Socialism and Capitalism Are Both Irrelevant

Republicans have been clear about their enemy in the 2020 Election. Donald Trump promised in his State of the Union Address that “America will never be a socialist country.” He might also have also promised to eliminate rotary dial phones and the telegraph for all it matters. A leader and a party committed to taking America back to a mythical past just love their favorite ghost.

When you hear someone describe a present-day political stance as socialist or capitalist, it’s a reliable tell that they don’t know what either means. Both of these 19th century ideologies failed comprehensively in the 20th. Successful governments all over the world learned valuable lessons from both failures, incorporating elements from each that work for their circumstances while discarding the detritus.

Socialism, at least since Marx, has referred to a political and economic system in which the “means of production,” or “capital” is publicly owned for the benefit of everyone. By contrast, capitalism leaves the means of production in private hands. At the root of both systems is a disagreement over how value should be assigned in an economy. In capitalism, value is set in individualized market transactions. Everything is worth what someone will pay for it in a single, person-to-person transaction. In socialism, value is set through centralized mechanisms designed to incorporate wider social goals. Socialism replaces free markets with either price controls or with tools like vouchers, limited markets or other manipulations.

Capitalism was a bold challenge to Europe’s lingering attachment to feudal aristocracy and mercantilist superstition. Capitalism was progressive until it wasn’t. Socialism was a challenge to capitalism, seeking to restore some of the human, communal values capitalism had stripped away in its attack on older institutions. Socialism was progressive until it wasn’t.

Capitalists criticize socialism for concentrating too much economic and therefore political control in the hands of small cadre of bureaucrats. In the end, under socialism everyone owes their survival to insulated apparatchiks who become fat, clueless and corrupt. Socialists criticize capitalism for concentrating too much economic and therefore political control in the hands of a small cadre of capital owners. In the end, under capitalism everyone owes their survival to insulated wealthy families who become fat, clueless and corrupt. Both criticisms are valid. Both led to the collapse of each system in the real world. They are both gone.

Any American can recite the failures of the great 20th century socialist experiments. What they seldom understand is that capitalism collapsed much earlier. Its remnants were salvaged by a clever reconfiguration of concepts borrowed from socialism.

Capitalism, turned loose, quickly eats itself. This vulnerability was described by capitalism’s founding thinker, Adam Smith. Absent constraints from outside the marketplace, capitalism eventually concentrates monopoly power in too few hands. Those few hands can then strangle the market, reversing the dynamics of broad enrichment those markets originally set in motion. But that’s not the worst of it.

Capitalism, as a philosophy, assigns value to products and labor only on the basis of the price they receive in the market. Anything valuable, like parenthood, loyalty or even honesty, that fails to attract a premium in free market transactions is devalued, developing into a liability and eventually disappearing.

Likewise, concern for any negative impacts outside a transaction, like pollution, corruption, worker exploitation, or even theft, is not assigned any value in the market. Capitalism, being premised on prices struck in individual market transactions, fails entirely to provide anything of common social value. Infrastructure like roads, rail networks, ports or even crucial elements like education or healthcare systems, simply do not come into being absent intervention from outside the market.

In time, unregulated capitalism produces a broad selection of toothpaste at attractive prices for a population of people with no teeth. It produces a fabulous store of books for people who can’t read, because they have no schools. And eventually, the inevitable concentration of wealth shrinks the pool of consumers with money to spend until even the wealthy see their assets diminish. 

After a brief, failed effort to contain the power of wealthy families under the first Roosevelt, those families drove the US to bankruptcy a few decades later. In 1929, our capitalist economic system collapsed nearly taking our democracy with it. The second Roosevelt seized the opportunity presented by the emergency to dismantle much of American capitalism.

He created a real Securities and Exchange Commission to curtail stock market fraud. He took a page from the socialist playbook to create direct-assistance programs for workers, including our first national pension system. Roosevelt placed real power in the hands of the Federal Reserve to keep some degree of public interest in the nation’s banking system. He set up a system by which the government could seize control of abusive banks before they took down the entire financial system. Through a very aggressive and complex system of interventions, Roosevelt managed to preserve functioning markets and private control of capital. Through a fairly severe tax regimen with top rates near 80%, he curtailed the concentration of wealth and began to create a stable middle class.

