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Capitalism and Why It Ultimately Outlasts Socialism and Communism

Capitalism and Why It Ultimately Outlasts Socialism and Communism


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By Jeffrey T. Fowler, Ph.D.
Faculty Member, School of Security and Global Studies, American Military University

In the last presidential election, Senator Bernie Sanders (I-VT) called his proposed form of government “democratic socialism.” He tapped into a significant minority of Americans who believe that capitalism should be replaced by some form of socialism. But wasn’t the United States founded by agrarian capitalists and isn’t our economic system today capitalism?

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If we look at recent polls and not just claims of the popular media, there is somewhat of a disconnect. In the 2017 YouGov Report, most Americans still prefer capitalism to socialism

The most significant age group supporting socialism over capitalism are the Millennials, one-third of whom favored socialism in the survey. More than four in 10 respondents opted for socialism.

A Gallup poll also indicates an increase in support for socialism. The poll sought to determine American opinion on income inequality. The results indicated that 63 percent of respondents believe that there is income inequality in the U.S. However, that figure is not too different from the 1980 percentage of 60 percent.

The survey also found that, while more Millennials support socialism than other age groups, the majority of Millennials still support capitalism by a wide margin. While hardly conclusive, the results of the survey and the poll indicate that the majority of Americans still believe in capitalism as their preferred economic system.

The Origins of Capitalist Theory

The origin of capitalist economic theory is associated with the Scottish economist and moral philosopher Adam Smith and his seminal work, “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776) and commonly referred to simply as “The Wealth of Nations.”  In it, Smith suggested that human endeavors are often driven by self-interest. This is hardly a novel idea. While some associate self-interest with greed, it is clear that in this world, individuals must look out for their own self-interests.

Smith argued that if nations opened domestic and international markets to free trade, self-interest would motivate many people to engage in commerce. As a result, nations (and their inhabitants) would increase their wealth. There are, of course, caveats to this idea.

One such caveat is the idea of individualism. Obviously, all people do not have the same drive and determination. Every human being is different.

Unlike Smith’s original ideal of free trade, we do not have true free trade in America. Instead, we have a mixed economy with some government oversight to provide a more level economic playing field. Unfortunately, history has shown that true free trade, coupled with the idea of Social Darwinism, freed the baser instincts of human avarice and greed as in the case of the late 19th and early 20th century “robber barons.”

While not perfect, capitalism has created more wealth and a more vibrant middle class in Western societies than any other political/economic system. In contrast to capitalist theory, socialism and more so in communism do not admit differences between individuals. They espouse a “one size fits all” philosophy when it comes to meeting the needs of the people.

As with capitalism, socialism and communism have not played out in practice as they do in theory. In practice, communist states replaced monarchs and other ruling elites with their own true believers. Lenin and his cronies replaced the Romanov czarist dynasty and the Orthodox Church with their own governing philosophy, communism. The “most utility for the majority” idea behind utilitarian philosophy was thus suborned for the good of a political elite.

Rise of Socialism and Communism Attributed to Karl Marx

It was German philosopher Karl Marx (1818-1883) who is associated with the rise of socialism and communism. It is interesting that Marx came from a comfortable middle-class German background and never worked as a member of Marx’s favored proletariat. His text on economics “Das Kapital” (Capital), published in 1867, created a global discussion on capitalism, socialism and communism.

His basic premise was that commodities have two values – a use value and an exchange value. Marx argued that commodities were traditionally bought for their use. But capitalism added the value of profit. Of course, ever since economic systems have been in existence, the exchange of goods or services typically has always had a use and a profit value attached to them. Marx also posited that to enhance profitability, workers were paid only enough to keep them working. This is the basis for Marx’s claim that the capitalist system exploited the working class.

Bear in mind that Marxism was born during the Industrial Revolution when workers toiled for long hours and little compensation. Thus, there is some validity to his claim. But the suggested income inequality of Western societies today cannot be compared to the obvious inequalities of the Industrial Revolution.

