HomeBudget & Tax NewsCommentary: Capitalism Creates Wealth, Socialism Squanders It

Commentary: Capitalism Creates Wealth, Socialism Squanders It

Throughout the 20th century, socialism has caused mass poverty wherever and whenever it has been implemented. On the other hand, during the same period, capitalism has an untarnished track record of increasing prosperity and creating a better standard of living in virtually every place it has been applied.

There are several reasons for the stark variances in outcomes between these two economic philosophies. And when one plugs human nature into the equation, the huge discrepancies make total sense.

Capitalism, by nature, creates wealth via innovation and intrinsic incentive. Socialism, which relies on central planning and coercion, is the antithesis, and therefore destroys wealth.

In other words, capitalism embraces humanity’s quest for freedom in its most fundamental form, while socialism centers on subjugation at the hands of the state.

There are countless examples of the economic failures of socialism. From the Soviet Union to Cuba to Venezuela, socialist regimes have been unable to create wealth because the system itself is designed at best to redistribute existing wealth, and at worst descends into a wealth-destroying and poverty-ridden wasteland.

What does it mean to create wealth? According to John Stossel, “Capitalism creates wealth because under capitalism, unlike socialism, transactions are voluntary.”

Stossel expands on this thought by explaining that when capitalism made its worldwide debut about 250 years ago, “For the first time, ordinary people were allowed to profit from private property. Specialization of labor created efficiency that let people produce more with less. Then they traded to get more. That created wealth.”

Capitalism bucked the status quo by allowing individuals the basic freedom to pursue their own desires, which included the acquisition of private property. Unbeknownst to many today, the private property revolution, which was and is integral to the capitalist system, was a true game-changer.

Socialism, conversely, is averse to private property. Socialism, in its most rudimentary form, opposes the attainment of private property because, inevitably, some will have more than others.

Whereas capitalism, by definition, increases the total amount of wealth in a given society, socialism is predicated on redistributing existing wealth.

In a capitalist society, the economy is dynamic. In a capitalist society, the economy is like a pie that increases over time because of innovations and entrepreneurship. Yes, some might have a bigger slice of the pie at a given point in time. However, as the pie constantly grows, everyone’s piece of the pie gets bigger.

Socialists, on the contrary, view the economy as a zero-sum game. The economy, according to their rationale, is like a pie that does not grow via dynamic forces. Instead, in a socialist society the economy is overseen by a group of central planners who claim to have the wherewithal and foresight to micromanage literally billions of transactions in an economic ecosystem that is so complicated and intertwined no one could ever pull off such a monumental task.

This is why socialist economies stagnate, fail to create wealth, and devolve into corrupt kleptocracies that benefit the ruling class while impoverishing the masses.

More than a century of history shows that socialism has failed to create wealth. The Soviet Union was a hopelessly backwards behemoth that was so incapable of creating wealth that it could not even feed its own population. Not surprisingly, the same thing has occurred in China, Cuba, North Korea, and other socialist countries.

A few decades ago, Venezuela was a thriving capitalist nation. Today, its people are literally starving to death and must live without the most basic necessities, all because of socialism.

The history of the world over the past century shows unequivocally that socialism has been a wealth-destroying catastrophe. In the meantime, capitalism has been the world’s greatest wealth generator and has lifted billions of people out of poverty.

The next time someone says that socialism is a moral force for good and capitalism is an immoral system, think about the hundreds of millions of people who have suffered and died under the very visible hand of socialism.

And, always remember this: capitalism is an incubator for freedom, innovation, and spectacular human achievements. Socialism is a backwards ideology that has consistently squelched liberty, halted innovation, and obstructed advancement.

[Originally posted at RedState. Republished with permission.]


  1. Points well taken. Unfortunately, I fear a large & ever growing segment of the U.S population has no real understanding of the basic economic & political principles that have allowed our country to grow & evolve. A large part of this, in my estimation, is the failure (primarily) of our public education system. A LOT of folks under 40 have no knowledge or recollection of the post WWII era (cold war), historical context, competing economic philosophies and education in the scientific method & importance of critical thinking. All knowledge & potential enlightenment does NOT emanate from a phone app. As such, we seem to have a growing number of under-informed folks in the electorate that won’t take the time to (really) explore their options and the consequences of choices. My hunch is that will begin to unfold on November 3. I certainly applaud your efforts to educate & push back on the “socialist wave,” but I fear we may (already) be past the tipping point where this can be successfully combatted with the exchange of ideas in the arena of public opinion…

  2. Randy,
    I agree with your assessment of the public education system’s failure to properly teach about the Cold War era. As a former history teacher, I am well aware of the slanted view most public educators present to today’s students about the truth regarding the ravages of socialism. I hope the current zeitgeist produces a backlash against the biased and false history that millions of American students have been receiving for far too long.


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