Capitalism v. Socialism
What is a Fair Trial?
September 27, 2021
by William P. Meyers

Site Search

Popular pages:

Competition, Values, History

Has capitalism, more specifically free-market capitalism, been proven to be a superior economic system to socialism? For most of the world the answer is yes. The great rivalry between the capitalists, led by the United States of America, and the communists, led by Russia and the USSR, ended with the collapse of the soviet economy and communist government in the 1980s. However, there are many reasons to question this simplistic conclusion. For instance, are nations like Germany and France capitalist or socialist? Most economists would say they are mixed systems. Lump them in the socialist camp and there is no clear capitalist victory. In particular, following the New Deal, the American economy and society has had many socialist aspects, for instance Social Security. I think, even as we see civilization dissolving into the Slow Motion Apocalypse, that capitalism versus socialism is still a critical question. This essay will approach the question as if it were possible to do a science experiment, like the clinical trials used to test potential new drugs, to see which system is superior. However, for context a number of other issues will be raised, starting with the judging of the Communist v. Capitalist economic and political race of the 20th Century.

In a science trial, say a drug trial to compare two drugs, it is important that the subjects tested by equal, or as equal as conditions allow. For instance, the average ages of the subjects should be the same. In the contest between western capitalism and soviet communism it is hard to find more unequal test subjects. Take, for instance, the testimony of John Steinbeck in A Russian Journal, based on his 1947 visit, a couple of years after the end of World War II. Steinbeck describes the bombed cities of Leningrad and Kiev. He takes us to a couple of farms in Ukraine where farm work is done by hand because German soldiers destroyed or stole the farmers' machinery and livestock.

Clearly the economy of the USSR and the USA did not start at the same point at the end of World War II in 1946. America had prospered during the war, supplying materials to the British Empire. No American factories were damaged during the war. The only attack on the United States, Pearl Harbor, had focussed on military targets, unlike the endless bomber runs of America and its allies that targeted factories and civilians, terminating in the vaporization of civilian populations at Hiroshima and Nagasaki. In 1947 American agriculture was almost entirely mechanized and American factories were the only ones capable of supplying the world with industrial and consumer products.

A scientific test might be run as follows. Two new cities are set up and they are allowed to trade freely with the world (no one can discriminate to help socialism or capitalism win the test). Their populations are chosen at random from a common pool. They are given equal amounts of capital in the form of buildings, roads, other infrastructure, factories, etc. One is run with socialist economics, the other with capitalist economics. The test is run sufficiently long to get a true result, say 50 years, certainly no less than 10.

Aside from the practical problems of creating this social experiment, the science problems would seem to require not two cities, but perhaps dozens. There are many variables that make a one-to-one comparison not very meaningful. For instance, will the socialist city be democratic-socialist or Leninist-communist? A democracy or dictatorship? Same for capitalism. Perhaps with four test cities socialism might do better than capitalism under a dictatorship, but worse in a democracy. More importantly, what about mixed systems? Can the capitalist city have Social Security for its elders? Can the socialist city allow for some unregulated free markets for smaller businesses?

Statisticians do have ways to disentangle problems with more than one variable. In cases with large numbers of variables, as in society, they can find key variables that drive many of the others. They can also find specific correlations between two variables, but that is no proof that those correlations would remain fixed if all the other variables were altered.

The argumentative style of both academia and political media do not help much. Examples abound, but my favorite lately is Norway. Socialists often point to Norway as proof that democratic socialism is the best system. Norway is prosperous and it has great social services. They don't like to look at the capitalist side of the Norway equation. Among many issues to be found there is the oil sector. Norway has far more oil than its own relatively small population can consume. So it exports the oil. Socialist society floats on oil money, and on contributions to global warming. If Cuba had so much oil likely it would also be a prosperous nation. But counterexamples also abound. Oil does not guarantee prosperity under either capitalism or socialism. Capitalist Venezuela prospered from oil wealth, or at least a section of its population did. Socialist Venezuela went into major economic decline, but of course socialists do not blame that on socialism, so they blame it on sabotage by the United States. My own view is that Stalin or Castro or the Norwegian socialists could have built a prosperous socialist Venezuela, at some cost to human rights. Because they were competent socialists, but the current socialist leaders of Venezuela are incompetent. I believe the single most important variable to control for in our science experiment is competence.

In real societies there are feedback loops. Competence is of critical importance. Perhaps, over time, socialist societies tend to select more or less competent leaders than capitalist societies. And how does one select a dictator for a science experiment? Ponder the resumes of ex-dictators?

Both socialist and free-market partisans might also have objections about evaluating or grading the outcomes of our multiple cities experiments. For instance, suppose after 20 years our capitalist city has accumulated more capital and has a higher GDP than the socialist one. Socialists might point to the concentration of wealth or income in a small group of people, the capitalist class, as not outweighing the misery of a larger group of people who are suffering in poverty. Similarly capitalists might argue that even if a communist system came out ahead in GDP, the loss of personal economic freedom is not worth the sacrifice.

Based on my knowledge of history, observations of people in all classes of American society, and understanding of economics, I believe that mixed systems can be more optimal than either pure socialist or pure capitalist systems. Getting the best mix may be hard to do, or to know if you have done. I would rather be pragmatic than ideological. If something works, don't fix it. If something is not working, try something else. Often good things produce some bad side effects, just as in drug trials. Can the toxic effects of an otherwise helpful drug be minimized? I think we need something somewhere between society with no safety net, and society that is nothing but safety net.

If one farmer has poor soil, and another farmer rich soil, if does not make sense to expect them both to get the same output per acre. But to give an incompetent farmer more land to cultivate, to make up for their incompetence, is not a very good plan either. Competence, too, sounds like one thing, but in fact becomes very complex in the context of human society. Most people's competence is context specific. If you are looking for a competent economist, even that is tricky. Same for politicians. Too much depends on circumstance to make general rules that always work out if they are simply, rigidly followed.

Thank you for joining me in this thought experiment, and good luck in the real world.