The Personal Website of Mark W. Dawson

Socialism and Capitalism Disputations

In a short eBook from the Hoover Institute, “The History of Socialism and Capitalism”, the historian Niall Ferguson points out that the great Austrian-American economist of the first half of the 20th century, Joseph Schumpeter, warned that Socialism might ultimately prevail over Capitalism, for four reasons:

1. Creative disruption is rarely popular.
2. Capitalism itself tends towards oligopoly.
3. Intellectuals are susceptible to Socialism.
4. So are many bureaucrats and politicians.

As Mr. Ferguson points out about Mr. Schumpeter's reasons:

“First, he suggested, capitalism’s greatest strength—its propensity for “Creative Destruction”—is also a source of weakness. Disruption may be the process that clears out the obsolescent and fosters the advent of the new, but precisely for that reason it can never be universally loved. Second, Capitalism itself tends toward oligopoly, not perfect competition. "The more concentrated economic power becomes, the harder it is to legitimize the system, especially in America, where “big business” tends to get confused with “monopoly.” " Third, capitalism “creates, educates and subsidizes a vested interest in social unrest”— namely, intellectuals. Finally, Schumpeter noted, Socialism is politically irresistible to bureaucrats and democratic politicians.”

I would point out that Socialism is politically irresistible to bureaucrats and democratic politicians because it tends to keep them employed and in power. I would also point out that all four of these tendencies are visible in the United States today.

Mr. Ferguson further states that the founders of communism, Karl Marx and Friedrich Engels, prescribed some solutions to the economic problems of their times in their “Communist Manifesto”, but that:

"The prescriptions of the Communist Manifesto were in any case singularly unappealing to the industrial workers they were aimed at. Marx and Engels called for the abolition of private property; the abolition of inheritance; the centralization of credit and communications; the state ownership of all factories and instruments of production; the creation of “industrial armies for agriculture”; the abolition of the distinction between town and country; the abolition of the family; “community of women” (wife- swapping); and the abolition of all nationalities. By contrast, mid-nineteenth-century liberals wanted constitutional government, the freedoms of speech, press, and assembly, wider political representation through electoral reform, free trade, and, where it was lacking, national self-determination (“home rule”).”

He also points out that most Socialism supporters are that “They fail to grasp that the defining feature of socialism is the violation of property rights.” and that “To an extent Schumpeter underestimated, socialism’s greatest weakness is its incompatibility with the rule of law.” It is this violation of property rights and incompatibility with the rule of law that infringes on the "Freedoms, Liberties, Equalities, and Equal Justice for All".

As described in another Hoover Institution short eBook, “Capitalism, Socialism, and Freedom, the author, Peter Berkowitz, an American political scientist, states that:

“The classic distinction between Capitalism and Socialism is straightforward. In Capitalism, private individuals make the major decisions about production, distribution, and consumption, and, under the rule of law, government protects a far-reaching right to private property. In Socialism, the state makes the major decisions about production, distribution, and consumption and retains a direct say about who gets what property and how it is employed. Capitalism is compatible with the state’s provision of a social safety net — that is, the guarantee of a material minimum below which citizens are not allowed to fall — but not with top-down management of economic life, which is the hallmark of Socialism.

Despite the fundamental distinction between the two, misunderstandings of Capitalism and Socialism — and their implications for freedom — abound, and usually in favor of Socialism. Indeed, Socialism is seen as a desirable political and economic arrangement especially among the young.”

Hence, Socialism is a violation of the Natural Rights of the individual. As such, Socialism is incompatible with our "American Ideals and Ideas", and the Constitution of the United States does not allow for Socialism, as examined in another Hoover Institution short eBook, “Socialism And The Constitution” by the American jurist Michael W. McConnell. In his examination, he begins by stating that:

“Justice Oliver Wendell Holmes famously described the US Constitution as “made for people of fundamentally differing views.” (Lochner v. New York dissent) By that, he meant that the Constitution does not commit the nation to any particular ideological or economic theory, including laissez-faire capitalism. Instead it leaves decisions about national policy to the democratic process, subject to the constraints of the Bill of Rights. Within the range of ordinary politics, Holmes was correct: Americans can decide, through their elected representatives, to have high taxes or low, generous welfare payments or a basic social safety net, government owned enterprises or privatization, heavy-handed or light touch regulation. That is the difference between democratic Socialism and a largely free-enterprise economy.”

