Capitalism, Socialism, and the Case for Choice-Based Economics

by Dennis Peacocke

The critiques of capitalism go well back into the nineteenth century. At their core, the best of them are much more about an unequal distribution of wealth than any of the self-evident needs to fine tune the exclusively economic properties of the overall system. Even Marx’s early challenge to capitalism related to his concerns about “alienated labor”—the assertion that workers are mere objects of production—which is more about psychological matters than pure economics. Indeed, the failure of capitalism as portended by many did not transpire because the system of capitalism proved to be far more resilient and adaptable to social needs than any of its harshest critics from the political left ever supposed possible. Beyond this, capitalism’s inherent capacities to create massive wealth, vast global middle-classes, and sustainable growth over periods of hundreds of years made it the hands-down victor over its rival economic contenders. Nevertheless, today, in the twenty-first century, socialism has been hurriedly resuscitated as an imaginable challenger to capitalism by the die-hard intellectual elites and the younger generations who tenaciously disregard socialism’s bleak history of unbounded economic failure.

Ideologies, Utopias, and Results-Based Reality

What is perplexing yet lethal about those who doggedly clench to entrenched ideologies or fantasy utopian possibilities is their irrational facility to disdain results-based actualities as being immaterial to the assessment of their convictions. In terms of advocating the adoption of socialism as a comprehensive societal system, their arguments are founded more upon a spirit-driven faith than an intellectual persuasion established upon historical facts or any credible methodology for quantifying results-based reality. On a comparative performance basis, socialism has been an economic debacle everywhere it has been nationally instituted. Where it currently exists in the nations of Cuba and Venezuela, socialism survives exclusively by authoritarian fiat rather than by the objective economic outcomes yielded. Many who must confront unvarnished economic results wonder how the current advocates of socialism can be so cavalier about the myriad failings of socialism that were conclusively documented during the twentieth century. Ultimately, it may be strongly argued that socialism is far more about sociological goals and convictions than hard economic realities, sustainable outcomes, or scientific methods.

It is becoming increasingly evident that the public educational systems and a culture of youth-driven-values are failing to develop proficiently educated and well-rounded populations. Therefore, it is more likely a case of the social systems being deficient than the economic system itself. Without a doubt, the economic system does have consequential fissures in its foundation. Nevertheless, the preeminent issues confronting the globe are more spiritually based and values based than economically based. Properly discerning these truths is essential to any public discussion that purports to address perceived economic misalignments.

On the Nature of Capital and Capitalism

For the purposes of this writing, it is expedient to establish rudimentary definitions of the word “capital,” the system of capitalism, and the system of socialism.

Capital, in essence, consists of currency and/or tangible assets that may be monetized and invested for the objective of multiplied increase. Available capital may be derived through proceeds from properties or existing investments, gifts, inheritances, or partnered agreements whereby the asset is allocated for investment rather than consumption or savings. By the choice of those managing the capital, it is expressly earmarked for the multiplication of future acquired assets, such as, but not limited to, expanded business investments, land, precious metals, production machinery, stocks, bonds, and other business-related acquisitions or sales. Capital investments are the most crucial stimuli of economic growth since they spur the development of new businesses and industries that, in turn, boost job growth and product innovation. Private sector capital investments also satisfy the requirements of both essential and discretionary private consumption while simultaneously generating expanded tax revenues available for public funding through so-called “multiplier effects.” Conversely, government investments (perhaps more accurately termed, government expenditures), if deployed exclusively through government workers, do not create profit as such. Consequently, government spending cannot directly create new capital. If, however, government disbursements are channeled through private contracts, the profits derived thereof become available to directly and indirectly create usable revenues that may be allocated as capital. Whatever the scenario, all capital creation is undergirded by the seminal element of choice. It is choice that permits individuals and organizations to produce investment assets through their self-directed strategic investments of time, talent, energy, and risk.

Capitalism is a social-political-economic system that includes structures designed to enhance the creation of capital for the purposes of sustained economic growth and economic security for the citizens operating within that system. Capitalism is undergirded by choice as exercised through both political freedom and economic “free-market” activity. Though regulations do exist, they are normally conceived to favor those who create capital, increased employment, amplified levels of consumption, and tax base expansion among both the rich and an ever-enlarging middle class. While it may be true that capitalism exhibits inherent contradictions, when justly managed, its monetary, fiscal, and banking structures have elevated the standards of living for untold masses of people and have constructively shaped the history of the world.

