Capitalism and poverty

A question from Yahoo! Answers:

Is poverty caused by capitalism?

capitalism encourages profit making. if one person gets richer another gets poorer right? so does capitalism cause extreme poorness/ poverty?

Not really… Extreme poverty is the natural state of humanity (just look at present-day hunter-gatherers in African bush or Australian outback).

As to your assertion that if one person get richer, another one must get poorer (in economics, it is usually referred to as “zero-sum game”), it is simply not true. Because of comparative advantage, it is entirely possible to have trade in which both parties will be better off than they were before they traded.

The problem is, very few people can comprehend comparative advantage. Once upon a time, mathematician Stanislaw Ulam, the inventor of the Monte Carlo method, challenged economist Paul Samuelson to name one theory in all of the social sciences which is mathematically provable, yet nontrivial. At the time, Samuelson did not have an answer. Several years later, however, he thought the theory of comparative advantage might be it..

Leave a Reply

Your email address will not be published. Required fields are marked *