Never Forget, Capitalism Creates Wealth, Socialism Squanders Wealth

AP Photo/Andrew Harnik

Throughout the 20th century, socialism has caused mass poverty wherever and whenever it has been implemented. On the other hand, during the same period, capitalism has an untarnished track record of increasing prosperity and creating a better standard of living in virtually every place it has been applied.

There are several reasons to account for the stark variances in outcomes between these two economic philosophies. Yet, when one plugs human nature into the equation, the huge discrepancies make total sense.

Capitalism, by nature, creates wealth via innovation and intrinsic incentive. Socialism, which relies on central planning and coercion, is the antithesis, and therefore destroys wealth.

In other words, capitalism embraces humanity’s quest for freedom in its most fundamental form while socialism centers on subjugation at the hands of the state.

There are countless examples of the economic failures of socialism. From the Soviet Union to Cuba to Venezuela, socialist regimes have been unable to create wealth because the system itself is designed at best to redistribute existing wealth, and at worst, descends into a wealth-destroying and poverty-ridden wasteland.

But what does it mean to create wealth? According to John Stossel, “Capitalism creates wealth because under capitalism, unlike socialism, transactions are voluntary.”

Stossel expands on this concept by explaining that when capitalism made its worldwide debut about 250 years ago, “For the first time, ordinary people were allowed to profit from private property. Specialization of labor created efficiency that let people produce more with less. Then they traded to get more. That created wealth.”

Put another way, capitalism bucked the status quo by allowing individuals the basic freedom to pursue their own desires, which included the acquisition of private property. Unbeknownst to many today, the private property revolution, which was and is integral to the capitalist system, was a literal game-changer.

Socialism, conversely, is averse to private property. Socialism, in its most rudimentary form, opposes the attainment of private property, because inevitably, some will have more than others.

Whereas capitalism, by definition, increases the total amount of wealth in a given society, socialism is simply predicated on redistributing existing wealth.

In a capitalist society, the economy is dynamic. If the economy were a pie, in a capitalist society, it increases over time because of innovations and entrepreneurship. Yes, some might have a bigger slice of the pie at a given point in time. However, as the pie constantly grows, everyone’s piece of the pie increases as well.

Socialists, on the contrary, view the economy as a zero-sum game. The economy, according to their rationale, is like a pie that does not grow via dynamic forces.  Rather, in a socialist society, the economy is overseen by a group of central planners who somehow claim to have the wherewithal and foresight to literally micromanage billions of transactions in an economic ecosystem that is so complicated and intertwined, no one could ever pull off this impossible task.

Such is why socialist economies stagnate, do not create wealth, and devolve into corrupt kleptocracies that benefit the ruling class while impoverishing the masses.

More than a century of history shows that socialism has failed to create wealth. The Soviet Union was a hopelessly backwards behemoth that was so incapable of creating wealth that it could not even feed its own population. Not surprisingly, the same thing has occurred in China, Cuba, North Korea, and several other socialist countries.

A few decades ago, Venezuela was a thriving capitalist nation. Today, its people are literally starving to death and must live without the most basic necessities, all because of socialism.

The history of the world over the past century shows unequivocally that socialism has been a wealth-destroying catastrophe. In the meantime, capitalism has been the world’s greatest wealth generator that has lifted billions from poverty.

The next time someone says that socialism is a moral force for good and capitalism is an immoral system, think about the hundreds of millions who have suffered under the specter of socialism.

And, always remember, capitalism is an incubator for freedom, innovation, and monumental human achievements. Socialism, meanwhile, is a backwards ideology that has been shown to squelch liberty, eschew innovation, and obstruct advancement.


Chris Talgo ([email protected]) is an editor at The Heartland Institute.