Here’s Why You’re Wrong About Socialism… and Capitalism

Cal Axe
Cal Axe
Nov 16, 2020 · 6 min read

The answer comes down to a preference

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Photo by Victoriano Izquierdo on Unsplash

Are we actually talking about this? Unfortunately, we must. I’ve partaken in too many drunken arguments about the merits of socialism and capitalism, and I’m over it.

I don’t think I’m alone here — people are curious about the economic opinions of millennials. We are the next generation of leaders, after all.

Look, I don’t have a problem with curiosity. I just have a problem with people attacking my thoughts. I’m not sure I’ve lived long enough to work out an opinion that holds any water!

The curiosity comes from all sides: friends, coworkers, parents, bosses. What should be a friendly conversation turns into that bar scene from Good Will Hunting — a battle of the wits bundling in morals, political views, and, on some occasions, masculinity?

  • If you’re in favor of tax hikes, you must be a communist snowflake.
  • If you’re in favor of free enterprise, you must be a capitalist pig.

Business colleagues have called me a socialist who will, with time, come to his senses. Meanwhile, my friends see me as a staunch capitalist. “You’re reading a book about Elon Musk? Why?”

You’ve probably concluded that I’m neither — a centrist who doesn’t have the guts to take a hard stance. Maybe, I call it a different understanding of the relationship between socialism and capitalism.

So whether you’re a snowflake or a pig, here’s why you’re wrong.

Both Systems Are Destructive At Their Extremes

When you talk about expanding capitalism, what you’re actually saying is you want to widen freedoms. When you talk about socialism, you’re saying you want to increase equality. Both are desired, of course, but the systems tug at their extremes — a policy in one direction will be at the expense of a policy in the other.

Mortal enemies, if you will, like Taylor Swift and Kanye West.

An economy that assigns pure capitalism will soon discover freedoms they wish never existed, like the freedom to oppress others in the name of growth.

The Industrial Revolution (1800–1840) was a Dickensian nightmare of exhaustive labor: children working in smog, long hours, low pay, and disease-ridden slums. But businesses were justified. If their employment practices were profitable, it was rational to have children work 90-hour weeks.

If you find that example too distant, then perhaps we should go back to 2007 when Wall Street knowingly unloaded billions of dollars’ worth of garbage mortgage bonds and collapsed the world economy. That too was by capitalist standards, rational.

Yet, if capitalism has problems with oppression, the socialist has problems with arrogance. Arrogance leads to starvation, civil war, and death. The lynchpin example, but not as known to Americans, was the Ukraine between the years of 1913–1954 when 5 million people starved to death because of a socialist regime.

The Soviets took control of Ukraine’s agriculture and failed to grow food and provide for the country. First, they set food prices so low that farmers couldn’t pay to grow again. Second, they took Ukraine’s reserves and used them to pay down inconsequential debts.

It’s hard to imagine this scenario, and it’s a shame that we don’t talk about it enough. A hard-working country starved to death through no fault of their own.

So if you ever grow frustrated during an argument and cannot understand the other side, “how could they think that!?” I would urge you to take a sip of whatever you’re drinking and think upon your own sins. Capitalist will forever be ashamed of slavery and child labor, socialism will have no answer for their arrogance in letting countries starve.

Socialist Care About Money Too

The greatest misunderstanding the capitalist has about socialism is that socialists don’t care about money. That’s not true. Both systems rely on some form of profit motive to compel people to get off the couch. They simply differ about where those profits go.

I’m a commercial real estate broker, naturally, I like to visualize the tenant/owner relationship when describing profit.

Imagine a landlord leases an apartment unit to a tenant. The tenant receives access to housing, water, and electricity; The landlord collects a profit in rent.

In a perfect capitalist world, the owner takes those profits and distributes them back into her real estate business. She pays the property manager, maintenance techs, accountants, attorneys, and so on — thus expanding the economic pie in the form of employment. She then takes the remaining cash to improve the building’s amenities and provide a better experience for the tenant. She may even purchase the building next door, thus increasing the diameter of her economic reach.

It’s an optimistic worldview, but you and I both know this doesn’t always happen. Laissez-faire says the landlord can pocket those profits and spend it on whatever she feels fit. She could forgo the maintenance techs and spend that money on a yacht, watching from the sea while her building falls into disrepair.

The socialist would take a more active role in the mobility of those profits. Sometimes, the state just takes ownership of the building. Now the landlord can’t abuse her earnings.

Sorry to burst your bubble, but this doesn’t work either.

Socialism fails because it lacks competition. Without competition, the state sets prices with a decree rather than people’s actual needs and wants.

Say what you want about capitalist pigs, but the fervor that comes from private ownership ignited man’s creative side. The socialist doesn’t recognize the rewards of skill and service. An economy driven by the discovery of new niches and entrepreneurship that expands wealth on a macro scale.

The socialist may not like it, but the United States doesn’t become an economic power without capitalism.

When Redistribution Backfires

In the example of the landlord, the socialist would say capitalists are not to be trusted. Those profits are for society, for those who can’t work. Fair point, but the socialist must also realize that capitalists feel the same way. “I’m happy to pay taxes, but what if my money falls into the hands of a bunch of rascals who end up starving the country?”

“You say, each according to his ability, each according to his needs. But who decides the ability and who decides the needs?!”

Maybe most people, myself included, don’t have the time or the interest to research where all my tax dollars go. I pay it for peace of mind — nobody wants to IRS knocking on their door. But there’s a breaking point, and socialists must come to terms with that.

Economies that push the limit of taxable income will lose the incentive to produce. The fall of Rome, for example, can be blamed on outrageous fiscal policy. Taxation soared until and citizens lost the incentive to work. The rich, instead of expanding their businesses, spent time with lawyers digging for tax loopholes. Politicians spent their time with lawyers writing bills to prevent tax evasion.

Thousands of Romans fled to barbarian lands. In response, the Roman government issued new laws binding workers to their fields. Eventually, those workers would be called peasants.

Historians call this the dark ages.

The Answer Comes Down To A Preference

Truth be told, I love this debate, especially with friends after a few vodka shots — takes you back to what youth conversations must’ve been like behind the Iron Curtain. But I rarely see people budge on their position. The answer comes down to a preference, a preference we decide at an individual and national level. How much do you want your government to take care of you?

Enough time has passed for people to have witnessed the horrors of both systems. As a result, the western world is left with economic hybrids. France and the United States are both considered free countries. Yet in 2006, college kids in France barricaded the Louvre, protesting the fact that French firms pressured the government for the right to fire employees during the first two years of employment. Compare this to the United States where there is no guarantee of employment, and we squabble over a .25 bump in minimum wage.

There’s a beautifully written collection of essays called Lessons from History by Nobel Prize-winning historians Will & Ariel Durant. One of the famous essays talks about the turbulent relationship between capitalism and socialism throughout history. They conclude with this thought:

“The fear of capitalism has compelled socialism to widen freedom, and the fear of socialism has compelled capitalism to increase equality. East is west and west is east, and soon the twain will meet.”

Yup, that’s about right.

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Cal Axe

Written by

Cal Axe

Commercial real estate broker, blogger, and researcher. 27 years old. And here’s my newsletter

Data Driven Investor

empower you with data, knowledge, and expertise

Cal Axe

Written by

Cal Axe

Commercial real estate broker, blogger, and researcher. 27 years old. And here’s my newsletter

Data Driven Investor

empower you with data, knowledge, and expertise

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