On the Nature of Socialism

Socialism has existed in nascent forms throughout history as it centered primarily on the relational dimensions of community and the minimization of risk through shared ownership and centralized authority structures. Still, it had never been widely advocated as an economic-social construct for nations prior to the late 1800s. Having its modern roots in the French Revolution, it came to be advanced by a number of European philosopher-social scientists as a theoretical economic social system. In time, it bifurcated into two distinct left-of-center systems: communism to the far-left and various forms of so-called Fabian Socialism to the middle-left. The contemporary, political “Progressives” of the United States are a current iteration of the Fabian Socialists who envision socialism as progressively operating within the framework of democracy as it gradually displaces capitalism.

Regardless of its ultimate configuration, socialism, as a social-political-economic system, universally embodies three general traits:

A declared objective of minimizing the economic risks inherent to unemployment, medical care, and old-age security through centralized, government-managed systems.
A perceived demand that an antidote to the more toxic elements of profit-driven capitalism must be formulated.
A presumption that intellectual elites must do for the masses what they are allegedly incapable of doing for themselves, such as making astute, long-term social, economic, and political decisions apart from the firm guiding hand of an incontestable centralized civil government that dominates all regional and local forms of civil government.

Despite its pronounced shortcomings, socialism does bear an expression of concern for community, a regard for relationally based social systems that are driven neither by raw profit nor irresponsible consumerism, and a self-confessed aspiration to care for and empower those less able to subsist in a “survival of the fittest” social environment. In these matters, socialism endeavors to express the necessary social ingredient of reciprocity. “Reciprocity” is the complementary bookend of “choice.” Unfettered choice, devoid of reciprocity, inevitably undercuts relationship. Because the word “capitalism” often invokes a connotation of unchecked, self-directed freedom, it may well have outlived its utility as a viable name for a choice-based, reciprocity-tempered economic system.

While the word “capitalism” may be in urgent need of a verbal overhaul, its problems run much deeper than mere semantics. Fundamental economic imbalances within the social structures of society will soon demand repair. Attempts to revamp capitalism into some configuration of modified socialism, no matter how earnest, will not resolve those inequities. Instead, attention must be redirected toward both choice and reciprocity as the prerequisites to personal freedom and social cohesion.

The Foundational Issue: A Choice-Based, Reciprocity-Tempered Society

Today there exists an exigency for a “great debate” that resolves the question, “Which social-economic system generates an environment most conducive to enduring political freedom and sustainable economic growth for the greatest numbers of people?” This may well be a defining historical moment.

At this point, it may be helpful to demarcate the differences between a choice-based society to include a choice-based economy and a command-based society. A choice-based society may be defined as a culture that perceives freedom as being the liberty to choose and express personal values, lifestyles, economic choices, and career preferences as circumscribed by a “do unto others as you would have them do unto you” ethos. Such a society is drawn together by reciprocity demonstrated by both forbearance and genuine concern for the freedom of others. It is choice-based in its energy and others-centered in its reciprocal ethics. Spiritually speaking, it may be paraphrased as the economic expression of the Greatest Commandment: freely choose God, and totally love your neighbor reciprocally (Matthew 22:37-40). This model of society requires the local community to be chiefly empowered to manage its resident affairs even as that community integrates within the larger context of centralized government. It further demands that centralized government exercises limited control and only where such control is essential to the preservation of the nation, along with the ethical values of the reciprocity and tolerance upon which that nation exists. Choice, therefore, must emanate from the internal inclination of the individual rather than the external coercion of either civil government or any social group devoted to dominating the entirety of society through the elimination of a climate of heart-choice.

Conversely, a command-based society or economic system is one contrived to minimalize or eliminate the internal choices of its citizens through the enactment of external diktats and the promotion of insidious cultural pressures machinated to compel compliance with the will of a ruling elite. These anti-choice policies are vigorously enforced by local and centralized government and calculated social strategies. Consequently, choice is driven by a code of compliance rather than the principle of reciprocity. The national character and economic productivity of a society will be defined by the measure to which its citizens are cognizant of the distinctives between choice-based and command-based societies/economies and the type of system they desire. Tragically, many populations today have little awareness of these rudimentary topics, while politicians myopically focus on the next election cycle rather than root issues and the empowerment of their constituents and fellow citizens.

