Capitalism is NOT a Zero Sum Game!

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Capitalism is about expanding the economic pie, not trying to divide a static pie equally. Quite frankly I am getting tired of socialist writers and progressive politicians implying the economic pie is static, and we must divide it equally. They claim everyone deserves their “fair share” of the pie. Life isn't fair, nor will it ever be. Only from everyone collectively caring about themselves does the quality of life improve for the whole.

With capitalism the quality of life improves for everyone, not just the elite 1% as some might lead you to believe. The poor in the United States are richer than many other countries, especially if we compare ourselves to emerging countries like China. Here is an interesting stat from the Millionaire Next Door, 80% of today's millionaires in the United States are first generation wealthy. Unlike what our politicians lead us to believe, most citizens did not inherit their wealth.

What if Apple Didn't Exist?

Let me give you a great example to prove my point about the growing pie of capitalism. Imagine for a moment if Apple (AAPL) did not exist. The many technologies that Apple either invented, leveraged or perfected has touched so many individuals. There would be no iPod, iPod Touch, iPhones, iPads, and Apple Macintosh computers. There would be no App Store, no third party accessories, no applications for the Macintosh OS X platform.

Imagine all of the copycat products that have emerged because of Apple. Many high flying companies had to change their business strategy (cough RIMM) because of Apple. In the process this competition directly improved our lives.

Now imagine all the Apple employees, and the vendors it uses. Imagine the amount of individuals generating an income indirectly from Apple:

  • Developers creating apps for the app store
  • Cases for the iPhone
  • iPhone battery add-ons to extend it's battery life
  • Classes offered to educate on how to use Apple's products
  • Shareholders who's wealth has increased dramatically
  • The net effect goes on and on…

Can you truly say if Apple didn't exist, the world would be as great of a place? Apple's products changed the lives of millions, and I'll assume for most the better. I use Apple as an example because it recently became the largest company in the world from just starting as an idea in someone's garage.

That's not to say other competing technologies couldn't/wouldn't exist if Apple didn't exist; they certainly do. My point is businesses, entrepreneurs and workers create value from where there was none. The added value improves the lives of not just the people who created it, but increases the wealth for all.

This is especially true with information and service age we live in. With a service economy there's no natural resource to dig out of the ground, nothing to transport, and no machines to build. It's purely the sharing of knowledge that adds value to others.

But Capitalism Isn't Perfect

I'll be the first person to admit there are flaws with capitalism. Yes there is inequality with capitalism, but inequality exists with socialism and communism. The inequality in communism and socialism is determined by the state, and favors people who have inside connections. The only thing these economic systems do is force the economic pie to become stagnant, and the pie no longer grows bigger. There's a reason why Cubans still drive cars from the 1950's. If you ever visited Cuba, it would appear you are in a time warp.

I'm not saying Apple is a perfect company either. Apple, just like capitalism, is currently the best economic system available. History has shown all other existing “isms” have failed miserably.

Until someone devises an economic model that works best with man's psychology of fear and greed – capitalism is the best way to collectively improve the lives of everyone. Capitalism has also proven to be much better than the path we are going towards – socialism. The only thing socialism makes equal is misery.

Larry Ludwig

Larry Ludwig was the founder and editor in chief of Investor Junkie. He graduated from Clemson University with a bachelor of science in computers and a minor in business. Back in the ’90s, I helped create some of the first financial websites for firms like Chase, T. Rowe Price, and ING Bank, and later went on to work for Nomura Securities. He’s had a passion for investing since he was 20 years old and has owned multiple businesses for over 20 years. He currently resides in Long Island, New York, with his wife and three children.

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17 Comments

    1. No it’s not. Who determines what is or isn’t a resource? Oil at one point was a useless waste product. Silicon is made from sand. We from innovation and technology determine what is a resource or not.

      1. First, yeah resources are finite because energy is finite. You will run out of things to call resources eventually, yeah?

        Second, Capitalism is a set of relations concerning the means of production and value generation. Like in slavery there was a master and a slave, in fuedalism there were lords and serfs, in Capitalism there is the employer and employee. The employee must produce enough value to pay for his wage as well as the wages of all those who do not produce but merely own the means of production.

