Flat White

Why capitalism trumps socialism

20 April 2018

8:37 AM

20 April 2018

8:37 AM

The argument that capitalism is superior to socialism is – sadly – one that has to be repeatedly made. Despite the evidence of history, socialism is still touted as a viable economic system by idealists and the naive.

Socialists probably have good intentions. They want to make the world a better place. They see inequalities and injustice and seek to alleviate these things using the most straightforward path possible. According to socialists, society needs to be reformed, people need to change, the rich need to share their wealth, and things need to be made fairer. But the road to hell is paved with good intentions and measures designed to make the world a fairer place, often have the opposite effect.

Socialism requires that everyone must agree to operate within it or be forced to. Administering collective ownership of the means of production requires administrators, people who must make decisions on the behalf of others. And ultimately this results in a very few privileged, powerful, and self-interested individuals controlling the masses as we have seen in any regime where socialism has been tried.  

Socialists have a great vision for an egalitarian society, but unfortunately, the coercive means by which they achieve this society is where socialism ultimately fails. When we focus on the ‘means’ by which we achieve the noble ‘ends’ it becomes clear that the processes of capitalism are morally superior to those of socialism. A capitalist free market is the most moral economic system in existence.

Capitalism is simply an economic system that is based on private ownership and voluntary transactions between people. It is free market economics. Free exchange means win-win transactions between people. If you have something that I value, then I can offer you something that you would value more in exchange.

Like socialists, free-market capitalists also want the world to be a better place, we only disagree on how. We want people the world over to enjoy high standards of living, to have access to cheaper and more plentiful goods, and to enjoy longer lifespans. Above all, unlike socialists, free-market capitalists want people to be free. Free to make decisions about their lives, and free to voluntarily interact with each other as consenting adults.

Unfortunately, when people hear the word ‘capitalism’ it conjures up all sorts of images of greedy, rich one-percenters reclining behind piles of cash as they exploit their low paid workers and hoard profits. Corporations cosy up to politicians in order to get their hands on the levers of power, ensuring that their own enterprises are protected to the detriment of others. Bank bailouts, protected industries, monopolies and the machinations of agents of the state such as the IMF and the Reserve Bank are laid at the feet of the capitalist economic system.


But this is no argument against free market capitalism. Rather the culprit is government itself. Bloated and powerful government systems allow for a perverse form of cronyism to occur, simply because of the power that the state can wield. Smaller government with fewer powers would mean that there is nothing to be gained by lobbying for favouritism, protection and other forms of market distortion. Monopolies are not the fault of the free market, they are the result of government meddling, and competition is the cure.

All evidence shows that throughout the world, in countries where there is more economic freedom, people enjoy higher standards of living. More free market trade policies mean lower rates of extreme poverty and child mortality. Nearly every social advance can be laid at the feet of private enterprise and voluntary exchange, from medical breakthroughs in disease prevention and technological advancement to the banishing of ignorance and even slavery. The source of these benefits to mankind has not been wealth distribution, but wealth creation.

Capitalism often gets blamed for the existence of poverty. But poverty is the default human condition. Without an economic system of any sort, human beings would live a hand to mouth existence. That poverty exists is not the fault of capitalism, nor of feudalism, nor of socialism. The truth is that participation in free markets has allowed for unprecedented levels of human prosperity. Never before in history has such a great proportion of the global population had it so good.   

Capitalism also gets blamed for the increase we see in income inequality. But if more and more people globally enjoy unprecedented wealth and standards of living, then is it important that some have more than others? Wealth creation isn’t a zero-sum game. Successful entrepreneurs don’t get a larger slice of the pie; they make the whole pie bigger to the benefit of others.

A free market capitalist society will not solve the issue of inequality of outcome, that is true. Not everybody is equally talented or skilful. Likewise, not everybody is presented with the same opportunities to succeed. But the social and income inequality that exists within capitalist societies also exists in every other economic system that has been tried. Any attempt to rectify inequality of outcome, no matter how well-intentioned, comes at too high a cost in terms of the use of coercive and concentrated power.

Sometimes the accusation is thrown at free-market capitalism that it relies on self-interested behaviour. And it’s true that human beings often act in self-interested ways. But this occurs under capitalism, it occurs under feudalism and it occurs under socialism. What the free market does, is allows for this fact of human existence, it expects it in fact, and thereby channels self-interested motivations in a way that can benefit other people and reduce the impact of human failings that occur under every economic system.

Conversely for socialism to work it requires that people change their very motivations and their nature. Sweeping changes across the whole of society need to be made; everyone must agree to participate in the system. This is all well and good for those who embrace the socialist model, what of those who do not? If people do not voluntarily choose to work within a socialist system then force must be used. Instead of mutually beneficial, voluntary and co-operative interactions between people, we have instead a coercive system that involuntarily takes private property from some people and redistributes it to others.

The morality of the free market capitalist system becomes glaringly obvious when we consider that within a capitalist system a voluntary socialist community could viably exist within it. In a free society, there is nothing to stop a group of individuals forming their own community that operates under a socialist economic system wherein the means of production is collectively owned and operated. In a free market economy such a community would be left alone to live life as its members see fit.

In contrast, a socialist society could not allow for a breakaway community of private ownership and free trade to exist within it. Within the socialist society, all the means of production are collectively owned and exchange must be regulated. A breakaway free-market community would be everyone’s business. There is no scope in such a society for private ownership and voluntaryism. Such a society is not free.

All the prosperity we enjoy in a relatively free country such as Australia is due to free market capitalism, to the degree that it is allowed to operate. The socialist alternative would soon reverse this standard of living, preventing as it would private ownership and voluntary exchange and most importantly of all, individual autonomy. The inevitable inequality of power that would arise from a very few, administering and controlling the many would not alleviate the social inequality that critiques of capitalism bemoan. Rather they would be enhanced as any reading of twentieth century history will demonstrate.

Nicola Wright is editor at LibertyWorks, where this piece also appears.

Got something to add? Join the discussion and comment below.


Show comments
Close