We all know the story of how the Pilgrims landed in 1640 to establish Plymouth Colony. What is less known is that they adopted a communal economic system. Land was held in common and crops were brought to a common storehouse, to be shared equally. Everyone worked for the community, not for themselves, and they all shared equally in the bounty, it was a Utopian socialist dream. But, there’s more to this story…

 

They all starved!!!

 

According to the diary of the governor, William Bradford, half of all the settlers died within two years. Though they were willing to share equally, their combined output shrank. Since they all received equal shares, many felt no reason to work hard. Those who did work hard resented this, causing conflict and a further drop in output.

 

Governor Bradford wisely altered their approach. Instead of sharing output equally, the colonists divided the land equally. Each Pilgrim owned their own parcel and could keep whatever they produced or could choose to trade it. This transformation from a socialistic approach to ownership of private property worked, and they began to thrive !

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Why did the new approach work? Because it better aligns with human nature. Incentives are needed for people to work hard and creatively, in order to improve their circumstance. That is the difference between a communal, socialistic system and a system with private ownership of property.

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This is just one example of how the principles in a Free Enterprise/Market economy work well, and how the many attempts at socialism, through many forms, have all failed.

 

THE PHILOSOPHY OF FREE ENTERPRISE SYSTEMS.

 

The cornerstone and underlying philosophy of a Free Enterprise system is that the individual is paramount. Each individual owns his/her life and property.

 

This freedom allows each person to pursue their own ends for their own sake and keep the fruits of their labor.

 

Since each individual is in control of their own life, they will buy what they need or want, and provide goods that others want in exchange.

 

THE PHILOSOPHY OF A SOCIALIST SYSTEM

 

Under Socialism, the government is central, and the individual is subservient to it. The government is in control of all property and determines how to allocate resources. People do not keep the fruits of their labor and, as a result, have few incentives to work harder.

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THE PSYCHOLOGY OF THE TWO SYSTEMS

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It is human nature to do what is in our own best interest. We do this by being productive and keeping what we produce. Be it money or goods, it is ours to better our lives. This provides the incentive to work harder, smarter, or more creatively. The ‘unintended consequence’ is a rising standard of living for everyone.

 

Adam Smith, the eighteenth-century economist, described our self-interest as the “invisible hand;” the pursuit of which leads to more and better products for all.

 

On the other hand, in a socialist economic system, what we get is determined by the state. In this environment, the motivation to excel or work harder to achieve our goals is thwarted. We do not keep the fruit of our labor. And as the Pilgrims found out, there was no reason to be productive, and output shrank. No one prospered. But when they changed the system to allow private initiative to be rewarded, their outcomes changed and they changed the way they acted dramatically!

 

THE POLITICS OF THE TWO SYSTEMS 

 

In a Free Enterprise/market economy, there must be private property rights and the rule of law. The rights of individuals are protected by the governing body and individuals are free to go about their business knowing that their property is protected. Individuals are free to work to fulfill their needs and wants, and to do so to the best of their ability. Though not everyone possesses the same skills and capabilities, they all equal under the law.

 

In a socialist world, there is no such right to private property, and the state owns the means of production. The state plans and allocates goods and services. Individuals are not free to pursue their own goals or develop their talents but receive their instructions from the state. The result has always been failure throughout history because this system is out of sync with human nature. This why Socialism is not sustainable and will not work.

 

HYBRID SYSTEMS

 

There is no ‘pure’ economic system. Many countries utilize the benefits provided by free markets but elect to enact larger social programs. The most common examples are the Scandinavian countries operating under this so called “Democratic Socialism.” In order to be able to offer these programs to the entire population, the government taxes everyone heavily to pay for all the benefits.

 

PAYING FOR SOCIAL PROGRAMS:

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Paying for the social programs require significant taxes on everyone. For example, Sweden taxes all income over $70,000 at 57%, plus a “pension” tax of 7%. In addition, employers pay a “pension” tax of 31% on wages. A value added tax (VAT) on consumption is 25%. Overall, they pay 44% of Gross Domestic Product in taxes. (By contrast, in the U.S. this is 26%.) They have tried wealth taxes and found them to not work and that they were counterproductive driving many of the wealthy to leave the country. As a consequence, nearly all countries who adopted a wealth tax repealed them. Paying for these Social Programs is quite expensive.

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IN CONCLUSION

 

Just like the Pilgrims learned back in the 1600’s -- the economic system employed makes a difference. There is no such thing as a ‘free lunch’. “You are not entitled, you must earn.” It is important to understand the ‘real’ implications of any policies that are proposed and how they work in the real world.

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LISTEN – LEARN – THINK – ACT!

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VOTE YOUR CONSCIENCE, AND UNDERSTAND

EXACTLY WHAT YOU ARE VOTING FOR.

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YOUR FUTURE DEPENDS ON IT!

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MainStreetEconomics.org

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