Are capitalists happier?

August 12, 2011

By Ronald Rotunda, Vernon Smith and Bart Wilson
The opinions expressed are their own.

As many of the world economies seem to be collapsing simultaneously, it is a good time to step back, take a deep breath and look at the bigger picture. Which kind of economy ultimately works better in the long run — capitalism or socialism?

We have long known that workers are richer in capitalist countries than in socialist ones. But are they happier? Capitalism sounds much harsher, like Thomas Hobbes’ depiction of the state of nature — the war of all against all. Socialists see capitalism as a system where people unfeelingly compete by trying to drive out their opponents. Capitalists counter that free markets are really about voluntary exchange and trading for mutual benefit.

So who is right? Using virtual economies, we can now literally recreate, in laboratory investigations, the state of nature and are no longer left to philosophical musings of first principles.

In the state of nature, individuals produce what they need — e.g., grain, beef, etc. People can remain self-sufficient, or choose to trade and specialize — some people may be more efficient than others in certain jobs. For example, some may herd cattle better while others have a green thumb growing crops. Or, they can even steal from each other because, in the state of nature, no legal system protects private property. (That should please the French anarchist Pierre-Joseph Proudhon who proclaimed, “Private property is theft”).

The virtual economy endows each participant with an icon, “home,” where they consume goods, and a “field” where they produce them. For simplicity there are only two goods. They could be meat and potatoes, or ham and eggs. We call them red and blue. The experimenters privately inform each participant of their preferences over these two goods. Half are told that for every 3 reds they need 1 blue to earn 3¢, and the other half earn 2¢ for each red unit consumed with 2 blues.

An experiment consists of 24 independent sessions, each lasting forty 100-second “days.” Afterwards, each participant is paid privately in cold hard cash, just like a real market, providing the same incentive the capitalist system gives each of us. The more they produce, the richer they become.

No player interacts face-to-face with any other, and none can be identified, so we have the anonymity of an impersonal market. However, the players can anonymously communicate with each other in a public chat room.

For everything else over the next hour, they must discover by trial-and-error, including whether making reds or blues is advantageous. They can also discover that they are able to give goods to other people and other people can give goods to them. They can be self-sufficient, or learn to trade with each other, or specialize in red or blue and earn more money. These laboratory experiments consistently demonstrate Adam Smith’s assertion, that “it is the power of exchanging which gives occasion to the division of labour, so the extent of this division will always be in proportion to the extent of that power”. Many participants — but not all — quickly discover that they can benefit from trade.

There is a serpent in this paradise: participants inevitably, and often quickly, discover that they can simply take goods from one another without paying for them. In the chat room, the players promptly and spontaneously call this activity “stealing”. In this virtual “state of nature” no government protects private property.

Barter only works if the traders can keep the fruits of their labors. In a few cases the group agrees amongst themselves not to steal, even though the only enforcement mechanism is voluntary compliance. As in one person’s chat, “it would benefit us all if no one was a thief.” Another agrees, “to make a long term profit teamwork helps a lot”; “trade, not take.” This group gets richer. The potential profits these players can earn by trading are roughly triple their earnings from no-trade self-sufficiency.

Other groups do not barter much, do not respect private property and try to get richer by theft. They trade very little, steal a lot and get poorer. Groups that agreed to respect private property, trade and specialize create large gains, approaching 60% of the maximum possible (as high as, or higher than, an identical experimental variation where the computer prevents stealing).

The capitalists indicate greater happiness. We cannot measure this happiness the way we can quantify gains from trade, but the chat room discussions are revealing. In the “villages” (groups of players), the capitalist players engaged in small talk and banter as well as trade. A typical chat: Person 1 tells Person 7 that they can make more money if they specialize like the others, and Person 7 adds, “then trade” and “everyone is uber-happy.” Another player comments, “we are awesome”. “Yup,” says another. Another participant says, “usually there’s some idiot who just hordes his own blocks”. To which another responds, “very sad”. When Person 2 explains that stealing is not in anyone’s long term benefit, Person 6 responds, “I love you player 2”. The players who agreed to respect private property also seemed more respectful.

In the villages that did not respect private property, the chat room exchanges were very cold and impersonal. Surprisingly, at no point do these players discuss specialization. They saw that other villages were producing and consuming a lot more and were a lot wealthier, but they never asked how they might acquire such quantities. On the days of “rest”, they seldom chatted in the chat rooms.

A person in a village that respected property noticed the poverty in a village violating private property and lamented, “they must still not have everything ironed out yet. I feel sorry for em”. The anti-capitalists felt sorry for themselves. “I’m tired of this,” says one player. Strong language is not uncommon, “listen, im getting dicked over”.

Capitalism is about voluntary exchange for mutual benefit — risking loss as well as gain. As Person 8 says, “i think the point is to cooperate.” Oddly enough, only those people who agreed to respect private property figured that out.

It is interesting that the polls show that voters are not moving to the left, or favoring a larger role government, even after a market meltdown. Perhaps they sense what the economic experiments demonstrate. And perhaps the rioters in the UK will learn that it is better to find a system that works rather than work against one.

Vernon Smith is a 2002 Nobel Laureate in economics. He and Bart Wilson are professors of economics and law at Chapman University’s Argyros School of Business and Economics and School of Law. Ronald Rotunda is a professor of law at Chapman.

Note: The experiments were conceived and conducted by Professor Sean Crocket of Baruch College (CUNY), Professor Erik Kimbrough of Maastricht University, and Professors Vernon Smith (Nobel Laureate in Economics) and Bart Wilson of Chapman University.


