60 Second Refutation of Socialism, While Sitting at the Beach

Last week, there were several comments in Carnival of the Capitalists that people would like to see more articles highlighting the benefits of capitalism.  This got me thinking about a conversation I had years ago at the beach:

Hanging out at the beach one day with a distant family member, we got into a discussion about capitalism and socialism.  In particular, we were arguing about whether brute labor, as socialism teaches, is the source of all wealth (which, socialism further argues, is in turn stolen by the capitalist masters).  The young woman, as were most people her age, was taught mainly by the socialists who dominate college academia nowadays.  I was trying to find a way to connect with her, to get her to question her assumptions, but was struggling because she really had not been taught many of the fundamental building blocks of either philosophy or economics, but rather a mish-mash of politically correct points of view that seem to substitute nowadays for both.

One of the reasons I took up writing a blog is that I have never been as snappy or witty in real-time discussions as I would like to be, and I generally think of the perfect comeback or argument minutes or hours too late.  I have always done better with writing, where I have time to think.  However, on this day, I had inspiration from a half-remembered story I had heard before.  I am sure I stole the following argument from someone, but to this day I still can't remember from whom.

I picked up a handful of sand, and said "this is almost pure silicon, virtually identical to what powers a computer.  Take as much labor as you want, and build me a computer with it -- the only limitation is you can only have true manual laborers - no engineers or managers or other capitalist lackeys".

Yeah, I know what you're thinking - beach sand is not pure silicon - it is actually silicon dioxide, SiO2, but if she didn't take any economics she certainly didn't take any chemistry or geology.

She replied that my request was BS, that it took a lot of money to build an electronics plant, and her group of laborers didn't have any and bankers would never lend them any.

All too many defenders of capitalism would have stopped here, and said aha!  So you admit you need more than labor - you need capital too.  But Marx would not have disagreed - he would have said it was the separation of labor and capital that was bad - only when laborers owned the capital, rather than being slaves to the ruling class that now controls the capital, would the world reach nirvana.  So I offered her just that:

I told her - assume for our discussion that I have tons of money, and I will give you and your laborers as much as you need.  The only restriction I put on it is that you may only buy raw materials - steel, land, silicon - in their crudest forms.  It is up to you to assemble these raw materials, with your laborers, to build the factory and make me my computer.

She thought for a few seconds, and responded "but I can't - I don't know how.  I need someone to tell me how to do it"

And that is the heart of socialism's failure.  For the true source of wealth is not brute labor, or even what you might call brute capital, but the mind.  The mind creates new technologies, new products, new business models, new productivity enhancements, in short, everything that creates wealth.  Labor or capital without a mind behind it is useless.

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged.  Since 1700, the GDP per capita in places like the US has risen, in real terms, over 40 fold.  This is a real increase in total wealth - it is not money stolen or looted or exploited.  Wealthy nations like the US didn't "take" the wealth from somewhere else - it never even existed before.  It was created by the minds of human beings.

How?  What changed?  Historians who really study this stuff would probably point to a jillion things, but in my mind two are important:

  1. There was a philosophical and intellectual change where questioning established beliefs and social patterns went from being heresy and unthinkable to being acceptable, and even in vogue.  In other words, men, at first just the elite but soon everyone, were urged to use their mind rather than just relying on established beliefs
  2. There were social and political changes that greatly increased the number of people capable of entrepreneurship.  Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one.  By starting to create a large and free middle class, first in the Netherlands and England and then in the US, more people had the ability to use their mind to create new wealth.  Whereas before, perhaps 1% or less of any population really had the freedom to truly act on their ideas, after 1700 many more people began to have this freedom. 

So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.

Look around the world - for any country, ask yourself if the average person in that country has the open intellectual climate that encourages people to think for themselves, and the open political and economic climate that allows people to act on the insights their minds provide and to keep the fruits of their effort.  Where you can answer yes to both, you will find wealth and growth.  Where you answer no to both, you will find poverty and misery. 

UPDATE

While it is not exactly a direct follow-on to this article, see my post Progressives are too Conservative to Like Capitalism for an analysis of some of capitalism's detractors.  For yet another way to explain capitalism, at least libertarian philosophy, here is a new-agy approach that is actually pretty good.  Finally, Spontaneous Order has an interesting post comparing religious creationism in the physical world with progressives' statism in the economic/social realms.

