First, the economics.
The most important feature of an economic system is who makes the decisions. That choice can and should be made with respect to every good and service, but efficiency demands that there be a default assumption. Under capitalism, the economic decisions are made by private entrepreneurs, with such exceptions as the voters demand. Under Marxism, such decisions are made by the government, without exception. Private is better, not only because the chance for profit attracts investors, but, crucially, because the fear of loss constrains them.
Loss keeps the profit-seeking engine on the tracks. Imagine you’re a venture capitalist and some kid with a bright idea says “If my idea works, you’ll make a fortune, but if it doesn’t, a Genie will give you your money back.” In that world, kids with bright ideas would be coming out of the woodwork, all touting something great with no risk of loss. The competition would create some basis for choosing among ideas, but the risk/reward ratios would be skewed from real-world conditions. Way too many bad ideas would be dreamed up, written down, and listened to, all of which is a great resource suck, and all of the benefits of loss-avoidance would be lost.
Risk is one of those background condition that philosophers ignore until it matters. A friend asked Groucho Marx to write a blurb for a book he had not read. He wrote: “Outside of a dog, a book is man’s best friend. Inside of a dog, it’s too dark to read.” When deciding whether to pick up a book, one does not think “Good thing I’m not inside of a dog!” But if one were inside of a dog, one would surely not be reading a book. That’s how risk of loss works. Every business can fail, but we don’t think “capitalism works because every business can fail.” When, however, businesses do fail and their investors do not suffer a loss, people who understand capitalism know that something is amiss.
The average quality of capitalist enterprise is high because investors can go broke. Remember the government response to the Great Financial Crisis? Critics of the bail-outs went bananas, complaining that we had privatized the gains but socialized the losses. In a capitalist system, losses are not socialized, because…
