Capitalism versus Socialism Basics
The main difference between capitalism and socialism is who owns what. Capitalism is about private ownership. Socialism is about collective ownership. Private ownership stems from the necessities of physical bodily survival. If one is not presumed to own his or her own body, then there is no inherent drive to keep the body from being exploited by other bodies. Exploitation by other bodies is a recipe for death. The collective ownership of socialism is at odds with self-ownership since obviously collective ownership means the self is beholden to the collective. But socialism in practice tends to make concessions for allowing certain kinds of private property.
More specifically, capitalism means private ownership of the means of production and land. Socialism means collective ownership of the means of production and land. If you don't believe in collective ownership of the means of production and land, you really don't believe in socialism. And if you don't believe in private ownership of the means of production and land, you really don't believe in capitalism.
In the contemporary world, the terms socialism and capitalism mean many different things to many different people. In general, people who project innocence on socialism tend to call everything they don't like capitalism. And people who project innocence on capitalism tend to call everything they don't like socialism. If you asked most people what they really believe about capitalism and socialism you'd find a contradictory hodgepodge that advocates some of what socialism has to offer and some of what capitalism has to offer. The term "democratic socialism" embodies that contradictory hodgepodge. The term "democratic capitalism" would do the same.
The fact is that once government comes into existence, you get some level of socialism, because government entails at minimum collective ownership of land. Even though you can own your own land in government systems, you are still beholden to a government that claims some level of collective ownership of that land. In that sense, land is merely rented from the government to varying degrees. Even if certain land is not directly taxed through things like property tax, that land is still subject to the laws of the government.
Beyond just collective land control, governments also tend to get into the business of police, firefighting, schools, military, roads and many other things. Government involvement in all of those things is socialistic. None of those things have to be socialistic since all those things could be done privately instead of collectively. However, when government does those things they become socialistic. The more the government does the more socialistic things get. The more socialistic things get, the more decisions are made centrally rather than individually. In capitalism, decisions are made by individuals operating in a market. In socialism, decisions are made collectively. That collective decision making makes it centralized. And centralized decisions are the fatal flaw of socialism in all its forms. Even if a population of people could suppress their egoic self-interests in favor of collective interests (which is itself a pipe-dream), socialism still fails due to its centralized decisions leading to the economic calculation problem.
The Economic (Socialist) Calculation Problem
In his 1920 article "Economic Calculation in the Socialist Commonwealth," economist Ludwig von Mises introduced the world to the fatal flaw of socialism. Many attempts at socialism in many forms have come and gone since 1920. All of those attempts have confirmed to varying degrees the flaw Ludwig von Mises identified.
(To fully understand the economic calculation problem, watch the video below, which describes the problem in relation to full socialism and contemporary socialism mixed with capitalism.)
It has become a habit of those who think they advocate socialism that they use places where there is above average socialism riding on the back of capitalism, like Sweden, as examples of successful socialism. Sweden is not socialist. Sweden is like most countries a mix of socialism riding on the back of capitalism. When socialism is mixed with capitalism, there is a pricing system that can be used by government to figure costs for socialistic things like police, firefighting, schools, military, and roads. But there is still no market-based revenue and profit feedback to measure the quality, efficiency, and demand of government provided goods and services. (That fact is explored in The Simpsons' episode Trash of the Titans, where Homer runs for office promising extraordinary garbage collection service without factoring in the cost.)
Even in the presence of capitalism, when things like police, firefighting, schools, military, and roads are done socialistically by government, those things suffer from lack of market-based feedback and so suffer from the economic calculation problem. The closest thing to feedback in government services usually comes through voting, which is an extremely low resolution form of feedback. When paying directly for things, if the quality to cost ratio is insufficient, people stop paying. But people mostly don't have the option to stop paying taxes. Since paying for government services usually isn't optional, those services tend to be monopolistic. Even when private businesses try to compete with government, people usually don't have the luxury to skip paying taxes and so end up paying for the superior private service on top of the inferior government service.
What would police, schools, firefighting, roads and so on look like without government? For instance, do you think private roads would have you sitting at traffic light after traffic light? Do you think kids would hate education unhindered by government regulation and involvement? Regardless of the details, all that stuff would be more geared to what consumers wanted to pay for. When things are owned collectively, people are left with the lowest common denominator. So even when socialism rides on the back of capitalism, socialism still trends toward failure. If the fluctuating economy cannot keep up with the bloated price of socialism, the system fails. As a generic example, say a town does well feeding off the tax revenue of some big business, the business fails, the taxes die with it, and people move. But the town made future promises to pay for things like police, firefighter, and teacher pensions, so it can't just scale down. Perhaps then the state or federal government comes in and bails out the town. But if the state or federal level of government is in the same situation then the whole country fails. Capitalism can't always save the day because the weight of socialism is a drain on capitalism.
