Capitalism, Communism, Humanism

I’m currently teaching a winter term topics course on German unification.  It’s a three week course, taking place during that time that is usually the semester break.   There are only eight students in the course, so it’s a nice time to really get into the issues surrounding German unification and its aftermath.

One thing that studying Europe has shown me is that both communism and capitalism have very dark sides, and either one can exploit, enslave and abuse.  I have come to absolutely reject the views of those true believers who either embrace the state and government as the key to ending the ‘tyranny of big money,’ or those who embrace the free market as somehow able to create the best result possible.  Moreover, our culture tends to see the world in dichotomies, where one “side” is good and the other bad.  In such a world view the obvious evils of bureaucratic socialism (aka communism) means some take it as a matter of course that the other extreme is best.  If totalitarianism is complete lack of individual freedom, then wouldn’t free market capitalism be its ultimate expression?

Looking at the case of Germany, it’s hard to keep up that dichotomy.  First of all, no one in their right mind denies the evil that bureaucratic socialism created.  People were spied upon, their individual initiative thwarted, and basic freedoms denied.   Bureaucracies are inherently conservative and resist change.  Communist economies thus tended to reproduce past practices rather than innovate, and individuals with creative, intriguing ideas learned to suppress or at least keep quiet about those ideas.   The result was an economy that, after growing gradually from 1949 to the mid-sixties, started to stagnate, and then after 1971 lived beyond its means on borrowed capital, mostly from West Germany.  By 1989 the economic system was near collapse, mirroring conditions in the rest of the East.  The fall of communism had a clear cause: as an economic system, communism cannot work.

To be sure, it could have ended with a bang rather than a whimper.  If Gorbachev had not been a true humanist, more willing to see Eastern Europe break away and his reforms fail than to use force, the system could have persisted perhaps quite awhile longer in some form.  If Ronald Reagan had not changed his policies to stop his defense build up and work to build actual nuclear disarmament — in his second term he was actually quite “liberal” in that regard, and while they seem now to forget it, conservative Republicans were angry at him for becoming soft on communism — then perhaps Gorbachev would have failed and an actual war could have ensued.  Gorbachev and Reagan worked well together to prevent that.

But the failure was economic.  You can’t deny people their individual expression and initiative while running an economy through bureaucratic planning and have it keep up with dynamic market economies which use the market to gather diffuse information from every individual who participates.  But does that mean that market economics taken to an extreme are best?

No.  Communism emerged for a reason — a response to European sweat shops and exploitation that would appall anyone with a conscience.  And, while in the comfort of ones’ easy chair it’s easy to sniff, “well, they had to go through that to get to where they are today,” that’s an exceedingly arrogant and inhumane position to take.  Individual lives were involved, children killed in factories, people used simply to make money for those elites who thought nothing of abusing other humans for personal gain.  It was abstraction of humanity in the extreme, as evil as the abstraction used by dictators like Stalin to rationalize their horrors.

The most profound problems with markets are basic:  First, humans lack perfect information and in fact often deal with misconceptions and misleading information.  Those who can control or gain better information have a profound advantage.  Second, those who “win” in the market can use their advantage to structure future games to benefit them, usually through better access to information, as well as the capacity to do things others cannot.   The result is an inherently unjust system that gets manipulated by a few “winners” to create real class divisions and structural exploitation.   Socialists are right in how they diagnose many of the core problems of capitalism.  Capitalists are right in how they diagnose many of the core problems of socialism.

Modern market capitalism avoids most of the evils of pure market capitalism through regulation, whether prohibiting most forms of child labor, passing labor safety laws, protecting unions, limiting work weeks, and various other laws that try to create a more even playing field.  Nonetheless, the gap between the rich and poor has been increasing.  And while the poor may be doing better in absolute terms, politics operates through relative relations, not absolutes.

In Germany Christian Democrat Ludwig Erhardt pioneered the notion of a “social market economy,” as a compromise between capitalism and socialism.  Erhardt, archetect of the German post-war economic miracle and Chancellor of West Germany from 1963 to 1966, argued that market economies operate best, but must be steered to assure that the people are put first, not the profit or the bottom line.   People deserve fairness, they deserve health care, they deserve education, they deserve true opportunity.  This can be achieved without socialism.   Some call any government program socialism (e.g., the misnomer ‘socialized medicine’ for a health care system like those throughout Europe — that’s not socialism), but it’s really a mixed economy, with markets operating under loose regulation.  If the regulation gets too tight the economy veers towards the mistakes of bureaucratic socialism, if it is too light, the dangers of unrestrained market activity occur.