Differences of Socialism and Communism

Socialism and communism are not identical, but they are related. There are many different forms of socialism, but Lenin’s idea of true communism has never been achieved. Marx postulated a clear progression from feudalism to communism: Feudalism is replaced by capitalism, which in turn is replaced by socialism, and then by the dictatorship of the proletariat, in other words, communism.

Socialism comes in many forms with some constructs resembling a capitalist society. The members of the European Union come to mind. The EU member states share open, tariff-free borders and other economic advancements, but they are governed by democratically elected parliaments. Other socialist states are more hardline such as Venezuela. The South American nation has great potential wealth due to its vast oil reserves, but the Venezuelan people are starving because of the despotic reign of its authoritarian president, Nicolas Maduro.

Perhaps the most successful example of a system that utilizes socialist constructs amid a democracy is the kibbutz system in Israel. It is important not to forget that the government of Israel is democratic but with the addition of highly organized farming communities or “kibbutzim.”

Communism refers to a system that makes few or no concessions to capitalism, tends to favor a one-party political structure, and does not brook dissenting viewpoints. Communism has resulted in horrendous social injustice, an inability to practice effective agriculture and inferior technological development.

For example, in the 1930s, Soviet leader Josef Stalin decided to collectivize agriculture with the idea of increasing its efficiency. At that time, the Kulaks were small, independent farmers similar to U.S. farmers of that era. They were effectively managing their assets and turning a profit for themselves.

Facing collectivization and the loss of their land, the Kulaks resisted by reducing their output and, in some cases, by burning their homes and barns, and slaughtering their livestock rather than hand them over to Moscow.  Their defiance prompted what amounted to a civil war between the peasants and Soviet authorities.

Collectivization Policies Result in Widespread Famine

Stalin would have benefitted by allowing the farmers to continue working their land as individual landowners and increasing agricultural output and revenue. But under communism (unlike in a socialist society), the state must own all means of production. Under communism, the state cannot allow that level of independence. As a result, approximately seven million Russians starved to death or were killed during the famine of 1932-33.

The same economic disaster played out in China during Mao Zedong’s Great Leap Forward. Mao’s Great Leap was an economic and social campaign from 1958 to 1962, designed to transform the country and its agrarian economy into a socialist society through rapid industrialization and collectivization. However, the Great Leap Forward led to the Great Chinese Famine which killed an estimated 45 million Chinese citizens.

Capitalism Has Proven More Viable than Socialism or Communism

There are many in the West today who espouse socialism and communism as systems which, if given a chance, might flourish. Marx suggested that capitalism would collapse under the weight of its own success. This has not occurred. Capitalism has long allowed a thriving middle classes to create and maintain viable economies.

Unfortunately, socialism seems to presume that utopia on earth is achievable. However, the “one size fits all” premise is not compatible with human nature. This was made evident during the postwar era of the two Germanys. Where is the incentive to excel in communist East Germany? Yet, despite the abuses of that system as exemplified by the Berlin Wall, some former East Germans long for the “good old days.”

History clearly demonstrates that while it is not perfect, capitalism has come closer to the happy medium of a prosperous society with more freedom and far less suffering and loss of life than have either socialism or communism.

Speaking anecdotally, Americans with a positive view of socialism or communism tend to have been born and educated in capitalist societies. Those born and raised in socialist or communist societies tend to take a more sober view. They come to the West to escape, not to recreate, their native systems.

About the Author

Jeffrey T. Fowler, Ph.D., is an Assistant Professor in the School of Security and Global Studies at American Military University. He holds a B.A. in law enforcement from Marshall University, an M.A. in military history from Vermont College of Norwich University and a Ph.D. in business administration with a concentration in criminal justice from Northcentral University. Jeffrey is also a published author, a former New York deputy sheriff and a retired Army officer, having served over 20 years in the U.S. Army. He currently serves on the editorial board of the International Journal of Risk and Contingency Management (IJRCM).