X.2: How are Capitalism and Socialism Different?

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How are Capitalism and Socialism Different

A CEO in a television interview once said that government must prevent corporations from becoming too big because capitalism is so efficient.

He said that government must control corporation size because otherwise, we’ll all eventually be working for the same man. Ironically, he implied that unregulated capitalism and socialism end up with the same results – monopoly and tyranny. So how are capitalism and socialism different? In capitalism, the government regulates the economy. And in socialism, the government runs the economy.

Similarly, G. K. Chesterton showed that capitalism and socialism are not as different as we might think:

I am well aware that the word “property” has been defied in our time by the corruption of the great capitalists. One would think, to hear people talk, that the Rothschilds and the Rockefellers were on the side of property. But obviously they are the enemies of property; because they are enemies of their own limitations. They do not want their own land; but other people’s. When they remove their neighbor’s landmark, they also remove their own. (Chesterton 1910, VI.5)

In other words, if government takes both your property and your neighbor’s, but you control the government, then you’ve gained property. That is, you’ve actually taken your neighbor’s property, and still have your own. That’s how socialism works in the real world. It’s a lie that claims to be about the common man. But it’s really about the party that controls both the government and the economy. Also, ironically, exactly the same thing is true of “crony” capitalism, where politicians are in the pockets of the rich.

[P]rogress [leads] towards the complete combination of … State Socialism and … Big Business. (Chesterton 1927, VI.3)

By definition, an oligarchy occurs when the rich control the government.

Also by definition, socialism occurs when all the means of economic production are owned and controlled by the government. Are oligarchy and socialism not the same? Can you think of a single socialist system in history that was not controlled by a small group who controlled their society’s wealth? For example, think of Hitler’s National Socialist Party or the ruling parties of China and the former Soviet Union. In reality, despite all the lies about so-called worker control, socialism and oligarchy are one and the same.

The Soviet Union, by the fact that it no longer exists, shows that central economic planning, or socialism, is a hopeless failure. So supply and demand cannot be managed centrally. Capitalism is the tried and true way to bargain for prices at the point of sale between a self-interested seller and a self-interested buyer. What a wonderful concept – it was first put into a useful theory by Adam Smith. (Smith 1776)

But now let’s get back to our comparison of socialism and unregulated capitalism. That same Adam Smith, who decried government interference in the market, is often misunderstood. In his day, government was the only entity large enough to stifle competition, so it was his only example of monopoly. But to Adam Smith, the enemy of a society’s economy is any form of anti-competitive action. That action could come either from government interference or from a businessman creating a monopoly. (Heilbroner [1953] 1999, 69)

How are capitalism and socialism different? Without competition, capitalism is “rule by the rich”, or oligarchy, and in the end, that’s the same thing as socialism.

This is exactly what that CEO in the television interview above was hinting at. Capitalism is the basis for all prosperity. But this is true only as long as corporation sizes, market shares, business practices, and other related criteria are controlled (by disinterested officials!) to ensure competition. Otherwise, a small group will eventually control the entire economy, and therefore, the government as well.

Conversely, if we established socialism, turning over all industry and commerce to the government, then the rich and powerful people, who already control our government through lobbyists, would control the entire economy as well. So the end result is the same with either of these two scenarios.

Do you think our government’s regulatory system ensures competition as it should? If not, how would you change it?

This site is for discussing how to improve our political system. It is NOT for discussing party politics or political figures. So if you have a non-partisan question or comment, feel free to leave it below.

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Chesterton, G. K. 1910. What’s Wrong with the World? Project Gutenberg EBook version. http://www.gutenberg.org/ebooks/1717 (Accessed Feb. 25, 2016).

Chesterton, G. K. 1927. The Outline of Sanity. G. K. Chesterton. http://www.gkc.org.uk/gkc/books/Sanity.txt (Accessed Oct. 6, 2016).

Heilbroner, Robert L. [1953] 1999. The Worldly Philosophers. Updated Seventh Edition. New York: Simon & Schuster.

Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Project Gutenberg. https://www.gutenberg.org/files/3300/3300-h/3300-h.htm (Accessed July 21, 2020)

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