What capitalism does well (and what it doesn’t)

Capitalism is fantastic at matching supply and demand. We have never invented a more efficient system of moving things around to where they are most needed.

Say you have produced 10 tonnes of wheat and wish to sell it. In a market, people who need wheat will express their willingness in terms of how much they wish to pay for it. The wheat goes to the highest bidder – for whom it is dearest – and you are happy to pocket the largest viable profit. The market enables all of this automatically with no oversight.

A centrally planned system would not nearly be efficient. Firstly the wheat would have to be collected and stored centrally. An administrator would then have to figure out where it is most needed. An economist would have to allocate the right price for the wheat, based on several interdependent factors. None of this is automatic, and until these answers are clear, both the seller and the buyer aren’t served.

Yet, we slip up when we burden capitalism with the responsibility to solve all our problems.

We cannot quantify the demand of a poor, starving person by his willingness to pay. Given that his means are limited, we need to supplement them so that he isn’t forsaken by a marketplace of wealthier buyers.

At an adoption agency, how would you like it to have children adopted by the highest bidder? Can we sell humans on the market?

An ardent capitalist’s choice of gift is always cash – currency that can be turned into any gift the buyer wants. Yet, we all know how receiving cash is almost nobody’s idea of a perfect gift.

Capitalism is a tool that is great at solving a specific problem – matching commodity supply with demand. Isn’t it absurd to think of it as a solution to all of humanity’s problems? Like a well furnished toolkit, it needs to be complemented by other tools – socialism, fairness, morals, ethics and regulation – for it to be complete.

Our mistake is often to pick out screw-driver and complain that it doesn’t work well as a hammer.

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