capitalism and socialism essay

Socialism vs. Capitalism: What Is the Difference?

Fokusiert / Getty Images

• U.S. Economy
• Supply & Demand
• Archaeology
• B.S., Texas A&M University

Socialism and capitalism are the two main economic systems used in developed countries today. The main difference between capitalism and socialism is the extent to which the government controls the economy.

Key Takeaways: Socialism vs. Capitalism

• Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people.
• Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.”
• Socialism is most often criticized for its provision of social services programs requiring high taxes that may decelerate economic growth.
• Capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes.

Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.

The United States is generally considered to be a capitalist country, while many Scandinavian and Western European countries are considered socialist democracies. In reality, however, most developed countries—including the U.S.—employ a mixture of socialist and capitalist programs.

Capitalism Definition

Capitalism is an economic system under which private individuals own and control businesses, property, and capital—the “means of production.” The volume of goods and services produced is based on a system of “ supply and demand ,” which encourages businesses to manufacture quality products as efficiently and inexpensively as possible.

In the purest form of capitalism— free market or laissez-faire capitalism—individuals are unrestrained in participating in the economy. They decide where to invest their money, as well as what to produce and sell at what prices. True laissez-faire capitalism operates without government controls. In reality, however, most capitalist countries employ some degree of government regulation of business and private investment.

Capitalist systems make little or no effort to prevent income inequality . Theoretically, financial inequality encourages competition and innovation, which drive economic growth. Under capitalism, the government does not employ the general workforce. As a result, unemployment can increase during economic downturns . Under capitalism, individuals contribute to the economy based on the needs of the market and are rewarded by the economy based on their personal wealth.

Socialism Definition 

Socialism describes a variety of economic systems under which the means of production are owned equally by everyone in society. In some socialist economies, the democratically elected government owns and controls major businesses and industries. In other socialist economies, production is controlled by worker cooperatives. In a few others, individual ownership of enterprise and property is allowed, but with high taxes and government control. 

The mantra of socialism is, “From each according to his ability, to each according to his contribution.” This means that each person in society gets a share of the economy’s collective production—goods and wealth—based on how much they have contributed to generating it. Workers are paid their share of production after a percentage has been deducted to help pay for social programs that serve “the common good.” 

In contrast to capitalism, the main concern of socialism is the elimination of “rich” and “poor” socio-economic classes by ensuring an equal distribution of wealth among the people. To accomplish this, the socialist government controls the labor market, sometimes to the extent of being the primary employer. This allows the government to ensure full employment even during economic downturns. 

The Socialism vs. Capitalism Debate  

The key arguments in the socialism vs. capitalism debate focus on socio-economic equality and the extent to which the government controls wealth and production.

Ownership and Income Equality 

Capitalists argue that private ownership of property (land, businesses, goods, and wealth) is essential to ensuring the natural right of people to control their own affairs. Capitalists believe that because private-sector enterprise uses resources more efficiently than government, society is better off when the free market decides who profits and who does not. In addition, private ownership of property makes it possible for people to borrow and invest money, thus growing the economy. 

Socialists, on the other hand, believe that property should be owned by everyone. They argue that capitalism’s private ownership allows a relatively few wealthy people to acquire most of the property. The resulting income inequality leaves those less well off at the mercy of the rich. Socialists believe that since income inequality hurts the entire society, the government should reduce it through programs that benefit the poor such as free education and healthcare and higher taxes on the wealthy. 

Consumer Prices

Under capitalism, consumer prices are determined by free market forces. Socialists argue that this can enable businesses that have become monopolies to exploit their power by charging excessively higher prices than warranted by their production costs. 

In socialist economies, consumer prices are usually controlled by the government. Capitalists say this can lead to shortages and surpluses of essential products. Venezuela is often cited as an example. According to Human Rights Watch, “most Venezuelans go to bed hungry.” Hyperinflation and deteriorating health conditions under the socialist economic policies of President Nicolás Maduro have driven an estimated 3 million people to leave the country as food became a political weapon. 

