Ask a random young American whether they prefer capitalism or socialism and—according to Gallup—the odds are 50-50 they’d say either one. Ask them how they define their preferred economic system and the results become much less binary.
What then is capitalism, and what is socialism? While it is doubtful we could find definitions that would satisfy everyone, it is at least possible to describe them in a general sense so that we can further examine their merits and weaknesses.
What is Capitalism?
Let’s begin with capitalism which is, in my view, the easier of the two to define. Capitalism is an economic system in which trade and industry are controlled by private individuals. In a capitalist society, the price of goods or services are determined by the precarious balance between how much the consumer is willing to pay and how much the producer/seller is willing to sell. No outside entity is “controlling” the price or setting it above or below the mutually agreed upon amount between the consumer and the producer/seller.
Of equal importance in a capitalist system is the recognition of private property. That is, the claim of ownership individuals possess over the things they have earned and inherited. These are things that belong to the individual and they cannot be justifiably taken from them without due process of law. These “things” include more than material goods as they extend to intangibles (such as having ownership of our ideas) and even include the notion that we own ourselves. A corollary to this idea is that self-ownership means we have the liberty to work for whom we want, employ who we want, buy what we want, and sell what we want without outside coercion.
Capitalists contend that capitalism is an economic system that works precisely because it relies upon natural human incentives and not the good intentions of others, and that it maximizes liberty for the individual. But, socialists may argue, are the individuals living under capitalism really free? What difference does it make if you have the freedom to work for employer X or Y if they’re both part of the same unjust system where all employers exploit their employees for profit? And all this lofty talk about the freedom of the individual ignores the very real need for things like healthcare, education, housing, and food. Are we really free if we’re imprisoned in a system that forces us to work for meager wages for the benefit of those who own the factories, farms, and companies just to earn enough to survive? To the socialist, capitalism is merely a prison where workers are deceived into believing they are free because of the few, mostly meaningless choices they do have.
What is Socialism?
In place of this economic “prison”, socialists advocate the means of production—that is, the stuff that makes stuff from factories on down to raw materials—and the price of goods and services should be owned and regulated not by private individuals but by the community as a whole. To the extent that profits are realized, they should be enjoyed equally by the community, or at least by the workers themselves, and not selfishly horded by the individuals and special interest groups who just happens to own the means of production. Individual ownership enables capitalists to exploit their workers. The economy should be for the good of the people, not for the greed of the wealthy few.
In his book Authoritarian Socialism in America, Dr. Arthur Lipow praises novelist Edward Bellamy’s depiction of capitalist society and the cut-throat competition it encourages as a coach, jolting along a rutted road:
“Those who ride on top of the coach serenely observe the scenery, and their position protects them from the mud and the dust. Below are the straining masses of men who are driven by Hunger to pull at the coach and to serve the needs and whims of the passengers on top. When the coach must be pulled over a rough stretch, or up a steep hill, those on the top shout encouragement to the men straining at the ropes below, offering the consolation of a better life in the hereafter to the toiling masses as compensation for their poor, bitter lot in this world. In time, the distance between those on top and those below increases because the former imagine they are of a ‘finer clay’ and that their position, therefore, is the consequence of some inherently superior quality…The riders are purely parasitical. The characteristics they believe mark them off from the common herd are not the product of their inherent worth as individuals, but merely pass into their possession as the result of the suffering of the masses, whose labor makes it possible for them to devote themselves to self-cultivation.”
While not all socialists take such a hostile view of the wealthy few, and may even acknowledge capitalism represented an advancement in human society, they would content that socialism offers a superior way to organize the economy so that everyone may benefit.
Now, these woefully simplified definitions of incredibly complex economic systems are given in what we might call their purest form. In reality, each of the systems described above have never existed, nor could they exist, in totality. As Sir Roger Scruton put it, “The word ‘capitalism’ is still used to describe any economy based on private property and free exchange. And the term ‘socialism’ is still used to denote the various attempts to limit, control, or replace some aspect of capitalism, so understood. In all its appearances, therefore, capitalism, like socialism, is a matter of degree.” The most laissez faire societies in history have still placed some limitations on the free exchange of goods and services. The most restrictive Communist regimes have still allowed for certain sectors of the economy to exist independent of the demands of central planners and, even when that was not allowed, there still existed a black market where goods and services were exchanged outside of the watchful eye of the State.
