Socialism or Capitalism: “The Truth of Each”

 It is true that the United States is the champion of Capitalism in the World. The United Kingdom and other European countries are the success models of Socialism. But before one can make a determination of the good or evil of either, one must understand the fundamentals of both. We hear much today in the political sphere about taking sides in the arguments for and against both. But, “Truth Matters.” Let’s get some facts.


Capitalism: An economic system in which the means of production and distribution are privately or corporately owned and development occurs through the accumulation and reinvestment of profits gained in a free market.

Socialism: Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

(Both definitions came from the same source: Websters Dictionary)

Let’s try to stay out of the weeds in this discussion: no throwing insults or insinuations. We will first ferret out the facts in practice today in countries that embrace either Capitalism or Socialism. Then we will close with an amazing enlightening 3-minute video in which Congresswoman Alexandria Ocasio Cortez — one of today’s leading proponents of Socialism — shares the prevailing concept espoused today by those who have chosen to name it Democratic Socialism. In the video, following each piece AOC uses to promote Democratic Socialism, you will see the explanation of the fallacy in her arguments.

There are “facts” that we can honestly and sincerely find that speak to the good and bad of both of these economic systems. While we’re discussing this today, keep this in mind: There are NO examples on Earth today of countries that are 100% Capitalistic or 100% Socialistic.

Let’s look at the pluses and minuses of both Capitalism and Socialism.

1) Socialism benefits the few at the expense of the many: Socialism is superior to capitalism in one primary way: It offers more security. It’s almost like an extremely expensive insurance policy that dramatically cuts into your quality of life, but ensures that if worse comes to worst, you won’t drop below a very minimal lifestyle. For the vast majority of people, this would be a terrible deal. On the other hand, if you’re lazy, completely incompetent or alternately, just have a streak of very bad luck, the meager benefits provided by socialism may be very appealing. So a socialist society forces the many to suffer in order to make it easier for the few. It’s just as Winston Churchill once noted, “The inherent virtue of socialism is the equal sharing of miseries.”

2) Capitalism encourages entrepreneurship while socialism discourages it: A government in a capitalist economy can quite easily give everyone equality of opportunity with a few basic laws and regulations, but socialism strives to create equality of results. This should frighten people who value their freedom because ultimately, as F.A. Hayek has noted, “A claim for equality of material position can be met only by a government with totalitarian powers.” You can see this happening in America as our efforts to reduce “inequality” have led to an ever-expanding government and a vast regulatory tangle that is almost unexplainable despite the fact that it is certainly enforceable. Capitalism encourages people to start a business and build a better life for themselves while socialism lays in wait with IRS agents, nooses made of red tape and meddling bureaucrats looking for businesses to control and loot.

3) Capitalism leads to innovation: Coming up with new products is often time-consuming, expensive and hit or miss. Nine ideas may fail before that tenth one takes off. The less the creative people behind these ideas are allowed to benefit, the less time, money and effort they’ll put into developing new concepts and inventions. Put another way, the bigger the risk, the bigger the reward has to be to convince people to take it. Capitalism offers big rewards for productive people while socialism offers makers only a parade of bureaucratic leeches who want to take advantage of their “good fortune.”

4) Capitalism produces more economic growth: Capitalism produces considerably more economic growth than socialism and as John Kennedy said, “A rising tide lifts all boats.” A fast-growing economy produces more jobs, more wealth and helps everyone. Many people assume that capitalism isn’t working if there are still poor people, but that misses the point. In many parts of the world, poverty means living in a hut with a dirt floor while in America, most poor Americans have TVs, refrigerators and cell phones. The rich may take home a larger share of the pie in capitalism, but the poor also benefit tremendously from living in a growing, thriving economy.

5) Socialism is too slow to adapt: Capitalism is extremely good at allocating capital to where it’s most valued. It has to be. Either you give people what they are willing to pay for or someone else will. On the other hand, socialism is slow and stupid for a variety of reasons. Because the government is spending someone else’s money, it doesn’t get particularly concerned about losing money. Political concerns about appearances often trump the effectiveness of a program. Moreover, even if politicians and bureaucrats are intelligent and competent, which are big “ifs,” they’re simply not going to have the specific knowledge needed to make decisions that may impact thousands of different industries. This is why capitalism may have its share of troubles, but when there are really colossal economic screw-ups, you’ll always find the government neck deep in the whole mess.

