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Friday, October 28, 2011

Capitalism and Socialism: How They Are Relevant Today


Throughout the day I consume a large variety of products that have come from all over the world. Today alone, I have drunk from a water bottle from Malaysia, worked on a desk from Sweden, worn shoes from China, and talked on a phone from South Korea. It is true that I can live without these possessions, but since I can afford them, I purchase them, and they greatly improve my standard of living. The great mechanism which allows this to happen is something called capitalism. Before you wince in fear from a seemingly heartless establishment, understand that no human is perfect; therefore no entity formed by people will be perfect. The capitalist system that we are used to right now is being frowned upon and causing a lot of controversy. Michael Moore captures this side of the story well in his movie “Capitalism: A Love Story." The struggling citizens in this movie along with many others will tell you that it is capitalism’s fault. However, it is important to note that the capitalism we are currently familiar with is not true capitalism; it is being restrained by a few flaws that I will explain later in this paper. The most important thing about true, free-market capitalism that separates it from its counterparts is that it allows people to act freely (without infringement of other peoples' rights). In contrast, socialism transfers all the resources and power to the government and in this process the people hand over their rights as well.

The way of thinking that leads to socialism is collectivism; the idea that everyone should think together and act together and own everything equally. This is a very optimistic outlook and actually sounds like it makes sense at first glance. However, the only place that it actually might work is on the small-scale, in tribe-like societies where the people actually care for each other in very personal ways and the small population makes it more manageable. Even then, for it to be morally effective, each member of society would have to agree to sign away their private property in exchange for the equal share of goods. It is important for them to know that when an individual can not own any of their own property, this means that they cannot truly buy anything and call it their own.  Since all the property is government-owned, the individual's income has no power to buy private property. Using this logic, we can see that indirectly the individual does not even own the income they honestly earn through this system. Simply put, the government owns each individual member of the society.



Not only does choosing socialism mean choosing an amoral system, but it also leads to a less rich society in comparison with capitalist countries. Hans-Hermann Hoppe said in his treatise “A Theory of Socialism and Capitalism”:
The more socialist a country, the more hampered will be the process
of production of new and the upkeep of old, existing wealth, and the poorer the country will remain or become.”
A common misconception is that through capitalism, the rich get richer, and the poor get poorer. In 1800, the global average income per person per day was $3 per day. Today, this figure has risen to $100 a day in the same valued dollars. In our country in particular, the poor today are way better off than the richest people in 1800. Free-market capitalism has allowed for tremendous growth to improve everyone’s standard of living. Moore mentioned in his movie that capitalism is allowing the rich, greedy people to steal the “pie” from poor, powerless people. This is also untrue because the mentality of viewing the economy as a pie is skewed. When the private sector grows, each individual company is producing goods and selling them at a profit; this leads to an added value to the economy. How else would the average daily income rise from $3 to $100 if no value was added? If the pie illustration was true, then the $3 would have remained constant and it would just change hands. Instead, the economy or “pie” has grown substantially over the years, along with the size of everyone’s slice. Thanks to free-market capitalism, our country has improved a lot in comparison with many nations of the past.


The way of thinking that leads to capitalism is individualism; the idea that all values, rights, and duties originate in individuals. This means that we can't just look at the human population as a whole entity, but we must appreciate the single beings that add up to the whole. The government is often seen as a massive, bureaucratic institution with no personification whatsoever. In reality, the government isn't an object; it is a large organization of individuals! What's great about this is that it is okay to be an individual in an increasingly globalized economy. Everything seems to be getting more intertwined and connected through means such as the internet, but individuals remain. A common misconception is that individualism supports arrogant isolationism. This doesn't have to be the case. People can act independent of outside coercion and at the same time cooperate and learn from each other.

Okay, so capitalism sounds wonderful now, but why are so many people suffering in America? Why are people calling out for help at protests such as Occupy Wall Street and Occupy D.C.? The answer is because the people who were supposed to pay for their actions did not. One important aspect of capitalism is that we should expect consequences that reflect our actions. It's similar to the Christian value of “you reap what you sow” and the Buddhist idea of Karma. Physics even reflects this idea through Newton's third law of motion which says that “for every action, there is an equal and opposite reaction.” For example, if you make a bad investment, you will owe an amount of money equal to that bad investment. This idea of paying for your actions is the moral force that drives capitalism. American policy has continuously shattered through these morals by digging banks and corporations out of deep financial holes. These banks and corporations have managed their money in some poor way and were hit hard...only momentarily. Quickly after banks such as Goldman Sachs went bankrupt, the U.S. Government rushed to give them bail out packages. The issue here is that the government actually thought it was helping by preventing the banks from suffering. But by attempting to alleviate pain for the whole country, it indirectly caused more pain for the main population, the 99%. The way that the government pays for these bailouts is through our taxes. What makes matters worse is that the government doesn't even ask what the banks do with the money. The desired affect is that the banks receive the money to recover then change their ways to perform more sound banking. In reality, the banks receive the money to recover and keep the spare change to only continue their old ways. This system can be described as crony capitalism.

The capitalism that I support is free-market capitalism where the buyers and sellers of goods freely interact. The demand of the consumers and the supply of the producers simultaneously react with other to decide what and how much of it is to be sold. This means that when a producer is selling a bad product, then the consumers will stop buying. This will lead the producer to either close down or to create a better product. There is not government intervention to “save” the producer. However, it is definitely important to have some regulation to ensure that individual rights are upheld during the transactions. Individual rights are upheld through laws and through the individual's ability to inform themselves.

In every system there is going to be looters, deceivers and “vultures,” but I believe that free-market capitalism is still better off than socialism. The vultures can all have an impact on any society. In a system like capitalism, this impact is spread out more than in a system like socialism. In socialism, yes, there is less income disparity and no monopolists, but more power is focused on the government. Who says that the leader has the best in mind for everyone else? This leader is just as susceptible to becoming corrupt. I would prefer systems where you still have the choice to do what you please while the government has limited, but important powers to protect your rights. In socialism, it just goes downhill towards concentrated control of resources and power. At that point, there is no freedom for the people.

For further reading on this subject, I suggest:



A Theory of Socialism and Capitalism by Hans-Hermann Hoppe