Why Capitalists Don’t Like the Term “Capitalism”
None of this is to suggest that the distinctions between these systems are meaningless. But it would suggest that the lived experiences under these systems are complex and hotly debated. Even the language used to describe these systems is disputed. I have been using the term “capitalism” to describe the economic system advocated by conservatives. But this term wasn’t commonly used until the early 1900s, meaning both Adam Smith (capitalism’s greatest advocate) and Karl Marx (capitalism’s greatest critic) never used the term as they wrote long before this time. What’s more, this term may be misleading as it puts the focus on those who own capital—i.e. the means of production—instead of the free exchange between individuals.
As such, capitalists themselves have long recognized this wording would seem to favor a socialist mindset and have sought out a more agreeable alternative. Economist F. A. Hayek described this system as “the extended order of human cooperation” and offered “catallaxy” or “catallactics” as his preferred term. This was derived from the classic Greek word katalattein or katalassein which holds multiple meanings suitable to Hayek’s views: “to exchange”, “to receive into the community”, and “to turn from enemy into friend”. In my personal view, both “catallaxy” and “catallactics” don’t exactly roll off the tongue and I’m willing to concede socialists are just better at popularizing economic terms.
A more common alternative is the “free market” or “free enterprise” which would at least take the focus off greedy owners of capital and instead emphasis freedom. But here too we run into trouble as this term tends to depersonalize the process of individuals exchanging goods and services. As economist Thomas Sowell explains, “We tend to think of a market as a thing when in fact it is people engaging in economic transactions among themselves on whatever terms their mutual accommodations lead to.” For the sake of simplicity, I will simply refer to the whole affair as “capitalism” and clarify the potential misunderstandings it produces as they arise.
But whatever complications our language produces for capitalists, I am confident socialism is actually the more challenging system to truly understand. I said above that the socialist advocates a system owned and regulated not by private individuals but by the community as a whole. That may sound straightforward enough until you begin to ask yourself what is meant by the community as a whole? If people are simply left to their own devices, wouldn’t we naturally end up with a system not at all unlike capitalism? This would seem to imply socialism advocates we do something about this natural inclination. So how exactly does one encourage, enforce, or produce “community” ownership?
And to this question socialists have historically given two rather different responses: authoritarian collectivism or democratic socialism.
Authoritarian Collectivism: Socialism with an Iron Fist
One possible means of creating a socialist system would be coercion and enforcement by an all-powerful state. How do we prevent individuals from freely exchanging goods and services and possessing property? Simple: make it illegal. We might call this socialism from above where a socialist order is imposed on the population at large for “their benefit”.
Capitalists and conservatives are most likely to ridicule this form of socialism, and for good reason; everywhere we look throughout history and around the world, this form of socialism hasn’t led to a workers’ paradise but to economic stagnation, starvation, genocide, human rights abuses, thought-policing, mass imprisonment, torture, and totalitarianism. The power to exert control over each citizen’s ability to trade and to take ownership of their property is about as totalizing a power as the state can possess. And those who seek to rule over such a state are not benevolent, altruistic leaders but megalomaniac psychopaths. For even if a truly decent and genuine leader were put in charge, that level of centralization of state power allows for the most ruthless to simply kill them and take their place as absolute dictator.
This top down form of state control was advocated by Edward Bellamy who, though he did not consider himself to be a socialist, nevertheless excited socialist followers who saw the potential for anti-democratic state control to bring about their desired economic system. “In Bellamy’s collectivist theory,” writes Arthur Lipow, “while the state owns the means of production and exchange, and exercises complete authority over its citizens, the people do not in turn ‘own’ the state.” Here we see at once both the appeal and chief objection to authoritarian collectivism: it provides a short-cut to socialism in bypassing the protests of others and simply enforces an economic order where a select few can ensure those pesky capitalists aren’t exploiting workers. To all capitalists—and to many socialists as well!—this cure appears worse than the disease.
“In Bellamy’s utopian view, human nature itself had to be altered first in order for political and social changes to take place,” Lipow continues, “Whether at the level of biology or of character, an external force had to be brought to bear upon the recalcitrant human material.” Lipow instead offers the democratic alternative view of socialism, which does not call for collectivist totalitarianism but an ownership of the people. “The sine qua non of socialism is political democracy combined with public ownership of the means of production, under the most extensive possible system of democratic workers’ control, including trade unions free of state intervention.”
