A Historical Argument for Capitalism Part 2: The Alternatives

In part 1, I covered the criticism that capitalism is a flawed system because it creates economic inequality within the society.  But the analogy that the capitalist “tide does not raise all boats equally” actually has two parts; one expressed and the other implied.  By not going beyond the initial critique of capitalism, the opponent of the system is silently implying that the alternative he is proposing will address this flaw.  In this article, I will examine the past performance of the alternative systems to determine if they can produce the implied result of creating wealth for all.

To do this, we need to understand that all the alternative economic systems that are being pursued have their roots in Marxism.  This in itself does not make it good or bad.  It only means that we have about a 150 year track record to assess.  To some it may seem unfair to make a determination on the effectiveness of these alternatives, much less compare them to a system that has had 700 years to develop, but in those 150 years, the Marxist-based philosophies of communism, fascism, Nazism, and socialism have left an indelible mark.  Furthermore, that mark has been extraordinarily consistent in the results that are produced.

Last century marked the high point of the experiment with Marxism.  By the early 1900s, progressives around the world were aggressively promoting their versions of the Marxist dream.  Russia was their first success and after the Revolution of 1917 full-blown communism was established.  This was followed by success in Italy, which established the fascist version in 1922.  The depression of the 1930s offered the critics of capitalism a crisis to exploit and a chance to spread the Marxist philosophy to other countries.  They successfully convinced the people of many countries that capitalism was flawed and that their system was better by being more scientific, more enlightened, more perfect.   Although their greatest success was in Germany, with its own version called Nazism, many other countries of the world fell for the claims and embraced or adapted Marxist alternatives, including France which adopted the milder socialism. 

These Marxist-based, big government systems initially had some extremely remarkable success.  This was especially true of Nazism, which created what was hailed as the “German Miracle.”  At the height of the depression, Germany had almost 11 million unemployed; by 1938, unemployment was almost nonexistent.  Similar, though less dramatic, results were being achieved in Communist Russia (renamed the Soviet Union) and Fascist Italy.  This brought worldwide acclaim, especially from celebrities, academics, and media elites.  Many, jumping onto the Marxist bandwagon, flocked to view for themselves the new “workers’ paradise and utopias.”  They eagerly claimed that man had created the ideal economic system and that the antiquated, flawed, and cold-hearted Capitalism was dead.  The enthusiasm was so widespread that even the stalwarts of free-market economics, Britain and the Unites States, incorporated aspects of Marxism into their economies.

The fact is that the admirers of Mussolini, Stalin and Hitler had been thoroughly duped.  These ruthless leaders understood that their admirers (or “useful idiots” as Lenin would call them) would see only what they wanted to see. This voluntary blindness meant that those praising these dictators refused to recognize that the immense economic achievements of communism, fascism, and Nazism had more to do with the tyrannical practices of the government than it did with their economic systems.  In Germany, for example, women and Jews were excluded from employment and were replaced by male, non-Jewish workers.  Furthermore, since they were prevented from working, women and Jews were excluded from the unemployment count.  Soviet Russia’s success relied heavily on the slave labor of its Gulag system, and Stalin’s collectivization and industrialization programs resulted in the death of tens of millions of people.  Although it did result in a better standard of living for those who survived the “Great Terror,” that prosperity was paid for with the blood of its victims.

Winston Churchill was one of the few who were not blinded by the charade.  From the very beginning, he wailed against and warned of the dangers these systems posed to the world.  He recognized what insiders, such as the architect of the Nazi economic plan, Dr. Hjalmer Schacht, knew; that the Marxist economies could not be sustained since they could not generate the required wealth.  Once all the current wealth had been redistributed the society would begin to descend economically.  The only way to stave off such an outcome was to find new sources of wealth.  This set these three countries, plus fascist Japan, upon a course of imperialism and exploitation that makes capitalist imperialism look benign.  Within a decade, Marxist-based imperialism would kill, enslave, exploit, and pillage more people than the British Empire ever did in its almost 400 year history.  By the end of fascist Italy in 1944, Nazi Germany and fascist Japan in 1945, and Soviet Russia in 1989 over 100 million individuals would lose their lives to the wars, starvation, deprivation, and genocide these economic-political philosophies caused.

