What is socialism?

Knowing that I am a professor teaching entrepreneurship a friend sent this funny email.

After reading this, you can understand the definition of socialism in one minute.


An economics professor at a local college made a statement that he had never failed a single student before but had once failed an entire class.

The class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor told his students, “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.” The class agreed!

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 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 and no one would study for the benefit of anyone else.

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward and shares it with those not earning it, no one will try or want to succeed.

It just doesn’t get any simpler than this.

“Socialism works until you run out of other people’s money”
– Margaret Thatcher

Understanding Capitalism

Capitalism depends on harnessing private motives to produce the goods and services that the public wants as efficiently as possible. Historian Charles Van Doren leads us to the early roots of “primitive capitalism” in his book A History of Knowledge: Past, Present, and Future. He provides insight to the ancient Egyptians, economic life before the peasant, the introduction of the merchant, the king, the rise of the labor markets.

Defined today, capitalism is a political, social, and economic system. It is characterized by the private ownership of property—not only of land and buildings but of patents, know-how, and processes that are used by entrepreneurs to create profits for themselves.

Capitalism sharply contrasts with other economic systems, like feudalism and socialism.

In capitalism, entrepreneurs are responsible for such economic decisions as what to produce, how much to produce, and what method of production to adopt.

“Entrepreneurs . . . bring the new technologies and the new concepts into active commercial use. They are the change agents of capitalism.”
– Lester Thurow, economist

>>LEARN MORE – What is entrepreneurial capitalism?

>>LEARN MORE – How does economics connect to entrepreneurship?