In a recent YouTube video on my channel, I invited Ryan Moran founder of Capitalism.com for a chat on Zoom about his perspective on the economy, politics, property etc. Ryan has been a huge inspiration to me over the years. The video is a great watch for people looking to make money online. You can watch the video above this post.
Talking to Ryan inspired me to think a bit about capitalism and why it is so important. There is so much negativity about this subject, particularly in Britain. In the USA if you see someone with a flash car or with a nice house it is normal to admire that person; here it is quite the opposite. Fundamentally, I think this is based on a misunderstanding of what capitalism is and what it does for society. In this article, I will be going over 3 reasons capitalism is so important.
1. Each side of a trade is better off
For a trade to happen under capitalism, you need a willing buyer and a willing seller. This is different to socialism where the government can mandate that you pay for a product or service you have no interest in purchasing. Because the interaction is voluntary, both sides are benefiting from the trade. The buyer wants or needs the goods more than they want to keep the money; the seller wants or needs the money more than they do the goods.
Having these voluntary relations allows people to choose the best option available to them at any given time. A trade, freely entered into without force or fraud, leaves both parties in a better position than they were before.
2. Allocation of resources
One of the problems with a centrally planned economy like those in socialist nations is that it is impossible to know where to allocate resources. Should a table be made of wood or metal? Is there a better use for that wood or metal? Supply and demand tells manufacturers exactly what they should use without a single bureaucrat’s intervention.
When there is a shortage in a particular good or service, this leads to increased prices. These increased prices attract new providers to enter the market. The new supply means that over time prices drop back down. This allows needs to be met by the market without needing a central committee of any kind!
3. Incentivising innovation
Imagine a school where everything is equal. Instead of grading students individually the grades of all students are averaged out across the whole school. In theory, everyone would now get a ‘C’ because the best students and the worst students' grades would be averaged out. But in reality, everyone would get a ‘ D’ or an ‘F’ because the incentive to work hard would be gone. Everyone would work that bit less.
In a socialist nation, the same thing happens. Leaving aside the fact that the government doesn’t fairly distribute the profits they take, even if they did, the amount produced is less because the individual incentive is removed. Capitalism provides that incentive.
These are just some of the reasons that I am a capitalist. Of course, this system does mean that some people fall through the cracks. That’s why I am not just a capitalist, but a compassionate capitalist. I believe we should use the resources we are entrusted with to help others and improve the world, not because we are forced to by the state, but because it is the right thing to do. If we combine capitalism and compassion, a better world is possible.