What is capitalism?

There is an interesting thread at Powerline on the question What is socialism? The central aim of socialism has always been to rid ourselves of the capitalist system. And what, exactly, do these socialists wish to get rid of? Certainly not the phenomenal flow of goods and services that a capitalist economy provides. If socialists promise anything, they promise that there will be even more for everyone, so it’s not getting rid of the bounty that a properly managed economy brings that they seek.

What the actual aim of socialists has always been is to get rid of the capitalists. But why the wish to rid ourselves of the capitalists who open, own and run the businesses that create the goods and services we consume? Why the resentment against the very people who make this abundance possible? That is the issue, and it is at the heart of the divide between the socialists on the one side and those who support the market mechanism and free enterprise on the other.

Why do socialists see no role for the entrepreneurial class? This is a true puzzle since no socialist has any idea how to run an economy from which capitalists have been removed. No socialist economy, in which its capitalists have been discarded, has ever succeeded. Every such economy has been immediately plunged into poverty. Every economy without an entrepreneurial class of independent individuals to run its businesses, to produce and sell inputs to each other, and to sell consumer goods to everyone, has become impoverished. All this is known with a perfect certainty, yet socialism retains an allure that large proportions in every market economy are unable to resist. Against all the evidence of more than a century of socialist experimentation, there is still somehow the belief that you can replace capitalism with a socialist system and maintain living standards. Some people really do not learn from history.

As a first approximation, the problem that capitalism leads to is the wealth earned by those who have no obvious merit and desert to those who wish to see the market system replaced. Why can’t the government do exactly what the owner of a business does, and without having to receive such a large amount of money.

The owner of a business will typically make far less than any number of star athletes. But those athletes have a demonstrable skill that most people do not have, allowing them to excel at whatever particular sport they play. Everyone can see it, few others can do the same, so there is no resentment at the millions athletes are paid.

Same again for rock stars and actors. Everyone can see what they do, and admire their ability, fame and celebrity. The same in a way goes for doctors, who may be neither famous nor celebrated, but have a skill set everyone depends on and are willing to see rewarded for what they do.

Let us look even more closely at these categories. Whether one becomes a sports star or entertainer, there is an apprenticeship through which their in-born talents are developed. But whatever talent these people have cannot be distributed to others. A football player’s stock in trade is playing football. An actor’s skill is in acting. The skill that has made them wealthy and famous cannot be spread through the entire population. They are just what they are and are unique to the individual.

But those who own, run and manage businesses have no obvious talent visible to the vast bulk of the population who understand little of what is required to run a successful business. Few appreciate it. Many think they could have done the same had they made the effort. And anyway, why should someone own and control millions of dollars worth of assets, even if they did accumulate all of it themselves by building a profitable enterprise?

But there is even more to this resentment than just this. It is the “intellectual” classes – the media, public sector and academia – who are peopled by individuals who had done best in school, who had graduated at the top of their class. Here they are, the smartest people in the country, yet earn ordinary incomes. Meanwhile, these business morons, who couldn’t finish a sudoku, or have no idea who Foucault was or what he wrote, here they are earning large incomes running a factory making bricks or producing shoes.

Capitalism is an ingrained feature of a political system that prizes freedom, in which each of us makes decisions for ourselves about many things in our own lives, which includes how we will earn our incomes. Some individuals will decide to earn those incomes by running a business.

Socialism in contrast is a system where the people who got the highest marks at school think they will make those business decisions instead, even though they are often the first to be put up against the wall.

Capitalism is a system in which those who run businesses have to go through the same process in getting to the top as do athletes, by overcoming the enormous competition of others to achieve their goals by being the best at what they do.

Socialism is instead a system in which the non-talented, without any of the necessary gifts for management, get to run our economies because so many others resent the incomes received by the people who are able to run profitable businesses.

Capitalism is how an economy runs if no one is running it. People just get on and produce, sell and buy.

This is what socialism is: replacing the owners of businesses, either with managers employed by the state, or with government-appointed overseers who direct what the business should do.

In all of the different variants on a socialist system, there is a central plan that each of the state managers must follow. No one in an enterprise reacts to the market, that is, to the demands of people who wish to buy the product, or to changes in the structure of supply. They just follow the plan as best they can.

The people who formulate these plans have no means to make the system work, although they think they do. But by the time everyone, including themselves find out how useless they are at running an economy, they are entrenched behind a row of guns and cannot be removed.

Here is an observation from the Powerline comments thread that captures important parts of these issues.

In its most basic sense, “socialism” is CONTROL. Control of the economy, control of society, control of YOU. This is the basic nature of all modern “socialisms” – communism, fascism, progressivism, liberalism. Socialism is the enemy not of “capitalism” – that’s just a Marxist label – but of free markets, a free society, a free people. But it’s worse than just control; it’s invariably very poor control. It doesn’t work. Nobody’s smart enough to dictate every aspect of an efficient economy, and nobody’s honest enough to be trusted to even try. But, poor quality or not, the surveillance and control/police state are vital components of any socialist system; it can’t even theoretically work without control.

Socialists will be our ruin.

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