Update #2:  Here is my more recent statement covering similar ground, focusing on the mistaken assumption that economics are all zero-sum.

  • http://forum.belmont.edu/cornwall/archives/2004/12/welcome_to_the_1.html The Entrepreneurial Mind

    Welcome to the Carnival of the Capitalists!

    Welcome to this week's edition of Carnival of the Capitalists from my office at Belmont University in Nashville! This is the second opportunity I have had to host COTC. My has it grown! I hope you enjoy what my...

  • http://polyscifi.blogspot.com/2004/12/labor-theory-of-value.html Polyscifi

    Labor Theory of Value

    I have a different example that I like to bring up whenever I encounter a person who subscribes to the labor theory of value. I propose to them that the person perform an hour's worth of work (a service) of my choosing (perhaps yard work, perhaps coo...

  • http://gongol.com/fft/2004/12/12/ Gongol.com

    December 6th Carnival of the Capitalists

    A late review of some personal favorites: An intriguing argument for a connection between iPod and Social Security reform, a reflection on Vaclav Havel's principled opposition to Communism (with a parallel reflection on why freedom is the only "free lu...

  • ZF

    What capitalism did was to figure out how to pay the guy who was thinking up the ideas, thus making it worth his while. Everything followed from there, as idea built on idea.

  • http://conservativetrailhead.com/ Hank

    There are two types of socialists: those selling and those buying. The sellers really don't believe their own crap. The buyers swallow it hook line and sinker.
    An alternate 30 second answer is: socialism has never worked in any country. And when they throw in Sweeden as an example, tell them Sweeden, in spite of their social policies, is in the final analysis, a capaitalist economy, not socialist.

  • http://azatlan.blogspot.com/2005/03/talking-shop.html Ceteris Paribus

    Labour Theory of Value

    Who says labour creates all value anyway? Don't other factors of production matter, I asked? In the modern economy, isn't it possible that a lot of welath is created by human capital (or enterprise, to distiguish it from labour)? I then illustrated m...

  • SMF

    You got the arguement from Ayn Rand; it's about a donzen differnt places in Atlas Shrugged. Sometimes subtly, but usually she's just clubbing you over the head with it.

  • http://www.arizonawatch.com Jack Benway

    Unfortunately, the odds of getting a milquetoast socialist to read Atlas Shrugged are equivalent in scale to creating a silicon wafer by compressing sand with your fist.

  • http://newmarksdoor.typepad.com/mainblog/2005/04/two_very_intere.html Newmark's Door

    http://newmarksdoor.typepad.com/mainblog/2005/04/two_very_intere.html

    Two very interesting economics-related posts at Coyote Blog:

  • http://newmarksdoor.typepad.com/mainblog/2005/04/two_very_intere.html Newmark's Door

    http://newmarksdoor.typepad.com/mainblog/2005/04/two_very_intere.html

    Two very interesting economics-related posts at Coyote Blog:

  • http://voluntaryxchange.typepad.com/voluntaryxchange/2005/04/economic_creati.html voluntaryXchange

    Economic Creationism

    Did you ever notice that logic underlying central planning is the same one at the foundation of creationism? Namely, that a certain degree of centralized decision making is required to come up with anything complex. This is a stunning example

  • http://gcruse.typepad.com/the_owners_manual/2005/05/78_best_of_me_s.html The Owner's Manual

    #78 Best of Me Symphony

    Santa Claus was not known to fly or come down chimneys until an 1823 poem.

  • http://gcruse.typepad.com/the_owners_manual/2005/05/78_best_of_me_s.html The Owner's Manual

    #78 Best of Me Symphony

    Santa Claus was not known to fly or come down chimneys until an 1823 poem.

  • http://kim.scarborough.chicago.il.us/ Kim Scarborough

    The Spontaneous Order link is dead. You can read Google's cache of it at http://216.239.63.104/search?q=cache:http%3A//hersenspinsels.com/blog/archives/000120.html . It'll expire after a while, so if you like it, save it.

  • Nick

    When you don't know what socialism means please don't talk about it.

    http://www.worldsocialism.com

  • Sarah

    I've come to this thread a little late but find it rather interesting that the "engineers" would like to ditch the "factory workers." It reminds me of Douglas Adam's "Hitchhiker's Guide to the Galaxy" when all the laborers (toilet cleaners, fire stokers, bed makers, phone disinfectors) are put off in their own space ship as supplies dwindle. Ultimately all the engineers, captains and communication specialists died of a disease transmitted on dirty phones.