Roosevelt gave America a socialist-style central bureaucracy with a proto-welfare state while leaving capital in private hands, a hybrid system later repeated across Europe and the Far East after World War II. It was neither capitalist nor socialist and it worked extremely well for its time.

Under Roosevelt’s reforms and an aggressive anti-communist campaign, socialism quickly died out in the US. By the sixties, Western European leftist parties had abandoned socialism in all but name. Chinese Communists abandoned socialism in the 80’s. The Soviet bloc collapsed a few years later. Today, North Korea and Cuba are still ruled by a Kleptocratic aristocracy who call themselves communists, but socialism is gone. Capitalism is also dead, but Republicans won’t bury the corpse.

A few Democrats like to use the term “Democratic Socialist” to describe their agenda, but there are no socialists in positions of influence anywhere in American or European politics. No one is planning to seize control of the means of production, nationalize our oil fields, or make factory workers government employees. No one wants you to wear a gray jumpsuit. There are no socialists.

Similarly, there are political figures on the right who claim to love capitalism, but they don’t. They’re mostly fantasists, but they have a powerful following among aging white people worried that any form of government action in the economy will redistribute their wealth to the vengeful negroes who haunt their nightmares. Our Republican “capitalists” want a system of government that preserves socialism for white people while leaving everyone else to the mercy of markets. The MAGA contingent wants to clamp down on free trade, protect socialism for their aging voters dependent on Medicaid and Social Security, and maintain steep government interventions to prop up the fading market value of “traditional values,” religion, and discredited political ideologies. Today’s greatest defenders of “capitalism” are icons of inherited mediocrity whose wealth would be swept away by ten minutes of exposure to a free market.

Both ideologies taught us some helpful lessons. Life is happier and more secure when shared social values are protected from the rapine machinery of the marketplace. Markets work extremely well when their scope is limited and their potential abuses are contained. In fact, nothing sets a more honest price than a market, though it may not be a fair one. Concentrations of power are dangerous, whether that power is concentrated among government bureaucrats or wealthy capital owners. And most of all, we learned that ideology should never be taken seriously, treated as a religious substitute for reason.

The move toward industrialization that inspired both capitalism and socialism lies in our past. An economic phenomenon that invented the concept of jobs, the nuclear family, surplus, and progress has been replaced. An economy is emerging in which wealth rises from data and innovation rather than labor and natural resources. Concepts of class struggle, wealth creation, labor and capital defined by industrialization don’t make sense anymore, they no longer help us understand events unfolding around us. Capitalism and socialism are both irrelevant.

Governments that work best are the ones that make smart decisions for their time, with an eye toward the future and the interests of the governed at heart. Smart leaders produce good outcomes. Dumb, greedy, corrupt leaders wreak havoc, regardless of the color of their banners or the tune of their anthem. Booming Bolivia and seething Venezuela are both governed by leaders pretending to be socialist. Stable, healthy Singapore and a United States on the brink of chaos are both governed by leaders pretending to be capitalists.

There are no universally relevant ideologies. What works day might fail tomorrow. Leaders who cling to ideologies are usually hiding something dark and dangerous. They should be shunned.

16 Comments

  1. An excellent read, Chris.

    I find myself reading it immediately after pondering the inanity of a lawmaker in Missouri proposing the government mandate that all citizens buy guns. And how else to incentivize this industry handout that, statistically, would make my family less safe? Subsidize it with taxpayer dollars, of course!

    https://politicalwire.com/2019/03/16/gop-lawmaker-wants-to-mandate-gun-purchases/

    Our in-group affiliation demands we categorize this and other such hand-waving into either socialism or capitalism (because there can be only one!), so that we can know if we’re for or against it but… which is it? 😉

  2. I have long thought that a common flaw in both capitalism and communism is that they both got greed wrong, albeit in different ways. The notion that greed would just go away is dangerously naïve. Humans are competitive by nature; we had to be to survive against creatures that were bigger, stronger, faster. We’ll compete against each other in the absence of external pressure. But we also had to cooperate, and the whole “greed is good” mantra discounts that. I liken greed to plutonium in a nuclear power plant- there’s lots of productive energy to harness, but if you don’t have proper shielding, it is dangerously toxic (2 cents from a non-economist and non-nuclear engineer).