And to me that’s the key: put people first.  Ideologies are nice, but people get lost in the abstractions of arguments, concepts, claims to act on principle (for most people principle is the term they give to the ideas they are emotionally connected with — I ran into that in debates with an emotion driven anarchist way back in the 90s) so much that they forget that life is not just about justice, freedom, equality or material goods.  Life is about people.

By that I don’t mean life is about giving people material stuff, whether it’s health care, education, or jobs.  Life is also about allowing people freedom to create, work, express, and thrive.   Pure market capitalism can lead some to deny material needs to others through exploitation, rationalizing the inhumanity by market ideology.  Communism can lead leaders to strip people of that which makes life worth living — freedom and individuality — in order to service the “ism.”

So forget the ideology, forget trying to intellectualize and rationalize ones’ perceptions of reality in order to find out what the “right” system is.  The mind misleads, it rationalizes one’s emotional whims, and allows us to create logical edifices to protect whatever we want to believe in.  That is why ideologies consume people whole, causing them not to live as fully or appreciate their world.  In many cases they lead people to hurt, kill and abuse others.

Focus on people — practical ways in the every day to put people first.  No single policy path, no clear rational way to determine the role of government, markets or choice.   Erhardt’s social market economy was an effort to work on that principle.   But beyond economics it’s a good principle for life:  people first, then do the right thing.

  1. #1 by Mike Lovell on January 5, 2009 - 15:29

    Great post Scott. Not even sure how to respond. I am definitely one you might render as a free-market capitalist. Not exactly what you see today, even in America..which I call more of a political market capitalism…..where the few dictate who survives and who doesn’t regardless of the values the “have-nots” might be able to provide, through the regulations set forth by people acting as external authorities, who live without personal knowledge of true business paradigms that extend the humanist point of view, through over burdening the system with “socially good” practices of regulating things left and right, regardless of the result of said regulations, buying themselves popularity, votes and power for themselves.
    But overall…I enjoyed reading this post, and you brought up some good points. I think all “isms” have been caught in a stranglehold by a few who have chosen to define them in one set of concrete ideas, rather than look at the overall.

  2. #2 by Scott Erb on January 5, 2009 - 18:54

    You raise good points. Ludwig Erhardt (the CDU Chancellor who pioneered the idea of a ‘social market economy’) was a believer in market capitalism and understood economics. His idea of a ‘social market economy’ was not based on knee jerk regulations, so I think this can be done in a pragmatic way — with a sense of how businesses operate and the impact of regulations/programs. One problem comes in assuring flexibility; can things be changed when conditions change? Germany is an example of that, their pension system made perfect sense in the 50s – 70s when the population was younger, health care cheaper, and the life expectancy shorter. Now they have a very generous pension system with a larger chunk of the population nearing retirement age. The demographics are really hard on their social welfare system. But it’s hard to alter it once it’s in place. They have started — they have to — but it’s tough. But yeah, such practices need to be based be economic logic, not haphazard ‘buying popularity’ or doing things for political gain.

  3. #3 by renaissanceguy on January 10, 2009 - 15:31

    “One thing that studying Europe has shown me is that both communism and capitalism have very dark sides, and either one can exploit, enslave and abuse. ”

    Except that capitalism isn’t the kind of entity that communism is. Capitalism is freedom, pure and simple. It’s not really a “system,” although it is often called an economic system. Communism is state-imposed sharing of wealth. It is a system run by an elite class, who pretend that everyone is equal and given equal shares of the wealth.

    “. . .those who embrace the free market as somehow able to create the best result possible.”

    What about those who don’t believe that the “free market” can create anything because the free market is not a person? What about those who believe that the free market is the only moral economic approach, regardless of whether it creates the best result, the worst result, or no result?

    “You can’t deny people their individual expression and initiative while running an economy through bureaucratic planning and have it keep up with dynamic market economies which use the market to gather diffuse information from every individual who participates. But does that mean that market economics taken to an extreme are best?”

    A market is either free or it isn’t free. There’s no such thing as partly free or somewhat free. Unless you take market economics to an extreme, you don’t have freedom.


    At least in capitalist sweat shops people sign up for the job. In communist sweat shops they are compelled by state force. Neither kind of sweat shop is good, but freedom trumps control every time in my book.