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I sign up an account just to tell you what you have calculated wrong in your “experiment”: the scale of your experiment.

Socialism and Capitalism both have their advantage and disadvantage. The biggest problem with socialism is one will take no consequence if the individuals do not put in as much effort individually, therefore the individuals can gain more (i.e. free time, less effort) and get a diminished yet similar result (the small fraction of the productivity loss due to one individual slacking off is divided among the population and therefore significantly less than if the individuals have to bear their own laziness).

Capitalism’s problem is that the under performing individuals due to resource restrictions or pre-exist condition (health, family up bringing, etc) may not be eliminated from the system yet still drain the resource from the larger population (via social problems) yet the resource to support them is not coming from the wealth generated in the system. Successful individuals can change the rules in any system and therefore the rules can bend toward their favor (i.e. lower tax, uneven barrier to the existing successful individuals, etc) while the cost of bearing the unsuccessful individuals is not bear by the income of the system (i.e. less service provided due to lower tax, unfair tax scheme that put the burden on the poor and middle class, tax consumption rather than income, fixed tax amount per individual rather than income earned, etc). This cause destructive competition where the individual in the system do not create the optimal wealth, but each individual may create its own wealth at the greater expense of the others (i.e. stealing, or legal campaign for rules to their favor, or bullying the less resourceful with lawyers, etc).

Your simulation did not factor in such deficiency of each system. By allowing stealing only in the “socialism” model and having equal and fair trading only in the “capitalism” model with no parasite that will need to be supported (i.e. participants don’t die if they could not produce a minimum amount, or can trick the others into performing unfair trade, a.k.a. the complete elimination of risk from the system), you are putting in unrealistic parameters that guarantee the result you want.

Garbage in, garbage out.

Posted by KingKongJunior | Report as abusive

I disagree, I compare live in Cuba (where I lived many years) and in the USA were I have lived 10 years, and I think people in Cuba in happier than here. I never met people suffering from chronic depression not sein g you relatives for years, etc. Capitalism is the survival of the most rapacious, that farm is an illusion, the one who specializes in something won’t let another to specialize in that, they will cut their necks in order to survive survival. This winner-loser philosophy that is backboned in the US what make so many people so racist, elitist, and more than anything: rapacious. I laugh my asss out any time I see those paradise-like ideas. Can you imagine go to college in the 60s and people spiting saliva because you want to specialize in something; nope because you were black. Now they spit sarcasm and hypocrisy. Now they create a system of inflated grades and fake social integration, and when you graduate you can’t find a job and if you do they will do all they can to make your life miserable ; just because you tried to specialize (get an education).

Posted by cubancuban | Report as abusive

In fiction, yes. It is also the only viable economic model at our current technological level. Things still need to be “made” in places far from where the individual lives and exists, involving other individuals. Things need to be transported, things need to be assembled and maintained.

The simulation is fascinating, but only regarding the right of propriety and “order” in general. Unfortunately, we don’t live in a capitalistic society anymore. The average citizen doesn’t have any control in what it builds, create and subsequently trade. Citizens go to work and receive a paycheck. Only self-employed and entrepreneurs have control in what they produce and market.

From the point of view of this experiment the “village” is a community of entrepreneurs or self-employed individuals. The production process (that apparently doesn’t involve any consumption of resources, any market or differentiation) is their company. There is no competition between the individuals in marketing the blue and red resources. So what is it exactly capitalism and free market for this experiment? Propriety is not a distinctive element of the capitalistic model only.

I dislike the fact that Capitalism is associated with “Rule of the Law” while Socialism (or whatever is called the other option in this experiment) is associated with”Complete Anarchy”.

Because if we use this model right now, at this moment of history where 99% of the population is not considered important in the experiment, the remaining 1% is just the opposite of the “Happy Law-abiding Village” that this experiment tries to put a positive spin on.

Posted by GASK | Report as abusive

It is a false question whether one economic system makes one happier.

The most durable system throughout history was the clan. So many times the state, whether it was capitalist, or socialist or communist has tried to borrow the images of “clannishness”. People habitually use the term “US” or ‘WE” whether they about their collectivized self image. At it’s worse it is fascist and can be any of the economic models.

Whether it was Mrs. Astor and her 400 of Hitler and his Volk or Stalin or Mao with their one size fits all sense of social cohesion they all force the issue. The ones who et the best, extend their lines and otherwise tend to dominate their social systems tend to claims they are the happiest. The tops would frequently rather die than be divorced or wrenched form their perches. The west is engaged in several wars to rip a few fat birds from their nests, throw their eggs to the ground, and otherwise destroy their roosts, in spite of the fact that so many of them were valued when they sang pleasing songs at the right times. Many of whom they put there to begin with.

Capitalism has the benefit of being more versatile perhaps? It never has to write out large areas of the world to claim it’s own territory. It or some thing very like whether it conforms to theory or not, grew in place everywhere. Communism had the disadvantage always of working against the grain of history and yet thought of itself as the most evolved form of human development. Socialism is a defense mechanism of the state to defend itself against the most exploitive tendencies of both poles.

All systems demand that you agree to the prevailing term and the question of happiness is disingenuous at best.

Posted by paintcan | Report as abusive

The ones who eat the best..

Posted by paintcan | Report as abusive

One would expect a more realistic experiment from a Nobel laureate, more reflective of real life circumstances and of Thomas Hobbes’ thinking of the function of the state alongside his “homo homini lupus” postulate.

