Deconstructing Socialism and Free Market Capitalism: Why Both Systems Are Bad & Why a Balance is Needed

There was a time when absolute monarchy was thought to be the best possible political system, and feudalism the best economic system. There was also a time when slavery and child labor were seen as necessary and important for a thriving society. Clearly, times have changed.

And yet, despite the evolutionary evidence that history shows us, we like to think we have somehow surpassed or transcended its influence in our own time. We like to see ourselves, as people often do, as the pinnacle of human accomplishment – the final product which stands distinct and apart from all that came before us. Consequently, we like to see our government, our religion, our economics, and our social arrangements as sacred institutions which cannot be questioned or improved upon.

In our blind and fervent defense of the institutions that surround us for no other reason than the fact that they exist, we ignore the long chain of struggles against the institutions that that preceded them and fail to account for the people and the ideas that made their existence possible. Therefore, it seems like the epitome of absurdity and historical irony to think that we have somehow reached the apex of civilization. To do so is to ignore history, and thus, to ignore reality.

After all, the ideals enshrined in our constitution did not fall from the sky, but arose out of the European Enlightenment – out of a long history of struggle against tyranny, superstition, and injustice. We would also do well to remember that this document which forms the cornerstone of our democracy was also originally meant to serve the interests of rich, white, male landowners before it was amended to include the rights of all people. Simply put, we can’t afford to view anything in our own time as perfect, nor can we separate the present from the past.

With all of that said, the sacred cow I’d like to attack today isn’t political, religious, or social, but economic. It seems like the economic discourse today, like the political and religious discourse, is more about feelings that reason; more about ideological purity than practicality. In other words, the discussion is lacking in common sense. While one side prefers to ignore reality in the pursuit of high ideals, the other side embraces reality while possessing no ideals at all.

I am, of course, talking about the two most popular and opposing economic models of our time: socialism and free market capitalism. I want to argue that, no matter where you stand politically, neither of these economic systems in their purest forms will work or should be advocated for by anyone.

In fact, I want to argue that pure socialism and pure free market capitalism are dangerous to civilization. The crux of my argument is simple: neither system is reflective of the way human beings freely relate to each other in a way which maximizes human well-being and flourishing.

However, before I begin, I’d like to address the ideas of consent, liberty, and authority. Individual and collective human relations, if they are not master-slave relations, are predicated on the foundation of consent between people, and with consent comes the balance of two opposing forces necessary for producing a healthy relationships: liberty and authority.

This balance between liberty and authority, I argue, applies to all human relations, whether the consent between people is given tacitly or explicitly. Moreover, I argue that with absolute authority, there can be no liberty, and with absolute liberty, there can be no authority. Both extremes, therefore, are antithetical to human well-being and flourishing.

For example, as a married man I am in a monogamous relationship with my wife which is binding for both of us. I am free to do whatever I like, but since I am married, I have to obey the self-imposed authority of my marriage, which includes spousal fidelity. That is to say, I don’t have the freedom to cheat on my wife (unless of course she consents, in which case it’s not cheating) no matter how strongly I believe I should because it breaks our initial contract regarding marriage – an institution which limits what we are both free to do as people.

Government operates in the same way. If we agree to be citizens of the United States, then we agree to be bound by the general will, and to the laws established by the government that represents us. So, no matter how much I might want to speed down the highway and declare my freedom to do so, I have to realize that I’m bound by the laws I have tacitly consented to as a citizen of the United States.

In fact, if an officer pulls me over while speeding, I must realize that I have actually given myself a ticket in the same way that cheating on my wife would be bringing my wife’s wrath upon myself. Of course, if I don’t like the law or if I don’t like the terms of my marriage, I can always appeal to the systems which made these things possible in order to change or abolish them. The fact that I don’t like certain laws doesn’t entitle me to break the ones I don’t like any more than my dislike for the some of the responsibilities of my marriage entitles me to cheat on my wife.

It’s strange then, that whenever we talk about economic arrangements (which are, after all, relations between people involving consent, liberty, and authority) that we should ignore this balance between liberty and authority and want to opt for one extreme over the other.

