Socialism, Capitalism, and a Plutocracy

What is socialism? This is an important question since it is a buzz word used by some critics of the new administration. By definition, socialism is an economic/political theory advocating collective or governmental ownership and administration of the means of production and distribution of goods. In its extreme, it includes a system of society or groups living in which there is no private property.

Karl Marx viewed socialism as a transitional system which would occur as the world moved from capitalism to communism. We all should be confident that Karl Marx and communism have been clearly discredited as a viable economic/political system.

On the other hand, capitalism is an economic system characterized by private and corporate ownership of capital goods, by investments that are determined by private decision rather than state control, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

Every adult in this country should have read or take the time to read the Scottish scholar Adam Smith’s book, The Wealth of Nations, written in 1776. It is credited with being the founding work of modern economics and describes the capitalistic system. But most importantly, it is the system that comes closest to describing our present, much revered economic system. One thing that is clear is that it is well written and has much to say that is applicable to our economic system today. But, it is also clear that what we have today is much different than what Smith intended, which is not surprising since it was written 233 years ago in a much different economic climate. It shares the same position as the Declaration of Independence and U.S. Constitution in this regard.

The fact of the matter is that none of these systems are working the way their founders envisioned them to. All advanced countries in the world use a mixture of capitalism and socialism with a few having remnants of communism. The most accurate description of what exists out there is a “mixed economy”. What that mix is, varies with each country and is in a constant state of flux. Capitalism, being so strongly ingrained in our minds and culture, will undoubtedly maintain a favored position in our mix despite the rhetoric to the contrary. We will resist, sometimes to our detriment but often to our credit, attempts to abandon it.

We began moving away from “pure capitalism” in the late 1900’s as we moved from an agrarian/small business economy to an industrial one. The 20th century saw even further movement towards a “mixed economic system.” And, it happened because we had wise Republican and Democrats in Washington who recognized that our biggest risk is that we were on a tract to a plutocracy – government by the wealthy and/or a controlling class of the wealthy. Republican Theodore Roosevelt, the “Great Trust Buster”, was one of the first to step up to begin limiting the huge corporate conglomerates that were abusive and unfair in dealings with their customers, workers, and society in general by vertically consolidating their power which eliminated competition. Then, throughout the 20th century we gradually and reluctantly added other protections from the potentially abusive capitalistic system. A progressive income tax was established, labor unions were recognized and legalized, regulations from SEC, Federal Reserve, and Treasury Department were instituted, environmental regulations came on board, the entitlement programs like Social Security and Medicare were put in place, etc.

Rest assured that all of these government programs became law only after years and years of strife and struggle. They came about only when it became overwhelmingly obvious that a totally “free market system” failed to provide and in fact denied a fair and equitable system for the majority of the people.

That we have been able to somewhat forestall the drift to a plutocracy is amazing to me. In fact, these regulatory actions, laws, rules limiting the consolidation of wealth and power in fewer and fewer hands has preserved capitalism. If we are going to remain a free people, if we are going to have a healthy middle class, if we are going to have a “level playing field” for entrepreneurs to pursue their dream of starting up a small business and working to make it grow, if we are going to have a society where people through hard work can earn a decent living to provide for their families, then we are going to have to insist that the government become involved in helping to create that environment. A totally “free market economy”, despite what many people of wealth and advantage would like us to believe, will not do it. The last eight years of greed and unchecked self interest should have taught us that.

Our imperfect government has worked quite well in the past. It has saved us from excesses of capitalism, socialism, fascism, communism, and a plutocracy while we became the strongest and wealthiest nation in the world. Our government is a republic, and against all odds, still listens to the wishes of the people eventually. It has provided an economic and political environment where the people still have the rights and freedoms to do their own thing within reason. We are at risk again with this huge economic crisis and the other laundry list of problems. I liked President Obama’s line in his sober, let’s get to work inaugural address when he said, “The question we ask today is not whether our government is too big or too small, but whether it works ….” That our imperfect government has constantly adjusted to deal differently with each new generation’s problems is one of the reasons we have been so resilient and it is challenged to do it all over again. As a people, we need to be patient, alert, knowledgeable, involved, and insist that our elected representatives do their job courageously and wisely. Since we are breaking new ground, both of us need to be persistent while being flexible enough to pursue a multitude of changing solutions without abandoning our roots. It should be a great debate hopefully devoid as much as possible from partisanship and demagoguery.