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  • Writer's pictureIshfaaq Peerally

Why I was wrong about free market capitalism ?

“Man is an animal that makes bargains: no other animal does this - no dog exchanges bones with another.”

- Adam Smith

Part of my coin colelction

A few days ago, a friend sent me a Youtube video explaining how modern capitalism works and he asked me, "If money is unlimited, why not give to the poor? and let everything be fair?" Three years ago, I would have answered, "Because the people in power are selfish. And if I had the power, I would have evenly distributed wealth." But after much study of the subject, my point of view has changed. Three years ago, I was wrong, I might be wrong today but I am always looking for more knowledge and is always ready to change my opinion on anything. My answer today will be, "Because everybody is selfish and if I had the power, I would have let the invisible hand rule."

I would suggest that you watch the video, unlike conspiracy theorists, everything they explained is accurate just with the wrong conclusions. Anyway, I'll make a summary of what the video talks about:

- How the Central bank issues currency

- How commercial banks issue more currency - How this increases public debt

Trade between men has always existed even in prehistoric times but as civilization rose and grew some people and some nations have amassed more wealth that others. Wealth is not wheat, it is not gold, it is not banknotes. At the same time, wealth is wheat, gold and bank notes. I am not contradicting myself here, I'm just saying that wealth has the ability to change into desirable things. If you lived in Ancient Egypt, a kilogram of wheat would have been much more valuable than a hundred dollar bill. New economic systems came into being with the advance of human societies eventually leading to the industrial revolution in the 18th century. The one economic system that prevailed in the industrial revolution was capitalism.

Capitalism looked like a great idea, it was giving everybody the freedom to become rich but eventually leading to monopolies, everybody got richer but some people got very rich creating a economic gaps. One of the first person to forecast the crash of capitalism was Karl Marx. In short, the Marxist theory is a theory of conflict. There is a constant battle between classes and capitalism is the fuel of this battle. Marx thought that these conflicts would cause the crash of capitalism leading to political revolutions and eventually creating an utopian world where everybody will be equal. This idea came to Marx after the defeat of Napoleon III and the rise of a French political party called La Commune de Paris. Paris Commune took control of the city for a few months. It was an attempt to set up an utopian system in Paris. Marx called it the dictatorship of the proletariat and he expected a similar thing to happen in Great Britain and everywhere else in Europe. Marx's communist revolution was born.

Meanwhile, the world economy crashed in 1929 in what is called The great depression. This is where Marx was wrong, capitalism did not crash with the economy, it actually evolved. Free market capitalism is essential in a democracy and people were not ready to give their property to the government. The gold standard was partly abolished in the USA and the US government began creating money and debts. After the second world war, The USA became the world's largest economy and other countries began creating money. In 1971, President Nixon completely abolished the gold standard. And in 2000, Switzerland became the last country to stop backing its currency with gold. Gold cannot be created, it is limited. But currency can be created. But each creation of currency increases inflation and public debt.

Then should we go back to the system where money was MONEY? Take a look around you, all the things that modern capitalism have created. Inflation and public debt may not seem ethical, we are setting a burden on future generations. But we are creating the future for them. It is in human nature to be selfish, this was the greatest mistake of Karl Marx. communism works only in theory but in practical, people are too selfish to accept the fact that their neighbour is equal to them. They will always want more leading to corruption. If a government decides to create money and distribute it equally among its citizens. This will cause first devaluation of the currency, then inflation.

According to the Nash theorem in game theory (the study of mathematical models of conflict and cooperation between intelligent rational decision-makers), everybody is better off if there is the competitive free market capitalism. Everybody has the opportunity to be rich, but not everybody will be rich,and the whole society will be richer. That doesn't mean that we should give up on Marx's theory. On the contrary, it teaches us how harmful the invisible hand makes society progress can also destroy it. Modern capitalism has integrated many of Marx's ideas in it. Governments still have to regulate competition and trade, tax the rich and implement social measures. Modern capitalism is still evolving especially in a world where information is free. Maybe someday a better system will come.

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