Free Market Capitalism vs. Socialism: A Simple Analogy

An economics professor at Texas Tech said he had never failed a single student before but had, once, failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.

The scores never increased as bickering, blame, and name calling all resulted in hard feelings as no one would study any longer for the benefit of anyone else. All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because under capitalism when the reward is great, the effort to succeed is great; but when the government levels the playing field and takes more of reward away; no one will try or want to succeed as much as before.

Could not be any simpler than that….

Originally posted at Welker’s Wikinomics Blog and reproduced here with the author’s permission.

7 Responses to "Free Market Capitalism vs. Socialism: A Simple Analogy"

  1. EAB   May 13, 2009 at 1:10 pm

    If one of the students had gone on a hunger strike that risked death if the average grade fell below the first B, the story would not only be more interesting, but would have proven that capitalism and socialism are not the only solutions.

    • Anonymous   May 13, 2009 at 3:31 pm

      Huh, how would that have proven anything other than an individual attempting to assert control over a group through the threat of death (theirs in this case)….sounds more like terrorism and not sure that is panning out to be an effective solution.

  2. Anonymous   May 13, 2009 at 5:48 pm

    Well clearly Steve, the hard working A/B students are products of an unjust socioeconomic system allowing them unfettered access to superior education, opportunity and the like.”Effort, personal initiative, risk/reward” you say? Those are merely oppressive buzzwords of the evil educated. Where is Robert Reich when I need him to come to my aid and claim the moral authority of the C/D students to receive an A irrespective of merit!NOT!!! Love the entry Mr Latter…..keep em coming….need more similar voices of reason.

  3. Argel   May 14, 2009 at 8:59 pm

    Simple as that? Are we really supposed to believe that the A/B students would be okay with getting an F? Even if it ticked them off to no end, they were not taking that class in a vacuum.– would they really settle for taking a hit on their GPA? I find it hard to believe they would even settle for a C. This seems like a painfully obvious contrived urban legend. But even if it is true, what would they do if they had to take the class over with the same rules? I doubt it would end in an F. Personally, I would expect an A or a B. Not just because of GPA concerns but also because the “slacker” students could find extra-curricular ways to reward the ones studying.Not to mention that is this story is really to be believed then every group project should fail.I cannot help but think of small-town rural America, where people really do help each other out a lot more (or at least they do in the rural areas I grew up in) vs. the soulless feeling of urban centers where you likely do not know your neighbor as a closer analogy to socialism vs. capitalism.

  4. Argel   May 14, 2009 at 9:14 pm

    Of course there is another problem — are we really supposed to believe that greedy CEOs of financial institutions that not only ran their respective companies into the ground but also the global economy while the were personally raking in millions has actually benefitted society as a whole? Or the billions of dollars in bonus they receive while others are laid off — has then been good for our society as whole? I think the answers are clear. There are flaws in socialism, but we are witnessing serious flaws in capitalism as well. Socialism works off of the premise that people are Good by nature which is flawed. But Capitalism ignores that Greed is one of the Seven Deadly Sins for a reason. Both are far from perfect, though quite frankly I think as a civilization we are advancing beyond the point where it is just okay to let people die due to unfortunate circumstances (e.g. starving to death because they can no longer buy food). If you want to fully embrace capitalism then it’s time to acknowledge that it has an inherent evil (greed) bias.

  5. Anonymous   June 29, 2009 at 3:38 am

    Argel, I would suggest you to watch a little something called “The Crash Course” by a induvidual named Chris Martenson on your views that Free Market Capitalism universally caused this Economic Crisis but rather how we as a nation and a species have merely built up a giant that must fall a very hard fall.Also on the seven deadly sins. I believe you should read the book “Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem” by Jay W Richards of the Heritage Foundation. Where he makes the Proposition where Capitalism doesn’t = Greed but rather The Golden Rule which he claims demands Self Intrest and answers some accusations against Free Market Capitalism. For the Greedy CEOs. Evolution demands failure and Extinction for life to improve (Biologically of course not wealth) the same is for Capitalism.I do not know why Divine Providence would allow for such sinners to destroy the holdings of a company but it happened and he allowed itfor 3rd World Countries, Altruism by whatever means(Religious or Secular) may ease the burden but obviously we must change our induvidual lives for the enviorment’s sake to stop the Desertification of Africa but force cannot be implemented.Good day.Guest

  6. Anonymous   July 17, 2009 at 2:14 pm

    What over simplistic garbage; I was hoping for a succinct explanation of both to share with my students, but this is worthless. This is quite frankly the WORST analogy I have encountered! Not only does it over-simplify socialism and paints people as inherently good-for-nothing loafers, it does nothing to demonstrate the absolutely disastrous effects of free market capitalism. Heard of the Chicago School of economics and the Chicago Boys? Anyone heard of the military dictatorships in South America? Anyone know what they have in common? Guess what– there’s a direct link between torture and free market policies! Look it up! THIS is what we should be teaching in universities, but then again, I’d probably be slammed for being an anti-American, pinko-commie. Go figure!