Tyler Pearce | Head Editor & Sophie Rapeepat | Head Editor
August 31, 2023
To many, economics is synonymous with money. It’s a dry subject all about numbers and finances and graphs and stocks. However, at its core, economics explores the way societies should be organized and resources should be distributed in order to maximize the well-being of individuals. Everyone wants world peace with wealth and food and luxury, and no one is against a perfect world where all this is possible. However, resources are simply too limited to satiate the needs and desires of every single person. Because of this, the question is only to figure out which system ensures most people get the best quality of life. Choosing between philosophies is a preference dependent on individual moral perspectives.
We have established that scarcity — the demand for a good or service is greater than the availability of the good or service — is one of the key concept of economics, and something people consider as they choose to support policies that support their priorities, whether it be individual freedom or societal well-being. With each comes trade-offs, and so a myriad of opposing philosophies come into play, the most common being capitalism and socialism.
Capitalism is when trade and industry are controlled by private ownership. It emphasizes the free market, valuing competition and self-interest. This idea is based on the theory of the “Invisible Hand,” a concept introduced by Adam Smith in which the market is motivated by profit and regulated by competition as people seek to do what is best for themselves. Because of this, capitalism encourages entrepreneurship and economic growth, providing people the opportunity to pursue individual wealth and innovation. Resources are allocated based on the principles of supply and demand, which balances prices and quantities of products.
However, capitalism demands a trade-off, and critics argue that the system exploits individuals by creating income inequality, widening the gap between the poor and the rich. Macroeconomics teacher Mr. Salway acknowledges the pros and cons of capitalism, stating, “There are more efficient ways to maximize our revenue so more people are sharing in the potential wealth. I believe capitalism has positive virtues, but also flaws. Ultimately, we should work on fixing those flaws to make it better for most people.”
Indeed, while capitalism has lifted millions out of poverty, it has also led to significant income inequality and environmental degradation. At this point, we need to decide if the benefits outweigh the costs. Is it more important to ensure individual freedom even at the expense of the environment and society as a whole? The truth is there is no “right” answer. Everyone will have different values that influence their opinion, but the end goal should be the same: address the flaws and find a balance between making a profit and sacrificing for societal well-being.
On the other side of the spectrum is socialism, an idea deeply rooted in moral philosophy and controversy as it is known for being the outcome of capitalism’s flaws. Equity and equality make up the founding principles, asserting that all individuals have fair access to resources and opportunities. The government primarily owns and controls industries, aiming to reduce economic disparities by distributing wealth to all. The famous philosopher, Karl Marx, once said: “From each according to his ability, to each according to his needs,” a thought comparable to what we call the “American Dream.” Marx is not saying that everyone will receive the same no matter what; but rather that those who work will be rewarded and those who need additional welfare will be supported. This refutes common beliefs that assume socialism seeks outcome equality, as it instead rectifies social inequalities by redistributing wealth and power in a way that provides for the marginalized as well.
This system seems perfect, right? Everyone gets what they want, and everyone is happy. Examples of socialism in action can be found throughout history and across the globe. The Scandinavian countries, for example, are often held up as models of successful democratic socialism, with strong social welfare programs, high taxes, and a commitment too egalitarianism. However, the first lesson of economics is that scarcity makes it impossible for everyone to live with the highest standard of living. Because of this, socialism fails in many cases.
Take the Soviet Union. Represented by a more authoritarian form of socialism, it is characterized by state ownership of resources and a centrally planned economy. But despite its initial promise of social safety and the egalitarian ideals it espoused, the Soviet Union ultimately collapsed under the weight of its own inefficiencies and abuses of power.
One common argument is that socialism, while morally admirable, is economically inefficient. The centralized planning required by a socialist system often leads to a lack of innovation and productivity. Without the incentive of personal gain, individuals may not be as motivated to work hard. Moreover, the centralization of power can lead to corruption. Though it’s important to recognize that corruption is not inherent to socialism alone as it is instead a byproduct of human nature, the abuse of authority is a common theme observed in governments following a strictly planned economy. In the words of philosopher Friedrich Hayek, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Even though a system may start with the right intentions, it does not guarantee victory against the laws of scarcity and trade-offs.
Socialism is an ideology rooted in strong moral principles of equality, social justice, and cooperation. Philosophers like Karl Marx have laid the groundwork for a society where resources are shared equitably, and the needs of all are met. However, the practical implementation of socialism has often fallen short of these ideals. Despite the successes of certain democratic socialist countries, the historical record shows that socialism often struggles with issues of economic inefficiency, lack of innovation, and the centralization of power. Ultimately, the moral fabric of socialism is strong, but its practical application remains a work in progress.
The philosophy behind economics offers valuable insights into some of the most pressing challenges facing the world today. While capitalism has its virtues, it is necessary to address its flaws to create a more equal and sustainable society. Additionally, finding innovative solutions to the challenges of resource distribution is crucial for ensuring that everyone has access to basic necessities. While world peace may seem like a far-fetched dream, the principles of economics suggest that it is not entirely out of reach. By promoting cooperation and economic interdependence, it may be possible to create a more peaceful and prosperous world for all.
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