It is also strange that when we discuss the need or desire to change things like marriage and government that we should appeal to their respective foundations in relations between people (i.e. spouse and spouse, government and governed), yet when we talk about economics we seem to talk about systems in isolation as if they were handed down from above and don’t require agreements between people in the same way marriages and democratic governments do.

Lately I’ve heard that capitalism has become so corrupt that we must do away with it in favor of socialism. On the other hand, I’ve also heard that free market capitalism is the best possible system that could have ever existed in the history of human civilization. Neither of these claims are reasonable once we examine them in detail.

Let’s first start with socialism. If we want to replace state capitalism with democratic socialism, we run into the problem of consent. In order for socialism to be viable nation-wide economic system, it requires everyone to consent to the terms of a single, limited economic relationship at the expense of others – a relationship which transfers the means of production from corporations to institutions of government.

However, even if a general consensus was to be reached among people about how economic relations should be constituted, this would still pose problems for the people that don’t agree to the terms of socialism, and for the people who change their minds later.

This naturally brings us to the unintended but catastrophic consequences substituting corporate authority with governmental authority: Loss of consent, loss of liberty, and loss of well-being. Unlike married couples or citizens of liberal democracies, socialism provides no recourse for people who disagree or change their minds about the terms of economic relations.

Since one’s individual dissent regarding economic relations is meaningless under socialism, one has no recourse against the tyranny of the majority, and since one’s liberty to determine individual and collective economic relations (just like one’s liberty to agree to the terms of marriage or governance) has been infringed upon by way of law, the only choices available to you are to move to a different country or be coerced into submission. Simply put, by eroding the value of liberty in blind pursuit of economic equality, socialism creates a tyrannical society in which eliminates consent, liberty, and human well-being.

Just as we would not accept a government today which attempts to dictate the terms of social relations between consenting adults, we should not accept a government which reserves the right to dictate the terms of economic relations for its citizens. Since pure, unadulterated socialism eliminates the principle of consent and erodes liberty by dictating the terms of economic relations between people, it can never hope to be a viable economic system. A government can no more justifiably coerce people into forming economic relations than it can justifiably coerce me into marrying my wife.

In fact, I argue that we have already seen a taste of the negative consequences of pure socialism most clearly in the legal conflict surrounding gay marriage. Since the arguments of proponents of gay marriage partially hinged on the arbitrary legal definition of marriage as defined by the government, it was also an argument against government dictating which social arrangements between consenting adults were qualitatively better or worse than others on the basis of gender or sexual orientation.

If we are being honest with ourselves, we have to admit that the absurdity and immorality of the government’s attempt to determine the moral and legal validity of social relations between consenting adults is just as backward and absurd as the attempt of governments to determine the moral and legal validity of economic relations between consenting adults.

However, just because pure socialism doesn’t work does not mean that we must accept that free market capitalism as our economic savior either. Free market capitalism, though it provides an excess of liberty, does so at the expense of authority and human well-being. To quote an influential anarchist by the name of Joseph Pierre Proudhon, “Property is the exploitation of the weak by the strong. Communism is the exploitation of the strong by the weak.” Where socialism necessitates the tyranny of government, free market capitalism necessitates the tyranny of corporations.

Without the introduction of the minimum wage, without laws against child labor, and without laws against corporate monopolies (which, by the way, were all made possible through government intervention in the free market), I doubt that capitalists would somehow magically have had a moral epiphany in the same way I doubt that Hitler would have had an epiphany about the immorality of genocide.

In other words, there is nothing inherent in the free market that necessitates a thriving society just as there is nothing inherent about liberty that necessitates a peaceful, stable democracy. In order to realize the absurdity of the idea that freedom alone necessitates human happiness and well-being, one only has to consider the well-being of citizens in a lawless society. Pure anarchy, like pure market capitalism, is not practical or sustainable because it cannot be made answerable to any authority except itself – which is not a rational basis for a healthy and just society.

There is no question that the government’s ability to keep corporations in check has been a net gain for human well-being in the same way that there is no question that the system of checks and balances in our federal government has been a net gain for liberty and a net reduction in the abuse of power.

Time and time again, history has shown that too much power, whether in the hands of governments or corporations, is dangerous. After all, why should a person being assaulted with a blunt object care about the name or nature of the weapon they are being hit with? Just because one weapon is named “corporation” and the other “government” has no bearing on its potential to be abused or its ability to create injustices within the society that surrounds it.