Posted by footsoldier | Report as abusive

Really? Is this the best a Nobel Laureate can do? No wonder we live in such a mess. There are so many variables and interactions that are not modeled. What’s more, happiness here is measured only by how much money you make, regardless resources consumption, time, health, education, etc. etc. This type of “contributions” are so very disappointing.

Posted by dragaMeaDraga | Report as abusive

I agree with another comment here – it’s odd that a Nobel laureate would offer this naive model as proof of anything. Put the game online and let hundreds of millions of people play it at once. What you’ll see is that people gang up on each other in order to beat the competition. A group of eight (G8 – no pun intended?) is below the threshold of the clan/tribe and they will work together if teamwork is perceived as beneficial. IIRC, Skinner proposed an ideal tribe size of no more than 100. Anything more than that leads to depersonalization of the “other,” or a split into multiple competing groups. Does the entire race benefit from such inter-group rivalry? Just ask the loser of any violent conflict.

There is no system that can conceal humanity’s true nature, which is that of selfishness and amorality. Read the book Demonic Males, or The Selfish Gene, for starters. We are all out to take whatever we can take, and if we cooperate socially we do so only because it will enrich us personally. And if the model in this extremely simplistic experiment included many more people, that type of behavior would be absolutely clear.

Also, it’s flawed to provide a communication channel in which all conversation is public. If players could send private messages to one another – as they can do in real life – you would see them forming secret alliances to beat the others.

It’s not science if you’ve designed an experiment only to reinforce your existing biases.

Posted by Nullcorp | Report as abusive

@oneofthe sheep: You put a lot of undeserved faith in school curricula.

There was a mistake and ommission in my first comment-
(People habitually use the term “US” or ‘WE” about their collectivized self-image. It’s only a convenient manner of speech or a mental optical illusion).

Capitalism doesn’t always provide an expanding “pie”. Monopolies and cartels aren’t at all interested in expanding the pie. Capitalism is a vague term that people tend to use as a catchall phrase. Were the ancient Egyptians, Romans, or pre-communist Chinese, “capitalists” or something that economic theory doesn’t really attempt to describe?
A market economy, or just the use of money as opposed to barter, tends to be confused with the seldom defined word “capitalism”.

It actually confuses terms like “happiness” to try to religious notions of what it means.
The experiment mentioned in the article is doing that. It is trying to claim that capitalism by itself, is more inherently moral. Respect for property rights is a moral decision and capitalism isn’t any more moral than any other economic system. The westward expansion of the country required the removal and extermination of the indigenous inhabitants. The churches and schools set up by the settlers tended to forget what it took to get them there. In fact they had to come up with institutional amnesia and self serving rationals to live with themselves at all.

Economic theory will probably never be able to clarify its terms as well as Galileo and Newton did theirs. And if it ever can, it will be dismissed, as too much the stuff only ivory tower intellectuals would have the patience to read. It might even have to be a theology of sorts. Actually all the economic systems have been defended on some kind of popular theological basis at some time.

Posted by paintcan | Report as abusive

This article makes little sense. Socialism does not mean the abolition of private property. Most socialists do not believe that. Many (most?) socialists think that the economy should be democratically run by society. Where was the democratically run economy in the so-called “socialist” society that was in this virtual experiment?

The authors seem to suggest that if there is no respect for private property, and if there is a lot of stealing going on, then it MUST be socialism. Really? Albert Einstein, Martin Luther King Jr, and others were socialists because they loved to steal? I don’t think so.

Posted by jerryku | Report as abusive

I am relieved I wasn’t the only crazy person to think that this experiment, no matter by who it was patronized, is essentially wrong.

Kudos also to all the participants in the discussion because it appears that when things are serious (and I believe part of it is caused by the personality patronizing the article) some knowledge can be produced. And in my opinion nowadays in a anonymous comment session this is hard currency.

Posted by GASK | Report as abusive

# “Socialists see capitalism as a system where people unfeelingly compete” #

Capitalism is not about “people”, capitalism is about corporate ownership of capital.

# “Capitalists counter that free markets are really about voluntary exchange” #

Realists counter that “free markets” are a myth.

Posted by moebadderman | Report as abusive


There hasn’t yet been a sustainable economy, or society, or even religion and I seriously doubt there ever will be. But there will be plenty of people trying to sell the illusion that they have the golden fleece. Try to describe a sustainable society somewhere at any time in history? No economic system has ever really had to worry about that issue before. Sustainability has always meant against the threat of disease, malnutrition, warfare and natural disaster.

I mentioned Darfur and older societies (in earlier posts) because they seem to illustrate some kind of very lean and dry sustainability were it not for the civil war. It’s hard to say of their situation whether ethnic conflict, environmental change, or increased population pressure, or all of they combined, causes it. It is amazing that looking at Darfur from the air – it is difficult to see where all the disruption to their life may have occurred. The refugees seem to build nearly identical cellular settlements attached to exiting settlements and have almost no agricultural land to speak of but probably live on UN food. Why not? Corn is so plentiful from US production alone that it sits in gigantic uncovered piles at the full to overflowing silos until someone wants to buy it. I don’t know that it can be eaten by humans because of the way it is stored but can be fed, along with the silage (the rest of the stalk and leaves) to beef cattle, or turned into fructose syrup as a food additives, or converted into alcohol, or even burned in pellet stoves. The Darfurians may have ample livestock that doesn’t appear in aerial photos. They may be able to grow vegetables in small plots that don’t show either. If it wasn’t for the threat of murder, they might actually be happy? They live with a market place and possibly a substantial cash and barter economy.

