Capitalism versus Socialism (Models)

Free Market Economy (Capitalism)

Market (free transaction of goods between three individual actors - seller, entrepreneur, buyer - in the best interest of all participants according to demand and supply) Price of a good determined by demand and supply All resources are limited Careful use of resources All interactions occur between free individual actors Humans act according to their own preferences which change in content and with time

Planned Economy (Socialism/Communism)

Plan (forced transaction of bads between State and subjects defined by need)

No feedback on economic action (Ludwig von Mises: "Groping about in the dark") No limitation of resources Waste of resources Bads are allocated on the basis of equality between subjects Preferences do not play any role because all individuality is denied Subjects have no choice because the planning bureaucracy determines what is good for them and uses coercion as means of enforcement Since there is no choice there is no competition of choices. All decisions are made by a monopolistic agency. All allocation is centralized Aggression is part of the system because it forces the subjects to comply, threatens them with consequences. All egalitarianism is aggressive.

Humans have the freedom of choice

There is competition over choices so that each actor can freely choose what is best for him. Economic processes are decentralized Actors choose freely according to their own interests and are free from aggression when they choose the best result for themselves

 All exchanges confirm a natural order

Since individual preferences and public preferences usually conflict, the natural order must be violated and a political artificial - order imposed.

All decisions are decisions of individual actors according to profit maximization (psychic gain, although immaterial, would also be considered as "profit" if it only satisfies the individual actor) In order to work, private property is indispensable Risk taking, responsibility, savings, incentives are prerequisites for success Control of success and failure Free enterprise leads to the creation of wealth and prosperity The selfish interests of all guarantee the best results possible

All decisions are collective decisions according to political calculations

Private property is identified as evil and consequently all resources are socialized Socialization of risk and responsibility Success is a political category Collectives bring about redistribution, destruction of wealth, and poverty Selfish interest declared inimical to the state No private property detaches natural from positive law and makes everything which is done in the name of the state lawful and good Orwellian newspeak Forced integration Utopia of happiness and reality of hell Low division of labor Low standard of living

"Mine and Thine" are the basis of ethics

Clear definitions assure meaningful terminology Free association of free actors Disequilibrium (not happiness) leading to action High division of labor Highest possible standard of living

Conclusion The only economic order appropriate to a free society is the market economy. Controlled and planned economies are based on a corresponding collectivist ideology fixed prices rationing injunctions and permits police checks penalties Consequences of progressive concentration It destroys the middle class With the middle class it destroys those civic virtues without which a free and well-ordered society cannot, in the long run, survive It produces a growing number of people who are dependent as wage and salary earners or jobless. It makes the state more powerful and thus further contributes to economic and cultural decline "One thing is certain: an excess of government intervention deflecting the market economy from the paths prescribed by competition and price mechanism, an accumulation of prohibitions and commands, the blunting of incentives, official price-fixing, and restrictions on primary economic freedom must lead to mistakes, bottlenecks, less-than-optimal performances, and imbalances of all kinds. At first these may be overcome comparatively easily, but with the proliferation of intervention, they end up in general chaos. The worst is that the disturbances caused by intervention are often taken as proof of the inadequacy of the market economy and so become a pretext for more and stronger intervention." (Wilhelm Rpke, A Humane Economy, p. 34) The State is the great fiction through which everybody endeavors to live at the expense of everybody else. (Frederic Bastiat, The State)