The Great Debate

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?

This is the question Vernon Smith (Nobel Laureate and PERC Board member) and Bart Wilson (PERC Lone Mountain Fellow) posed in a recent op-ed. Using virtual economies, Smith, Wilson, and crew are recreating the state of nature in laboratory investigations in order to test this question.

Here are the results in a nutshell:

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.

The authors conclude that recent polls show that voters are not moving to the left, or favoring larger governments, even after a market meltdown. "Perhaps voters sense what the economic experiments demonstrate...perhaps it is better to find a system that works rather than work against one."