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Getting Beyond Capitalism and Socialism


Since the 2008 financial crisis, there’s been a renewed interest in talking about the inherent problems and weaknesses of capitalism. There has even been renewed interest in socialism, or at least the “Democratic Socialism” which Bernie Sanders and Alexandria Ocasio-Cortez espouse.

This conversation is long-overdue. Economics is at the very heart of our national life, and it’s impossible to talk about the common good without talking about economics. Debating which sort of economic principles are most conducive to the culture and country we want to have has long been neglected. It’s a great thing that we’re starting to talk about it.

As is often the case with contentious issues, however, we talk past each other without taking the time to listen well enough to at least disagree accurately. Often we don’t end up disagreeing with our opponents’ real views at all, but with a caricature of them. The result is as predictable as it is common: polarization and alienation from our fellow Americans, and a degraded public discourse.

To some people, capitalism merely means free markets. To others, it is an unjust economic system in which inequality and concentration of wealth are inherent features, not bugs.

To some, socialism implies the abolition of private property and an economy centrally controlled by the state. To others, it is simply an economic system which puts the public good ahead of private profit.

With such starkly different meanings of these terms, is it any wonder we can’t have productive discussions?

To start a productive conversation, I would suggest that practically no one in the United States advocates for the extreme forms of either system. No one believes in markets without any regulation, and no one believes in the abolition of private property and a centrally-planned economy. These are the caricatures or “straw men” which each side set up in order to “destroy” their opponents. When we hear such caricatures, we ought to be deeply suspicious.

Instead of the most extreme versions of either capitalism or socialism, the vast majority of Americans embrace an economic system which blends principles from both. Everyone believes in the capitalist principles of private property and some form of the free market; on the other hand, everyone believes in the socialist principle that the government has a role in intervening to bring about a public good that society demands but which the market won’t produce. As is often the case, we don’t disagree on principles so much as we disagree about where to place the fulcrum, to balance principles that might be in tension but which nearly all Americans share.

This is an essential point, I think, because it always turns down the temperature of any debate when we realize that we’re not arguing about opposing principles so much as how to balance principles both sides hold in common. This recognition unites us rather than divides us, and it establishes a foundation for discussion and debate rooted in good will and generosity rather than skepticism or contempt.

When progressives push the Green New Deal, it’s not because they hate liberty and love government. It’s because they value solving the climate crisis, and see government as the only practical vehicle for doing it. When conservatives criticize the Green New Deal it’s not because they hate the environment or don’t care about the evils of climate change. It’s because they value liberty, and fear the unintended consequences of an excessively powerful government and its overwhelming interference in the free market. When some fearmongers tell us that progressives hate America, and others tell us that conservatives have no heart, we shouldn’t believe them.

The art of politics is the art of balancing competing but equally valid ideas. The tensions which exist in our political culture are healthy and important, and can serve as a source of strength rather than weakness. If we are willing to grant that our opponent’s ideas have a kernel of truth in them, and that our opponents’ criticisms of our own ideas have a kernel of truth as well, we can begin to have hard conversations based on mutual respect rather than scorn.

In the case of capitalism and socialism, we’re not really disagreeing about whether or not to have private property and free markets, or government investment and regulation. We all believe that we need those things. We’re simply disagreeing about how to balance these competing principles.

However, perhaps the most important thing to recognize in this debate is that neither capitalism nor socialism (or any economic system) is an end in itself. Instead, economics is merely a tool for promoting a society’s vision of the public good. But as with any tool, you need to have a clear goal or objective in mind. The tool doesn’t tell you what to do with it, what to build. And wielding a hammer randomly and without purpose can be quite dangerous.

So it is with economics. We often argue about the tool—socialism or capitalism—without a clear vision of the good life. In the moral vacuum that’s left, the economic system itself starts to suggest or rationalize certain moral values. In capitalism, greed becomes to become overlooked at first and then eventually praised. In socialism, the physical and material wants of society begin to be emphasized to the neglect of spiritual needs.

And so what encourages me most about our current conversation is the fact that some on both the left and right have begun to ask questions which seek to go beyond both socialism and capitalism, recognizing that the principles of capitalism and socialism represent means to an end, but don’t really tell us anything at all about what end they’re being used to pursue or what ends our economic system ought to pursue.