        This is the cause of the disparity you mentioned and is the real problem. the zero-sum effect can be dealt with by circulating money from person to person, but capitalism kills this cycling of money by letting individuals pursue larger gains without adding useful work to society.

  1. And as for the Apple example, I’m glad you opened that door. Apple and Microsoft aren’t shining examples of what’s RIGHT about capitalism, they’re PERFECT examples of what’s WRONG. Both companies created gluts of products which exponentially increased the things which business lusts for: efficiency and productivity (PCs and smartphones namely). And what happens when these things increase so drastically?

    PEOPLE LOSE JOBS BY THE MILLIONS, and for no other reason than that it makes no economic sense to continue to pay them when the job CAN be done without them. We’re at a point where we’re actually too efficient for our own good. Fewer people can get more done, so we cut a bunch of labor not to save a dying company, but to simply increase profitability. But millions upon millions of people are now not earning any money to buy things, and no new companies are going to open up to make something new to sell to a bunch of people that can’t afford to buy it. So, no new jobs are going to materialize to give them gainful ways to put money in their pockets again. This is a snowball effect, and yet people like this author prescribe more of the cause as if it is the cure.

    To all the delusional free-market worshipers–especially ones who love quoting Ayn Rand–I’ve got bad news for you. People acting in “rational self-interest” have largely caused this mess. They’ve looked at their companies dispassionately, and coldly eliminated jobs en masse across entire industries simultaneously, not because they COULDN’T be supported, but because it was more beneficial not to support them. And because they think of themselves and not the society around them, they’ve created scores of new impoverished people with no employment prospects–often not for lack of skill, but lack of places willing to pay them to put a skill to use, because they’re already getting by without the extra help and they’re going to continue to do so… out of “rational *self*-interest.”

    People can say whatever they like to help themselves sleep at night, we have freedom of speech. But I’m not going to quietly listen as people invent any story they have to in order to pretend that companies haven’t just thrown millions of now useless “human resources” aside because they’re no longer needed.

    1. So efficiency is bad??

      Let’s get back to using carrier pigeons to send messages based upon your comment then. Of course what you state is just silly. To advance as a society we should slow down or worse yet reverse the advancement of technology?? This is called creative destruction. Live with it or perish.

      This reminds me of a story by the economist Milton Friedman.

      “At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.””

      The issue isn’t efficiency but skills gap by the workers. There are PLENTY of unfilled jobs available out there, the question is do individuals have the skills for those available jobs?

  2. We call it “a piece of the pie” for a reason. You take a piece away, there’s only so much more left. I don’t give a damn if there’s another pie in the oven for some time down the road! That’s a different pie, at a different time. Right here, right now, there’s only so much pie to go around, and a very small number of people have cut the biggest slice possible and left none for anyone else. And said people are telling the rest who haven’t had any yet to shut up and wait for the next pie, because their inflated ego thinks they “earned theirs.”

    The money supply doesn’t grow every time we damn well please. They do, in fact, for stability’s sake, keep it as static as possible. So stop lying through your teeth that’s the “pie” is growing at a rate that can actually support everybody even if a small number of people are gluttonously devouring every piece of pie they can get their hands on.

    The only reason this kind of outright lie works is because people WANT to be told ANYTHING that will confirm that they’re already doing the right thing, working hard and waiting for the payoff. That way they don’t have to face the fact that they’re not in control and that they’re going to have to take a stand against people who are abusing them to get fair treatment.

    But the more prosperity seems to slip through the common person’s fingers, the more angry people are going to start bumping into each other wondering “if there’s so damn much pie out there, and I’m working for it like I’m supposed to, why am I still not getting any of it?!?” And all the clever lies about the nature of the system anyone could ever come up with aren’t going to help then.

    1. Oh boy where do I begin with this comment?

      First of all what does the money supply represent? It represents the store of productive capital. The pie in my example doesn’t represent the money supply but productive individuals creating pies.

      If your statement were true, the FED could just double the money supply and we would be 2x richer. We all know from basic economics this isn’t the case.

      In regards to the pie you get what a piece of the pie in what value you add to society and society deems how much your work adds value.

      1. I said it ^ up there, but again:
        “In regards to the pie you get what a piece of the pie in what value you add to society and society deems how much your work adds value.”