    Perhaps engineers and laborers are both important pieces of the machine?

  • http://gadkiy-utenok.be/ garik@4speed.com

    good site

  • Josh

    A more seasoned marxist might retort that in order for the eggheads to have time to think up all the fancy stuff they need the broad back of labor to do the heavy lifting so they can sit around on their butts.

    I think that marxism is better debated by a biology metaphor. We are a species that needs to respond to changing conditions, whether technological, political, or otherwise. Capitalism provides a way for resources to be flexibly distributed to the most efficient use for society. Socialism means government control of everything with an accompanying beauracracy that will never want to rock the boat. Stasis means no new technologies, and eventually when the environment changes the species that can't change with it is extinct. The most important characteristic of fitness for any species is always the ability to change, more important than fecundity, strength, etc.

  • http://users.rol.ro Helmut

    Hmm. ugly

  • http://www.xanax.kiev.ua Mike

    To ZF: do You visit Sweden?

    I agree with Kim Scarborough
    Respect

  • Doran Maupin

    In post WW1 Germany it took a wheel barrow of money to buy a loaf of bread. What does GDP mean then. Everyone was a billionaire. The job of business is to make money. And that endeavor, unchecked, is not always in the best interst of general public. Good government serves all and strenthens our country. Socialism and capitalism are tools. Let's use the right tool for the job.

  • leeloo parks

    "Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one. "

    Well now that sounds like you are talking about the inner city poor who have no access to the same quality of public education that is available in the middle class parts of this country; the inner city poor who are in fact locked into a social position that allows for no flexibility to act on a good idea if they had one. There are endless diamonds in the rough that are custodians, cafeteria workers, just plain manual workers because they are not "the average [MIDDLECLASS] person ...[in a] country [that] has the open intellectual climate that encourages [MIDDLECLASS] people to think for themselves, and the open political and [MIDDLECLASS] economic climate that allows [MIDDLECLASS] people to act on the insights their minds provide and to keep the fruits of their effort."

    I am an ideal capitalist. What is conspicuously missing in your argument is the urgent and dire PROBLEM with immoral capitalism that this country is facing today. Your argument is speaking to a class of privilege, NOT the "average person." Do any of the high school graduates that I teach make up part of that group of "average" people who are encouraged by (who? the mainstream? no way. the police? they get stopped on their way to school in the morning and asked where they are going. Teenagers who are humiliated and stripped searched on the street for no cause other than trying to "act on the insights their minds provide and to keep the fruits of their effort" in the face of an officer and being stopped for no reason other than his...skin color? yes. And no "the fruits of their effort" was not a drug deal, but a sculpture for his art class. ...encouraged to think for themselves, act on insights, etc..without interference from say, the law? Hardly.

    Check out some of your inner city schools, demographics, and the histories of how and why the people there are literally oppressed by a history of a dominant paradigm that has kept them as the brute labor force of this country withOUT those opportunities you mention above. All too much waist of great minds, insights, and intellect that life for the average person in this country could benefit from. Diomonds, buried in the rough.

    At this point is is difficult to read or listen to this argument about capitalism and the opportunity it wields. That is just not the truth for the vast populations of peasant disenfranchised by a history of corrupt capitalism. What we have today is practically Facism, wielded with the tool of immoral capitalism.......... Enron, Halliburten, the entire oil industry. The real capital is in the mind. Yes, I agree. But corrupt and immoral minds have created the version of capitalism we have today in this country that is spreading its disease called Globalization.

  • http://amateureconblog.blogspot.com/ Christopher Meisenzahl

    This is a great post, thanks very much!

  • http://kim.scarborough.chicago.il.us/ Kim Scarborough

    To Mike: No, you agree with Nick. The names of the commenters appear below the comments. I think Socialism is a lot of crap.

  • Derek

    Yes, value cannot be created from raw materials without the power of the mind, but why must we assume that monetary profit is the only capable motivation for the mind and its knowledge, in terms of broader society?