In arguing abstractly about the merits of socialism and capitalism, we’ve missed the main point. A new breed of critics is forcing us to ask not “What kind of economy should we have?” but the deeper questions: “Who is our economy for?” “What is the ultimate purpose of our economy? ”What would success look like?”

My curiosity is aroused any time I see people on opposite sides of the political spectrum finding common ground which bucks conventional wisdom but makes lots of sense. So imagine my delight recently when Fox News’s Tucker Carlson dropped a bombshell of a monologue by praising Democratic Senator Elizabeth Warren’s “Plan for Economic Patriotism.” While decrying her views on all sorts of other progressive issues, Carlson praised Warren’s understanding of our economic system through the roof, describing her as “Donald Trump” at his best—a compliment, perhaps, which Warren herself would not find flattering.

What Warren, Tucker, and others have been preaching for some time is a sort of economic nationalism, one which puts American workers of all classes first. Their argument is that, ultimately, there’s not much difference between socialism and capitalism if both lead to a concentration of power by elites, the state in the case of socialism and a wealthy ruling class in the case of capitalism. Is there much difference, they would ask, between big government and multi-national corporations? What both systems, as typically practiced, have in common is a tendency to alienate and disempower the majority of ordinary Americans while rewarding a small ruling class with wealth and power.

The opposite of the concentration of wealth and power inherent to both socialism and capitalism as we have known them would be an economic system in which power and wealth are widely distributed. A hundred years ago, prophetic writers like GK Chesterton and Hillaire Belloc coined the term “distributism” to describe such a system. More recently, Pope John Paul II, in criticizing both socialism and capitalism, suggested that a term such as “free economy” might be suitable. Even more recently, others have suggested that something like “ethical capitalism” or “moral capitalism” would do just fine.

I’m not sure the term matters so much as the substance. Oren Cass has recently expressed it succinctly and powerfully:

“[A] labor market in which workers can support strong families and communities…should be the central focus of public policy.”

I think a great majority of Americans would agree that both socialism and capitalism as we have known them have failed to produce strong families and communities. The tools, as we have employed them, have failed to meet the goal for which they were, or should have been, employed. Perhaps it’s time to reset the debate, to go beyond the economic “systems” of capitalism and socialism, and to embrace economic principles which recognize strong families and communities as the heart and touchstone of policy. Perhaps it’s time to put economic principles firmly and clearly in their place, subservient to the human values and human needs which they should serve.

I hope we get beyond the simplistic and caricatured debates we sometimes have about capitalism and socialism. I hope the current conversation we’re starting to have opens up deeper and more insightful avenues of discussion that might address the economic peril in which we find ourselves. An economy in which more than 20% of children are raised in poverty can hardly be said to be an unqualified success, but nor can a society be said to be a success which has failed to decrease poverty rates during the past 50 years despite spending billions upon billions of dollars on poverty fighting. Both conservative and progressive economic policy have failed to create the sort of society we want. Perhaps it’s time for some new ideas.

An economy which is healthy and well-functioning would display not a concentration, but a wide distribution, of wealth and property and prosperity. I agree with Oren Cass. This should be the focus of all our economic policy. It is a mighty task, not one for a mere season or election cycle but one for a generation at least. It would actively resist concentration of wealth and power, whether by international corporations or by the state. It would go beyond socialism and capitalism, because it would recognize that in their effects, they have been simply two sides of the same coin.

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7 thoughts on “Getting Beyond Capitalism and Socialism”

  1. I appreciate Justin’s open-minded exploration as usual! One thing I’d like to add is that there are many conceptualizations of socialism, the most well-known (currently) being the Democratic Socialism of Bernie Sanders. Other kinds of socialists don’t see Democratic Socialism as socialist at all b/c it leaves in place the essence of capitalism, which is that capitalists, rather than workers, own the means of production and receive most of the profits created by the labors of workers.

    Having learned of the economic malfunction and human rights horrors of centralized socialist systems like the Soviet Union, many socialists today are more interested in a distributed version of socialism, in which small enterprises are collectively owned and controlled by workers, not by the govt and not by shareholders. (An example of this is the Mondragon Corporation in Spain).