The Creation of Capital: The Core of Prosperity, Sustainability, and Upward Economic Mobility

Economics may be straightforwardly described as the system by which a society manages the issues associated with labor, the creation and usage of currency, trade, the interfaces between governmental regulations, fiscal policy, and the market responses of the private sector. This process is both driven and governed by the core values and aggregate worldviews of those societies engaged in mutual economic exchange. Ultimately, the social values espoused by the economic participants are expressed in such concepts as political freedom, social justice, fairness, equitable taxation, social entitlements, property, and a host of other value-driven notions that undergird whatever economic system is operative. Regrettably, the preponderance of public and private economic conversations tends to be narrowed by one of two constrictions: either the dialogue fails to identify the core values undergirding the system itself, or the discussion is reduced to an empirical computation that endeavors to quantify whatever did or did not transpire. While mathematics may serve well to calculate order of magnitude, realized or projected, it is impotent to discern the degree to which a society is achieving it social goals apart from being linked to the social ethics and aspirations ostensibly underpinning the system. By bonding mathematics to the ethical values and principles that drive the economic process, the subsequent calculations will provide more germane and constructive insight.

As previously noted, capitalism has produced the highest standard of living for the greatest number of people of any economic system known to the world. Capital is best created within an environment which permits and fosters the dynamics of that process. Such an environment must be constant in terms of legal restrictions, taxation policies, market demand measurements, currency, capital availability, and overall societal stability.

Choice is the true essence of capitalism. Choice releases a power that motivates those with vision to assume immense risk, to make extraordinary sacrifice, and to shoulder enormous responsibility. Whereas the investor is guided by internal choice within the system of capitalism, the participants in all other economic systems, in varying degrees, are governed by external command. A choice-based economy is composed of entrepreneurs whose ingenuity is energized by their internal vision, generating abundant goods and services. A command-based economy revolves around external quotas mandated by socialist governmental planners, producing minimal goods and services. The labor force of a choice-based economy contains those who, by personal aspiration, seek to elevate their level of employment through increased achievement, whereas the labor force of a command-based economy tends to be exclusively duty-based. While some may regard the benefits of choice and internal motivation as being overstated, it is precisely this same internal motivation that collectively produces the vital expansion in both productivity and the returns on labor and capital investments.

Within the broader context of Western Civilization, Judeo-Christian values profoundly shaped capitalism and the cultures wherein it is exemplified. The transcendent principle of choice, as first revealed in the Book of Genesis, is inextricably intertwined with Judeo-Christian civilization. The existence of choice, in part, authorizes the accumulation of riches while the complementary principle of reciprocity motivates the just distribution of those resources. Paradoxically, Karl Marx, the zealous prophet of command-based economics, asserted that alienated labor was the insidious byproduct of choice-based capitalism. History, on the other hand, has conclusively demonstrated that dispassionate labor is a predominant concomitant of socialism. While there may exist numerous monotonous, production-based jobs within a capitalistic economy, such jobs are even more prolific within a socialistic economy. Then again, capitalism possesses something that socialism, by its state-driven collectivism, does not: innumerable satisfied investors whose internal visions have come to external fruition and who, in turn, employ countless workers who voluntarily participate in the process. It may be said that freedom of choice, as morally constrained by that which encroaches upon the God-given rights of another, provides the means by which internal thought is translated into external action and tangible results. Where political freedom reigns, the decision-making process is pushed toward individual citizens rather than toward a ruling elite. In contrast, socialism, in conjunction with its attending centralized authority, tends to devolve into an ever-increasing, authoritarian bureaucracy that aborts the faculty to convert vision into economic reality as it overtly assails freedom.

Economists generally agree that upward economic mobility for large numbers of people is the best indicator of a vigorous, free, and sustainable economy. Progress is measured by an environment of equal opportunity and justice, or appropriate rewards for resource investments. Command-based economies emphasize security over opportunity. As an unintended consequence of the command-based economy, the resource base available for government investment shrinks to the point that it becomes impossible to enhance economic conditions and domestic production tends to lag the growth of the population. Rephrased, non-profit-making national economies hinder the expansion of gross domestic product and mandate increased taxes to buttress public spending. Ultimately, it is the values of a nation, not calculated economic planning, that determine economic results.

The fruit of sound economic growth is economic security. The root of economic growth is choice. It is the composite expression of the economic ambitions of choice-making individuals and organizations, rather than guaranteed civil employment with its attendant stagnant renumeration, that nourishes a robust economy. For this reason, historic, economic results irrefutably confirm that free-market or mixed-market economies consistently outperform all other economic models.