Democratic Socialism: Socialism with a Smiley Face
Unlike the top down approach of the authoritarian collectivist, democratic socialists argue for a bottom up change to the economic system. This change should come about via democratic means. That is, it should not be forced on a hapless population but brought about by popular demand. Before we move on, it should at once be acknowledged that this is the far more humane and—dare I say—moral approach of the two broad alternatives. If the conservative finds fault with socialism on the grounds it does not provide for the liberty allowed under a capitalist system, would socialism be justifiable providing the people chose it for themselves?
But we can’t answer such a question without first understanding precisely what it is the people are choosing. For the choice to limit choice—to take away the ability of both yourself and others to freely trade or own property, to say nothing of the ability of future generations to do so—is hardly freedom.
If the democratic socialist isn’t advocating state-ownership but public-ownership over the means of production, what exactly does that mean? If we take, as an example, a factory that makes products for common consumption, what does public-ownership suggest? Does it mean no individual or group of partners can own the factory? If not them, and if not the state, what does it mean for the workers to own the factory? Does it mean they make management decisions equally, or that they only have a say in certain key decisions? And, if so, who decides what decisions are key?
And would this mean that the owner of said factory would need to voluntarily give up their property because a certain percentage of the population voted for socialism? What if they did not choose socialism themselves? Does the state then seize their property and give it to the workers? Do the workers take it upon themselves to force the owner out? Does the state pay the original owner the fair market value of the property they have seized? And would they then be legally prohibited from using that money to own and operate another factory?
What if the owner of the factory just happened to be the only person in the country with the skills and knowledge to make the products the factory sold, or if they were the only person at the factory who had developed the personal connections needed to move the product? If they were no longer the owner, what incentive would they have to continue sharing this knowledge with the other workers?
And what about those workers? Could they freely choose to not participate in a workers’ cooperative or trade union? What if they hadn’t chosen socialism and preferred the way things were under the previous owner and strongly felt that key decisions and responsibilities were not being spread in a manner that was beneficial or even just? Who could they appeal to? If they could appeal to the state, exactly how much authority should the state have in restructuring the ownership and responsibilities of the workers at the factory without jeopardizing “democracy”?
What if the factory needs a cash infusion for necessary retooling or upgrades? Are the workers responsible for raising those funds? What if the workers don’t—or can’t—contribute equally to cash infusions? Does that lead to some workers gaining more control over the factory than others? If so, what’s to stop them from eventually becoming the new “capitalists”? If not, what incentive would they have to contribute more than anyone else? For that matter, wouldn’t we run into the same problem if we looked outside of the factory for financing?
And what prevents socialist reforms imposed democratically from scaling back to capitalism? It’s not as if those who advocate capitalism, or those who hold significant assets in the free market, are going to just sit on their hands as the means of production are given to their employees. Does the democratic approach to socialism mean that we would allow the people to vote against socialist reforms if popular sentiment turned against socialism? Would this represent the true voice of the people or should we just assume the people were being misled by their dastardly capitalist overlords? In other words, should we allow democracy to work to vote socialism in, but prevent it from voting socialism out?
I don’t mean to suggest, in asking these questions, that democratic socialists do not have answers. What I am suggesting is that their answers would undoubtedly differ. Some socialists may claim to hold the most benign views on democracy, allowing the people free choice to participate in workers’ cooperatives or to revert back to capitalistic models at will. But it doesn’t follow all—or most—who claim democratic socialism are equally magnanimous. Nor should it just be assumed that democratic socialists won’t appeal to state control where they perceive market forces are not acting for the true benefit of the people.
If socialism is intended, as it usually is, to cover the economy as a whole, sooner or later some coercion via the state or union or some collective will be necessary to deal with those unwilling to play by the new rules. If by socialism we mean the means of production and trade should be owned or regulated by the community as a whole, we must settle what is to be done with those who refuse to join the community.
Now, there is a form of socialism that is compatible with capitalism and—so far as I’m aware—unobjectionable to most conservatives. This form of socialism was practiced by the early Christian church in the 1st century. The Book of Acts tells of a community of believers who held all things in common:
“And all that believed were together, and had all things common; and sold their possessions and goods, and parted them to all men, as every man had need. And they, continuing daily with one accord in the temple, and breaking bread from house to house, did eat their meat with gladness and singleness of heart, praising God, and having favor with all the people. And the Lord added to the church daily such as should be saved…And the multitude of them that believed were of one heart and of one soul: neither said any of them that ought of the things which he possessed was his own; but they had all things common. And with great power gave the apostles witness of the resurrection of the Lord Jesus: and great grace was upon them all. Neither was there any among them that lacked: for as many as were possessors of lands or houses sold them, and brought the prices of the things that were sold, and laid them down at the apostles' feet: and distribution was made unto every man according as he had need.”