While it’s true that government intervention in markets reduces economic liberty, we also have to admit that our agreement to enter into a social contract (government) and to enter into binding relationships (marriage) are also reductions in liberty, but that these reductions have a net benefit for society.

To quote Proudhon again, “In property, inequality of conditions is the result of force, under whatever name it be disguised…In communism, inequality springs from placing mediocrity on a level with excellence.” In other words, where pure, unadulterated socialism creates a forced marriage between people by eliminating consent and liberty altogether, pure unfettered capitalism possesses all the liberty and consent of master-slave relationship. Neither of these relationships are humane or ideal. The key, therefore, is to be able to strike a balance between the two.

To further clarify this balance of liberty and authority between free markets and government, it’s helpful to think about relations between teachers and students as a metaphor which illustrates the economic relations under capitalism – both in terms of its positives and its drawbacks.

For example, in classrooms, students come to learn, whereas in corporations, workers come to earn. In classrooms, the more you come to class, the harder you work, the more you learn. In corporations, the more you come to work, the harder you work, the more you earn.

In classrooms, teachers provide opportunities for learning and individual assessments of student competency. In corporations, you get on-the-job training and assessments of worker competency. In classrooms, students are dependent on the teacher to facilitate discussion and disseminate knowledge. In corporations, workers are dependent on bosses to facilitate workplace conditions and assign tasks.

In classrooms, teachers have the final say in what tasks are assigned, though student input can and should influence how tasks are assigned, implemented, the degree of difficulty, and the frequency with which they are given. In corporations, bosses have the final say in what tasks are assigned, though worker input can and should change how workplace tasks are assigned, implemented, and may change workplace conditions, scheduling, and hourly wages.

In classrooms, student competency and education depends upon the degree to which they can comprehend, recall, apply, and synthesize information to produce a product, whether written, visual, oral, or physical. In corporations, worker competency and productivity depends on the degree to which they can comprehend, recall, apply, and synthesize information to produce a product.

In classrooms, a student’s repeated inability to meet competency requirements for assignments will result in failing the course. In corporations, a worker’s repeated inability to meet competency requirements for workplace tasks will result in their being fired.

In classrooms, student progress and well-being should be taken into account alongside student competency. In corporations, worker progress and well-being should be taken into account alongside worker competency.

In classrooms, students are dependent on the presence of teachers and other students to maximize learning. In corporations, workers are dependent on the presence of bosses and other workers to maximize profit. In classrooms, learning abilities, and thus the amount of knowledge gained per student is not equal, and in corporations, worker abilities, and thus the amount of profit gained per worker is not equal.

In both cases, we can see how there is – or rather should be – a consensual, dependent, unequal, and non-exploitative relationship between teachers and students, and between students and students.

The relationship is consensual because both students and workers agree to the respective terms of their learning or earning. The relationship is dependent because both teacher and boss are dependent on their respective students and workers. The relationship is unequal because the teacher and boss possess a higher degree of knowledge and responsibility than their respective students or employees, and the relationship is non-exploitative because neither teacher nor boss can assign tasks which would negatively impact the well-being of their respective students or employees.

Moreover, the relationship between students and students, like the relationship between workers and workers, follows the same criteria due to differences in cognitive ability, work ethic, and time spent completing tasks. However, with these inherent benefits also come inherent problems.

For example, problems occur in teaching when selfishness and prestige override the quality of learning and the well-being of students, and problems occur in business when selfishness and greed overrides the quality of the product and worker well-being.

Problems also occur in teaching when students are shut out from the dialogue pertaining to learning, and occur in business when workers are shut out from the dialogue pertaining to production. Problems occur in teaching when students are not given grades proportional to the quality of the work they produce, and in proportion to the time and energy spent on coursework, and they occur in business is when workers are not given salaries proportional to the quality of the labor they produce, and in proportion to the time, energy, and abilities they possess.

To those who still think socialism would be a viable fix for corporations and capitalism generally, consider what this would mean when we apply this principle to teaching. Teachers would have to, by virtue of their students being in class, give them the same grades regardless of ability, work ethic, or time spent completing assignments.

