Society7

Philosophers, political scientists, economists, anthropologists, and “just plain folks” have long debated the nature of human society. How do people manage to live together? What is the best way to organize society? Plato proposed philosopher kings.

Capitalism’s central tenet is private property that owners can exchange freely in competitive markets. According to capitalists, under these conditions society benefits from maximum productivity, optimal allocation of resources, lower prices, and greater choices. Adam Smith’s Wealth of Nations is the first great analysis of capitalism. Smith’s most fundamental belief was the efficiency of market competition in optimizing resource use, described metaphorically as the “Invisible Hand.” It assumes that if there is an unmet need, someone will recognize it and seize the opportunity for profit. If successful, he will overcharge because, being human, he is greedy. The resulting wealth will draw competitors, driving prices down. If there are too many sellers, competition will eliminate the highest cost producers, bringing supply and demand into balance to the benefit of consumers. Government intervention for political reasons prevents the elimination of excess capacity, wastes resources, and undermines market efficiency.

Smith championed capitalism but not capitalists. He warned that they always advocate policies that benefit themselves at the expense of the general interest. Thus, at one point he famously wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Smith abhorred the mercantilists who believed that the key to national prosperity was a favorable trade balance, so that they advocated state-sponsored monopolies, high tariffs on imports, and government subsidies for exports. Smith found that these policies (dominant in England and France when he wrote) promoted the interests of producers at the expense of consumers and distorted efficient allocation of capital. He argued for free trade, which he claimed increased prosperity by stimulating the division of labor. Today’s mercantilists, now known as protectionists, want high tariffs and export subsidies, and bemoan trade deficits and competition from foreign workers. Free traders respond that the problems are high tariffs, high corporate and income tax rates, mandated employee benefits, undue risk from lawsuits, and excessive regulation.

It is untrue that Smith in particular and capitalists in general oppose all government intervention. In Smith’s view, government had three main roles, starting with national defense. Second, it should protect property, enforce contracts, and ensure free trade. Finally, it should provide essential services that the market was unlikely to undertake, such as (in his day) canals, roads, harbors, mail, and education.

Charlie Chaplin satirized problems of the factory system in Modern Times that Smith foresaw 200 years earlier and suggested public education as a cure. He understood that capitalism produces an unequal distribution of wealth, but argued that as long as there was economic growth, the poor would be better off than under any other system. He argued that the wealth of a nation stems not from its gold but from the productivity of its consumers. In all of this, he proved prescient and considerably more accurate than Karl Marx and communism

Communism according to Karl Marx would be the utopian “end of history.” Its inevitable triumph would produce the “greatest good for the greatest number of people.” Getting there was the result of class struggle, which was the history of all existing and past societies: “Freeman and slave, patrician and plebian, lord and serf, guild master and journeyman, in a word oppressor and oppressed, stood in sharp opposition to each other.

As far as is known, Marx never set foot in a factory or workplace. He never talked directly either to owners or to workers. Rather, he searched books, newspapers, and government statistics for data to justify his preconceptions, ignoring any that did not fit. For example, to prove that capitalism exploited workers, logically he had to prove that pre-capitalist workshops were more humane than capitalist factories. He did so by referring to a twenty-year-old book by Engels based on an even older government “white paper,” but he ignored the resulting Factory Act of 1833 that corrected many of the conditions reported. Where abuses continued, they were in worker-intensive rather than capital-intensive industries, contradicting Marx’s theory. He disregarded these inconvenient facts.

Marx predicted that capitalism would concentrate wealth in the hands of a few monopolists and that the middle class would disappear. Instead, small businesses proliferated, creating most of the jobs and vastly enlarging the middle class. Marx predicted that machinery would destroy jobs and profits; the opposite happened. He asserted that ownership implies control. Instead, the stock market turned workers into owners who have little control.⁸ The number of product and corporate failures refutes the claim that corporations control our lives and sell consumers whatever they make. Belying this belief, 30-90% of all new products (varying by industry) fail. From 1955 when it first appeared through 2005, the Fortune 500 listed 1877 different companies, and only 71 or a mere 14.2% of the original 500 remain on the list.⁹

Marx’s economic reasoning depends on the “labor theory of value” and the “iron law of wages.” The first wrongly asserts that the prices of all things vary only according to the amount of labor required to produce them, adjusted in Marx’s formulation for the skill required as measured by differences in pay rates (the reasoning is circular).

Marx was wrong a third time when he predicted that socialism would correct the problem. Workers in self-proclaimed Marxist countries received a lower percentage of GDP as wages than those in capitalist countries.

Marxists also argue wrongly that capitalist systems must spend excessively on the military to counter economic stagnation. In fact, the 38 Marxist governments of the Cold War era put twice the percentage of GDP into the military as non-Marxist countries and maintained twice as many troops per 1000 population than did non-Marxist ones (13.3 versus 6.1). Ten countries that became Marxist during the Cold War nearly tripled their military spending, while states that escaped it, such as Albania, Estonia, Mongolia, and Somalia immediately reduced military spending. Ironically, the Marxist countries stagnated economically, partly in consequence of excessive spending on their militaries.