When capitalism isn't enough, socialism can survive for awhile on Ponzi schemes. For instance, socialized healthcare has a Ponzi advantage due to the fact that healthcare costs tend to increase with age. Therefore, as long as the youth population grows faster than the population of the elderly (through reproduction or immigration), there are enough healthy people to pay for the costs of the ill. And if a growing population isn't enough to pick up the cost, the cost can often be shifted to future generations through public debt.
No Initiation of Force
The Golden Rule is the essential formula for making anything work sustainably in human society. Don't do to others as you would not have them do unto you. Don't rob people if you don't want to be robbed. Don't kill people if you don't want to be killed. In other words, "no initiation of force." By initiating force you become subject to it due to the inevitability of defensive actions by others. Since people tend to not always have the discipline to do business by the Golden Rule, people tend to revert to giving power to an attempted monopoly on the initiation of force: government. But government doesn't really stop the force, it instead assures that certain kinds of force are made lawful and unavoidable. Voluntary capitalism and voluntary socialism are no problem because they actually work due to the feedback of economic calculation. Add force in any form and capitalism and socialism suffer from inaccurate economic calculation.
Force adds faulty data into economic calculation. When socialism is voluntary, those with wealth voluntarily choose to give it away. That choice is a form of economic calculation in the sense that people who give away wealth foolishly end up losing the wealth. So voluntary socialism is self-correcting. Forced socialism isn't self-correcting though. Force ruins economic calculation, because when people capitalize off of force (or lose because of force) that inputs bad data into the economic calculation; it's a form of cheating and sabotage.
There are many ways to capitalize off of government force. Here are some examples:
- Work directly for government. Just being employed by government is a way of capitalizing off of forced socialism.
- Just buddy up with a bureaucrat and cash in. You can sell things to the government and get payed by tax money, which is collected by force (threat of force). When things are payed by tax money, bureaucrats make economic decisions on behalf of groups of people, leaving a lot of room for inaccurate economic calculation. That inevitable misallocation of resources can be very profitable but is a drain on the taxpayers and capitalism as a whole.
- Get favorable laws passed. Instead of figuring out how to please customers, it can be more profitable and less risky to get laws passed that give you a competitive advantage and to sell things to bureaucrats spending tax money.
- Make pollution legal. Legal pollution is related to getting favorable laws passed. If you can do business without having to contain pollution to your own property you don't have to pay to stay clean. Socializing pollution improves the profit margin.
- Force what is considered money. Government controlled monetary systems are socialistic rather than capitalistic. There is no real free market if the money is not free market. To learn more about the monetary system, read my piece on the free-range debt-slave plantation. Monetary inflation and public debt is the government's alternative to taxation.
Realistically, you can't blame businesses wanting to take advantage of the force of government. If society is dumb enough to let government collect tax money, pass laws, issue debt, print money and so on, people are going to take advantage of that. Government force makes various kinds of theft very easy. Profit in capitalism can come through work or risk or both. People tend to value work, but have less appreciation for risk. But both are required. Government force can reduce risk and so people naturally game government to reduce risk.
Capitalism in cahoots with government is not really capitalism but instead corporatism. Even corporatism requires real capitalism to sustain itself. Real capitalism is the backbone of any system. The more capitalism is restrained the more the system suffers. No bureaucrat with a bullhorn can consistently allocate resources anywhere near as well as a free market. Sure, free markets make plenty of mistakes, but without socialistic centralized intervention (like central banking) the mistakes are isolated and thus small scale and just part of the calculation system; capitalism learns by calculating mistakes and successes.
Since capitalism is centered around private ownership, it operates best when the people participating in the system respect private property. Respecting private property means no theft, fraud, murder, pollution, and so on. Private property means interaction must be voluntary. As force is allowed into the system through everything from taxation, to public property, to fraud, to pollution (laws violating private property rights), to war, the economic calculation suffers and so does capitalism.
Conversely, socialism suffers to the extent that people wish to maintain private property. If people wish to preserve the life of their own body over the benefit of the collective, socialism suffers.