Not only would this devalue grades as a whole, but would make learning meaningless by undermining the teacher’s ability to make important distinctions about what constitutes quality work. In this sense, a teacher can no more “give” the student a grade they haven’t earned than a student could meaningfully “share” their grade with their fellow students.

At the level of the corporation, it therefore doesn’t make any sense to pay everyone an equal salary unless each person is performing the same task the same way, and only if the task assigned requires the same degree of ability, time, and effort. In this sense, a boss can no more “give” an employee what they haven’t earned any more than a worker can “share” their labor with someone else, as this would devalue the very idea of work and undermine the boss’s role to discriminate between what is good and bad for their product and their business as a whole.

Although it’s true that students and workers may individually choose to help each other learn or earn out of a sense of charity, this doesn’t mean that every student will retain all information equally, or that the workers that share in the profit of others will be more competent or productive. In other words, while it might look like corporations and classrooms are functioning well from the outside, little work will actually be accomplished because there is no incentive to learn or work, respectively.

At the end of the day, if a student feels they are not getting the level of respect and education they deserve, they can appeal to their teacher or professor, check to see if any discrimination laws have been violated, or simply take the course with a different teacher or professor. Similarly, if a worker feels they are not getting the level of respect and payment they deserve, they can appeal to their boss, check to see if any laws are being violated, or find another job.

Obviously if there is a monopoly, a lack of government regulation, and bosses that continually mistreat workers, this can never happen. Still, the mere existence of bad corporations is not sufficient reason to tear down or re-wire the existing economic system just as the presence of bad teachers isn’t sufficient reason to tear down the entire system of public education.

Though admittedly the boss-employee or teacher-student relations are not the only possible combinations to enhance learning or production, respectively, they nevertheless meet the needs of both parties involved, and have a track record of maximizing human flourishing.

If one wanted to construct an alternative model of how economic relations should be set up, such an economic system would also have to be based on consent, on the balance of liberty and authority, and would have to better maximize profit as well as individual and collective well-being. Unfortunately, I have yet to see such a model, but will not eliminate the possibility of one.

In the end, I think our best bet in terms of the future of our economy is to find new and creative ways to give existing small businesses the incentive (legal or otherwise) to not become large enough to effectively influence government while finding a way to break apart existing corporations which hold too much economic and political sway.

We need to create an environment in which corporations are the free to pursue profit while also making them responsible for and attentive to human well-being. Without this balance, we cannot hope to have a stable economy or society.

In the same way that we can demand governmental reform with the power of our vote, I believe we can and should also demand that corporations change their practices and improve conditions for workers and for the surrounding community with the power of our wallet. While corporations are not there to represent us, they are there arguably there to serve us just as much as they are there to serve themselves.

To claim, as economist Milton Friedman does, that corporations should somehow be immune from social responsibility, and that they should only be responsible to their shareholders and their profit is just as absurd and irresponsible as claiming that teachers should not be responsible for contributing to the well-being of their students or to the well-being of society generally, but should only focus on their teaching and on their individual responsibilities to the school or university administration that pays their salary.

This, of course, betrays the reality that well-run corporations, like good teachers, will naturally see the relationship between well-being and the product being produced as one of cause and effect – as interdependent, interconnected parts of a greater societal whole that no person or group can escape influencing or being influenced by.

Just because corporations are groups of people rather than individuals, and just because they are not legally obligated to represent citizens or preserve the well-being of the general public does not mean they are absolved from moral responsibilities to larger society any more than an individual’s membership in a creationist club renders that person or group immune from the effects of miseducating children.

After all, what are corporations but people assembled for the purpose of reaching a common goal? Why then should the the goal of a corporation or the means to achieving that goal fail to be scrutinized or criticized by those who must coexist alongside it and feel its effects? We would never the make same argument in defense of individuals or governments, so why should corporations get a free pass? The answer is that they shouldn’t.

To treat corporations or economics generally as a special case where the reality of human relations and the rules that dictate those relations do not apply is to live in a world of make-believe where every person is an island, every group a continent, and every nation a separate and distinct planet.

“Mankind was my business. The common welfare was my business; charity, mercy, forbearance, benevolence, were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!” – Jacob Marley from Charles Dickens’ A Christmas Carol


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