Friday, April 10, 2009

Capitalism is Socialism

Capitalism, Socialism, Communism, Fascism …. isms everywhere. We frequently use these terms to denigrate each other, but do we really understand what they are? Were the Soviets communists? Are we capitalists? Before we start yelling at each other, we need some definitions we can work with.

Capitalism is not the opposite of socialism, but rather a form of socialism.

It’s easiest to explain this through a comparison with political systems. First an important distinction: Political and economic systems should not be defined by their goals, but by their methods. We’ve seen many leaders who came to power with altruist goals, but ended as brutal dictators. A dictator is a dictator no matter his goals.

Political and economic systems must be defined by decision making; who makes the decisions. Using the commonly held concept of left and right, we will look the ends of the scales. The ends of the scales are just theoretical systems, but we need to understand the limits.

The left end of the political scale is Democracy: All political decisions made by the people as a whole through an equal ballot. The right end of the scale is the king, a Monarchy: One man makes all of the political decisions.

Under Democracy, everyone in the United States would vote on whether to repair the pot hole at Sixth and Green streets in Champaign, Illinois. At the other end, the king would decide. Neither of these ideas could really work, so we have modified systems. In the United States, we’re a Republic: The people, as a whole, elect a small number of leaders who make the political decisions. The Soviet Union was a Plutocracy: A small self-perpetuating group of leaders who made all the decisions.

Economic systems are analogous to political systems. They’re based on who the decision makers are.

The left end of the economic scale is Socialism, the economic form of Democracy: All economic decisions are made by the people as a whole through an equal ballot. The right end of the economic scale is the same the right end of the political scale, the king: One man makes all of the economic decisions.

Again, the ends can’t really work. We can’t rely on the population to decide on what automobile to produce, how to price it, how to market it, etc. So, we have modified systems. The Soviets had a Plutocratic Central Control Economy: A small number of self perpetuating leaders making all the economic decisions. Of course, when this small group is wrong, the results can be catastrophic. The Soviet Union collapsed, in large part, due to horrible decisions made by a few people that destroyed the entire economy.

In the United States, we nominally use a self perpetuating economic system we call Capitalism: Economic decisions are made by the people as a whole through an unequal ballot. Unlike pure socialism, each person has as many votes in capitalism as he has dollars, with each dollar representing one vote. If a product is popular and at the right price, people will pay (vote) more for it, and the product perpetuates. A lack of purchases causes a product to disappear.

Under capitalism as in socialism the people make decisions as a whole. As properly defined by the methods of decision making, capitalism is a form of socialism.

Communism (Marxism) is a marriage of democracy and socialism: All the people, through an equal ballot, make all the political and economic decisions. Of course, such a system can only work for a small cooperative group such as a monestary.

Fascism (Totalitarism) is just like the king. Fascists act like kings, but come to power through revolution rather than succession.

There is a danger lurking in our capitalist system. Central control economies inevitably fail. Too few make decisions for too many, so when the decision makers are wrong, their decisions have too great an affect on the economy.

When insufficiently regulated, power in a capitalist system coagulates. A few develop overreaching decision-making power. The system converts from capitalist to a Private-Sector Central Control Economy. An unelected, self perpetuating, group make the critical decisions. Private-sector central control can be just as dangerous as public-sector central control.

The auto industry is a great example of central control. The basic theories of capitalism mandate hundreds of auto manufacturers, rather than the few that we have. Functional markets must have so many players that decisions made by any one cannot affect the market as a whole. Poor decisions made by the few players in this market have the auto industry on the brink.

If the people want greater regulation, such regulation fits with capitalism. On the left side of the scale the people determine what form their economic system should take.