6) Socialism is inherently wasteful: Milton Friedman once said, “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own.” This is very true and it means that the more capital that is taken out of the economy and distributed, the more of it that will be wasted. The market does a considerably better job of allocating resources than the government because there are harsh penalties for failure. A company that makes products no one wants will go out of business. A poorly performing government program that wastes a hundred times more money will probably receive a bigger budget the next year.

7) Capitalism works in concert with human nature while socialism works against it: Ayn Rand said it well, “America’s abundance was created not by public sacrifices to ‘the common good,’ but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America’s industrialization. They gave the people better jobs, higher wages and cheaper goods with every new machine they invented, with every scientific discovery or technological advance—and thus the whole country was moving forward and profiting, not suffering, every step of the way,” but Adam Smith said it better, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner but from their regard to their own interest.” A man will work much harder to take care of himself, his family and his friends than he will to make money for the state, which will then waste most of it before redistributing it to people who aren’t working as hard as the man who earned it in the first place.

In closing, watch or listen to this 3-minute explanation of the good and evil of both Capitalism and Socialism:

Feel free to share this as you wish. You can download the entire post or even just the video.

Thanks for looking in!


Socialism: Coming Soon to the U.S.A.

What is “Democratic Socialism?” What is/are the differences between “Democratic” Socialism and the everyday Walmart-version of Socialism? What countries on Earth are Socialist nations?

In the age of the hunger for Socialism to replace Capitalism in the U.S., Millenials are crying daily for the latter. But do they really know what they are asking for? It is abundantly clear that a huge majority of those Millenials we see marching in the streets of larger U.S. cities promoting Socialism at the expense of Capitalism have NO idea what the system they are demanding really is, what it does, how it operates, and even if it works at all anywhere. They certainly have no clue as to how the U.S. would look under Socialism.

As is normal in every American generation, these young “Socialist-wannabes” decided to rename their dreamed-for utopia to “Democratic Socialism.” So what is Democratic Socialism as compared to the normal version?

Democratic Socialism

Democratic socialism means that this political reality—the abolition of capitalism—to be achieved will be achieved and administered through democratic, as opposed to authoritarian, means.

DSA’s website (Democratic Socialists of America) explains: “Democratic socialists believe that both the economy and society should be run democratically—to meet public needs, not to make profits for a few. To achieve a more just society, many structures of our government and economy must be radically transformed through greater economic and social democracy so that ordinary Americans can participate in the many decisions that affect our lives.”

“Democratic socialists do not want to create an all-powerful government bureaucracy. But we do not want big corporate bureaucracies to control society either … We believe that the workers and consumers who are affected by economic institutions should own and control them … Social ownership could take many forms, such as worker-owned cooperatives or publicly owned enterprises managed by workers and consumer representatives.”

Every DSA member you talk to would articulate a different vision of the ideal future for America. This is probably true of Americans of almost all political stripes. It might be more useful to look at the work that DSA is doing and the policy positions they hold than to speculate on the specifics of the future world they want to create.

The DSA outlines three tactics it uses to shift the power structure in America. Two of them are “decrease the influence of money in politics” and “empower ordinary people in workplaces and the economy.” If the wealthy—or as Democratic Socialist Bernie Sanders likes to say, the 1 percent—control the economy and dictate the terms of people’s livelihoods, economic equality is impossible.

The DSA supports movements like Fight for 15 and Medicare for All, and backs institutions like unions and cooperatives, as vehicles for people to gain more economic power. Some DSA chapters also support public banks, tenant’s unions, and advocate for the homeless with the same aim in mind.

All of these tactics are ways to “seize the means of production,” meaning that working-class people play a larger role in the labor they perform and deciding the way they are compensated for that work, while bosses profit less from the work of their employees.