Socialism is a form of level confusion (confusing the ego universe with heaven). We all deep down know that heaven means oneness and equality. But in this universe, oneness and equality means death (maximal entropy). So when we pursue socialism, we actually pursue collective death... even though capitalism usually stops us well short of collective death. Socialism imposes all kinds of feedback mechanisms that don't treat the ego realistically. For instance, if you reward people to not work, you find out many will do just that. And when you penalize people who work, you find out many would rather not work (who is John Galt?).
But cheap abundance isn't enough because what is cheap and abundant also needs to be what people want. The beauty of capitalism is that it requires no accurate model to work since it is itself a system of calculation. It's easy to calculate that people want food but impossible to calculate what all kinds of food people want and that people want things like comic books about ACIM and so on. That's the super power of capitalism; it gives people things they didn't even know they wanted ever better and or cheaper (minus inflation).
Socialism appeals to people looking for heaven on earth and to people who are just not informed or smart enough to consider the economic calculation problem. If you've been suckered in by socialism, don't feel bad. Even Einstein was. Einstein was an example of a guy who was not smart enough to consider the economic calculation problem. Einstein let the elitist ego appeal of centralized planning lead him to advocating for socialism... despite his lack of knowledge about economics. Many scientists are funded by socialism and so tend to support the hand that feeds. (Listen to this video to learn more about Einstein's poor economic knowledge.)
My current conclusions about socialism versus capitalism are the result of many years of forgiveness. By forgiving socialism and capitalism, I was able to study them objectively enough to recognize what both accomplish as opposed to what they attempt to accomplish. I've forgiven socialism in the sense that I've accepted that it is level confusion. And I've accepted capitalism in the sense that even though it is very ego friendly in terms of its appeal to self-interest and that it devolves when force is allowed into the equation, it nonetheless exploits the ego for the good of the collective and so meets people where they actually are. Yes, I know socialism can work when sponging off capitalism and I know socialism can often beat corporatism (such as in healthcare). But the best most sustainable things come from freedom and the ego exploitation system of capitalism. Like, what would be a more popular business model for free market healthcare from the perspective of customers? People being paid to be healthy or paying to be sick? Figure out how to make that work and you would be well rewarded with customers.
A better name for true capitalism would be customerism since there is no capitalism without pleasing customers. But even though customers are the main people that need pleased, suppliers, employees, and neighbors need to be pleased too for it to all be voluntary (no force).
The more you have to offer people the more you are going to be valued under capitalism. Is that fair? If the universe is a dream it probably actually is fair since it is then all just a set-up anyway. And regardless, if you want things to actually progress you don't want progressivism (using force for imagined progress) you want capitalism as pure as you can get it. Since capitalism is a system of freedom, those who go against it break the Golden Rule. To break the Golden Rule is suicidal. In capitalism, those who have less to offer (less degrees of freedom) than others may not prosper. But that's why we have friends and family that value us far more than can be measured by money or barter. That's voluntary socialism, the kind that works. Pure capitalism means freedom and so no one to stop anyone pursuing other systems as long as the systems don't require force. People are free to shun capitalism if they want.
To anyone reading this who really isn't that well informed about socialism or capitalism, you'll have to do your own homework and forgiveness to come to my same conclusions. I studied capitalism (free market economics) before socialism, so I knew about the economic calculation problem before exploring socialism. Consequently, I never found socialism persuasive intellectually. I found socialism a little persuasive as a kid, but I was a know-nothing-idiot as a kid lol. I like voluntary socialism and practice it, but not forced socialism. I only advocate freedom, which is why I advocate capitalism without force and so without compulsory socialism. Forced socialism can work as a parasite on capitalism but force hurts capitalism and force hurts freedom. On a long enough timeline the survival rate of all forced socialism is zero.
Someone Else Pay
In general, people do not really want to pay for the costs and inefficiencies of socialism themselves, they want others to pay (like wealthy people, profitable businesses, and future generations through debt). When people have to pay up themselves, support for socialism diminishes quite fast. The appeal of socialism for most people is that they are going to get more out of socialism than they give. (Watch this video as an example of the common true psychology behind support of socialism, which is filled with self-delusion and cognitive dissonance.)
You may be wondering, how would the world work without force (government)? That's the beauty of capitalistic freedom. No central planner has to figure that out. Capitalistic freedom calculates out a competence hierarchy in human society, which is the kind of hierarchy you want if you want things to actually work. For instance, I'd rather Bill Gates be free to spend his billions of dollars than him being forced to give it to politicians to spend. Because it is Bill Gates' money and he is likely to spend it competently. A fool and his money are soon parted; so when fools gain wealth through luck or socialism they don't hold onto it long. That's the beauty of capitalistic calculation. Absent of force (which is too often not the case in the current world) wealth flows to those who use it to allocate resources in ways that bring in more wealth. Everyone benefits from good economic calculation and those who do it best produce wealth. Wealth does not simply come from having things like ownership of land, wealth comes from productive capacity.