You suggested they should limit their numbers. Is their UN subsidy any worse than the numerous subsidies that turned New England into a gigantic suburb?

I’d love to see a TV show that took 100 Darfurians and set them in Darien Ct. and took 100 Darien Ct. people and placed them in Darfur. I have little doubt few of the Darfurians would want to go back but I also have no doubt that the Darien people would instantly make even Al Janaynah uninhabitable and too expensive for anyone else to live in but themselves. They would require even more enormous subsidies to sustain their lives than those already there. But they would claim it was a success because it cost so much more to live there. They would have the bigger GDP (maybe)?

You claimed the Africans were animals. But never on earth (except perhaps the Romans who were addicted to themselves) has anyone demanded a memorial to the survivors of a disaster as the 911 survivors demanded and got a memorial to themselves.

Posted by paintcan | Report as abusive

The simulation is an excellent way and involved a lot of work and probably many people. But the presented results are indeed not correct because the fundamental difference between communism and capitalism is not the private property but the definition of price. In his fundamental work, Marx identified the rapaciousness as the feature to eliminate from the capitalism to make it better. He precisely tracked this feature into the system and discovered it is hidden in the definition of price – the core of exchanges.
So, according to Marx, the price is made of the costs plus a quantity named “plus-value”. In capitalism the plus-value is determined as “a balance between demand and offer”. Marx argue that the offering party (the capitalist) is in a privileged position and rapaciously increase the plus-value at the extreme limit the consumer could support. In communism the plus-value is decided (at least theoretically) based on the manpower spent and the profit is forbidden. The profit is considered the main sin of the capitalism.
So this is the main difference between communism and capitalism and for this reason, the simulation presented to not tell much.
Nevertheless, the issue of price is worth studying with such simulation, since indeed I think Marx is right, our whole society is based on this definition of price – based on the free market principle. The debate launched by Marx lead to a theoretical solution that proved to be an utopia but he has the merit to have correctly pointed the problem. We can see now that the main problems of our society is the price. The stockmarkets which are the laboratories of the price based on this definition are now shaking the entire planet and people on the streets don’t understand anymore what they did wrong. This is clearly not fair and the system need correction. This is what Marx has seen when he proposed his system and I believe his original intention was good. What he did wrong was to totally replace the old system.
I believe, the free marked based price is the absolute instrument to measure the fairness of our society, so it is perfect. The problem is that the people on the street are not able to use its indications and adapt its social and political behavior “in real time”. The governorship can see it but they attracted by occult interests they choose to ignore it since they know that very few convert the information from the markets in signals telling the direction we need to go.
But probably this is human, and we should look for solution back in the system: refine/amend the definition of price continuously with constraints that safeguard its free market nature and prevent deviations induced by occult interests. The thieves are very sophisticated in our society and they dissimulate, aggregate and scale at planetary level very quickly, while the society is guarded by a power mechanism with very slow reactions (elections just every 4 years) which leaves time sufficient time to the wolves to come as guardians.
This is what the markets point now: the power mechanism.
The speed society has become so high that our power mechanism cannot cope with. We simply need a much much more dynamic power mechanism in the society. Something like an online secured system of continuous voting which would automatically dismiss a power in force once certain thresholds are reached. The technology lead to this unballance but the same technology is now fully available to solve the problem. Tt least the most advanced countries should put it in place.

Posted by Tikydor | Report as abusive

Does the authors statement “Capitalism is about voluntary exchange for mutual benefit — risking loss as well as gain” suggests the society “voluntarily” risked too much and we just lost the game ? This is obviously not true we are not a planet of gamblers.
Rather “Capitalism is about price”, more specifically “free market price” vs a “calculated price” proposed by the communism.
Marx’ formula for the price calculation is far to simplistic, while free market price is too much about fight which requires stiffness (maybe this is the reason it degenerated into wars several times). Probably wee need a “well constrained free market price” with a perfect mix of stiffness and dumping such as to limit the resonance peaks that throw the society almost periodically into great-recessions.

Posted by Tikydor | Report as abusive

You contend that “They trade very little, steal a lot and get poorer. Groups that agreed to respect private property, trade and specialize create large gains”. Then how would one explain the Wall Street meltdown. They traded CDO’s which created very little, they stole a lot, had no respect for anyone’s property and they got very rich. They even bilked the rest of us out of a handout. I am sure that these fat cats are very happy, the rest of us not so much.

Posted by seattlesh | Report as abusive

Capitalism is immoral and inhuman

Posted by RighteousTruth | Report as abusive

first let me thanks the people involved in writing this article and the experts conducting the experiment. secondly it’s nice to read the views and reactions of people about this article. i never imagined people would react with very harsh stance or try to poke holes in the experiment. i am a person who had the chance to see capitalism, socialism, and communism life in action. i lived in the North America, China, and the Middle East. in real life none of the systems actually applies what they consider themselves belong to or abide to. socialism and communism proved it self wrong long time ago, but recently capitalism “the successful model” proved not perfect, through the many shocks and hits to the world economy. but capitalism is the best applied most successful model. this doesn’t mean it’s perfect, it simply states that this concept compared to “applied” socialism and “applied” communism, capitalism is better. on paper communism and socialism seems very heavenly a utopian dream, but in reality can’t be applied. on the contrary capitalism on paper seems like a money thirsty monster, while in reality through life example we see people living under capitalist countries live a better life on many levels. ask the people who lived in both systems which system they prefer to choose and live under, many will answer capitalism. the article simply says capitalists are happier. in real life YES they are happier than socialists, meaning compared to socialists capitalists feel happier. but the article never stated that capitalists are HAPPY PEOPLE. leave socialism and communism where it is best applied ” on paper ” look at the working system “capitalism” and try to perfect it. google about the living standards of the majority of chinese people (the 1.2 billion poor villagers not the 300 million rich business people) and look at the oppressed people of north korea where having a land line is a luxury not to mention the health system. look at the so called living communist countries and see how people are living under these countries and listen to the people and their dream of living in the west. why? simply because of the happier life of capitalism. and note this is a comparative statement. happier doesn’t necessarily means very happy, it could simply means satisfied. but when a satisfied person is compared to a miserable person, he is eventually HAPPIER. my source: QURAN

