March 3, 2020 Reading Time: 6 minutes

What is socialism? Ask a Bernie Sanders fan and you’ll hear words like equality, social justice, democracy, fairness. It’s the essential antidote to the evils of capitalism as they see them: oppression, racism, inequality. Some would pile on and saddle capitalism with pollution, climate change, suppression of indigenous cultures; maybe, come to think of it, the Covid-19 virus is a capitalist plot to boost drug company profits!

Before continuing, could we please jettison this word capitalism? For one thing, the word was supposedly coined by Karl Marx. More importantly, all societies need capital: goods and services produced for the purpose of further production. Let’s substitute free market but keep the usual “capitalism” definition: private ownership of the means of production.

As for socialism, its correct definition is government ownership of the means of production. But who or what is “the government?” There is no acting entity called the government that does anything apart from the actions of the individuals who constitute it. In a socialist government only a few anointed individuals can lay their hands on the top levers of power. What is the main qualification for rising to this position? Skill in political machinations, of course.

Though we haven’t yet dug very deep, the dictatorial essence of socialism is already evident. Yet it’s back from the dead as an ideal. Many of us naively thought free markets had won over socialism when the Soviet Union fell apart. But we must face up to the resurgence of socialism as an ideal. It’s time to return to fundamentals. The Commanding Heights video series that did such a good job of showing the triumph of free markets twenty years ago is, sadly, no longer relevant. Time to use both theory and history for a thorough re-examination of socialism in contrast to free markets and to do so in a way that will speak to thoughtful people, especially young people. 

So, with socialism again on the rise, what do we do, those of us who understand and love free markets? There are many tacks we could take in addressing socialism. Here are three, in the order in which I propose they be presented, based on how much time you have to make your case in a particular situation.

The Mixed Economy Tack

First, let’s understand and emphasize that the United States at present is part free and part socialist. We can easily compile a list of economic activities in which bureaucracies control the means of production either in whole or in large part. There are outright government monopolies like mail delivery or airport screening. Many more significant economic activities retain some nominal free-market component but are in fact dominated by government. Banking, for instance, is nominally the domain of competing private institutions. Banks compete for retail accounts, but they are heavily regulated by, and heavily dependent on, rules handed down by Federal agencies. We could go on, citing education, transportation, health care, finance and housing as activities dominated by government agencies—increasingly, we might add, by Federal bureaucrats rather than state or local bureaucrats, notwithstanding the Tenth Amendment to the Constitution. Perhaps we owe Sen. Sanders and his followers thanks for putting socialism on the table, since it clearly labels the unfree aspect of our society.

Given our present-day mix of socialism and freedom, an intellectually honest analysis of any current social issue—income inequality would be one example—requires hard work, work that ideally brings both theory and history to bear. Socialists are wrong if they impulsively and unthinkingly blame “capitalism” for any real or imagined contemporary ills. But free-market advocates are wrong as well, if they blame socialism without backing their arguments with sound reasoning free of ignorance, bogus history, or floating abstractions.

“Crony capitalism” is a prime example of the problems of a mixed economy. Many business people get tired of the relentless discipline of competitive markets and find it easier to seek government favors. Shame on them! But where does the primary fault lie? In the opportunities for corruption that government policies create. If you put out a plate of honey and flies are attracted, do you lecture the flies?

The Impossibility Tack

The second tack would be a summary of Mises’ impossibility argument. One hopes that every free-market advocate is aware of this argument. Mises published it in 1922 and it was taken seriously by socialists into the 1930s, who tried hard to refute it but failed. The argument gives the benefit of the doubt to socialism by positing a situation in which the populace is in complete agreement with the plans of the socialist rulers. Everybody is assumed to assent to their stated goals. The problem is the lack of prices for production goods and materials. Mises is referring to true market prices determined by supply and demand, not numbers arbitrarily assigned to things. Given the lack of true prices, the rulers have no means of deciding how to allocate scarce capital goods to achieve the desired production mix.

The Soviet Union is often cited as a counter-example to Mises’ impossibility theorem. How, critics ask, did that socialist country manage to endure for 70 years if socialism is impossible? The answer is that the Soviet Union was an island of socialism in a relatively free world. Its bureaucrats had access to foreign prices that were largely market-determined. Furthermore the Soviet Union always had active black markets that played a crucial role in keeping the system afloat. Another factor was the significant aid given to the Soviets by the Allies during World War II.

The History Tack

The third tack is to cite the bloody history of socialism in the twentieth century. First point out that socialism, communism, and indeed modern progressivism differ only superficially. For example, under National Socialism major firms were left in private hands, but only nominally so; the Nazis might as well have nationalized those firms. They picked Jews as scapegoats while the communists picked the bourgeoisie and Bernie Sanders picks billionaires. Modern progressives don’t want to nationalize private firms (yet) but they do want to regulate them to death.

Let’s call socialism and its cousins “collectivism.” The number of people killed by collectivism in the twentieth century is difficult to estimate and even more difficult to comprehend, but that number is easily in the tens of millions, thanks mainly to Stalin and Mao, and to many lesser thugs. How does one grapple with tens of millions of deaths? Stalin may have been right when he supposedly said that three deaths are a tragedy; a million deaths is a statistic. And of course, we must add the uncountable numbers of lives ruined, families torn apart, and property destroyed.

The rejoinder you may get is that the wrong people were in charge. If we just get the right people in, it will all work. Really?

Or what about the Scandinavian countries? Haven’t they shown how socialism can produce peace and prosperity? Those countries have backed away from socialism in many respects.

Democracy, anyone?

For Sanders and friends, democracy can save socialism from devolving into Venezuela-style dictatorship and misery. Democratic socialism, they say, means the people are in charge. But democratic socialism is a phrase that melts away under brief examination. In reality, your vote under socialism means nothing because the elected leaders must decide on thousands of actions and policies to be forced on everyone. You cannot possibly know how they will decide on all these issues or even what those issues might be. Once every few years you may join with others and throw the rascals out, but as long as socialism remains, you will just get a new set of rascals.

It doesn’t help to insist that socialist democracy be representative. Your locally elected representative might be a tad more responsive to local desires. But just look at our present Congress. It has ceded almost all the real power to the various bureaucracies, as is inevitable even under our system that is only half-socialist. No deliberative body could possibly address the thousands of issues that the bureaucrats are supposed to handle. Under socialism, you get a rubber-stamp parliament at best.

To recap, I suggest that in arguing against socialism and for free markets, we follow this sequence:

  1. Show that the U.S. is a mix of socialism and free markets. This tack will undermine the simplistic notion that the U.S. is “capitalist,” the U.S. has problems, and therefore capitalism is bad.
  2. If there is time, proceed to tack two: the lack of genuine prices for capital goods means that socialism, at least in its pure form, can’t work, irrespective of the acquiescence of the populace. This tack asks a little more of listeners but is a powerful idea if internalized.
  3. And with more time, take the third tack: the twentieth century gave us socialism and its cousins—communism, national socialism, Maoism et. al. and the result was death and destruction on unfathomable scales. This tack adds emotional oomph to the intellectual arguments.

If met with a rejoinder about democracy, point out that democracy is meaningless when government agents wield the broad and deep powers that socialist rulers wield.

How do we popularize these arguments? AIER’s Marx vs. Mises video at is an excellent example. It has been viewed an incredible two million times on YouTube! T-shirts, anyone? I’ll leave that to others. University courses? Yes, where “progressive” dominance allows them.

Whatever tacks we take, we have our work cut out for us.

Warren C. Gibson

Warren Gibson

Warren Gibson is retired from two careers: as an engineer and a lecturer in
economics at San Jose State University.

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