    I agree with Doran's comment here; capitalism is a tool, a very useful tool for many areas of life, but inapropriate for a comparable amount of others. There is no need to adopt a purely socialist mode of government, but a purely capitalist one is equally absurd. Can we not all agree that the implementation of more socially-oriented policies would be healthy for most industrialized nations today? Does increasingly unrestricted corporate activity really benefit anyone except those who are already fantastically wealthy, let alone the common worker? Many socialist ideas are now outdated, but that does not mean we cannot question capitalism's assumption that many must suffer or be exploited so that a select few may live in vast excess.

    It is also clear, I believe, that at least in the United States more and more aspects of our lives are constantly being placed under the domain of "free trade." Marx's main problem with capitalism was that it slowly converted people into commodities, and undoubtedly that is happening to us today.

  • Mike

    It all comes down to being able to produce more using LESS labor. For every farmer today maybe 1000 times more food is produced than one farmer could produce 200 years ago with a horse/mule, a wooden plow, etc. Labor is just one of many INPUTS for obtaining a desired end result, a product or commodity that is useful or essential to someone. As you state, the minds of innovators, inventors and engineers make it possible to get the most/best results for your efforts. Because of this, we are able to produce much more. So there is more to go around. If there is more to go around, then more is attainable for more people.

  • CMTH

    The only problem I have with this is that I would argue that at least some of the people with the know-how she didn't have - the engineers - are workers, too, in the class structure. I'm an engineer and I certainly don't feel like I own the capital. I don't feel like a capitalist lackey. I feel pretty darn exploited most of the time.

  • votingmachine

    I don't think you would find anyone that could meet the challenge. First it is important to notice that a computer is not just a chunk of silicon. It is in fact centered around the multi-transistor, solid-state chip, although it can as easily be centered around any switch, chips merely being the smallest and most reliable. You posit that any piece of natural raw material is available as raw ore. Raw ore refining is a complicated discipline. Chip making is one of the most sophisticated chemical etching processes in the world. Programming a computer is another discipline without which a computer is useless.

    I am not advocating socialism. But the modern mail system was devised and advanced by the government. The space program was specifically managed by the government. Wars are quite explicitly managed by government. PEOPLE are the engine of progress. Capitalism is a system of motivation centered entirely around self-interest. People have been motivated by patriotism, by revenge, by curiosity, by many, many things. Socialism has a bad motivational structure relative to the productivity of capitalism.

    Your example seems highly artificial. Given unlimited resources, I can train engineers. I can put money into Universities and fund the same academic research that drove the development of the chip. Are you positing that the entire human progress be recapitulated? Must fire be invented? Language? Are the laborers proto-humans or full modern humans?

    Your example show nothing about socialism vs capitalism. People have made progress. Motivated people make faster progress. And we currently are at a state in which it is difficult to be a modern Renaissance man with full knowledge of all human knowledge. You merely show that there are things that can be done by others that we would find difficult to do ourselves. NO ONE simply goes to the beach and makes their own computer, starting with sand, no matter how dedicated a capitalist they are.

  • http://www.facebook.com/robert.mckuskie Robert McKuskie

    It seems to me that most of your commentors have intelectualised your blog and missed your point altogether. For me it all boils down to a choice to accept the fact that there are necessary elemnts to an affluent lifestyle. When push comes to shove "Human Nature" will take its course and if you aren't 'Street Smart' with your head up your Ass trying to be an intelectual you will lose to those that are Street Smart and Street Fighters. The World/Govt does not owe you a living. You have to work for it and that means work.

  • Zot

    Err..... So what else changed after 1700? Ah yes, socialism appeared. So did comunism. But of course that could NOT be the reason for the increased wealth, could it?

  • http://www.facebook.com/people/Steve-Walser/100000639217692 Steve Walser

    I would contend that the development of a rule of law protecting the growing entrepreneurial class and the wealth they created from seizure by government or the local Lords was at least as important as the development of the ethic. Without a rule of law protecting liberty we are Haiti.

  • Bart

    As a refutation of socialism your example was pretty poor. But as an argument for socialism it was pretty good, highlighting as you did that wealth being distributed more broadly and more people having power over their own lives the greater the opportunities for advancement for all of society. You just seem to think that once there's a middle class you can stop there rather arbitrarily and leave some people with just scraps.

  • Guy

    Just saw this on xkcd, made me think of this post: http://imgs.xkcd.com/comics/shouldnt_be_hard.png