That Dog Won't Hunt

By Capital Thinking • Issue #903 • View online

There are some huge misconceptions when it comes to capitalism.

We are seeing it play out in the responses to the protests in Cuba. The far-left says government failure in Cuba it’s because the US didn’t trade with Cuba.

They ignore that at least 151 other countries did trade with Cuba. By the way, the US sends $3 billion in remittances to Cuba each year.

That “Cuba failed because of the US” excuse doesn’t hunt.

-Jeff Carter

Capitalism Doesn’t Build Wealth

Jeff Carter | Points and Figures:

Cuba is a shitty place to live. No one “emigrates” there.  I notice no one from the US has taken up Senator Rubio’s offer.

I have seen leftists post photos of slums in American cities that echo the slums that exist all over Cuba trying to say that just because you have capitalism doesn’t mean you avoid having slums.

Some people think that capitalism changes the incentives of people getting them to focus on the short term over the long term. Somehow, central planners only look at the long term because the long term isn’t profitable and the short term is right?

All the statements, focus, framing, and ideas expressed in the failure of capitalism are a failure to understand what capitalism really is.  Our current administration rejects capitalism. No surprise given the state of our public education system.

Capitalism is a capital allocation mechanism. Period. The less constraint you put on capitalism, the better the capital is allocated. A single person, entity, or central planning committee cannot do it as well.

Capital flows to the people and assets where it deems it’s going to get the most for its money/investment/time. That “most for the money” is a return on the allocation of money/investment/time.

Capitalism allows for an efficient fragmentation of labor allowing someone to specialize in a skill and earn a living. That earned income allows them to get gains from trade with other people and companies that specialize.

Adam Smith outlined this in the “Wealth of Nations” over 250 years ago and the concept has been proven out to work again and again.

The main cause of prosperity, argued Smith, was increasing division of labor. Smith gave the famous example of pins. He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day….

Capitalism requires freedom of choice, freedom of speech, and most of all private property rights. All of those concepts are under relentless attack by the left and the center in the US today.

“We can just regulate a little.”, the centrists say. As if some committee can decide what a company or person should do better than the company or person themselves.

You should realize that in the Covid environment of today, the state has suspended some private property rights with their bans on evictions. It might seem cruel to evict someone during Covid, but if they received a government check and spent it on things other than basic needs a landlord has every right to evict that person.

Private property isn’t government-run housing.

Capitalism doesn’t build wealth. It provides the opportunity for people to assume risk and potentially build wealth if they are successful. If they fail, they don’t build wealth.

The more society tries to stamp out failure, or in other words “make everything equal” or about “equity”, the less success the society will have because people will not be free to take risks.

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Photo credit: Priscilla Du Preez on Unsplash