    Communism didn’t end the sweat shops–capitalism did. As capital grew, fewer children and fewer women had to work. More and more people could suppot themselves with fewer and fewer hours spent at the worksite.


    “Those who can control or gain better information have a profound advantage.”

    That gives everyone an incentive to work hard and gain as much information as possible. As others have said, socialists fear competition, perhaps because many of them are lazy or just don’t measure up.

    “Second, those who “win” in the market can use their advantage to structure future games to benefit them, usually through better access to information, as well as the capacity to do things others cannot. ”

    Then it would behove everyone to try to win. In a free market, there is potential and opportunity for everyone to do so–eventually. And if they cannot win themselves, there is a very great chance that their children or grandchildren will. (I am such a grandchild, for I have benefited from the hard work of my grandparents and my parents.)

    Again, your phrase “the capacity to do things others cannot” reveals that the real problem is a fear of competition. That’s too bad. I think that you take way to negative view of poeple. I think that almost anyone can accomplish almost anything. There are so many people in America who have made huge fortunes with nothing but a big idea and a small amount of cash. More people could do it too, if more capital were freed up.


    “The result is an inherently unjust system that gets manipulated by a few ‘winners’ to create real class divisions and structural exploitation.”

    You have a strange understanding of “unjust.” The only unjust systems are the ones that give people unfair advantages, and the only economic system that doesn’t do that is laissez faire capitalism. All other systems provide state-enforced advantages for some people and state-enforced disadvantages for others. In a free market system nobody is guaranteed any advantages over anyone else or burdened with unjust disadvantages.

    As Mike says, our current system awards advantages and disadvantages mostly on political expediency. How unjust is that?


    “Nonetheless, the gap between the rich and poor has been increasing.”

    First, that is precisely because the economy in America is not free. The best incentive to become rich, or even self-sufficient, is survival. If poor people are “taken care of” they lose the incentive to work in order to survive. Thus, we have created a class of third- and fourth-generation welfare recipients whom the “just” statist system has relegated to inferior housing and inferior public schools and inferior medical care. You cannot get people out of poverty by keeping them in it; you get people out of poverty by encouraging them to work to get out of it.

    Second, there will always be a gap, and the utopian socialists are simply foolish to think that there could be a system in which there is no gap between rich or poor. Somebody will always be smarter. Somebody will always be more ambitious and energetic. Somebody will always be more efficient or more creative. We have come back again to fear of competition. It bugs the you-know-what out of socialists that some people are inherently more skilled than others.

    So, the choice is between a bunch of beaurocrats who accumulate wealth through confiscation and coercion, or a bunch of capitalists who accumulate it through their own brain power and physical energy.

    “People deserve fairness, they deserve health care, they deserve education, they deserve true opportunity.”

    People do not deserve fairness, it is an inherent right. And a free market is the only fair system, because it neither rewards or penalizes anyone through collective force.

    People certainly do not deserve health care or education just by being born. That doesn’t even make sense to me in any way that I understand the word “deserve.” What did people in general do to deserve those things?

    People need those things in order to live long and to live well. That’s why I think that they should try to get those things for themselves.

    I would understand “true opportunity” as free and open opportunity. One can only get that in a system that allows each individual to reach his own potential without interference from a state.

    “Life is about people.”

    Yes, and people are rational beings who are born free and born to be free. Their goal is survival and the greatest amount of happiness that they are able to achieve. Nobody has the right to force a person to be a resource for some other person.


    Scott, your ideology is showing again. You write several interesting paragraphs to express your ideology, yet you claim to be against ideology. If you really hold no ideologies, I suggest that you simply write some absurdist automatic writing instead of well-reasoned, well-expressed ideological essays.

  4. #4 by Scott Erb on January 10, 2009 - 16:45

    RG, I’ll respond more to your response but I cannot comprehend just what you think free markets are. No insult intended, but it almost sounds like they would be this almost magical perfect free way of doing things if only governments didn’t get in the way. But nothing I see in real world evidence suggests that markets are natural or based on pure freedom. Every time I see governmental authority break down, mafias, organized crime, and anarchy emerges — almost always to the detriment of the population. Your notion of a free market seems amorphous and vague. After all, don’t forget the role of GOVERNMENT in stopping sweat shops and the like — the new liberalism of John Stuart Mill and others.

