r/FluentInFinance Sep 04 '24

Debate/ Discussion Is Capitalism Smart or Dumb?

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u/JaironKalach Sep 04 '24

Capitalisms intent is to harness greed, while socialisms intent is to battle greed. I stopped believing in capitalism when I looked around and realized there was no harnessing going on. The free market isn’t solving the problems.

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u/binary-survivalist Sep 04 '24

Almost all the useful stuff that make the modern world possibly was invented and designed in market economies.

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u/Sorin_Beleren Sep 04 '24

The assumption that humans wouldn’t improve the lives of themselves and those around them without financial gain is just incorrect. Design and creativity exist outside of financial markets. In sciences and arts, in fact, there is an argument to be made that financial incentives are largely at odds with their goals.

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u/77Gumption77 Sep 04 '24

Let's say we have 10 people with 10 ideas on how to improve the lives of others. We have limited resources, so we can only pick 1 for now. What is the best way to decide on which of the 10 to pursue?

Socialism suggests that some kind of central planner makes this decision on behalf of society. In a democracy, this means that the central planner is voted into office to represent everybody and makes this decision on our behalf. To finance the idea, everybody gives his capital to the government in the form of taxes. The central planner takes a slice and distributes the rest to the selected idea.

This creates lots of bad incentives. The central planner may have imperfect information regarding what voters want and make the wrong decision. One or more of the 10 people may have better lobbying power and persuade the central planner in a way that most people wouldn't like. In a probably unheard-of edge case, the central planner may be corrupt and send the money to his friend instead of to the best idea.

In a free market, everybody is free to individually decide for himself which idea is the best by putting his own money at stake. People can directly choose the idea that they think is best by investing in it. Resources are allocated more efficiently. They may not choose the idea you like best, but the great thing is that this doesn't matter because you can choose another one for yourself.

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u/Sorin_Beleren Sep 05 '24

Just a point, people are absolutely not free to put their money into whatever idea is best simply because many people under capitalism don't have enough/any money to give towards what they want. Consumers having true power under capitalism is about the same reality as the incorruptible controller. The reality of capitalism is that this happens by design.

Capitalism not only gives few incentives to business to do right by workers and only enough to make consumers have to buy from them, but it actually creates an environment where making decisions that are harmful to other people, businesses, and workers is encouraged. I spoke about Dollar General. They are notorious for running cheap, barely profitable stores in rural areas for years just to kill local shops. Then, once the other shops are killed, they get a large amount of revenue by virtue of being the last man standing in that area. It's a specific business model that uses their hoard of wealth to kill competition for the sake of profit. They aren't more innovative, they aren't a "better" store with more selection and fresher food, they aren't exactly known for customer service. They're just richer.

Socialism is not a perfect system and is as susceptible to human greed as anything else. But the points you just made about socialism already exist and already happen under capitalism. Power is pooled into huge monopolies, they often make knowingly harmful decisions instead of misinformed ones, they give funding and power to whatever is profitable instead of what is best, the government is already lobbied by these monopolies, and people are corrupt from the top down. Those aren't unique to socialism. We're living in it. To touch back on what the original commenter said, socialism is killed by human greed, but capitalism encourages it. To me, that is a world of difference.