After decades of being a verboten ideology, socialism is now being heralded as a solution to the problems of America. Many in the mass media, politicians both old and new, and droves of well known social media personalities have all been vocally in favor of the United States adopting some form of socialism.
For many in America, capitalism just simply doesn’t seem to be working
Capitalism is now under attack by proponents of democratic socialism, the ideological darling which is now popular due primarily to the plight of many millennials and younger people.
I hated red until I found out it was blue
Many young people in America today have grown up with a distaste for an economic system that they view as unforgiving and all-consuming. This perception has been compounded by rapidly increasing wealth inequality, crushing student loans, and dramatic increases in the cost of living.
They are mistaken however if they think that the problem is capitalism
All of the concerns by supporters of socialism are indeed valid. Millions of working Americans continue to struggle to pay for basic and routine expenses, with one in five not able to save any of their annual income. As a result of mounting economic concerns, many young people are now choosing to stay single and childless, while the majority of people under the age of 25 now live with their parents.
Those who have experienced a significant decrease in their economic mobility and social mobility aren’t wrong that something is definitely wrong with America’s economic system. They are mistaken however if they think that the problem is capitalism.
Both ideologies are pointing to the other as the cause of social problems, and both are mistaken
The U.S. economic system subscribes to free-market capitalism in that it primarily leaves the means of production in the hands of private ownership, however, the American government enacts many subsidies that change supply and demand, and it also runs a number of publicly owned corporations.
Pure capitalist systems do not control the markets as much as the American government does, and therefore America is not a pure capitalist economy.
Despite popular perception, there is no known historical or modern economy that is either pure socialism or pure capitalism, and all of the existing economic systems in the world currently under democratic governments fall somewhere along the mixed continuum.
A mixed economy is defined as an economic system that blends elements of market economies with elements of planned economies. In most instances, this is a cross between capitalism and socialism, which is actually what the American economic model is today.
One big misunderstanding
Capitalism functions within a market-driven economy where the state does not intervene, thus leaving it up to market forces to shape society and life. In a pure capitalist economy, property and businesses are owned and controlled by individuals, and the production levels and prices of goods and services are determined by how much they are demanded, and how difficult they are to produce.
Socialism is characterized primarily by public ownership of businesses and services, and therefore central economic planning is required in order to make society more equitable. In a socialist economy, the state owns and controls the major means of production, and worker cooperatives tend to have primacy.
American-style capitalism as it is today was actually born from the welfare state
While almost no one is suggesting that America continue with the existing form of American-style capitalism, the two dominant schools of thought that currently have the stage as viable replacements, are democratic socialism and democratic capitalism.
Both ideologies are pointing to the other as the cause of social problems, and both are mistaken.
Behind the support and rejection of both democratic socialism and democratic capitalism is the assumption that these systems actually exist, when in reality, they don’t.
There has never in history been a widely adopted economic system that has allowed for capital goods to be either left entirely to private ownership or entirely controlled by the government.
While some instances of autocratic economies have certainly existed, they have only existed under autocratic governments, making them irrelevant for the debate between democratic socialism and democratic capitalism.
Means to an end of production
Capital goods are what allow for other things to be made, and are always tangible assets such as buildings, machinery, vehicles and other tools that are used in the production of final goods or services for the end consumer.
Examples of capital goods manufacturers are producers of automobiles, aircraft, and industrial machinery because they all produce products that are used by other firms for creating consumer goods and services.
Democratic socialism advocates for a political democracy alongside the public ownership of capital goods, and there is an emphasis on some form of a decentralized planned economy.
Democratic socialism should not be confused with social democracy, as social democrats are generally opposed to ending capitalism, and are instead supportive of progressive reforms to capitalism.
The only difference between democratic socialism and socialism is that democratic socialism requires a government that is a liberal democracy, as where with other forms of socialism it may be desirable to have an autocracy.
Democratic capitalism combines a liberal democratic political system with a capitalist economic system, therefore it enables a capitalist economy that is subject to control by a political system that is supported by the majority.
Democratic capitalism puts capital goods into the hands of private ownership, however, it stands in contrast to the corporatist elements of American-capitalism by limiting the influence of special interest groups and lobbyists.
A free market does not mean capitalism
Both systems utilize a market-based approach to determine the price and production of goods and services, however, the key difference is that capitalism is focused on the creation of wealth and ownership, whereas a free market system is focused on the exchange of wealth, goods and services.
A free market system allows for entirely free competition in the economy, without any intervention from outside forces, while capitalism requires private ownership and some limited government regulation.
American-style capitalism as it is today was actually born from the welfare state period of World War II, which created a political atmosphere that enabled the widespread support for the concept of capitalism, however not the actual practice thereof. Modern American Libertarians are supporters of a free-market system absent of capitalism, thus removing most or all forms of government intervention in the markets.
Lenin at the shopping mall
In a true democratic socialist economic system, consumer goods such as clothing, food, perfume, and jewelry remain in the private sector, while capital goods and basic raw materials are owned, at least in part, by public interest.
Vladimir Lenin, a socialist, believed that capitalism bred inequality and uneven economic and political development. Lenin further believed that the path to solving the problem of capitalism was through strong government intervention, which is known as the dictatorship of the proletariat.
