• John Ikerd

Capitalism or Socialism? We must find a Better Way.

Updated: Aug 26, 2019


I realize some people consider it unpatriotic to criticize any aspect of American life. However, I think it is becoming obvious that the American economy isn’t working, at least for the vast majority of Americans. About the only defense of capitalism I hear these days is that it is at least better than socialism. Most Americans haven’t yet reached a state of economic desperation. They aren’t yet willing to risk losing what they have left by challenging the economic and political status quo. The reluctant majority are in much the same position of the Loyalist leading up the American Revolution. I personally do not believe it is unpatriotic to acknowledge the need for revolutionary change.


Admittedly, most previous socialist and communist nations have defaulted to some form of capitalism or at least free market economy. However, the fact that capitalism has managed to outlast socialism in the quest for global economic dominance does mean that either system is sustainable over time. Capitalism is just a more efficient means of economic extraction and exploitation. With persistent signs of growing ecological degradation, social disintegration, and economic despair, I think it’s time to seriously search for something better than either capitalism or socialism.


The first step toward finding “something better” is to acknowledge that both capitalism and socialism are fatally flawed. For example, capitalism could just as accurately be called “consumerism.” The benefits of capitalism, even if functioning perfectly, would accrue to people as consumers, not as workers, or citizens. We are not simply consumers; we need work that is personally satisfying as well as economically rewarding, and we need to live in societies that we feel are equitable and just.


In addition, capitalism has an inherent tendency toward concentration of market power, which allows economic benefits to accrue to investors rather than consumers. Corporate concentration allows investors to transform market power into political power, transforming capitalism into “corporatism.” Corporatism removes restraints to extraction and exploitation of the natural and human resources upon which the sustainability of economies ultimately depend. Adam Smith warned of the inherent evils of unrestrained corporate power. His warnings were to no avail.


Albert Einstein, in advocating socialism, stated: “the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development,”[i] which he believed was exemplified by capitalism. Capitalists argue that the “invisible hand” of competitive free market, as proclaimed by Adam Smith, will transform intentions motivated by “self-love,” or even predatory self-interest, into the “societal good.” However, concentration of market power invariable destroys the ability of market economies to transform individual greed into common good. Einstein believed that the evolution of capitalism into corporatism is inevitable. He viewed socialism as an explicit expression of necessity for social and ethical intentions, in that it is purposely “directed towards a social-ethical end.”

Einstein defined a socialist economy, as one in which “the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child.” The intent of socialism is to benefit people as workers and citizens, rather than simply as consumers or investors.


Einstein considered universal education to be an essential aspect of socialism: “Education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow men in place of the glorification of power and success in our present society.” Without this sense of responsibility, he warned, “planned economy as such may be accompanied by the complete enslavement of the individual. The achievement of socialism requires the solution of some extremely difficult socio-political problems: how is it possible, in view of the far-reaching centralization of political and economic power, to prevent bureaucracy from becoming all-powerful and overweening? How can the rights of the individual be protected and therewith a democratic counterweight to the power of bureaucracy be assured?” He saw democracy as an essential complement to socialism. His warnings obviously were to no avail.


Apparently, socialism tends toward the centralization of economic and political power in government as certainly as capitalism tends toward centralization of economic and political power in corporations. Capitalism outlasted socialism only because central planning was incapable of meeting the basic material needs of people, as economies and societies grew increasingly complex during latter part of the 20th century. The seductive promise of socialism was the promotion of happiness by strengthening social relationships and eliminating poverty. It failed to do either. The seductive appeal of consumerism lured many away from socialism in the hope that capitalism would work for them even if not for others.

The fatal flaws of both socialism and capitalism are rooted in the same basic cause.  The same basic human faults and frailties that precluded the promises of socialism also preclude the promises of capitalism. We must find ways to balance our inherent capitalist need to pursue our self-interests, and to be rewarded “equitably,” with our equally important socialist need to pursue our common-interest, and be rewarded “equally.” I believe the collective/social values socialists proclaims as being basic characteristic of humans are real, but so are the individual/economic values of being human proclaimed by capitalists. Problems arise when we allow the individual and social dimensions of our humanness to get out of balance – particularly when we deny one for the sake of the other.


Some leaders advocate a “third way,” which attempts to integrate some of the social values from socialism with some of the individual values of capitalism. Both capitalism and socialism as least theoretically embrace the concept of democracy. I personally think it makes more sense to adopt the economic principles of socialism in ensuring some set of democratically defined set of basic economic rights – including rights to water, food, clothing, housing, healthcare, energy, education, and other basic necessities of life. Beyond these basic needs, which would be ensure for all “equally,” the principles of capitalism would allow those willing and able to contribute more economically to be rewarded “equitably” for their contributions. All would have a responsibility to contribute whatever they can to the greater good of society, regardless of their ability to contribute economic value. Markets would function within bounds established by societies. None would be without the basic necessities of life, all would have the freedom to acquire more, but none would be allowed to gain positions of dominance over others.


That said, I think a sustainable economic system must be built on an ethical and moral foundation that respects the spiritual as well as individual and social dimensions of being human. Lacking a shared set of deeply-held moral and ethical values, there can be no lasting consensus regarding human rights or commitment to the greater good of humanity. I believe the rise of religious fundamentalism is a desperate attempt to define a set of common core moral values capable of guiding economies and societies. However,  economies and societies ruled by theocracies are even more fundamentally flawed than either socialism or capitalism. They deny both the social and individual dimension of being human. Religion has its place within society, but religion has never been an effective substitute for spirituality, particularly not in government.


The fundamental flaw in both capitalism and socialism is perhaps most apparent in their lack of a clear sense of purpose. Neither capitalism nor socialism addresses the fundamental purpose of human life on earth, because our purpose ultimately must come from a higher or spiritual level of consciousness. Lacking a sense of purpose, economic growth becomes the default measure of success. Economic growth ultimately depends on extraction and exploitation of nature and society, which is neither socially just nor sustainable over time. I do not belief that advocating an economic system with a clear purpose of meeting the needs of all in the present without diminishing opportunities for the future is being unpatriotic. I think it is fundamentally American.


John Ikerd


[i] Albert Einstein, Why Socialism, Monthly Review, Vol 16:1, 2009.

© 2019 by John Ikerd All Rights Reserved

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