    1. Thanks Erica! I agree completely. The great GK Chesterton and Hillaire Belloc (the founding fathers, in my opinion, of this way of thinking) knew that the terminology was part of the problem. They defined capitalism as a small elite owning the means of production (our system) and socialism as the State owning the means of production. Their vision for Distributism was that the people would own the means of production, partly through collectively owned ventures but especially through sole-proprietorship business. I think Capitalism and Socialism have done such a poor job in the 20th century, that I personally wonder whether either term can be redeemed, no matter how we try to re-define them. I really think we need a NEW term! But that is a tall order I realize. Also, Belloc especially was honest enough to realize that if you give to workers the means of production without a healthy culture of ownership pre-existing, the result can be disastrous. It’s an unfortunate chicken and egg problem. To me the beginning is to slowly grow a culture of ownership and independence. It certainly would be the work of a generation!

    2. Yes, ownership and control of productive assets is the optimal way to manage risk and reap the rewards of risk-taking capitalism. But the problem with worker-owned cooperatives like the Mondragon structure is that workers’ risks are concentrated in the firm – with both their labor income and their capital savings. This violates the principles of risk diversification in order to manage loss aversion. People understand this intuitively, if not explicitly. Better that workers assume some equity risk and return in their income compensation but also transfer most of their wealth into diversified asset portfolios across the economy. That also demands strict enforcement of property rights and rooting out conflicts of interests within the corporate governance structure. Decentralized ownership is consistent with diversified skillsets, education, and social networks. We live in a world of constant change and uncertainty – that is the fundamental nature of the universe, no matter what political economic structure we organize around.

  2. “Everyone believes in the capitalist principles of private property and some form of the free market; on the other hand, everyone believes in the socialist principle that the government has a role in intervening to bring about a public good that society demands but which the market won’t produce. As is often the case, we don’t disagree on principles so much as we disagree about where to place the fulcrum, to balance principles that might be in tension but which nearly all Americans share.”

    Agreed. The question then becomes much less about ideology and much more about what works. For that we have lots of social science research to fall back on, but the conversation rarely gets there. Public goods are necessary, but public goods markets are also at the bottom rungs of efficient use of resources. That’s why we have horror stories of military spending, the USPS, and the DMV. The way forward is to agree when we need to absorb these inefficiencies and when we do not. Unfortunately, public goods usually put bureaucracies and politicians in control, promoting their self-interest in favor of turning private goods markets into public goods markets – hence the big push for entitlements and universal health care. Rather, some private market failures require public solutions, but let’s not throw the baby out with the bathwater.

    This also brings me to question the focus on the labor market as the primary mechanism for the distribution of product. Work is noble because it provides a purpose to one’s daily life, not because of the distribution of monetary value. Focusing on labor for value distribution seems an anachronism of the industrial age of manufacturing and services. I’m not sure it’s the best focus for the information age.

    I would suggest that labor became the mechanism for value distribution because of the ability to assign a person’s work to his or her person, thus it became a right of personhood in the historical aftermath of slavery, peasantry, and indentured servitude. It was the mark of freedom. But there are many other mechanisms for value distribution: land ownership, financial capital, human capital, social capital, etc. Social capital today has been realized by social networks, but the value created is concentrated in monopolistic network servers like Facebook, Google, etc. Imagine if such value was distributed in the same way that labor value is distributed? And why not? If we can’t tolerate monopolies in railroads, steel, and banking, I’m not sure why we should tolerate them in information.

    The other often ignored mechanism of distribution is the ownership and control of financial capital. This seems to be mostly an artifact of the historical state of financial technology, a condition that no longer applies. The distribution of the returns to capital follow the distribution of risk bearing at the investment stage. But all those who have borne the risks of risk-taking have not always received the benefits of the returns. Investors in trade invented the common stock structure to diversify the total loss risks of cargo ships being lost. But think of those sailors who put their very lives at risk, were they properly compensated? No, because they had no legal way to assign their risks through the ownership and control of tangible assets.

    Financial innovation and technology have taken us a long way from such market failures, but our thinking is still mired in a capital vs. labor mindset as the determinant of value distribution. That said, it seems a folly to try to survive in a capitalist society without access to, ownership, and control of financial capital. Or to manage the risks of uncertainty without a diversified asset portfolio to complement social insurance.

