How Capitalism Changed the World

Genesis:  Tribal Collectivism

Your eyes open.  You find yourself in your hut surrounded by family and close friends.  After your morning leaf-water and some dried meat, you walk outside into the fresh air.  Dipping into the nearby stream, you begin scrubbing off last night’s sleep.

The sounds of children playing are muffled as you dunk your head under water, feeling the refreshing coolness soak into your long, unbridled hair.  You resurface and look to the rising sun.  It’s 3,500 B.C., and the world is about to change.

This was perhaps the last time communism was used properly as an economic system.  In the millennia before humans began recording history with written language, every community was fairly isolated and consisted of, at most, a couple hundred people.

Because agriculture didn’t exist yet, food had to be scrounged by hunters and gatherers.  These people were chosen to be food providers because they were most suited to that job.  Those who were too old, too young, or too feeble to find food would spend their time maintaining the village and completing chores for everyone who was out finding food.  When the food arrived back at the village, everyone would share.  Ah, the good old days.

Unfortunately, humans have a tendency to reproduce.  Over time, communities became larger, and new systems had to be developed in order to feed everyone.  Thus begins the story of humanity, and its many trials in finding the right economic system for a modern and populous world.  There were a few slip-ups along the way...

Royal Pain in the Ass:  Feudalism

You wake up on a dirt floor, surrounded by your fellow serfs.  After morning tea and a small piece of unidentifiable bread, you shuffle out the door and grab your scythe.  Your bones ache as you begin the day's task of harvesting some sort of grain.  A fresh tear rolls down your eye as you remember that the area’s Lord will confiscate half of that grain as rent, and another 25% as a “protection fee”.

You pull your head away from your work, and look to the rising sun.  It’s June 16th, 1723 A.D., and the world is about to change.

Adam Smith, born on that date, is largely considered to to be the first free market theorist.  His first major work, “The Theory of Moral Sentiment”, asserts that self-interest is not such a bad thing.

He argued that, in a truly efficient and prosperous economic system, self-interest is both necessary AND good for the collective.  To expand, he later wrote his most famous book, “An Inquiry Into the Nature and Causes of the Wealth of Nations”, in which he explains that committing effort and individual talent to a trade for the sole purpose of getting rich actually generates value, and affords an efficient allocation of resources that was previously unprecedented.

Called “division of labor”, this concept is what separates a capitalist system from a socialist or communist system.  It directly solves the Socialist Calculation Problem.

Wait, what’s the Socialist Calculation Problem?

The Socialist Calculation Problem is the single most important disqualification for socialism as an effective economic system.

It is the ever-present issue with communal systems wherein, with the absence of an empowered and self-interested working population, inefficiencies are inevitable.  Without the accurate price and quantity information present in a capitalist economy (defined by the laws of supply and demand), large-population communal economies create massive surpluses and shortages, as well as wildly inflated prices for essential goods, which can leave to widespread starvation.

To put it in very simple terms, neither a democratic populace, nor a centralized governing body, can predict what is needed, and what can be provided, in both the short and long term.  Only a free market can do that.

Adam Smith’s division of labor solves this by empowering individuals to commit their talents as they see fit, and to transact freely with each other.  This is the basis for capitalism, and it provides the quantity and price information needed to fill a million bellies.

Within a few hundred years, the entire world was utilizing Smith’s ideas, and the human race saw immense leaps in technological progress, quality of life, and happiness.  Well, almost the entire world.

An Attempt:  Marxism

You wake up in a dilapidated building with your three kids, your wife, and your babushka.  After drinking a cup of murky water, you lose track of time teaching your children about the supreme moral advantages of communism, as mandated of the state.

You realize you’re going to be late for work at the iron mine.  You rush to the work site, only to see three government officials waiting for your arrival.  It’s your fourth time being late for work, which means you will be arrested and sent away for compulsory work in Siberia.  As they shackle your ankles together, you hold your head up and look to the rising sun.  It’s November 9th, 1989, and the world is about to change.

The fall of the Berlin Wall in 1989 marked the end of the largest and most complete experiment of Marxist communism in the world.  It had failed.

By the way, everything described in that last anecdote is a actual policy and living condition in the Soviet Union.

After witnessing the USSR’s numerous famines, continually abject working conditions, and severe lack of valuable production, the world finally agreed that implementing socialism and communism on a large scale using a governing force was never going to work.  And since it is impossible to implement it across a large population without a government, we were out of options.

In the last few decades, capitalism has spread to almost every single country in the world.  As a result, life expectancy and quality, income, and wealth are up across the board, with the effect stretching to every race, religion, class, and gender.

Here’s the thing about capitalism:  It doesn’t matter who holds the most wealth.  That wealth, by definition and as an axiom of its own existence, has provided value for the collective.  It just has.  It doesn’t come from exploitation, and it doesn’t come from “luck”.

By hiring paid workers who actively wanted to and applied to work with them, business owners are enabling a class of people to acquire wealth who, historically, had no such option.  By providing a product in a competitive atmosphere that people actively want to buy, they are contributing to innovation and quality of life.

Ideally, in socialism and communism, wealth and the means of production are distributed equally amongst all members of the society.  But that’s an impossibility, for reasons that will be expanded in a coming article.

It’s possible, in very small communities, to equally distribute the means of production.  On a large scale, however, this is simply impossible; there are too many things to do, and way too many people.  To simulate it, a socialist or communist government maintains control of the means of production and attempts to assign jobs based on what is needed and what needs to be provided.  All collectivism, when implemented in a large population, invariably turns into Marxism.

Because of the Socialist Calculation Problem, that labor and its results cannot possibly be distributed in the correct manner.  It also means that the wealth provided by that system is also concentrated in the government (see: Vladimir Putin’s lifestyle, which makes America’s millionaires look like middle class yuppies.)

Maybe capitalism isn’t perfect.  But at least it provides the option for traditionally exploited classes to create wealth for themselves by selling their specialized labor, rather than having to commit non-specialized, assigned labor to the collective.

The Best We've Ever Done:  Capitalism

You wake up on your new Casper mattress next to your boyfriend.  After scrolling on your iPhone and reading about how horrible life is in America, you head to the bathroom to take a warm shower.  After getting dressed, you step out to the kitchen and turn on your Keurig.

After bringing your coffee to the table, you pour yourself a box of Lucky Charms, and start planning your day.  9 am to 5 pm is taken up by your main job as a marketing creative for Walgreens.  You note that you still have 14 days of paid-time-off left, even after your recent visit to Cabo.

After work, you’ll go for a jog, spend some time with the boyfriend, and have dinner with him and his parents.  It’ll be about 8 p.m. when you get home, at which point you’ll continue working on your new business.  It’s a digital marketing firm, and it’s really starting to take off.  You might have to start working on it full-time.  Before heading out to your car, you look at property listings on your MacBook Air.  You’re going to be the first person in your family to own a house.