What Really Separates Capitalism from Socialism? Human Nature.
by John Reit (April 20, 2006)

Despite the scores of people who still support it, it's virtually impossible to argue that socialism has not proven to be a failure. Over the past century, several countries have tried it with consistent catastrophic results. Even if a nation has not met with widespread poverty, it's difficult to point to one that has been both socialist and prosperous simultaneously. Countries like China have pretty much abandoned communism as an economic system altogether (keeping the authoritarian aspects of it, though). So why do many continue to adopt or hold on to such an ill-fated system? On paper, socialism is a wonderful thing - everyone has a home, car, and bread on the table. In practice however, sustaining the system has been difficult. Why?

Perhaps it's because socialism (or communism) was, in fact, an economic system designed on paper… unlike capitalism.

I have to preface by saying that I am no scholar of history. But I'm pretty sure no one ever authored a Capitalist Manifesto. No one ever sat down and engineered the capitalist system because whatever was in place before wasn't working. Capitalism simply evolved from a social process between people and civilizations that had a surplus of some necessities and a deficit in others. Through centuries of social interaction, they realized that certain resources and labor have worth to themselves as well as to others. And in turn, they are able to use the needs of others in order to better their social and economic position.

But that's human nature. And all humans are innately selfish. The proof is that anyone trying to sell his house - even a liberal - will try to get as much money as possible for it. We all have an instinct to better our situations. Both parties win. The seller gets the price at or close to the amount he wanted, and the buyer gets a house for an amount that he was willing to pay. If the price were too high, the buyer wouldn't purchase it. If the seller could not sell his home for what he wanted, he would lower the price but still try for the best possible price. Both have an instinct to optimize their outcomes.

And that might be the ultimate reason that socialist societies fail time and again - it directly conflicts with human nature. Putting an economic system down on paper is easy. It's all theory. Karl Marx didn't really have anything to go on other than the notion of, "wouldn't it be great if the world was like this?" There was no trial and error. He never had the thousands upon thousands of years of experience that is inherent in capitalism. Sure, it looked good on paper. How would it be in practice? Would people take to it? More importantly, would people deny their nature? Could Karl get everyone to be selfless in spite of millions of years of social evolution?

This social instinct doesn't refer to how a child is raised - to be a capitalist or a socialist. I have no doubt that there are people in this world who believe whole-heartedly in communism. They are the ones who would work their hardest every single day, earn the exact same amount of money, possess the same property, and live in the same small apartment forever, and never complain as long as it was for the good of society. The problem is that in order for communism to work, everyone must be equally dedicated. If even one person starts to wonder why he's working so hard, without reward, for many who don't work at all… there goes your socialist paradise.

Ultimately, that's why capitalism, while not a perfect system, has such a better record of success than communism. It's a process that has evolved over several millennia, not something someone just thought up one day. And the reason it has survived for so long is that it works. Is it perfect? No. Will it ever be perfect? Will every single person in the world be able to achieve every single thing they need or want? Goodness, no.

Through countless transactions between parties over centuries in a world of limited resources, we have become comfortable with the concept that nothing can be obtained without sacrificing something, such as other resources, money, or labor. Sure, we'd all love to get something without having to give up anything for it. But if that were the basis of our economic system, there'd be chaos because due to great disparities in wealth. Many civilizations have learned that lesson the hard way.

Luckily, with everyone looking out for themselves - holding certain goods and services to certain values - we know we can afford almost anything we need and a great deal of what we want.