With capitalism, society just has to agree on "no offensive force" and the system calculates solutions automatically as people pursue voluntary profit. I don't see government or society giving up force to usher in unhindered capitalism anytime soon though. After all, we currently live in a world where many people view socialistic force as a form of compassion and as spiritually evolved due to rampant level confusion and economic incompetence. Nonetheless, I could imagine technology advancing so much that people become ungovernable and so pure free-market capitalism takes over by default. I could also imagine technology advancing so much that energy becomes essentially free, in which case there would be widespread voluntary socialism (the kind that can work). The goal of capitalism is ever-greater efficiency to meet all people's wants. So, it is not unrealistic to imagine that people could eventually have the basics so well taken care of by energy abundance that no extra capitalistic labor would be necessary. Just this blog post you are reading right now is a form of voluntary socialism. The cost for me to publish this online is so low that it is essentially free. In the old days, I would have at least had to pay for paper, printing, and distribution to get this post out to others.
My objective is awakening from the dream, so I don't really care about social systems. But that doesn't mean I won't object and say 3-2=1 when people tell me 3-2=4. Because it's not kind not to warn people about walking into traffic when you can see around the corner. Nor is it kind to just tell people what they want to hear. For example, "economist" Paul Krugman has made a career out of saying exactly what certain interests want to spread and what certain people want to believe. That's problematic since Krugman is consistently wrong. He's so wrong that there is a weekly show Contra Krugman dedicated to debunking Krugman.
Read these prophetic quotes by Nietzsche written before any large scale full-fledged socialist experiments were ever done:
"In the doctrine of socialism there is hidden, rather badly, a will to negate life; the human beings or races that think up such a doctrine must be bungled. Indeed, I should wish that a few great experiments might prove that in a socialist society life negates itself, cuts off its own roots. The earth is large enough and man still sufficiently unexhausted; hence such a practical instruction and demonstration ad absurdum would not strike me as undesirable, even if it were gained and paid for with a tremendous expenditure of human lives."
"You preachers of equality, the tyrannomania of impotence clamors thus out of you for equality: your most secret ambitions to be tyrants thus shroud themselves in words of virtue. Aggrieved conceit, repressed envy--perhaps the conceit and envy of your fathers--erupt from you as a flame and as the frenzy of revenge."
-- Friedrich Nietzsche Thus Spoke Zarathustra 1883
Nietzsche was right, especially in regards to forced socialism. Nonetheless, there are some large scale forms of voluntary socialism that I would be interested in seeing tested because they might work. That's because voluntary socialism tends to be about equal opportunities rather than equal outcomes. For instance, say that somehow private free-market cryptocurrencies replaced government currencies. And say one particular currency became the preferred currency by most people. Say that particular cryptocurrency increased the money supply monthly in proportion to economic growth in order to maintain the stability of the currency's purchasing power. Say that cryptocurrency was able to precisely calculate economic growth due to having a ledger of all transactions done with the cryptocurrency. Then say that somehow every person was given an amount of that currency supply growth... maybe all equally or maybe based on some formula that people found fair. I don't know how that would work to prevent cheating but say that there was a system to stop cheating. That would be a kind of voluntary universal basic income. And that voluntary UBI could act as a kind of useful economic feedback since some people who received that money would do things with it that grew wealth while some would just squander it. Such a system would set a fair starting point for everyone and the cost would be essentially free since it would be in proportion to keeping up with economic growth. I doubt the economy would ever shrink in a system with that kind of freedom, but if it did then that would just mean no UBI that month. And if some kind of better voluntary socialism came along, people would be free to pursue that instead.
In summary, here is the gist of what most people are in need of forgiving in terms of Capitalism versus Socialism.
Forgive that socialism can work some by riding on the back of capitalism or through Ponzi schemes. And also forgive that socialism usually requires force, that it trends toward failure due to the economic calculation problem, and that people like socialism less the more they actually have to pay for it rather than just reap the rewards.
Forgive that capitalism works even though it can be corrupted by force and works within the ego framework of competition and self-interest.
Forgive that heaven is nothing you'll ever find in a social system.