Capitalism emerged gradually, and on its own, over several centuries through the expansion of trade, preceding its formal theoretical explanation. The barter systems often proved inefficient because exchanges—such as grain for leather or bronze knives—were difficult to value equivalently, frequently producing perceptions of unequal exchange. The development of money addressed this limitation by providing a common medium through which value could be measured and prices established, such as the price of a bushel of wheat. In feudal society, landowners and serfs constituted the principal social classes; however, as monetary exchange became more central to economic life, wealth generated more complex distinctions among the wealthy, the middle class, and the poor. Individuals who controlled capital could lend money and receive interest, enabling capital itself to produce additional wealth.
Karl Marx regarded this system as exploitative and advocated a classless society in which private property and accumulated wealth would be redistributed to produce greater equality. The Russian Revolution represented a major attempt to implement Marxist ideas through Communism, guided by the principle, “From each according to his ability, to each according to his needs.” In practice, however, the promised social equality did not materialize. Governing authorities acquired disproportionate power and privilege. In the Soviet Union, members of the ruling elite had access to desirable positions, special stores, and higher-quality goods that were unavailable to ordinary citizens. Consequently, a new class structure developed, separating the politically privileged from the broader population. To prevent individuals from accumulating wealth through private ownership, Communist governments placed property and the means of production under state control. This arrangement, however, transferred economic power to those who administered the state, while manual labor remained largely the responsibility of the general population. Workers recognized that extra effort usually did not bring greater compensation, weakening incentives to increase productivity or improve performance. This problem illustrates a central flaw of Communism. Rational economic systems depend on incentives: individuals who work longer hours, produce higher-quality goods, or assume more demanding responsibilities are generally expected to receive greater rewards.
Capitalism establishes such incentives through private property, capital formation, wages, profits, and investment. It encourages individuals to acquire training, take on responsibility, increase productivity, and work more intensively because greater effort usually yields greater returns. In addition, market mechanisms help determine which goods and services are needed and wanted without relying on central planning. Independent enterprises respond to consumer demand, compete to improve products, and allocate rewards according to relative contribution and performance. By contrast, when governments attempt to provide food, transportation, education, and medical care without adequate economic incentives, the resulting system is prone to inefficiency, waste, corruption, long queues, and declining service quality, something my parents experienced under Stalin. From this perspective, socialism has repeatedly failed to fulfill its promises because it lacks the incentive structures necessary for rational economic calculation.
Communism was invented primarily by two people: Karl Marx and Friedrich Engels, who co-authored the Communist Manifesto, before it was actually implemented anywhere. Both Marx and Engels never held down a regular job or earned a legitimate living. Marx was a bona fide alcoholic with a particular fondness for wine and barroom brawls. His parents had vineyards on the Mosel River in Germany where Marx developed his taste for wine. Engels and Marx both lived off their wealthy parents in earlier life. Engels dipped into his father’s textile mill’s profits surreptitiously (embezzled) to support himself and Marx.
Capitalism was not invented but evolved from trading over the centuries; if anyone could claim to be the father of capitalism, it is Adam Smith, who wrote The Wealth of Nations. As an Austrian1920’s economist, Ludwig von Mises, said, “Without private property in the means of production, market prices cannot form, leaving central planners with no rational way to value resources or calculate costs.” He predicted the failure of that form of government, which has happened as he said it would. Rational economics requires a free market, independent producers of products, and a means of rewarding ingenuity, hard work, and making a better mousetrap.
The more one separates property and the means of production from private ownership, the less important money becomes, and the more the economy devolves into irrationality. That is why Socialism/Communism has eventually failed whenever and wherever it has been tried, such as in Russia, Cuba, China, Venezuela, England, Yugoslavia, Israel, India, North Korea, Vietnam, Cambodia, Ethiopia, Laos, Somalia, Algeria, Romania, Hungary, Poland etc.
The Nordic countries are often mentioned as succeeding in socialism, but in fact they are not socialist. Sweden, Norway, and Denmark operate as a competitive, free-market capitalist economy with private ownership of businesses and property and a healthy constitutional government with elections. Most people work for privately owned businesses. However, they feature a large welfare state funded by high taxes, a system commonly known as the Nordic model, which is currently under stress due to migration from Islamic countries.
Talking to people who lived under communism quickly exposes the shortcomings of that irrational economic system. A quarter of Venezuelans, who were the fourth richest country in the world before communism, fled their country for reasons like lack of food, lack of jobs, lack of medical care, discrimination based on political reasons, substituting propaganda for education, and inability to express any dissent against the government. I hope that the US electorate can recognize the flaws of communism and can vote us out of this outdated and discredited socialist idiocy that labors under an irrational economy!