Posted by CANdOO | Report as abusive

I live in America. It’s a hyper-preditorial-capitalist society. And I’m not happy. In fact, I’m miserable. I’m pretty sure capitalism exits to make others happy, usually at my expense.

Is socialism the answer? Probably not. While I’ve personally never known socialism, I’m pretty sure that exists to make others happy too…also, probably at my expense. But at least there I’d have healthcare.

Posted by FoxxDrake | Report as abusive

The problem with capitalism is that capitalists eventually run out of your money.

The problem with socialism is that some people tend to stop working.

Posted by JohnG-73645 | Report as abusive

The development of capitalism consists in everyone having the right to serve the consumer better and/or more cheaply.

Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individuals life and the unrestricted supremacy of the government in its capacity as central board of production management.

A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

Posted by johnrogersUSA | Report as abusive

The difference between socialism and capitalism has nothing to do with different motivations. Humans are universally motivated by self interest. Period. Different humans have different goals and dreams by which to define that self interest. So, the question becomes: which system permits those self interests to be most easily achieved.

For some, who abhor ambition and the ambitious, the choice is obvious. They choose security over liberty. Liberty involves risk and work, for which all are not well suited.

The experiment was crude and condescending to the human spirit, which does not recognize red or blue as the only choices.

I look at the thesis more basically as a choice about what kind of horse one might choose to be. Wild mustangs running free are sometimes too skinny, afflicted with maladies that kill them prematurely, and are hunted by predators, both four legged and two. Yet, they are free, run wild, and suffer no indignity of the saddle or plow.

Domestic horses are born under a roof, are fed, cared for by veterinarians, brushed and bathed, and are protected from fear of predators. The price for this security is mere acceptance of subservience and ownership.

When the show horses are trotting in their corral, and they look out upon the plain to a herd of wild mustangs, do you think they envy them or pity them.

There is no right answer, but how YOU would answer will tell you in which system you should be living.

Posted by scrjnki | Report as abusive

What’s all the fuss about?
First thing, scholars are scholars and the experiments they do don’t exist in real life. That’s why they are called experiments. Real life is much more complicated and trying to emulate those conditions would be more complicated than real life. Getting complicated?
Your happiness is not dependent on the system you live in. There are still very happy people in Syria right now and very unhappy people in the U.S.; the number capitalist nation. Happy or unhappy, you decide, not the system.

Posted by doctorjay317 | Report as abusive

I must say, this article is nonsense, with no relevance to the real world. The most successful societies use a combination of capitalist and socialist ideals. The most stealing occurs in capitalism, where there is no “free market”, but rather a mess of monopolization, tax inequities, trade agreements, fraud, collusion, and favoritism from government officials. It is difficult to evaluate socialism, without capitalism, because it does not exist in true form, except for a few impoverished countries that were previously devastated by capitalists stealing resources and land, leaving the population without the means to sustain themselves. Cuba is the most socialist that I can think of, but they are hampered by the constant harassment of capitalists, who through trade sanctions, and attacks from outside, that they are unable to realize their own potential. Democratic socialists, do not steal, but rather negotiate wages and rewards, and opportunities. Regulation is required to prevent those that would unbalance society in ways that harm the majority, but a person can still be free to save and invest, or work extra on the side and rise in wealth.

Posted by aligatorhardt | Report as abusive

No one has attempted to define the terms. I’ll make an attempt as well as I ever understood them.

Communism is often defined as the state ownership of all capital. It could be as extensive as the ownership of all industry, lands, and the control of all money of whatever scale in the name of the people who were theoretically in control of it through their government representatives. Everyone in an ideal communist state, of whatever rank, is really an employee of the state with no personal control of capital, land or labor.

Socialism was the selective ownership by the state of key industries that were usually of such a large size such as steel foundries, mines, public utilities or vital services like hospitals, clinics and their staff, or railroads and other transportation systems and some types of schools, that it was considered too important to be controlled by the profit motive for the benefit of private individuals. Socialism was a modification of an existing capitalist or free market system and would usually allow those to exist. The Great Depression, and WWII forced European economies and to a lesser extent, The USA and Canada, to adopt a socialist approach to economic life. Too many people in Europe, and the other theaters of the war, had been killed or their lives and property had been severely harmed, to ever be able to repair the damage done without extraordinary help outside their own limited means. South America and Africa followed a slightly different path because their development was not as heavily influenced by two world wars.

Capitalism is almost the hardest term to define because it is often confused with any type of economy not otherwise having some or all of the characteristics of the other two. It is generally considered to be a “free market” and is characterized by private ownership of capital and land and the uncontrolled competition of labor. It is probably the oldest system that isn’t actually a system at all. The formation of economic theories grew from it and that suggested the other two terms “socialism” and “communism”.