  3. Thank you for this. I often think of posting similar arguments in these comment sections because I’ve long held that identifying yourself with an -ism, any -ism, is a sucker’s game. The problem is that there are too many pretentious teenage white boys who start off with that argument and then play off South Park libertarianism because they don’t get that their ability to ‘think for themselves’ is largely granted to them for two reasons, one being that they’re coddled by a society willing to grant them anything they want provided some amount of effort and luck (what the progressives these days call ‘privilege’) and two, because they’ll never have a truly dangerous or revolutionary idea anywhere in their naval-gazing little skulls.

    The reason why identifying with an -ism is a sucker’s game (and I mean identifying — as opposed to at least knowing and using the terms as descriptions of ranges of values and beliefs if not outright policy and polities) is that you’re essentially giving away your own personal values to a decentered and largely arbitrary group-think. Sign up to be a Republican in the days of Reagan, you’re supporting something that neither represents the Republicans of the days of Nixon nor is represented again in the rest of history of United States. Sign up to be a pro-market reformist moving on a message of hope, and thirty years later be represented by a fat slob trying to hold onto enough power to prevent himself from going to jail. This does not sound to me like a strong way of declaring your own values and standing up for what you believe in.

    Or declaring yourself a ‘capitalist’. What the fuck does that even mean? Are you free trade, because that’s not the same thing as free markets. Neither of those are the same thing as supply side economics. None of those things are the same as being an investor, or a businessman, or an entrepreneur, or even someone with a high ownership of capital (like, ahem, a trust fund baby). All of these ideas are merely transactional with each other underneath a general umbrella best defined as ‘capitalism’ for matters of taxonomy. BEING a capitalist is completely fucking stupid. Most ‘capitalists’ I know are boring men who work for someone else and vote Republican reflexively. They don’t own or move any amount of capital, they are only labor capital.

    When I was a teenager, I would have argued further that basically the parties shouldn’t exist at all — that parties should be banned entirely. If a Democrat from 1920 is a completely different person in basically every possible way from a Democrat in 2020, why should a ‘Democratic party’ exist that claims to represent any structured value system that people can fully know? In fact it would seem that the ‘values’ of a party are largely advertising, and don’t even really reflect the values behind the preferred policies.

    However, if there weren’t any parties, the only way to build an infrastructure strong enough to run for office would be to have immense wealth. It’s useful to have an organization through which to train and rise and eventually share the infrastructure to run on your own big ideas. So I concede that having parties is necessary.

    I just don’t think voters should be allowed to register with them. All primaries should be fully open, and voters could vote in as many primaries as there are parties running.

    Nobody is a Democrat or a Republican. If you think you’re either, you’re a sucker. You are being conned. Go ahead and register if you want to get into a primary, but don’t think for a moment the party owes you any policies or shares any values with you. No party ever will, because it’s impossible for a pluralistic organization to perfectly serve the interests of any single person. Obviously.

    And yet there you go. People voting for literally the worst type of person ever to give any amount of power at all, just because he joined the Republican umbrella organization. We laugh at people who send money to help the Nigerian prince but at least those people don’t believe they’re Nigerians.

    Capitalism and socialism don’t exist. They’re intellectual arguments for forms of wealth distribution that vary state to state, region to region, culture to culture. There’s no fucking reason to be a capitalist or a socialist. It not only doesn’t do you any good to give your opinions over to something not real, it advertises that you’re a sucker to anybody who wants to target you.

    And that’s why this identitarian style politics is pretty scary to me. Not just that nice kindly old gentlefolk who complain about violence in video games will turn around to vote for gaping shithole who drips stool on everything he touches, but because the opposition is ready and eager to do the same in the name of whatever stupid fucking -ism they only think they are.

  4. As much as I love Elizabeth Warren, this article is exactly why I was somewhat disturbed by her recent statements that she “wasn’t a socialist” and believed in regulated capitalism. The implication there that the profit motive could address all of society’s needs is beyond naive. The very idea of government, which Warren is trying to become the head of, is a rebuke to that idea.

    I hope I’m oversimplifying her position…

    1. Let’s make something very clear – markets are an extremely effective tool for both pricing and prediction. Don’t imagine for a moment that we can build a functioning modern civilization without learning how to leverage the profit motive in a market.

      There are problems with markets, but most of those problems rise from people trying to use them for things they won’t do. Most of the rest of the problems come from imagining that values set in markets = “values” in an abstract sense.