        Nope.

        By that reckoning, capital gains mean you did something valuable, but this isn’t the case. You actually just redistributed money so that another could generate value.

  3. “Quite frankly I am getting tired of socialist writers, and progressive politicians implying the economic pie is static, and we must divide it equally.”

    That’s not what they say, what they say is that the rich control an ever increasing share of the pie and in the US it has even come to the point where a large swath of the population no longer sees its real income grow, even though the pie is still growing. The only way for that to make sense is to assume all those people work in sectors that have seen zero innovation while the rich all work three times as hard as they used to, I trust I don’t have to explain how absurd such assumptions would be.

    Also, citing Apple as a source of real economic growth is ridiculous: Apple hardly ever develops any new technologies, nor did they invent production process optimalizations, if they contributed to global growth at all it was by increasing the speed at which the world is burning through its natural resources, hardly a sustainable practice.

    “History has shown all other existing “isms” have failed miserably.”

    There are a couple of “isms” that have never been tried in the real world (if the only other system you know is communism that simply disqualifies you from saying capitalism must be the best because you’ve not considered all alternatives). Also, define “capitalism”, do you mean current American capitalism, 1950s American capitalism, current Swedish capitalism, current Somalian capitalism or robber-baron age capitalism?

    1. Hi John,

      I’ll bite, what “ism” do you suggest is better?

      Current “capitalism” is anything but that. It’s more along the along the lines of crony capitalism. From your list and what would be ideal for today’s world probably 1950’s capitalism. But of course it’s a trick question like the old saying “when was the last time you beat your wife..”. All have flaws and issues, and especially that you state in terms of “robber-baron age capitalism”. Since at that time we saw the greatest increase in conditions of the average person.

      “That’s not what they say, what they say is that the rich control an ever increasing share of the pie and in the US it has even come to the point where a large swath of the population no longer sees its real income grow, even though the pie is still growing. ”

      The rich is a dynamic population. You do realize that 80% of today’s millionaires did not inherit their wealth?

      The pie is still growing? Where? For the most part we’ve had a stagnant economy for the past 10+ years. In terms of specific parts of the population might be getting wealthier, but it’s not because of the overall economy is growing. Which then proves my point. The past 4-6 years alone the poor have been hurt the most because of the economy.

      “Apple hardly ever develops any new technologies, nor did they invent production process optimalizations, if they contributed to global growth at all it was by increasing the speed at which the world is burning through its natural resources, hardly a sustainable practice.”

      Apple hasn’t ever invented anything? Are you suggesting they are the largest company purely because of marketing and hype? What are you suggesting then? I’m surprised you didn’t use the angle of the workers in China making the products.

      Which leads to a bigger issue in your statement. What exactly is a natural resource? We determine it. Years ago oil was a waste product until we figured out how to refine it and make it into something that’s an efficient energy. Again another limiting belief that the pie is fixed. We determine what IS a resource. Therefore if a natural resource is really going to run out we will have another resource to replace it. ie. nat gas.

  4. And too many think that the rise of Asia, especially of China will be detrimental to the West. This is because they are viewing economics in a zero sum game mindset.

    I think that the rise income in what were third world countries is great. The real problem is that there will be changes. It is change that a lot of people have trouble with. However, the world would have changed anyway, because change is part of life.

  5. Too many people equate capitalism with crony capitalism, or with whatever they see on TV or movies, or read about in the news.

    Regardless of definitions, a free-market order based on voluntary human action maximizes human welfare and makes the world a better place.

    1. Old cars in Cuba is a good illustration, but not for the point the author is trying to make. You didn’t see new cars in Cuba because of the US trade embargo. Cubans couldn’t get new cars because of US intervention.

  6. We have seen the evidence; as government grows we see more and more crony capitalism. Not only is this fundamentally unfair, but it destroys confidence in the free enterprise system. The evidence is clear; socialism does not work. Capitalism lifts all boats.

    1. Do you have health insurance? Maybe you bank at a credit union? Maybe you occasionally drive the freeways or stop at a traffic light?

      These are socialist ideas. Pooling resources so the majority is helped. Earth shattering, I know.

      side note: a rising tide lifts all boats. not capitalism, it’s the moon son

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