Another difficulty is that an economic system of whatever name is governed by a political system of some sort and they could/can range from absolute monarchies based on inherited aristocracies that could control considerable if not all capital, land, and labor or modified monarchies or dictatorships that have some limitations on their duration or control of capital, land and labor, to “democracies” that define themselves by some sort of representative government based on universal suffrage with all sorts of variations in between. And there is no standard definition of what any of the terms mean.

To totally confound any attempt to make an objective analysis of any of the above, least of all to try to define “happiness”, all of the systems mentioned tended to live within extensive religious traditions or tired to simplify terms by eliminating them.

The quote a Gospel passage (and this is not a unique statement limited to Christianity alone but can be seen in other religious traditions)

“he who loves his life will lose it, and he who hates his life will gain it”

How on earth can anyone make an experiment based on such amorphous terms or concepts? How can there ever be an experiment based on philosophy? One can’t actually define happiness at all.

@doctorjay317- I don’t think it’s making a fuss to consider the experiment the economists have devised. a few years ago The King of Bhutan said that he thought the major countries of the world should give more consideration to issues of their citizen’s happiness and less to issues of power, influence and enrichment.

I’m peacefully happy while writing this – but for two years I’ve been living with an EBT card and that makes me comfortably unhappy. I’d like to be more uncomfortably happy or unhappily productive and it isn’t too difficult to consider any political or economic system to get whatever it is that would allow that. I’m having a few problems with ways and means and terminology myself.

Maybe the economists should consider the idea that life requires purchasing future happiness with present unhappiness because present happiness can often yield future unhappiness. There are a lot of people facing terminal unhappiness in Syria and elsewhere right now in the hope? that someone might get happiness for it.

Do you think they know what they are doing and is it worth it? Somehow the system decides as well as the individual or there is no end to the bloodletting. Most societies do not define a state of chronic blood letting as a state of “happiness”.

Posted by paintcan | Report as abusive

The trouble with economics is the same as with all social sciences: it is NOT a science! Yet its practitioners love to dress up their subjective observations, opinions and conclusions as science. This does a great disservice to both science and social subjects (more appropriately called philosophy) – it tarnishes the former while arresting the healthy development of the latter. If we recognized subjectivity for what it always is – an opinion, an observation, even a systematic line of argument (and at its best wisdom) rather than try hard to pass it off as objective and verifiable truth, we will save ourselves from a lot of delusions and heart-ache.

This particular article compares human behavior under ‘best of capitalism’ with the ‘worst of socialism’. It would have been much wiser if we instead studied human or societal behavior as a whole under capitalism and socialism as actually practiced in various degrees in so many countries. In such a study, our observations would need to take into account various differences that may be due to human and institutional growth, complexity and development. In any case, pretense of ‘scientific experimentation’ necessarily tries to simplify greatly what can NOT be simplified.

Posted by reality3 | Report as abusive

I am really disappointed by this article, I fail to see how this experiment relates to the real world and real economic systems. The only reason I read the article are the credentials of the authors; I felt there must be something into it that is worthwhile. The experiment is clearly biased towards capitalism but I have no problem with that, I just feel sad with how badly designed it is. I hope it does not reflect in general on economic scholars.

Posted by painquotidien | Report as abusive

I am trying to understand something if this is true then why is it that Finland, Norway, Sweden, and Canada have the happiest people.

The problem I see is you use sound bites and select the groups for study. That is not the case in the world today.

The problem has always been and always will be our whole system (all of them are flawed). When you have winners and losers you are setting yourself up for a fall no exceptions.

Posted by theant | Report as abusive

[…] Laureate and PERC Board member) and Bart Wilson (PERC Lone Mountain Fellow) posed  in a recent oped. Using virtual economies, Smith, Wilson, and crew are recreating the state of nature in laboratory […]

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[…] offers an editorial in which Vernon Smith, Bart Wilson, and Ronald Rotunda answer the question; Are capitalists happier? From the article -“The capitalists indicate greater happiness. We cannot measure this […]

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While a Marxist, my personal approach to experimental economics is rather sympathetic. I, for one, am happy to acknowledge the many positive things achieved by researchers in this field (like Prof. Smith): in my view, the flaws demonstrated in the Homo economicus view of human behaviour, underlining the broader methodological individualism paradigm.

Also, unlike most Marxists, I tend towards empiricism.

With these two things in mind, it’s easy to understand that I find intriguing and exciting the idea of applying experimental economics to the question: “Which kind of economy ultimately works better in the long run – capitalism or socialism?”

What’s more, I welcome the proposition: “Using virtual economies, we can now literally recreate, in laboratory investigations, the state of nature and are no longer left to philosophical musings of first principles.”

Considering all these things, I respectfully must say that the desire not to rely on “philosophical musings of first principles” is not an excuse for not knowing what those first principles are.

And I regret to say, with due respect, that on the evidence of the text presented, the authors seem to have a poor understanding of basic terms.

Let me put an example where no “philosophical musings” intervene. If I understand the experimental setting, each experimental subject is equally endowed with the basic means of production: a capacity to produce (i.e. labour) and a “field” (i.e. land) where they can individually produce the blue and red commodities in some proportion of their choosing. (Although capital was not mentioned anywhere, this is not necessarily an objection, unless the authors intended their demonstration to apply to Marxist socialism).

They can also steal “from each other because, in the state of nature, no legal system protects private property”. Although not explicitly stated, I take it they can steal blue and/or red commodity from each other, but not the “field” itself.