Efficiency and Innovation 

The profit incentive of capitalism’s private ownership encourages businesses to be more efficient and innovative, enabling them to manufacture better products at lower costs. While businesses often fail under capitalism, these failures give rise to new, more efficient businesses through a process known as “creative destruction.” 

Socialists say that state ownership prevents business failures, prevents monopolies, and allows the government to control production to best meet the needs of the people. However, say capitalists, state ownership breeds inefficiency and indifference as labor and management have no personal profit incentive. 

Healthcare and Taxation 

Socialists argue that governments have a moral responsibility to provide essential social services. They believe that universally needed services like healthcare, as a natural right, should be provided free to everyone by the government. To this end, hospitals and clinics in socialist countries are often owned and controlled by the government. 

Capitalists contend that state, rather than private control, leads to inefficiency and lengthy delays in providing healthcare services. In addition, the costs of providing healthcare and other social services force socialist governments to impose high progressive taxes while increasing government spending, both of which have a chilling effect on the economy. 

Capitalist and Socialist Countries Today 

Today, there are few if any developed countries that are 100% capitalist or socialist. Indeed, the economies of most countries combine elements of socialism and capitalism.

In Norway, Sweden, and Denmark—generally considered socialist—the government provides healthcare, education, and pensions. However, private ownership of property creates a degree of income inequality. An average of 65% of each nation’s wealth is held by only 10% of the people—a characteristic of capitalism.

The economies of Cuba, China, Vietnam, Russia, and North Korea incorporate characteristics of both socialism and communism .

While countries such as Great Britain, France, and Ireland have strong socialist parties, and their governments provide many social support programs, most businesses are privately owned, making them essentially capitalist.

The United States, long considered the prototype of capitalism, isn’t even ranked in the top 10 most capitalist countries, according to the conservative think tank Heritage Foundation. The U.S. drops in the Foundation’s Index of Economic Freedom due to its level of government regulation of business and private investment.

Indeed, the Preamble of the U.S. Constitution sets one the nation’s goals to be “promote the general welfare.” In order to accomplish this, the United States employs certain socialist-like social safety net programs , such as Social Security, Medicare, food stamps , and housing assistance.

Contrary to popular belief, socialism did not evolve from Marxism . Societies that were to varying degrees “socialist” have existed or have been imagined since ancient times. Examples of actual socialist societies that predated or were uninfluenced by German philosopher and economic critic Karl Marx were Christian monastic enclaves during and after the Roman Empire and the 19th-century utopian social experiments proposed by Welsh philanthropist Robert Owen. Premodern or non-Marxist literature that envisioned ideal socialist societies include The Republic by Plato , Utopia by Sir Thomas More, and Social Destiny of Man by Charles Fourier. 

Socialism vs. Communism

Unlike socialism, communism is both an ideology and a form of government. As an ideology, it predicts the establishment of a dictatorship controlled by the working-class proletariat established through violent revolution and the eventual disappearance of social and economic class and state. As a form of government, communism is equivalent in principle to the dictatorship of the proletariat and in practice to a dictatorship of communists. In contrast, socialism is not tied to any specific ideology. It presupposes the existence of the state and is compatible with democracy and allows for peaceful political change.

Capitalism 

While no single person can be said to have invented capitalism, capitalist-like systems existed as far back as ancient times. The ideology of modern capitalism is usually attributed to Scottish political economist Adam Smith in his classic 1776 economic treatise The Wealth of Nations. The origins of capitalism as a functional economic system can be traced to 16th to 18th century England, where the early Industrial Revolution gave rise to mass enterprises, such as the textile industry, iron, and steam power . These industrial advancements led to a system in which accumulated profit was invested to increase productivity—the essence of capitalism.