The third goal that DSA lists is to “restructure gender and cultural relationships to be more equitable.” Just as the rich have more power than those with less money, in the white, patriarchal society of the United States, white men have power and privilege that other groups do not enjoy.

In mainstream liberal politics, racial, gender, and economic liberation are often discussed as separate issues. Democratic socialists believe that all types of oppression have their root in the capitalist and colonial systems that dominate American life. The only politics to combat these forces, then, is “intersectional,” meaning that all types of oppression are taken into account. The only way to end this oppression is by a mutual struggle in which various oppressed groups fight on each other’s behalf.

Democratic socialists also see the struggle for equality as one that transcends national borders. For this reason, the group abhors ICE, stands in solidarity with Palestine, and opposes military imperialism. Among many groups on the left, you will often hear the phrase “No war but class war” used to sum up this position.

It is obvious to see that the “organized” socialists in America who are largely members of the DSA have very specific ideas of what our nation looks like. It is also obvious that they want a very different America! Of course it like many other political “ideals” that are floated as the perfect utopia in which we all should live, Democratic Socialists fundamentally demand the complete destruction of capitalism, which they view as pure evil. I cannot imagine what the United States would look like in that world. I have no doubt the destruction of capitalism would initiate a quick and dramatic death of the U.S. economy.

But there is “more” out there in the world of Socialism.

Plain Old Socialism

Socialism is the Big Lie of the Twenty-first century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.

In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may show early signs of success. But any accomplishments quickly fade as the fundamental deficiencies of central planning emerge. It is the initial illusion of success that gives government intervention its pernicious, seductive appeal. In the long run, socialism has always proven to be a formula for tyranny and misery.

Socialism Ignores Incentives

A pyramid scheme is ultimately unsustainable because it is based on faulty principles. Likewise, collectivism is unsustainable in the long run because it is a flawed theory. Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives.

Under socialism, incentives either play a minimal role or are ignored totally. In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter!

Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!

“Pure” Socialism

In a radio debate several months ago with a Marxist professor from the University of Minnesota, the obvious failures of socialism around the world in Cuba, Eastern Europe, and China were pointed out.  At the time of that debate, Haitian refugees were risking their lives trying to get to Florida in homemade boats. Why was it that people were fleeing Haiti and traveling almost 500 miles by ocean to get to the “evil capitalist empire” when they were only 50 miles from the “workers’ paradise” of Cuba?

If perfection really were an available option, the choice of economic and political systems would be irrelevant. The Marxist on that panel admitted that many “socialist” countries around the world were failing. However, according to him, the reason for failure is not that socialism is deficient, but that the socialist economies are not practicing “pure” socialism. The perfect version of socialism would work; it is just the imperfect socialism that doesn’t work. Marxists like to compare a theoretically perfect version of socialism with practical, sometimes imperfect capitalism which allows them to claim that socialism is superior to capitalism.

If perfection really were an available option, the choice of economic and political systems would be irrelevant. In a world with perfect beings and infinite wealth, any economic or political system–socialism, capitalism, fascism, or communism–would work perfectly.

However, the choice of economic and political institutions is crucial in an imperfect universe with imperfect beings and limited resources. In a world of scarcity, it is essential for an economic system to be based on a clear incentive structure to promote economic efficiency. The real choice we face is between sometimes imperfect capitalism (but capitalism no less) and imperfect socialism. Given that choice, the evidence of history overwhelmingly favors capitalism as the greatest wealth-producing economic system available.

The strength of capitalism can be attributed to an incentive structure based upon the three Ps: (1) prices determined by market forces, (2) a profit-and-loss system of accounting and (3) private property rights. The failure of socialism can be traced to its neglect of these three incentive-enhancing components.


The price system in a market economy guides economic activity so flawlessly that most people don’t appreciate its importance. Market prices transmit information about relative scarcity and then efficiently coordinate economic activity. The economic content of prices provides incentives that promote economic efficiency.