To put it all in a more succinct way: there is absolute equality (including property of the means of production)

However, it’s a basic point of all forms of socialism that not everybody is equally endowed with the property of the means of production. Incidentally, the term “communism” itself alludes to an ideal state where land and capital belong to the community (which although not identical, somehow seems to correspond to your initial setting, ironically enough).

Although the authors do not seem to have it in mind, in the capitalist mode of production, for example, the fact that capitalists monopolise capital (while workers can only provide labour) leads to conflicts. Note the inequality in the initial endowments.

Likewise, in the feudal mode of production, the fact that feudal lords/aristocrats monopolise land, while serfs provide labour in exchange for the right to use a part of the land on their own behalf, produces conflicts.

Thus, the initial experimental setting of absolute equality seems singularly inappropriate to test whether socialism improves well-being: why should people strive to achieve equality, if they are already equal?

Although a more philosophically-oriented criticism would probably be unfair and outside the scope of this reply, I would recommend a revision of the notion of individualism underlying economic liberalism, as it has deep Hobbesian roots; unlike socialism, in all its forms, that emphasises equality, collaboration and at least some degree of “collectivism”.

Finally, I understand that the post I’m replying to is not a formal research report, thus there may be things “lost in translation”. If possible, a link to a publicly available formal report (maybe the working paper version) could help clarify the situation.


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Magpie writes; “Thus, the initial experimental setting of absolute equality seems singularly inappropriate to test whether socialism improves well-being: why should people strive to achieve equality, if they are already equal?’

The experiment tested whether people working in a market economy were happier.

And socialism doesn’t made all people equal any more than the Constitution of the US made all men equal except to abolish titles conferred at birth.

Socialized medical care can be defended on the grounds that poverty can be inherited and without access to health care, any notion of equality becomes meaningless.

The issue of slavery in the old south was a true evil. It condemned people to a state of being bred like livestock. They were “mated” and their family affiliations were not respected if their owner had to sell them to raise capital. In fact, the southern slave could be either labor or capital depending on his master’s needs. He could breed slave children as just another cash crop.

A society that considers health care or any other aspect of the economy that can effect all of the population (like food that few can grow on their own anymore) a privilege and a reward for success is dangerously close to being a society where people can be enslaved by their own poor environment. The self-satisfied may claim it is due to one’s bad choices in life but it doesn’t require bad choices to sink into poverty. And one can make some truly rotten and even sociopathic choices to attain wealth. It may require super human effort and/or ruthlessness to out perform millions of other who may also be trying to get out of poverty. But if there are few opportunities to succeed, then most of that effort will be wasted. China has managed to elevate over a billion people above subsistence levels without massive debt by temporarily reducing everyone to slave status while India is developing rapidly but becoming a massive debtor and still living with teaming slums.

Life in the developed world makes it impossible for billions to ever return to the hypothetical state of nature or even to an adequate subsistence level. It requires having money to live in a developed society at all but depressions start because too few people have enough money or liquidity to keep the economy alive or active. Private debt isn’t sustainable in the long run and public debt may not be either. To put it another way: if the developed world collapsed – billions would very quickly die – winners and losers.

The health and welfare of the general population serves the capitalist and today the wealthiest individuals and enterprises don’t want to pay the system for all the goods it produced. Public education, a health care infrastructure, transportation and utility systems, defense capabilities, and a working government all made their fortunes possible at all. Socialism is the defining system of modern life and yet it somehow has becomes a dirty word. But it is socialism that has to take over in a crisis because capitalism wants to make a return on investment and shuns too great risk. It doesn’t work well with extreme poverty at all unless it can control the poor in slave like labor conditions. Slaves are all it tends to think the extremely poor are worth as tools.

There is something very strange in this and other modern countries in that religious institutions or even popular religion doesn’t seem to understand the economies they live in at all. A lot of them – especially popular religions – live in dreamlands that would prefer not to think about it. The Catholic Church was very suspicious of “liberation theology” because the old guard feared it. The current Pope and his predecessor was a staunch enemy of it and excommunicated many of its leading lights. Catholicism and Christian Fundamentalism, but not Protestantism to the same extent because it required that their followers could read well enough to read the Bible, don’t believe in the equality of people or access any more than Judaism or Islam does. All of them are more or less willing to accept the “divine right of kings” and the privileges of aristocracies, and it’s amazing how few people notice that. Modern democracy cramps their style. They all fear that modern life can make them redundant.

If the experiment lasted long enough it could have entered to the area where players were becoming indebted to the winners. And in the long run, the success of the winners may have been due to nothing more than the odds of choosing heads when someone else chose tails. And it doesn’t mention the possibility that winners can purposely misrepresent the rules of the game to set up losers as a cost of doing business. Slaves don’t tend to catch themselves.

Posted by paintcan | Report as abusive


Except for paragraphs 1 and 2, I wholeheartedly agree with your comment.

However, I don’t understand how your comment in any way relates to mine.

In paragraph 2, you state:

“The experiment tested whether people working in a market economy were happier.”

Given this statement, I suppose your interpretation, as was mine, is that the experiment’s initial state (i.e. experimental setting) was intended by the authors to represent capitalism.

My objection, expressed in the paragraph below (which you quoted) is that the initial state does not represent a market economy at all: in a market economy not everyone owns capital or land.

“Thus, the initial experimental setting of absolute equality seems singularly inappropriate to test whether socialism improves well-being: why should people strive to achieve equality, if they are already equal?’