    Markets of any sort are not nature, but social — human constructs. And thus they do not have natural mechanisms, but ones humans can manipulate. That’s why you never see a true free market. Instead, when governments break down organized crime, mafia gangs, militias, fraud, etc., become supreme. You cannot have a true freemarket because humans will disrupt it willfully (with government or not) or accidently (acting with false information or mistaken judgments). You can have as free a market as possible only if it is regulated by rule of law. And it’s not self-evident that a perfectly free market is a good thing, or really does mean complete freedom, since humans are always involved in relations of power with others. Thus a true free market is, I believe, as unrealistic as a true communist utopia. Humans are imperfect, and find ways to flaw everything they touch. That’s why the best we can do is pragmatic problem solving and compromises.

    My ideology thus is anti-utopian and pragmatic. There is no “right way,” we make it up as we go, compromise between a variety of perspectives, and adapt.

  5. #5 by Scott Erb on January 10, 2009 - 18:09

    OK, I’ll try now to address your issues:

    1. To say that the free market is the only moral approach seems wrong. At the very least, you have to say that given your beliefs about morality and economics, you hold the free market as the only moral system. I doubt that is something you can prove. So you have a perspective — a kind of belief about the world. Which is fine, so do I. And I think we both have to admit that either of us (or both of us) could be wrong about how we look at things.

    2. Remember, freedom is not defined solely by government limits. If your situation is such that you have no option but to work in a sweat shop or else let your family starve, or some other worse option, the fact one ‘signs up’ is not a sign of freedom. You are always free to choose how to act within your circumstances. Your circumstances are always limiting (and empowering) and thus freedom is always constrained by circumstances. Government rules are only one — and often a minor one — of those constraints on free action.

    3. You miss my point about the winners structuring the game. That allows them to create for the next genereation (their progeny) built in advantages. That means over time classes will form where some have an easier access to wealth and power, and others get shut out. There is no market mechanism I can see to prevent this, and this creates incentives for the “winners” to use their power and wealth to the maximum to make sure they do not allow true free opportunity for the losers and their progeny.

    4. The stuff about ‘fearing competition’ is silly. Most socialists I know are idealistic and utopian, and many quite competitive. The point is that competition that is stacked is not true competition. If one group can stack the game in their favor, and then deride the other side for fearing competition…well, it’s like if I came to a race with a Porsche and the other guy had a Ford focus. He complains it’s unfair and I tell him he fears competition. No, he fears competing in an unfair race!

    5. Because of the above, and because of all the evidence I see in history, I’m convinced that a true laissez-faire system will inherently advantage one class over another over time. Thus my notion of ‘unjust’ is the same as yours; we disagree with whether it will happen in capitalism. I’ve seen nothing to suggest that somehow capitalism will magically avoid this.

    6. I do not believe most capitalists over time will acquire wealth with their own brain power and initiative. Rather, they will use built in advantages to exploit the work of others so they are the wealthy elite, and the others the poor. That’s why for markets to function they require government intervention to assure the winners aren’t able to restructure the game, to keep the playing field relatively equal (education, health care, and the like), and assure rule of law.

    7. At base, I think you have an historically inaccurate view of how the world works — I think you set up laissez-faire capitalism as the same kind of utopia that socialists saw communism to be — that’d we’d all be free if only we had the right system. Remember, socialists saw the state whithering away and believed there would be no need for government once exploitation was eliminated. But show me, don’t tell me. Show me with real world evidence how your assertions about capitalism work in reality. Nothing I’ve studied suggests you’re right.

    Moreover, your definition of freedom needs to be better stated. It sounds like freedom means only free from government. But again, freedom is constrained by a whole host of factors — a strong man can rape a woman with no government help, after all. So the ability of strong and wealthy actors to deny freedom of weaker, less intelligent, or misguided actors is not limited to government action. Finally, you have a very individualist/materialist approach; I have a more community/spiritualist approach. That’s a fundamental difference. To me a community should help someone who makes bad choices and thus has a bad lot in life to improve, and to assure their children have real opportunity. That is a moral imperative. While it would be great if that was done voluntarily, practically it doesn’t. And while some might wish magically that ‘if government weren’t here it would get done,’ history again suggests otherwise. After all, there is a reason we have government: people want it. And look anywhere where governments are weak or non-existent, and you see rather hideous situations.

    BTW, thanks so much for taking the time and writing a long and thoughtful reply. While I enjoy philosophical “battles,” if my argument gets intense, I mean nothing personal — and I will continue to reflect on your points!

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