I recently posted the following on Facebook:

“I wonder: if we called capitalism “incentivism”, and socialism “disincentivism”, would it be easier for everyone to understand why the former creates prosperity and the latter causes poverty?”

The response was generally supportive, but one reader asked me how:

“Could you explain how Rand? I know people quote this all too often, but there’s a clear difference between extreme socialism (communism) in Russia and Venezuela and then the socialism in Scandinavia that seems to benefit the citizens wonderfully. These Scandinavian countries have much lower poverty and perhaps coincidentally food waste rates than we. I’m seriously asking to be educated.”

The following article is the result of my answer to his question:


How? That’s a fairly broad question, but I’m gonna assume you’re asking how capitalism (aka freedom & property rights) incentivizes people, and socialism (aka lack of freedom & property rights) disincentives people. Man, what a can of worms…but I’ll give it a shot:

I often get these types of questions, or even refutations, when I write of “socialism”, wherein the debate shifts to the technical, or proper, definition of socialism, the various degrees of socialism as implemented within a given society, etc—which typically deviates entirely from my point.

For lack of a better term, I use the term “socialism” to reference the ideology of taking wealth from those who produce it, and giving it to those who didn’t produce it. Call it social programs, social justice, socialism, welfare, state benefits, the welfare state, wealth transfer, what have you, they’re all premised upon the notion of taking wealth from those who produce it, and giving it to those who didn’t produce it. This is theft, plain and simple—but dressed up in perceived authority, many don’t recognize it as such.

I suppose “wealth transfer” might be a more accurate term, but since many recognize the term “socialism” as the general blanket term for such actions, that’s the term I use.

But typically, when I address this overarching ideology, I do so from the standpoint of human nature, because that’s where its failure is rooted. Socialism, or any such system of wealth transfer, fails because it does not account for human nature. I take the same stance with the failure of a constitutionally-limited, representative republic (aka the “American Experiment): it failed because, just like all other non-capitalistic or intitutionally-governed societal systems, it didn’t account for human nature. (I wrote of this in my article The Fundamental Flaw in Non-Anarchistic Libertarian Thought).

Human nature dictates that people will generally act in their own best interest. So when the wealth they produce is taken, then obviously, they’re going to stop producing at the point of seizure. In other words, they’ve become disincentivized to produce. For a simple example, say a law was passed stating that everything anyone earns over $50k annually will be taken and given to those who don’t earn at least $50k. Obviously, what would be the result? People would stop trying to earn anything over $50k, because it’s just going to be taken anyway, so what’s the point? Where the incentive?

I often state it thusly:

“When you take wealth from those who produce it, and give it to those who didn’t produce it, then the producers will either cease producing at the point of seizure, stop producing altogether, or leave for more favorable conditions elsewhere. Eventually, all that’s left are the non-producers and consumers, and the entire economy collapses.”

The other way that human nature plays into this collapse is this: when the producers have their wealth taken and the non-producers receive the wealth for free, then human nature will take its course, and the pool of producers will immediately begin to dwindle, and the pool of receivers will immediately begin to grow. Eventually, a tipping-point is reached, where the ever-dwindling pool of producers can no longer—or WILL no longer—support the ever-growing pool of receivers, and the entire system collapses.

Socialism Cartoon

Here in the US, collapse would have happened long ago if not for the government’s borrowing and printing of trillions of dollars each year to keep the system afloat, as well as the FRN’s world reserve currency status enabling massive exporting of our inflation around the world, thus staving off the collapse. But all that’s over now, the collapse is looming, and is unavoidable at this point.

In a nutshell: allowing people to keep what they produce and earn incentivizes everyone to produce and earn and invest as much as possible, thus maximizing prosperity for the whole of society; taking what people produce and earn disincentives everyone, encouraging them to produce and earn and invest as LITTLE as possible, thus minimizing property (aka inducing poverty) for the whole of society.

Or, as the saying goes:

Socialism: where you wait for bread; Capitalism: where bread waits for you.

And on a more basic level: I take a moral stance against socialist-type wealth transfers, because it is theft, plain and simple—and thus it is both immoral and criminal, regardless of the perceived outcome.