      Markets are like a game. You can set them up to incentivize or punish behaviors. Markets, for example, are the reason we no longer hear about the ozone hole. Markets are the reason Bill O’Reilly, Glenn Beck and Milo Y aren’t on TV. Markets explain why the French and German healthcare systems outperform the UK and Canada by such wide margins. It’s a mistake to treat a market as an end in itself, but as a tool for steering collective behavior they are absolutely amazing.

      Here in the US we have come to treat markets like a religion. Those who make a lot of money, even from scams (Trump) or just blind luck (like Mark Cuban), are icons of public respect. We operate under the mistaken belief that market values = values. It’s never great, and at times it’s positively revolting, and it needs to die.

      Americans don’t need to destroy capitalism. They need to demote it. Capitalism should diminish into a tool for setting prices and moving assets around. It should be stripped of its power to assign social values.

      However, if we kill markets in the process we will have dented something extremely valuable.

  5. Very good column and close to my own viewpoint, but better expressed.

    As in past economic evolutions (or revolutions, if you prefer), the current data and innovation period will create immense wealth for some and leave many behind. The question for government is how to manage this period so that the many will benefit without being cast aside? You mention that issue in your next to last paragraph, but it needs far more attention.

    The solutions promulgated under the mixed economic system developed under the New Deal and subsequently adopted by most of the governments of industrialized nations of the world, may not be fully applicable to the new economic era. Nevertheless, they did work and would provide a good foundation to build a system for this era.

    The U.S. largely cast aside the mixed economy of developed during 4-5 decade period from 1930 to 1980, in favor of largely reverting to a pure laissez-faire capitalist system. That has led to extremely large wealth inequality. Some of that is inevitable as Piketty pointed out in Capital. But, it is also due to the evolution in the economic systems. That inequity must be tamed through government intervention as pointed out by many writers, Piketty included.

    Devising these methods is one of the many challenges of our time. So as you write:

    “Governments that work best are the ones that make smart decisions for their time, with an eye toward the future and the interests of the governed at heart. Smart leaders produce good outcomes. Dumb, greedy, corrupt leaders wreak havoc, regardless of the color of their banners or the tune of their anthem.”

    The U.S. is on the verge of following, the path chosen by “Dumb, greedy, corrupt leaders”. We need leaders, who are willing to try different approaches and willing to admit failure, and then to try something else, as FDR was.

  6. I know that there is more wealth, in relative terms, than ever before.

    But, has there ever been a time when wealth was so unequally distributed?
    This is not a rhetorical question. I am no historian.

    So I ask others the question.

    The Gilded Age of the robber barons, and Rockefeller?
    The times of the medieval kings and queens?
    The time of the Pharaohs and Roman emperors?

    Was wealth distribution as skewed in any of these eras as much as today?

    1. Yes. In fact, there have been few eras of human history since the agricultural revolution when wealth has been so evenly distributed as now. About 30 extended families owned Europe from the Roman Era right up the Renaissance.

      Capitalism has its own problems with concentration of wealth and monopoly, but it was a huge improvement on what came before it. Properly curbed and managed, as it has been in the Far East and Europe since World War II, it produces broad wealth.

      1. Chris, to put this wealth inequity in perspective, I will cherry pick the most ridiculous case. Bezos is worth far clear of 100 billion. Let’s just call it 100 billion. Pretend he put that into stocks that create 4% dividend, and he went on permanent vacation. At a 25% tax rate, which there is zero chance he would be paying at, that means 300 million a year in after tax dollars income.

        Or about 8 million/day. Every day. He would have to spend 8 million every day for the rest of his life, just to not let the money pile up, and there would still be the principle left.

        Richard Pryor did a movie where he had 30 days to spend 30 million. He barely did it, going to ridiculous lengths. Bezos could do so much good for the planet, instead of doing so much damage. Amazon is a monster, consuming small businesses all over the planet.

        I am all for TAKING that money. I am all for TAKING massive chunks of wealth from the rich.

  7. “You can have an extreme concentration of wealth or you can have democracy. You can’t have both.” (Louis Brandeis)

    “You can have an extreme concentration of wealth or you can have a good economy. You can’t have both.” (moslerfan)

    “Show me a highly unequal society and I will show you a police state. Or an uprising. There are no counterexamples.” (Nick Hanauer)

    “In time, unregulated capitalism produces a broad selection of toothpaste at attractive prices for a population of people with no teeth.” (Chris Ladd)

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