In fact, if one were to define equality as equal ownership of the means of production, the initial state of the experiment perhaps could be identified as “communism”, but it would never be described as a market economy.

In any case, and I hope you don’t take offense, I would rather discuss the experiment with their authors (and I assume you are not one of them).

And my insistence on having the authors’ opinion is because, as represented by the piece “Are Capitalists’ Happier?” this experiment seems to me as very poor science. That’s why I would like to know if there is something “lost in translation”, before making a definitive pronouncement that could be unfair to the authors.


Posted by TheMagpie | Report as abusive

@magpie – aren’t you reading too much into the experiment? They are trying to create a laboratory market economy. The players are producers exchanging their production for chits so they can either purchase other goods or save it and they want to make a profit.

People have been doing that since the beginning of human society. Ideas like socialism or communism would only enter the picture depending on the clan, family or tribal structure to which these primitive or “state of nature people” belonged. The prerogatives of the clan would determine the “taxes’ paid by the producer. He might have to turn over all profits or only a part. They could be aborigines of the northwest practicing ceremonially distribution of the production in the form of a potlatch. They could be Egyptians or ancient Romans that trade with money and charge interest or medieval peasants bringing their crops or livestock to the fairs. Pharaoh, or Caesar or the Lord of the Manor would have decided what they get to keep for themselves. Those market participants were unlikely to have had an economic philosophy to explain their activities. The ruler decided the rules of the game. The demand of the social system were met one way or another.

The experiment doesn’t mention taxes and there are many historical and cultural ways that taxes can be imposed without the use of money. Socialism tends to use taxation to distribute wealth. The Ancien Regime all over Europe would impose forced labor on peasants to accomplish rural public works. Nobles would be expected to field armies out of pocket to support the king. They were social duties that tend not to be called economic issues or tend to be ignored. They were taxes that might not have been in the form of money.

You evidently would rather not hear from me but the authors haven’t said a word and you agree with so much of what I said. As there is no etiquette for these discussions, I felt like answering.

Posted by paintcan | Report as abusive

“(…) the authors haven’t said a word and you agree with so much of what I said (…)”

Indeed, they haven’t said a word.

However, the lack of answer to a legitimate question, expressed respectfully, based on reasoning and a legitimate request for further information, within the limits of intellectual inquiry, sounds to me like an answer in itself, wouldn’t you agree?

In any case, I don’t think I read too much into the experiment.


Posted by TheMagpie | Report as abusive

Well, I think western economists underestimate the ability of people to be “trained” and “educated” to live in a socialist society. Look at what we got in Eastern Europe… several generations that clearly have problems adopting a capitalist approach to the economy because they were prepared to live in socialist economy in almost full equality with other people. I don’t say thats bad for them but if Vernom Smith has carried out his experiment in a soviet-type socialist state in the 80s I dare say his results would have been qualitatively different.

Posted by tolzkutz | Report as abusive

I keep a thread open until the time it closes. But this one has been open for months.

So Magpie – they may not have been at home when you asked your question and were trying to design a better experiment or just gave up on the idea? They may not even know you asked the question.

I don’t think you can use the old Roman principal – “Silence connotes consent”. You may also have them stumped or they can’t figure out what you were asking?

People also have to be trained and educated to live in a capitalist society.

The barter or the more sophisticated money economy, are not that hard to learn. I think they are instinctive, or skills even a child understands at a very early age. How many times have you seen children trying to imitate the grownup world by setting up lemonade stands? People were using money in Mesopotamia before anyone had a clue what “capitalism” was. Capitalism and market economies may not actually be the same thing at all.

Have you even read the work of Fernand Braudel?

Posted by paintcan | Report as abusive

Well theft is the biggest game in capitalism as it is today. And one reason for this is limited liability ownership. Imagine that if a company is guilty of an obvious crime, and that all who profited from said crime is guilty under full liability ownership. This will lead to a world where a CEO or fund manager would rather phone an investor and report a 5% rise in earnings than a 10% rise and 60 hours community service or 2 months jail for each and all investors.
Now how would corporations act towards people then? How would investors choose where to put their money? It is still capitalism just with the stick. How about the carrot… CEOs and management can earn a ceiling of 15 times the lowest salary of any employee in said corporation.. Stock and options included.. Overall people who excell are still rewarded better for tougher work but the more they exploit their workers the less their own compensation can legally be.
And how many community hours will be accumalated? All Im saying is that the “socialism” theft scenario is actually what happens in capitalism today and instead of the game ending, everyone will be indebted to the ones who stole the most…..
Democracy is a political aspect, capitalism is a financial aspect and socialism is a human aspect. It is about the way we treat each other. How we relate. Limited liabilty means that we are not truly accountable for the actions performed in attaining our wealth. If bank owners( all shareholders at the time of fraud in proportion to their % ownership ie if sentence is 100 years prison then 10% owner will get 10 years) were held liable for the libor fraud.. then multi billionaire families would be the ones going to jail..the ones who profited most from the crime, not to mention their liability through trusts, shells, dummy and ghost entities.. So your theft experiment is a good representation of capitalism as we know it today and you will see that the ones who steals most will be able to protect themselves by paying others to enforce laws on the poulation, and then become loansharks and then banks as we know it………… An honest and accountable banking and corporate system is what we need………………………………. Socialism( The way we treat each other in good faith and exploitation is seriously frowned upon) and capitalism( Our abilty to trade goods and services and produce the technologies to enhance our lives) will co exist.. and so will we

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