Despite its modern status as the world’s predominant economic system, capitalism has been criticized for several reasons throughout history. These include the unpredictable and unstable nature of capitalist growth, social harms, such as pollution and abusive treatment of workers, and forms of economic disparity, such as income inequality . Some historians connect profit-driven economic models such as capitalism to the rise of oppressive institutions such as human enslavement , colonialism , and imperialism .

Sources and Further Reference

• “Back to Basics: What is Capitalism?” International Monetary Fund , June 2015, https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm.
• Fulcher, James. “Capitalism A Very Short Introduction.” Oxford, 2004, ISBN 978-0-19-280218-7.
• de Soto, Hernando. The Mystery of Capital.” International Monetary Fund , March, 2001, https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm.
• Busky, Donald F. “Democratic Socialism: A Global Survey.” Praeger, 2000, ISBN 978-0-275-96886-1.
• Nove, Alec. “The Economics of Feasible Socialism Revisited.” Routledge, 1992, ISBN-10: 0044460155.
• Newport, Frank. “The Meaning of ‘Socialism’ to Americans Today.” Gallup , October 2018), https://news.gallup.com/opinion/polling-matters/243362/meaning-socialism-americans-today.aspx.
• The Differences Between Communism and Socialism
• A Mixed Economy: The Role of the Market
• What Is Socialism? Definition and Examples
• The Main Points of "The Communist Manifesto"
• The Three Historic Phases of Capitalism and How They Differ
• What Is Capitalism?
• What Is Communism? Definition and Examples
• 5 Things That Make Capitalism "Global"
• The Critical View on Global Capitalism
• A List of Current Communist Countries in the World
• America's Capitalist Economy
• All About Marxist Sociology
• The Globalization of Capitalism
• What Is Neoliberalism? Definition and Examples
• SBA Offers Online 8(a) Program Application

• Student Opportunities

About Hoover

Located on the campus of Stanford University and in Washington, DC, the Hoover Institution is the nation’s preeminent research center dedicated to generating policy ideas that promote economic prosperity, national security, and democratic governance. 

• The Hoover Story
• Hoover Timeline & History
• Mission Statement
• Vision of the Institution Today
• Key Focus Areas
• About our Fellows
• Research Programs
• Annual Reports
• Hoover in DC
• Fellowship Opportunities
• Visit Hoover
• David and Joan Traitel Building & Rental Information
• Newsletter Subscriptions
• Connect With Us

Hoover scholars form the Institution’s core and create breakthrough ideas aligned with our mission and ideals. What sets Hoover apart from all other policy organizations is its status as a center of scholarly excellence, its locus as a forum of scholarly discussion of public policy, and its ability to bring the conclusions of this scholarship to a public audience.

• Scott Atlas
• Thomas Sargent
• Stephen Kotkin
• Michael McConnell
• Morris P. Fiorina
• John F. Cogan
• China's Global Sharp Power Project
• Economic Policy Group
• History Working Group
• Hoover Education Success Initiative
• National Security Task Force
• National Security, Technology & Law Working Group
• Middle East and the Islamic World Working Group
• Military History/Contemporary Conflict Working Group
• Renewing Indigenous Economies Project
• State & Local Governance
• Strengthening US-India Relations
• Technology, Economics, and Governance Working Group
• Taiwan in the Indo-Pacific Region

Books by Hoover Fellows

Economics Working Papers

Hoover Education Success Initiative | The Papers

• Hoover Fellows Program
• National Fellows Program
• Student Fellowship Program
• Veteran Fellowship Program
• Congressional Fellowship Program
• Media Fellowship Program
• Silas Palmer Fellowship
• Economic Fellowship Program

Throughout our over one-hundred-year history, our work has directly led to policies that have produced greater freedom, democracy, and opportunity in the United States and the world.