Marx predicted that workers in industrialized countries would lead communist revolutions. He was wrong again. In fact, they have taken place in agricultural societies such as China, Cuba, and Russia rather than industrialized ones such as England, Germany and the United States (Lenin rewrote the theory to make it fit events).

Marx posited a transitional period between capitalism and communism in which a dictatorship would confiscate private property to set up a system of communal ownership. It would nationalize production, put citizens to work in state enterprises, and set quotas and prices for all goods and services. It proved inefficient, impossible to get and keep right, and corrupt. Hence the communist joke about the factory required to produce 10,000 tons of nails a year, which it did by producing a single nail weighing 10,000 tons.

Marx never explained when or why the dictators would surrender power. Of course, they didn’t. Every communist dictator everywhere used secret police to imprison or exterminate opposition and hold power. When Gorbachev actually did allow free instead of sham elections, Soviet communism collapsed.

Despite the flaws and the disastrous historical record, some still see salvation in Marxism, blaming imperfect implementation for its failings, while pointing to the imperfections of real capitalism. They compare apples with oranges, an imagined Marxist utopia with the worst aspects of capitalism as it actually exists. The opposite, comparison of an idealized capitalist economy against the horrors of actual Marxist states, is equally disingenuous. The only fair comparisons are equals with equals: ideal Marxist states with ideal capitalist ones, or real Marxist states with real capitalist states. The trick of comparing hypotheticals with realities is one to watch for in all debates.

Fascism¹⁰ is the source for the first eight statements at the head of the chapter, each taken from Mussolini’s original 1919 Fascist Party platform. The remaining twelve are from the Nazi Party platform written in 1920 by Adolph Hitler and Anton Drexler. Fascism, often wrongly portrayed as an extreme right-wing philosophy, is socialist. “Nazi” abbreviates “National Socialist.” Nazi ideologist Gregor Strasser wrote, “We are socialists.

Benito Mussolini’s father was a blacksmith and an ardent socialist with an anarchist bent who was a member of the First International along with Marx and Engels. In 1902, Mussolini fled the draft, his debts, pursuing local authorities, and several enraged husbands to Switzerland, where he fell in with the Bolshevists, socialists, and anarchists so compatible with his upbringing. After his return to Italy, he spent five months in prison and was welcomed on his release as a socialist star with a banquet at which he was dubbed Duce (leader), the title by which he was known from then on. He attended the Socialist Congress at Basel in 1912, became the editor of Avanti!, and launched Utopia, which reflected Frenchman Georges Sorel’s syndicalism (advocating rule by revolutionary trade unions) and his totalitarian nationalism.

With WWI, the majority of socialists ostracized Mussolini when he joined a minority supporting the war, leading him to transfer his allegiance to a pro-war radical group called the Fascio Autonomo d’Azione Rivoluzionara. He quickly became their leader. One of his first actions was to establish a party newspaper, calling it Il Popolo d’Italia (The People of Italy). With even socialist parties voting along nationalist rather than international lines in favor of WWI, Mussolini said, “I saw that internationalism was crumbling…The sentiment of nationality exists and cannot be denied.” This led him (drawing on Sorel and the French Revolution) to the idea of national socialism. The division between the fascists and the communists wasn’t over economics but over nationalism.

To suggest, as many irate liberals often do, that American conservatives were “Nazis,” is false. American conservatives seek to preserve traditional values and the classical liberal creed enshrined in the Constitution. Fascists and Nazis despised both. They also emphasized environmentalism, animal rights, and health food, all characteristics not of the right but of the left. The party base consisted primarily of working and lower classes, hardly the constituency of right-wing parties. Broadly speaking, the left is the party of revolution, the right the party of the status quo, which again puts the fascists on the political left.

Why then do so many wrongly identify fascists as right wing? The simple answer is a successful propaganda effort. With World War II and the Holocaust, the left successfully redefined discredited fascism as right wing, and all inconvenient ideas and movements as fascist. The left has been pulling the same trick ever since, adding the charge of “racism” to their repertoire of kneejerk ad hominems in the 1960s despite their own association with eugenics and segregation in the first part of the twentieth century.

This was not the case during the 1920s and much of the 1930s, when American progressives admired German and Italian fascists. Among these admiring progressives were W. E. B. Dubois, Ida Tarbell, Rexford Tugwell, and Will Rogers as well as the New York Times, McClure’s Magazine, and the Saturday Evening Post. Lincoln Steffens, a famous apologist for Soviet communism, saw no contradiction in also admiring Fascist Italy. Columbia University established Casa Italiana as fascism’s home in America, a schoolhouse for budding Fascist ideologues. Hollywood took the side of the Fascists in The Eternal City (1923). With World War II, Cole Porter changed his original lyrics for “You’re the Top” from lauding Mussolini to the current version lauding Mahatma Gandhi.