Profits and Losses

Socialism also collapsed because of its failure to operate under a competitive, profit-and-loss system of accounting. A profit system is an effective monitoring mechanism which continually evaluates the economic performance of every business enterprise. The firms that are the most efficient and most successful at serving the public interest are rewarded with profits. Firms that operate inefficiently and fail to serve the public interest are penalized with losses.

Private Property Rights

A third fatal defect of socialism is its blatant disregard for the role of private property rights in creating incentives that foster economic growth and development. The failure of socialism around the world is a “tragedy of commons” on a global scale. The “tragedy of the commons” refers to the British experience of the Sixteenth century when certain grazing lands were communally owned by villages and were made available for public use. The land was quickly overgrazed and eventually became worthless as villagers exploited the communally owned resource.

When assets are publicly owned, there are no incentives in place to encourage wise stewardship.

Incentives Matter

Without the incentives of market prices, profit-and-loss accounting, and well-defined property rights, socialist economies stagnate and wither. The economic withering that occurs under socialism is a direct consequence of its neglect of economic incentives.

No abundance of natural resources can ever compensate a country for its lack of an efficient system of incentives. Russia, for example, is one of the world’s wealthiest countries in terms of natural resources; it has some of the world’s largest reserves of oil, natural gas, diamonds, and gold. Its valuable farmland, lakes, rivers, and streams stretch across a land area that encompasses 11 time zones. Yet Russia remains poor. Natural resources are helpful, but the ultimate resources of any country are the unlimited resources of its people–human resources.

Winners and Losers in Socialism

Socialism leads to the politicization of society. Hardly anything can be worse for the production of wealth.

Socialism, at least its Marxist version, says its goal is complete equality. The Marxists observe that once you allow private property in the means of production, you allow differences. If I own resource A, then you do not own it and our relationship toward resource A becomes different and unequal. By abolishing private property in the means of production with one stroke, say the Marxists, everyone becomes co-owner of everything. This reflects everyone’s equal standing as a human being.

The reality is much different. Declaring everyone a co-owner of everything only nominally solves differences in ownership. It does not solve the real underlying problem:  there remain differences in the power to control what is done with resources.

In capitalism, the person who owns a resource can also control what is done with it. In a socialized economy, this isn’t true because there is no longer any owner. Nonetheless the problem of control remains. Who is going to decide what is to be done with what? Under socialism, there is only one way: people settle their disagreements over the control of property by superimposing one will upon another. As long as there are differences, people will settle them through political means.

If people want to improve their income under socialism they have to move toward a more highly valued position in the hierarchy of caretakers. That takes political talent.

Under such a system, people will have to spend less time and effort developing their productive skills and more time and effort improving their political talents.

As people shift out of their roles as producers and users of resources, we find that their personalities change. They no longer cultivate the ability to anticipate situations of scarcity to take up productive opportunities, to be aware of technological possibilities, to anticipate changes in consumer demand, and to develop strategies of marketing. They no longer have to be able to initiate, to work, and to respond to the needs of others.

Instead, people develop the ability to assemble public support for their own position and opinion through means of persuasion, demagoguery, and intrigue, through promises, bribes, and threats. Different people rise to the top under socialism than under capitalism. The higher on the socialist hierarchy you look, the more you will find people who are too incompetent to do the job they are supposed to do. It is no hindrance in a caretaker politician’s career to be dumb, indolent, inefficient, and uncaring. He only needs superior political skills. This too contributes to the impoverishment of society.


Plain and simple, “Socialism ain’t gonna work!” It works nowhere on Earth and has always been unsustainable in any versions as it has been tried. It certainly won’t work in the U.S. Why?

Former British Prime Minister Margaret Thatcher said in 2007, “…and Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people’s money. It’s quite a characteristic of them.”

It’s surprising to me that Democratic Socialists like AOC, Bernie Sanders and others don’t understand that capitalism rewards those who work hard, work smart, and build businesses with which other Americans want to work. That’s the main difference between Socialism and Capitalism.

Under Socialism, entrepreneurship is dead, ingenuity is dead, and working hard to get ahead is dead.

Making it as simple as possible, in case you didn’t get it a few moments ago: “Socialism ain’t gonna work!”