The Market-Driven-Economy Model Versus the Centralized-Government, Planned-Economy Model

In simple terms, market-driven economies reflect the values and choices of the citizenry, whereas planned economies mirror the values and choices of an elite set of civil governmental leaders who unilaterally stipulate what their citizens should value and choose. Demanding that the masses “choose” the unchallengeable dictates of the few is a draconian example of totalitarian impudence which, in turn, spawns a grossly inefficient economic system. Nonetheless, in a world of fallen humanity sullied by self-serving evil, there cannot exist a pure version of what economists commonly denote as “the free market.” All market activity should manifest the values-driven issues of justice, freedom, and fairness. For this reason, certain measured forms of regulation must always exist. Parenthetically, it may be prudent to curtail the usage of the words, “free-market economy” and “capitalism”—the first because “free-market economy” fails to duly consider the reality of evil, and the latter because “capitalism” is overburdened by negative associations and unresolved problems.

A market-driven economy permits the forces of aggregate choice to accurately reflect and effectively resolve the intrinsic complexities of the economic system in a manner unattainable by innumerable government planners, as Austrian economists have so cogently ascertained. [1] Conversely, the socialist model presumptively asserts that a set of so-called “experts,” in and of themselves, possess sufficient intelligence and ample wisdom to appropriately interpret and properly direct the billions of economic choices effected globally each day. Moreover, socialism rejects the limits of man’s capacities and carries within it an intellectual arrogance that embodies the statement, “we shall be as gods.”

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[1] Hayek and Von Mises

Results-Based Discussions, Principle-Based Policies, and Valid Names for Renovated Systems

As are many others, this author is persuaded that Capitalism 2.0 is woefully imperfect as an economic system. Purposefully cogitated and intelligibly articulated values and principles must supplant Adam Smith’s inadequate notion of the “invisible hand.” The time has arrived to publicly spotlight concepts which are anchored in the Creator who set labor-driven economic order in motion, and the veracities of human nature, both of which tender foreseeable results. Principle-based policies and results-tested social management should be fervently advocated in the current-day, “flat” arena of the increasingly intertwined economic world. Capital must be correctly characterized as a result, not as a primary cause. The authentic underlying cause of capital creation is choice, both the choices of individuals and the choices of societies that are committed to responsible freedom. Henceforth, the foremost cause of growth must be identified by its valid designation: choice-based economics.

Capitalism, as currently operating, will inevitably be reshaped by the hammer blows of social and economic reality, even if the world is reluctant to adopt the changes. Beyond the apparent issues of escalating and vast resource inequalities, imminent technological threats to employment and environmental uncertainties regarding the usage of fossil fuels all must confront the mammoth elephant in the room: unsustainable public and private debt and overwhelming, unfunded liabilities. Herein lies a furiously ticking time bomb; when the fervent converts of the socialist coterie awaken to the significance of the debt and liabilities dilemma, their censures of capitalism will move from mere cries of social injustice to unconstrained shrieks for indictments of political leaders for placing the entire globe at risk of catastrophic economic collapse and devastating social civil wars. Nevertheless, any significant shift toward socialist economic systems would only hasten the day of reckoning for the global economy.

Bids to elucidate the ethical defects and ruinous consequences of socialism are often rebuffed by those uninformed by the historical chronicles of the nineteenth and early twentieth centuries. While populist rhetoricians may briefly manipulate the uneducated toward socialism, within a relatively short time, economic results will manifestly expose the inexorable truth. Despite these facts, socialism is not the ultimate issue at hand. Instead, it is of paramount importance that choice-based economics be extricated from its bondage to unbridled and reckless capitalism as is routinely implemented today.

Voluminous economic predicaments currently confront the nations of the world: the fiscal suicide of untenable public and private debt that eviscerates the financial hope of future generations; the essential need to simplify complex taxation systems to ensure that all pay a proportional and just tax; the necessity to empower the philanthropy of the super-rich; the requisite to overhaul lobbying procedures that exert an inordinate amount of influence over domestic and foreign policies; the need to incentivize and stimulate investments that create entry-level employment; the crucial requirement to assure sustainable healthcare and realistic social security; etc. Despite the ominous magnitude of these challenges, many of the solutions may be realized through the strategic deployment of principle-based policies that safeguard choice-based economic structures. Capital creation and choice-based economics are driven and bookended by two of the most powerful principles in the world: the vision-driven power of internal, free choice and the love and power of community, driven by the energy of reciprocity.

Capitalism, Socialism, and the Case for Choice-Based Economics