In this article I will address the benefits which capitalism brings to a society and why it is a better system upon which to base our societies on.
Capitalism is the voluntary exchange between one another. This occurs because both individuals believe that trade will benefit both parties. Trying to stop voluntary exchange from occurig taxes massive amounts of resources on enforcing the policy, as the war on drugs demonstrates.
1. The Social-Calculation Problem
In a Communist society there is no way to measure the value of goods and services. There is no way to figure out which goods and services should be produced, and which resources should be saved for capital use or future demand. Figuring out how to “calculate” the value of goods and services is also an impossible task, since all goods and services are intertwine with one another due to the many factors that affect prices and there’s also a lot of dispersed information which is nearly impossible to quantify and difficult for any one individual to make predictions on. For example: How many shovels should society produce? Well one would need to know who needs it, why they need it, the resources available to produce the shovels, and what the alternative use these resources can be used instead of making shovels. Knowing how each person values a good or service is also impossible since one cannot know an individual’s subjective preference.
Capitalism solves the problem through a monetary system, with a profit system. What this means is that producers produce more supply if prices increase and the opportunity for profit exists, while consumers consume more if prices decrease. This allows equilibrium to occur in which a quantity is produced at a specific price. Therefore, there are fewer problems with shortages and surpluses in a capitalist society, and people can obtain the good and services they desire based on their own budget. This system of supply equally demand allows welfare between producers and consumers to be maximized. This profit based-system produces information that can never be figured in a communist society. Producers know how much to produce because they are incentivizes to produce items that will create the most profit. If opportunities exist for a good or service to be produces that people demand, then entrepreneurs will take these opportunities in order to obtain a profit. Furthermore, these entrepreneurs can take advantage of specialized knowledge that planners do not know. Since anybody can be an entrepreneur, everyone can take advantage of their own specialized forms of knowledge.
Consumers will also cut down on consumption if the quantity decreases and increase consumption if the quantity increases. Therefore capitalism makes resource-management more efficient then a communist society ever could.
2. Empirical Evidence of the success of capitalism
Empirical evidence has shown that societies that have implemented capitalism have successful grown their economies. A few economic miracles have occurred: The economic miracle of Hong Kong and Singapore are two great examples. These nations were originally poor nation but have become industrialized due to implementing capitalism policies. If one looks at a graph comparing highly capitalistic nation, those nations that rank the best under the “economic freedom index” have higher gross domestic production then nations with low economic freedom and property rights.
Evidence of the social-calculation problem occurring also has empirical evidence. Massive famines and starvation has occurred in North Korea, China, and the Soviet Union. People waited in long lines just to get bread.While China remains more capitalistic, it still has communist elements to it. One result that has occurred is that China contains ghost cities which nobody inhabits.
Gross domestic production is a net benefit to society because it causes a lot of positive results that benefit society. People that live in wealthier nations tend to be happier. Life expectancy increase as gdp increases, since people have access to healthcare and nutrition. Higher gdp also correlates with a decrease in murders.
Some might believe that true communism has not been implemented so since there is no empirical evidence for its failure, one can speculate on why communism will be better. However, it is more likely that communism will not work out as predicted and lead to more suffering. This is because any proof that it will be successful, will be based on speculation. Speculation is likely to be wrong since it is difficult to predict how human motives will interact with one another in a complex world and there are more ways to be right then to be wrong. In order for this system to work, all assumptions and predictions would have to hold true, which is unlikely to be the case. Now we know that the system of capitalism has improved the lives of billion. Therefore, a priori we should accept capitalism as the better alternative to communism. The system we live in today is the result past suffering and experimentation throughout thousands of years of social engineering.
3. The Tragedy of the commons
The tragedy of the commons is the problem in which that if no individual owns property, there is no incentive to maintain the property. Thus property publically owned degrades quicker. A common example is a bunch of herders that commonly own a field. Each herder has an interest to put a cow on the land, however the quality of the land is damaged as a result and overgrazing occurs. If property is privately owned, then each individual has an incentive to maintain the land, because if they do not then it will lose its value while there is no incentive to maintain public land. As John Stossel notes, privately-held parks are better kept and maintained the public parks because the owner has a greater incentive to keep the area nice.
4. Innovation incentive and productive efficiency
Capitalism incentivizes innovation since those that innovate obtain the profit from their efforts, research and development, and investment they put into R&D. It also creates a system in which producers minimize cost of input while maximizing output through use of prices. Engineers and business administrators are taught how to reduce costs of good and service and how to maximize output. Such calculations would be impossible under communism due to lack of a price system, and since there is no profit system there is no reason to do these calculations in the first place.
Contributed by Shane Dunne