Capitalism…….Works Every Time its Tried

7634159_GFrom time to time we need to remind ourselves the amazing efficiency of capitalism, especially in our current political climate.

Capitalism is a system according to which capital is owned by private citizens, who in turn determine its price and flow by interacting with one another. Capitalism implies that private citizens get to keep most of the fruits of their labor or the profitability of their capital. Capitalism is neither a “state of nature” nor a primitive scrum. It works by creating value for owners and for society while being acceptable to the citizenry, even those without capital, but only with appropriate rules of fairness and honesty.  The proper combination will direct society that individual freedom to own property leads to the most efficient allocation of resources, which in turn results in the highest economic growth and prosperity. Capitalism is never perfect, but the closer society adheres to its general principles, the better it is for the population at large.

If you take away these elements and put the bulk of power in a society in the hands of a central authority, bureaucracy or The Federal Reserve Bank, then all of the natural imperfections of human decision-making – including the problem of unintended consequences, the inability of central planners ever to have enough information to make wise decisions about the allocation of resources across an entire society, corruption, arrogance, and the fallibility of human nature – are exacerbated and concentrated. It is no surprise that governments does almost everything worse than the private sector, and that private philanthropy has created so much more societal value per unit of human effort and wealth than governments has in terms of efficiently and creatively addressing problems.

When the governmental impulse is to make all major decisions for people and control almost every aspect of their lives, the “cost” is inefficiency, ineffectiveness, unfairness and tyranny…..see Venezuela, Greece, Spain, the old Soviet Union, etc….  Having the government choose winners and losers does not lead to better or fairer results than allowing merit and private effort to dictate those outcomes. When it is time to take an action related to life, health, work and career, there is no reason to prefer a government decision over a private decision. The distortions imposed by governments’ exercising control over things that do not need to be controlled by governments are almost without end. Shortages and inflation are traditional consequences of controlling prices. Poor growth, emigration and job losses are the repercussions of making the economic environment unattractive for employers and employees by taxation, regulation, corruption, disdain for the rule of law, and rigid employment policies. It is no accident that the more government does, and the more control government has or is given over people’s lives, the greater the level of corruption and cronyism – especially in those countries that have “for the greater good” as their rallying cry.

The Founder’s thoughts on government’s role in the economy can be summed up with three simple principles.

  • The first principle is private ownership. Government must define who owns what, allow property to be used as each owner deems best, encourage widespread ownership among citizens, and protect property against infringements by others, including unjust infringement by government itself.
  • The second principle of sound policy is market freedom. With some exceptions, everyone must be free to sell anything to anyone at any time or place at any mutually agreeable price. Government must define and enforce contracts. Means of transportation must be available to all on the same terms.
  • The third principle is reliable money. To facilitate market transactions, there must be a medium of exchange whose value is reasonably constant and certain.

Oh how far we have strayed……………..just some thoughts for millennials to consider, not to mention The Bern and The Hill.


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