allow and result in such a power, and they tend to equate free markets with capitalism. For many of us, however, Tucker was right in seeing true laissez faire as a kind of socialism, a way out of the exploitations of capitalism.

Anarchy and Democracy
Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory