The capitalists will sell us the rope with which we will hang them. -- Vladimir Ilyich Lenin
These fateful words, uttered nearly a century ago by one of the most notorious figures in world history, could not be more relevant today. As the entire world seems to be turning its back on capitalism, and with it the hard-fought prosperity that capitalism has built during the last 60 plus years since the end of World War II, this is an opportune time to reflect on why we have a capitalist system in the first place. What are the practical alternatives to it, and what are the implications for investors if we continue to move away from capitalism? At the most basic level, we have a capitalist system because, in the absence of using markets to determine economic outcomes, the only alternative is the barrel of a gun. This is historical fact. In any society that has turned its back on market forces, the results have been clear: poverty, tyranny and despair. It would be nice if politicians, intellectuals and bureaucrats could simply get together and figure out the best way to organize society and allocate economic resources, but there is absolutely no evidence that will happen, and there is a mountain of evidence that the more you interfere with the market mechanism, the worse things get. Is capitalism perfect? Of course not. As the late William F. Buckley, founder of the conservative National Review, said, the worst thing about capitalism is capitalists. I agree with that sentiment. Many capitalists are narrow, greedy and dishonest. This is why it's extremely important to maintain the integrity of a capitalist system by demanding transparency and limiting speculative excesses that create environments ripe for frauds and hucksters.