I’m going to sidestep the interesting yet digressive debate on whether this text means Christians should hold their belongings in common. What’s more relevant to our discussion here is that this form of socialism is compatible with liberty. Those who participated in this system were first members of the same community of believers who then voluntarily sold their possessions (that is, their private property) and freely gave it to the leaders of this community to disburse to meet the needs of everyone. These were not socialists who happened to be Christians, but a close community of Christians who practiced socialism.
This form of socialism is what Irving Kristol referred to as “utopian socialism”—to be distinguished from “scientific socialism” advocated today. As Kristol explains, “being community-oriented rather than individual-oriented, utopian socialism saw no merit in the constant excitation of individual appetites, which would inevitably place sever strains on the bonds of community…Scientific socialism, in contrast, denounced capitalism for failing to produce the society of abundance made possible by modern technology, and mocked at utopian socialism for wishing to curb ‘needs’ rather than satisfying them copiously.”
The problem with utopian socialism—as evidenced by history—is that it’s incredibly short-lived and appears to only be possible among a very small and extremely tight community. The simple act of a husband buying a gift for his wife would undermine the system. Those Christians in the early church in Jerusalem had devotees on religious sojourns far from home. In order to join the community, many had to leave behind their friends, family, possessions, and livelihoods back home. The socialism practiced among the believers may have been as much an effort to support the new members within the community who temporarily had no way of supporting themselves as much as it was an act of incredible generosity.
This is hardly what socialists today appear to have in mind when they speak of the evils of capitalism, the need for equality, the history of class struggle, exploitation of the workers, or—above all—the promise of material prosperity. Socialists today speak of an economic system to rival and replace capitalism, not a small sub-set of the population that’s content to dwell within the system.
Before we leave off, I’d like to briefly touch on socialism’s most famous advocate: Karl Marx. While it’s difficult to even conceive of socialism as we know it today without understanding Marxism, the focus of this series is on socialism and not Marxism. The two are related, but not identical. All Marxists are socialists, but not all socialists are Marxists in the same sense all Baptists are Christians but not all Christians are Baptists.
Marx advocated Communism, and while Marxism and Communism are not exactly identical, they’re a heck of a lot closer than Marxism and socialism so I’ll just be using them interchangeably for this series. Marxism goes well beyond believing that socialism is a pretty good idea that’s worth a shot. Marx prophesied that it was inevitable and that history was destined to lead to the rise of the proletariat (the working class) as they revolted against capitalism. This was because history—according to Marx—is governed by immutable “scientific” laws that will eventually take us to a global, classless society.
Marxism added a powerful, purpose-driven—dare I say, religious—inducement for a socialist system. In fact, much of the success of Marxism is that it instills a sense of meaning in the life of the socialist that stretch far beyond economics and reach into politics, morality, history, law, and form a powerfully cohesive worldview.
There are socialists in both the authoritarian collectivist and democratic socialist camps who claim they are the true disciples of Marx. While it is easy to find examples from the authoritarian collectivist camp—Lenin, Stalin, Mao, Castro—Some democratic socialists pride themselves on their allegiance to Marx’s original ideas. Take, as an example, Arthur Lipow, the democratic socialists we heard from above: “Only in a mass struggle from below is it possible to form a truly democratic social order. This conception of socialism is at the heart of Marx’s idea of revolutionary socialism.”
One of the challenges in untangling socialism is it can be difficult to determine how far the socialist is aiming or willing to go. Are democratic socialists simply advocating we put both capitalism and socialism to a vote within the nation, or do they truly believe in the eventual global, classless society advocated by Marx. Do we get off this train once everyone has universal healthcare, or are we waiting for the abolition of all inequalities and varieties enjoyed in a capitalist society?
Even in its most benign form, conservatives do not ascribe to the economic model of socialism. Not only do they not agree with where socialism is going, they disagree with the underlying assumptions it is built upon. That is, the socialist’s understanding of economics. And that is where we’ll pick things up in Part 3.