    In this light, the sole focus on labor seems like so much inside-the-box thinking that afflicts our political class. Do we really desire just more opportunities to sell our precious time for money, or should we demand more liberty and opportunity to share in the wealth of capitalism so we can spend our more valuable time as we choose? Frankly, we should consider trading time for money a suboptimal life choice, but I guess that really takes us from economics into moral philosophy and metaphysics.

    1. Justin Naylor

      Michael, thanks for the thoughtful comments! Are you familiar with the old school “distributists” GK Chesterton and Hillaire Belloc? You might find them lightweights in terms of their grasp of economic details, but I think they’re right on in terms of philosophy and metaphysics.

  3. I am making a comment here wondering if it will even be read at this late date. Justin is quite right that most people share some common values about what they hope that a well-functioning political economic system would provide. And virtually no one believes that “pure” capitalism that results in such skewed distribution of economic security and personal well-being is desirable. I believe, however, that many people who support “capitalism” do not believe that the differences in peoples standards of living are attributable to the economic and political system that we have. Rather they can believe it is personal failings to succeed, or the fault of government policy that interferes with the “natural” working of the market. The situation facing our country, and the world in general, is far more complicated than focusing on our system of economic organization. I believe that initially we must confine dialog to a group that agrees that there are serious inequities in the way our society functions in terms of the outcomes in housing, health, economic security, education, and the skewed ability for people of different backgrounds to access productive and economically sustaining employment or income.
    Focusing on capitalism versus socialism really misses the point, as you seem to be saying in your piece. Either is essentially a tool, as you state. However, there are many people who would fervently disagree. The conversation cannot include people, at first, who believe that whatever flaws in our society that they perceive are most likely caused by government interference that prevents markets from operating as their faith tells them they would if simply left alone. Any concept of including externalities of economic activity, such as air or water pollution, or restricting effective access to healthcare to people with the ability to pay (or have effective health insurance) as a responsibility of government is strenuously resisted. The conversation, thus, must begin with discussing the purpose of government. For people like you and me, who seem to agree that there are massive structural issues in our society that result in a significant number of people living without needed healthcare, adequate income to provide housing, food, and other necessities of secure living, we have to ask how we craft policy to ameliorate these conditions.
    The elephant in the room in looking at our society is the ability of wealth to maintain and expand its own power for the benefit of the social and political elites. Elizabeth Warren, for example, is looking at this situation specifically in the many position papers that she has developed. The process of seeking a rebalancing of power can only happen when enough people who actually vote can agree that it is necessary, and possible. And that is only a small first step. Then we have to have enough agreement among lawmakers to work together to effect change. When one side sees any improvement in social conditions as a “win” for the other side that is seen as unacceptable, we are doomed to be mired in deadlock. Deadlock, I maintain, is the default choice of those who are already at or near the top in distribution of wealth and security.
    The only way I see around this reality, is by expanding the number of people who want to participate in some capacity toward developing policy solutions to agreed upon social and economic injustices. Many people believe, or have been led to put their attention on, a major purpose of government being the enforcement of laws and contracts, the certainty or stability that is postulated as a necessity for the efficient working of our economic system. They miss that these laws and contracts are already built into our system so that it is rigged in favor of the economically powerful.
    What I believe we need as a society is to understand that any policies or institutions will have only partial success for any purpose that is intended. When we get fixated on shortcomings that represent “failure”, or worse, animus, instead of looking for approaches to improve the situation, we remain in the type of environment that prevails in our political discourse today.

  4. You are an absolute genius. Thank you for thinking outside of the box. I am going to school to be a social worker and fight for social justice, but I have been struggling with depression because all I do is study social issues. I feel like social work wont get at the root of our dilemmas. Pretty crazy but I’ve been so outraged about the society we socially constructed that I have considered going into public affairs or law. All I really want to do is bring awareness to inspire change. I’ve been really obsessed with finding solutions to social problems. I was feeling really powerless however after studying more about the slim elite that have all the power and run America. I felt so sad for the society that my young siblings will be forced to live in. I think it’s time for us to do what we do best as humans– adapt. Obviously socialism and capitalism have not worked, so why do we not adopt a new system or combine them? I had the very same thought before reading your article. See we are smarter than this; we are problem solvers. I’m not content with working a mundane job– I want social justice and I think we can really create a just system. Scrap the two parties and be civil, create a new constitution. I’m really happy I ran across this article. Thank you so much.

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