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Defending Capitalism

Economics / Economic Theory Aug 03, 2009 - 08:24 AM GMT

By: Anthony_Ebin

Economics Best Financial Markets Analysis ArticleI recently got into an argument with a marketing executive of India's biggest mutual fund, Unit Trust of India. We were discussing the recent media coverage of the 'public' outrage over a new Indian TV show called 'Sach ka Samna', it is the Indian counterpart to the American show 'Moment of Truth'. I haven't seen the show but I did see the public condemnation hailed on Indian media. It didn't bother me that people were speaking out against the show, but it did bother me when I saw members of Government condemning the show as if whole families were being murdered. It is surprising that the one thing that offends the government happens to be the revelation of truth.1 

I used this fact in the argument saying that the Government had no business interfering in such matters. This is just one example, I said, of the ways in which the Indian government is following in the footsteps of the modern American government by interfering in every possible aspect of an individuals life. By what precedent does a government choose on the behalf of the individual? His answer stunned me, 'But we don't know any better. Its against our culture, something needs to be done about it.' I asked him why couldn't he just turn of the TV, and he said 'But children watch these programs'. This was someone who welcomed government intervention in private life as a necessary phenomenon. I wondered how many other Indians think this way. Maybe this mentality explains why a Democracy would elect a socialist looters government. 

India defines itself as a mixed economy. An economy with elements of both capitalism and socialism. I beg to differ, if a government is involved in even the irrelevant and fringe markets as entertainment, it is socialism, and in a country like India or the US, it is democratically elected socialism. 

My argument against socialism isn't ideological. It is not based on moral principles. It is based on logic and reason. I know that socialism can work. It can work if the state has ultimate knowledge and infinite resources. E.g. If the Government knows for a fact that the rich want to give up some of their wealth to the poor and that the poor really want outside help then the role of the government is clearly defined. But until Humans develop telepathic powers there is no way that a government can say that its social policies are anything more than arbitrary redistributions of stolen wealth. The only system of economics that is based on non-arbitrary evolution of progress is Capitalism.     
Imagine a situation in which you and your wife sleep on the same bed. We assume that you or your wife don't have telepathy and that you always prefer the left side of the bed. You really like to sleep on the left side, but you don't know which side your wife likes. There is no way for you to know conclusively, which side it is that your wife prefers. This is because she may lie and say that she likes the right side knowing that you once mentioned that you like the left side. You too could have been lying, because you thought that she likes the right side. So which side do you choose? There are a limited range of possibilities since there are only two choices, left or right, as shown in the table below. In political economics there will be a multitude of choices but the essence of the argument remains the same.

The 'You' column shows your preferred side of the bed. For the sake of this argument we have assumed it to be left because it doesn't really matter. The 'Guess' column shows your estimation of your wife's preferred side while the 'Actual' column depicts your wife's real preference. In reality there is no way for you to know the 'Actual' column with 100% certainty. The 'right' and 'left' columns show who got which side of the bed. The final column shows the total satisfaction attained from a particular choice. If you and your wife got the sides that you actually wanted, then the total satisfaction is 2. If instead only one of you got the side you wanted, the total satisfaction is 1. The first column shows whether your actions are selfish or altruistic. If you choose the right side knowing that both you and your wife like the left side of the bed, that is classified as an altruistic choice. If instead you choose the left side knowing that your wife likes the left side, the choice is classified as selfish. The first two choices are irrelevant because they could both be altruistic or selfish.

Summarising the results from the first table we see that selfishness trumps altruism when your knowledge of the other party is limited and there is only one bed. 

Lets assume another scenario where you have telepathy. This is the economic equivalent of having perfect knowledge. Does altruism(Socialism/Communism) beat selfish greed(Capitalism) when you(The Government) know exactly what your wife(The Public) wants.  

Again the first two choices do not count because they could be either selfish or altruistic. Now the 'Guess' column too is irrelevant because you know exactly what your wife wants; but does that mean you will give her what she wants?

The summary shows that in this new scenario where you know exactly what your wife wants, altruism is only able to match selfishness one for one. Why?

The reason is quite simple. There is only ONE bed. If you want the left side and so does your wife, there is no way that being selfless is going to make both of you satisfied, unless there are two left sides. 

Therefore for socialism to work, there are two main requirements, ultimate knowledge and infinite resources, if socialism is employed in the absence of these two elements we will see widespread poverty, deprivation and suffering. Every major government on the planet today is a socialist government, the only differences between these governments is that some of them admit to being socialist while others pretend to being capitalist. How do I know this? Every major country on earth has a central bank. A bank designed to artificially control the supply of money and artificially inflate its economy. Remember this simple rule of thumb, you are NOT a capitalist economy if the very basis of the economy, money, is government controlled. 

The most essential feature of a capitalist economy is failure. Failure is brutally and remorselessly punished under capitalism. It is the way the market purges the filth like the human body purges impurities by perspiring. Following the credit crunch almost every major country carried out stimulus measures. These stimulus programs just further increase the influence of government in the markets turning what is essentially the market taking a dump into a severely constipated market ready to bleed at the slightest misplaced move. Don't dare blame capitalism for the collapse of 2007-08. Capitalism died with Thomas Jefferson. So did liberty.

But how much can we really blame the government. These are not despots seizing power through wars and mutinies. These are democratically elected 'leaders'. People chose socialism. They want free health care, they want free education, they want free housing, they want free everything. They were not forced to give up gold as the only objective standard of money, they chose it. They were not forced to flip houses for easy money, they chose it. They were not forced to elect B.H. Obama, they chose him. Just like they chose censorship, moral policing and religion. So they deserve the consequence of their choices. Unless Obama's investment in science pays off and they develop new technologies that will rid us of our mortal needs, I can tell you this, this collapse is just starting and the exponential curve will come to haunt us.2

By Anthony Ebin

Anthony Ebin is currently studying for a degree in Banking and Finance from the London School of Economics but his views do not necessarily reflect the views of the LSE.



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