• Determining America’s Role in the World
• Answering Challenges to Advanced Economies
• Empowering State and Local Governance
• Revitalizing History
• Confronting and Competing with China
• Revitalizing American Institutions
• Reforming K-12 Education
• Understanding Public Opinion
• Understanding the Effects of Technology on Economics and Governance
• Energy & Environment
• Health Care
• Immigration
• International Affairs
• Key Countries / Regions
• Law & Policy
• Politics & Public Opinion
• Science & Technology
• Security & Defense
• State & Local
• Books by Fellows
• Published Works by Fellows
• Working Papers
• Congressional Testimony
• Hoover Press
• PERIODICALS
• The Caravan
• China's Global Sharp Power
• Economic Policy
• History Lab
• Hoover Education
• Global Policy & Strategy
• National Security, Technology & Law
• Middle East and the Islamic World
• Military History & Contemporary Conflict
• Renewing Indigenous Economies
• State and Local Governance
• Technology, Economics, and Governance

Hoover scholars offer analysis of current policy challenges and provide solutions on how America can advance freedom, peace, and prosperity.

• China Global Sharp Power Weekly Alert
• Email newsletters
• Hoover Daily Report
• Subscription to Email Alerts
• Periodicals
• California on Your Mind
• Defining Ideas
• Hoover Digest
• Video Series
• Uncommon Knowledge
• Battlegrounds
• GoodFellows
• Hoover Events
• Capital Conversations
• Hoover Book Club
• AUDIO PODCASTS
• Matters of Policy & Politics
• Economics, Applied
• Free Speech Unmuted
• Secrets of Statecraft
• Pacific Century
• Libertarian
• Library & Archives

Support Hoover

Learn more about joining the community of supporters and scholars working together to advance Hoover’s mission and values.

What is MyHoover?

MyHoover delivers a personalized experience at  Hoover.org . In a few easy steps, create an account and receive the most recent analysis from Hoover fellows tailored to your specific policy interests.

Watch this video for an overview of MyHoover.

Log In to MyHoover

Forgot Password

Don't have an account? Sign up

Have questions? Contact us

• Support the Mission of the Hoover Institution
• Subscribe to the Hoover Daily Report
• Follow Hoover on Social Media

Make a Gift

Your gift helps advance ideas that promote a free society.

• About Hoover Institution
• Meet Our Fellows
• Focus Areas
• Research Teams
• Library & Archives

Library & archives

Events, news & press, capitalism vs. socialism.

Over the last century countries have experimented with variations on both capitalism and socialsm. So how do socialism, capitalism, and their many variants compare?

From economic shutdowns to trillions of dollars in new government spending, the 2020 COVID-19 pandemic led to a dramatic increase in government action. While much of the increase was temporary, there is now a growing desire to further expand government. We see calls for single-payer health care systems, expanded child-care subsidies, and trillions of dollars in federal infrastructure investments.

Arguments about what government should and should not do are not new. We regularly see them in the debates over the merits of socialism versus free market capitalism. While these debates are often in the abstract, over the last century countries have experimented with variations on both economic systems. The  Hoover Institution’s Human Prosperity Project  critically examined many of these experiments to see which economic system is best for human flourishing. The video below describes the project’s objectives:

So how do socialism, capitalism, and their many variants compare?

Part 2: How do socialism and capitalism affect income and opportunities?

Delivering broad-based prosperity should be the primary goal of all economic systems, but not all systems deliver the same results. Supporters of capitalism argue that free markets give people—entrepreneurs, investors, and workers—the right incentives to create goods and services that people value. The result is higher standards of living. Those sympathetic to socialism, however, respond that capitalism may produce wealth for some, but without government involvement in the economy many are left behind.

In his Human Prosperity Project essay  Socialism, Capitalism, and Income  economist Edward Lazear analyzed decades of income trends across 162 countries. He studied how incomes for low and high earners changed as countries shifted from government-controlled economies to more market-oriented economies. His conclusion?

