Tuesday, March 20, 2012

Capitalism Works Every Time…

If you replace the word capitalism with “individual choice” you start to understand the reason we are so prosperous as a nation and people. This election cycle we are seeing a very dangerous tactic by the president and his supporters by demonizing “capitalism.” In the view of too many Americans, Capitalism has become a negative word. As a nation there is no quicker path to the bottom than to bite the system that feeds the prosperity we enjoy.

“Individual choice” to engage in trade with others works best because the individuals involved in the transaction know what is the best outcome of that transaction. The two parties assess the others offer and decide if it is worth the exchange of value to each party. An example would be a person needs food and a farmer needs a barn. The farmer and the carpenter decide what the value is in the transaction. The carpenter may ask for 6 months’ worth of corn in exchange for building a barn. If that trade is acceptable the two parties transact business. If not they either renegotiate or find another person that will find the transaction terms acceptable. The final transaction will be the result of “market” principles in action. Individuals decide for themselves the value of goods in the market.

The introduction of a third party like government into the market to decide what the “price” for goods and services is and the way they are distributed is socialism. A third party decides how much time people need to spend working and what wage they will receive for that time “spent” on the job. This third party is not part of the transaction except for the part of deciding how the transactions will take place and how the terms will be distributed. No matter what the individuals in the transaction think about the terms, the terms remain the same (“equal”). If those terms are not acceptable to the parties the parties remove themselves from the “market’ and the market stalls, and dwindles away. Nothing gets done and things stagnate or more likely a “black market” is created to get around the third party arbiter.

The economy and the world revolves around billions of “individual choice” transactions that all together make up a vibrant economy. The reason the “individual choice” model is so efficient is because people will only do the transactions that make sense to their individual circumstances. They make the best choice for themselves and their families. They control the choices they make and every transaction adjusts based on the needs of “individual choice.”

There are times when “individual choice” is “cruel” to the other party by rejecting what they have to offer. But unlike a system like socialism that attempts to force the transaction to move forward, in the “individual choice” model that rejected party must rethink, retool, reduce the price, (or many other possibilities), make a change that is acceptable to the other party.  It forces changes that can result in failure but can also result in a more efficient offer or product. It forces people to be creative, diligent, hardworking and in a word it is competitive. The strong survive and the weak either change or fail.

So even though socialism touts “fairness” it is not fair at all. It distorts the “individual choice” and replaces it with forced transactions. It never works for a greater length than individuals figure a way to work around it or stop working at all. So the next time you hear someone criticize capitalism ask them if they believe in “individual choice”? Most likely they will and then explain that capitalism is a system of individual choices which produces the best outcomes for all willing to work hard in our society…

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