He then goes on to state:

“But the Constitution is not completely indifferent to the nature of the socioeconomic regime. It does not commit the nation to any one set of policies, but it stands as a barrier to revolutionary absolutism; it rests on a philosophy of individual rights that is most consistent with liberal democracy and private property; and it contains a number of safeguards designed to foster a free and prosperous economy.”

He later informs and warns that:

“Although democratic socialism is not “unconstitutional” if achieved through democratic means, the Constitution has a certain philosophical content, which impresses itself subtly and powerfully on the national ethos. The Constitution was written against a backdrop of natural rights theory, in which the predominant purpose of government was to protect the life, liberty, and property of each person. The Founders understood that government of this sort would not only “secure the blessings of liberty” but also establish the preconditions for long-lasting national prosperity. The Constitution did not bind future generations to any particular ideology, but it did presuppose the importance of individual rights, and it laid the groundwork for the most productive economy the world has ever seen.”

In another short eBook, “Political Freedom and Human Prosperity” from the Hoover Institute, the American political sociologist Larry Diamond examines why political freedom is essential to prosperity and that Socialism, by its very nature, cannot provide this freedom. He begins his argument by stating:

“One of the oldest and most important questions in the comparative study of nations is the impact of different economic and political systems on human prosperity. What is the secret to developmental success? Is it Capitalism or Socialism? Or what degree of market orientation? Democracy or dictatorship? What kind of democracy? And to complete the triangular relationship, what is the relationship between economic system and political system? Does democracy require Capitalism?

I argue here four key points, the first two of which require little elaboration. To begin with, Socialism cannot deliver countries to prosperity. Genuine and sustained developmental progress requires private property and a market economy. Second, Socialism is equally antithetical to democracy, which also requires private property and reasonably free markets to limit the power of the state and protect civil liberties. Third, over the long run, democracy is the best system for delivering human prosperity, and almost all of the world’s most prosperous countries (save those that came upon a windfall of natural resource wealth) are democracies. But fourth, a crucial intervening variable in the relationship between democracy and prosperity is good governance: transparency, the rule of law, and a state regulatory environment that encourages investment and innovation. Singapore has managed to become rich by achieving good governance without democracy. Few (if any) other countries will be able to repeat that formula. For in the absence of open political and ideological competition, governments tend to go bad, abusing both civil rights and property rights.”

Later in this eBook, the author states:

“There are few real laws in the social sciences, but this is one of them: true Socialism—by which I mean a centrally planned economy that largely prohibits private property—is incompatible with democracy. This is true on its face empirically: there has never been a socialist democracy. There have been (mainly in northern Europe) successful “social democracies” with relatively high rates of taxation and redistribution, but these have not been socialist systems, because they are still based on market forces and private ownership of the means of production. As Peter Berger observed, “The welfare state, even in its Scandinavian apotheosis, continues to rest on a capitalist system of production; indeed only the affluence created by the latter makes this welfare state possible.

In the moral or philosophical sense, the right to own and dispose of property is a fundamental individual right. When such a basic right is trampled upon, and the state is so engorged with power as to deny it, it is inevitable that other individual rights will be trampled upon as well. Coercion in the economic realm suffuses the political realm as well, and, as Peter Berkowitz noted in his paper for this project, citing Hayek, it then further seeps into the intellectual realm, constricting freedom of thought and expression.”

The author concludes his eBook by stating that “Political freedom and economic freedom are the symbiotic twin pillars of human prosperity and the indispensable foundations for enduringly successful nations.”

Thus, in utilizing democratic means to reform our American society, we must always be careful to ensure the importance of individual rights and protect the life, liberty, and property of each person. We must always carefully evaluate any socialistic proposal as to its impacts on our Liberties and Freedoms, as well as its impacts on our economy. Otherwise, we run the risk of severely impacting our society to the detriment of all Americans.