Despite his strong stance to government control over nationalizing capital goods, Lenin did believe in allowing some free market activity within local communities. While popularly known as a communist, Lenin was, in fact, a democratic socialist, and he believed in a form of purified democracy that was absent those who would exploit others.
U.S. Representative Alexandria Ocasio-Cortez, a modern self-proclaimed democratic socialist, does have similar leanings to Lenin, however, Ocasio-Cortez believes in a more welfare focused system. In other words, Ocasio-Cortez does not believe that America should be a society where people without jobs are left to die.
Senator Bernie Sanders, also a self-described democratic socialist, in practice is actually a social democrat. Sanders does not call for the social ownership of the means of production, and therefore he is not a true democratic socialist.
Proposals from these politicians include programs such as universal basic income (UBI), socialized health care, and free education. While socialized health care is relatively straight forward and normal in the rich world, UBI is slightly more sci-fi in that it aims to enlist machines to produce capital goods, while at the same time guaranteeing workers who are displaced by those machines the ability to live decently.
Short term earnings are a legal and cultural issue
If Lenin were around today, he would likely not support the proposals of AOC and Sanders, and perhaps would consider them an attempt to create an elite intellectual class. Lenin further would not have promoted an economy that was heavily based on consumerism.
Adam Smith on Wall Street
The current American economic model is not true capitalism nor a true free-market. While many popularly refer to the existing American economic model as Ultra Capitalism, it is, in fact, a mixed system.
The existing American model is essentially a combination of mercantilism and finance capitalism that treats a worker like a disposable cost commodity, which is not sustainable since integrity is not divisible. The reason for this is because of the culture of short term earnings, but that has nothing to do with pure capitalism.
Short term earnings are a legal and cultural issue that has to do with how lawmakers define value, and it should not be mistaken as a byproduct of any free-market system.
An example of short term earning culture wreaking havoc is in the rapid expansion of global firms through mergers and acquisitions (M&A). Investors vote for M&A actions because it provides short term earnings via the removal of transaction costs, however, the combining of firms does little to create actual new economic value.
The Adam Smith approach would be to use taxation to limit speculation with borrowed money, remove the tax on dividends for workers, and change the money manager measurement of corporate performance from quarterly earnings to a three year average of sales growth, profits, and cash flow.
In pure socialism, the government decides who lives and who dies
Many proponents of Adam Smith capitalism argue that democratic capitalism is a moral system built on developing each individual to their full potential within an environment of trust and cooperation. Adam Smith believed that economic freedom can run itself and that if the government provided peace, neutral currency, limited borrowed money for speculation, and prevented privileged capitalists from contradicting the public good, that people of the world could be united in common economic purpose.
The American system violates Smith’s original conditions and instead creates a situation with extreme wealth concentration and violent competition between nations.
Many millennial socialists in America believe that inequality has spiraled out of control and that the economy is rigged in favor of vested interests.
These millennial socialists aren’t wrong, and their feelings are quite correct when they say that they feel they have lost control over their lives, and that opportunities have dwindled.
Capitalism has certainly led to occasional economic distress and distortions. While it is not a perfect system, compared with pure socialism, pure capitalism seems to be the lesser of two evils.
In pure socialism, the government decides who lives and who dies, whereas, in capitalism, market forces determine the fate of extraneous people. Under capitalism, it up to the individual to find a societal purpose for themselves, whereas under socialism that task falls to political forces.
Rather than shield firms and jobs from change, the American government could do more to ensure that markets are efficient and that workers, not jobs, are the primary focus of policy.
While democratic socialism has a refreshing desire to challenge the status quo, it still suffers from the same faith in the incorruptibility of collective action, and will likely go the way of socialism in the USSR.
Income redistribution will not be as effective as policies aimed at reducing rent-seeking, improving education, and boosting competition amongst small business.
American-style capitalism has resulted in enormous wealth creation, but it has also led to an extreme concentration of wealth. While capitalism provides an incentive for individuals to be productive, it also has led to excesses that have resulted in extreme economic distortions and downturns, and that is why many are supporting a socialist system in the U.S.
The bottom line
When deciding between a form of capitalism or socialism, it is important to acknowledge that the United States is a highly developed country, with the world’s largest economy by nominal GDP, and accounts for approximately a quarter of all global GDP. America is by far the most prosperous and innovative nation that has ever existed in human history, however, it is also important to remember that the United States economic system has never been a true form of capitalism.
While the current American economy is indeed leaning more towards capitalism, there are many existing elements of socialism in which the government acts to ensure the welfare of Americans. Examples of this are the social security system, unemployment benefits, business subsidies during market disruptions, a government-run healthcare system, and other essential functions managed by the state such as national security, public education, and law enforcement.
The system that created the modern American economy was in fact enabled by government control of capital goods, however what has made America a globally leading political, cultural, and scientific force is the freedom for individuals to pursue their own life purpose.
The American style of modern capitalism as it exists today is certainly diminishing that freedom, however, the democratic capitalism vs. democratic socialism debate in America today is, in essence, arguing about two things that have never truly existed.
The question should, therefore, seek to identify what the problem with the American economic system actually is, and until we actually have an answer to that question, the right course for the future will elude us. Perhaps we should be prepared to face the harsh reality that both ideas are rotten.