With such a conclusion, one would think that Marxism would be discredited and discarded forever.  But its supporters were quick to point out that the problem with communism, fascism, and Nazism is that they took Marxism too far to the extreme.  What was needed was capitalism mixed with the perfect amount of Marxism.  This hybrid system, called socialism, would use capitalism to create wealth and Marxism to distribute it.  In other words, capitalism would create the “tide” and Marxism would ensure that the tide “raised all the boats equally.”  It was perfect since it incorporated the best of both systems while eliminating their flaws. 

After the deprivations of the Second World War, the democracies of Western Europe were eager to restart their war-torn economies and Socialism appeared to be the ideal system.  By the 1950s, every country in non-communist Europe, from Spain to Sweden and Italy to Britain was socialist to one degree or another.  Once again, the new system showed promise.  In quick time, the war savaged economies rebounded and had growth rates on par with the United States.  The prosperity of these countries was considered proof of what could be accomplished with Socialism. 

Unfortunately, once again, the system demonstrated that it was not the panacea it promised to be.  The main flaw was that if the perfect combination of capitalism and Marxism could be found it could not be maintained.  One of the by-products of socialism is that the people became dependent on the government.  As that dependency grows the people feel more and more entitled to government services.  This sense of entitlement results in people placing more demands on the government.  In turn, the government feels compelled to meet the demands of its citizens, and the perfect balance between capitalism and Marxism is lost.  Additionally, the dependency on government means that once the balance is lost it is almost impossible regain.  (This last point is painfully evidenced by the riots and civil disturbances that have recently rocked Britain, France, Spain, Italy, Portugal, and, of course, Greece.)

Over time, this results in the decline of prosperity and societal wealth.  At a recent lecture Nobel Laureate and economist Robert Lucas points out that, for the first 70 years of the 20^th century, the economies of Western Europe grew at nearly the same rate as the United States.  That changed in the 1970s when the negative effects of socialism started to be felt.  During that time, Socialist Europe’s GDP per person dropped 30 percent, thus resulting in a 20 to 40 percent income gap between it and the United States.  This coincides with what Daniel Hannan writes in his book, The New Road to Serfdom.  In the book, he notes that Western (Socialist-based) Europe’s share of the World’s GDP shrunk from 36 percent in 1969 to 26 percent in 2009 and is projected to be only 15 percent in 2020.  During the same period, the United States share had remained steady at around 26 percent.   Additionally, in 1970 the unemployment rate of Western Europe was just above 2 percent while in the United States it was about 5 percent.  By the end of the decade the rates flipped and, for the rest of the century, Europe’s unemployment rate ranged from 2 to 3 percent higher than that of the United States. Today, several of the socialist economies of Europe are on the verge of total economic collapse.  Any attempt dial back the Marxist component of their economies is met with resistance by their government-dependent populations.  This opposition is often expressed with violent protests, civil disturbances and rioting that threatens to undermine the society as a whole.  

History shows us that the claims of the critics of capitalism are valid.  That capitalism does not benefit all members of its society equally.  But there is nothing in history that indicates that their Marxist alternatives offer anything better.  The 20^th century experiment with Marxism ended as a complete and catastrophic failure.  The death, destruction, and deprivation it created resulted in the century being the most bloody and brutal in the history of man.  Even the socialist hybrid, by slow draining of wealth, has proved itself more of a bane than a boon for the societies that embrace it.  So, while the “tide” from the sea of wealth that capitalism creates does not “raise all boats equally,” it does raise all boats.  Whereas, the alternatives, rather than being oceans of wealth, create landlocked seas that, once drained, leave all boats stuck in the mire and muck.