23 Things They Don’t Tell You About Capitalism summary

Way back in 1997, two economists called Robert Merton and Myron Scholes were awarded the Nobel Prize in their field. Their theories built mostly on the idea that when making economic decisions – such as where to invest their money or which product to buy – humans made completely rational choices.

After winning such a prestigious prize, the two economists applied their theories to the real world. However, instead of going on to make huge piles of cash, they found their companies bankrupt, not just once, but twice in little over a decade!

Have you ever been tempted to run off without paying for your taxi ride? The chances are that, as long as the driver isn’t Usain Bolt, you could easily get away with it. Yet although the thought may sometimes cross your mind, you always ignore it and pay your fare.

But, as reasonable as paying for your cab may seem, free market economists would argue that you are acting irrationally. They claim that we are all programmed to only act selfishly and therefore we should always run away without paying.

Would you agree with the statement “we should all earn what we deserve”? Sounds reasonable, doesn’t it? However, if you are from a rich country then you might want to think twice about desiring this. If you were to be paid what the market thinks you deserve then you’d probably find your income levels dropping at an alarming rate. How can this be?

This is because the wages of workers in the developed world are protected from the pressures of the market, which means they remain high, no matter how valuable the work may be.

What do you think when you drive past an abandoned, crumbling factory? If you live in the developed world you may connect it with media stories about the decline in domestic industry. Together these might make you think that manufacturing is nearly dead in the West – yet you’d be wrong.

People often think that industry is in decline because they misread statistics.

The financial crisis of 2008 hit the entire global economy hard. It ended over a decade of economic growth and brought some of the biggest financial firms to their knees.

However, many of the companies most affected by the crash – for example, the insurance giant AIG or the investment bank Lehman Brothers – actually played a large role in their own downfall.

Should the government ever interfere in the running of the economy?

Free market economists would be quick to answer no. They would argue that when a state meddles in the economy the result is always chaos. These economists point to the complete failure of controlled economies such as those in the Soviet Bloc, declaring this is what will always happen when the state interferes.

Across the developed world free market economists are calling for governments to cut their social welfare benefits. They argue that paying people benefits like unemployment allowance or holiday pay rewards them for doing no work.

Yet despite what their theories suggest, evidence from the real world shows that far from being a drain, social welfare is vital for economic growth.

Many politicians, economists and popstars in the West are sure they know what policies will help end poverty in the developing world.

Yet despite their confidence, it seems that much of the developed world’s thinking towards poor nations is based on false ideas.

After reading these blinks you might be starting to get really angry with capitalism. Yet before you sign up as a member of the Communist Party, you need to realize one thing: it is not capitalism itself at fault, just one type – free market capitalism.

In fact, capitalism can be be a very effective way of managing the economy.