Capitalism Primer: A Short Story! (Video)

By | September 14, 2015

How would you explain, via short story, capitalism versus socialism?

Capitalism: ‘a social system based on the principle of individual rights. Politically, it is the system of laissez-faire (freedom). Legally it is a system of objective laws (rule of law as opposed to rule of man). Economically, when such freedom is applied to the sphere of production its result is the free-market.‘ (Source)

Socialism: ‘is a social and economic system characterised by social ownership and/or social control of the means of production and co-operative management of the economy, as well as a political theory and movement that aims at the establishment of such a system.

At times business leaders are unfortunately forced to focus their time and energy on the rhetoric and debate that surrounds a governmental initiative that has the potential to impact their companies!

Examples currently include a $15/hour minimum wage and mandatory paid maternity leave (see video below).

While the basic premise of these ideas may be good ones, these initiatives will often be the brainchild of career politicians who possess little practical experience with the day-to-day operation of a business and therefore, will likely be unaware of the potential unintended consequences of the proposal.

The short story below explains the basic premise of capitalism and what can happen if an alternative model, in this case socialism, is implemented.

The story can and should be shared with those who may have forgotten that government, when focusing on its primary mandates, is essential!

However, when overzealous outside of those mandates,  government can be a hindrance to business and business development.

And while income inequality has reached a concerning level in the United States, capitalism has and always will be the only economic system that truly does work!

Capitalism versus Socialism – A Short Story!

When the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. 

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that socialism worked well since no one would be poor and no one would be rich, thus providing a great equalizer.

The professor then said, “OK, we will have an experiment in this class on the Socialist plan”…. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).

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. 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 likewise studied little.

The second test average was a D! No one was happy. 

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one was motivated to study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward (and risk) is great, the effort to succeed is great, but when government takes all the reward away, no one will work really hard to succeed.

Economic Summary

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.


Article by Michael Haltman, President of Hallmark Abstract Service in New York.

Learn more about Hallmark Abstract…

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