The historical record provides evidence on how countries have fared under the two extreme systems as well as under intermediate cases, where countries adopt primarily private ownership and economic freedom but couple that with a large government sector and transfers. The general evidence suggests that both across countries and over time within a country, providing more economic freedom improves the incomes of all groups, including the lowest group.

Lazear points to several specific examples. First, China: in the 1980s, the Chinese Communist government began to adopt market-based reforms. Lazear finds that the market reforms, as skeptics of capitalism would predict, did increase income inequality. But, more importantly, the market reforms lifted millions of people out of poverty. Lazear notes:

Today, the poorest Chinese earn five times as much as they did just two decades earlier. Throughout the 1980s and before, a large fraction of the Chinese population lived in abject poverty. Today’s poor in China remain poor by developed-country standards, but there is no denying that they are far better off than they were even two decades ago. Indeed, the rapid lifting of so many out of the worst state of poverty is likely the greatest change in human welfare in world history.

As the video below highlights, market reforms led to similar economic miracles in India, Chile, and South Korea:

Part 3: What about mixed economies?

Of course, most modern-day critics of capitalism are not advocating for complete government control over the economy. They don’t want the economic policies of the Soviet Union or early Communist China; instead, they point to nations with mixed economies to emulate, such as those featuring social democracy. So how do these policies affect incomes and opportunities?

Economist Lee Ohanian compares the labor market policies of Europe and the United States in his essay The Effect of Economic Freedom on Labor Market Efficiency and Performance . Compared to the United States, European nations have higher minimum wages, stricter rules that prevent the firing of workers, and high rates of unionization. These rules are intended to protect workers, but Ohanian finds that they discourage employment and result in lower compensation rates. His analysis indicates:

These findings have important implications for economic policy making. They indicate that policies that enhance the free and efficient operation of the labor market significantly expand opportunities and increase prosperity. Moreover, they suggest that economic policy reforms can substantially improve economic performance in countries with heavily regulated labor markets and high tax rates.

The video below highlights some of Ohanian’s key findings:

What about the effects of income redistribution and the taxes that pay for it? Supporters argue that these programs keep people out of poverty. Critics, however, argue that financing these systems comes with high costs both to taxpayers and to recipients.

In their essay Taxation, Individual Actions, and Economic Prosperity: A Review , Joshua Rauh and Gregory Kearney consider the effects of raising tax rates on high-income Americans to finance new government spending. They examine the effects of income and wealth taxes in Europe. They find that wealth taxes and high income tax rates discourage high-income filers from investing in a country, which ultimately reduces economic growth. Thus, calls in the United States to increase income and wealth taxes “come despite a body of evidence showing that the country is already one of the more progressive tax regimes in the world, that wealth confiscation results in worse outcomes for the broader economy.”

The long-term consequences of redistribution don’t fall just on taxpayers. Such transfer systems also create incentives for individuals to leave or stay out of the work force. In their contribution to the Human Prosperity Project , economist John Cogan and Daniel Heil consider the effects of Universal Basic Income (UBI) programs, which would provide a “no-strings-attached” cash benefit to families. They find that modern UBI proposals in the United States would either prove costly—requiring tax rates that would reduce incentives to work and invest—or would require steep phase-out provisions that punish recipients who try to re-enter the workforce. In either case, the result is that UBI programs are likely to reduce employment rates, ultimately depriving recipients of long-term economic opportunities.

Part 4: What about other aspects of human flourishing?

Human flourishing is more than material prosperity. For example, it requires a clean environment and access to good health care.

It might seem that socialist economies—where government controls the means of production—would have better environmental track records. Yet the evidence suggests the opposite. In his essay Environmental Markets vs. Environmental Socialism: Capturing Prosperity and Environmental Quality Economist , Terry Anderson summarizes the literature on economic systems’ effects on the environment. He points to research showing that countries with more economic freedom tend to have better environmental outcomes:

Seth Norton calculated the statistical relationship between various freedom indexes and environmental improvements. His results show that institutions—especially property rights and the rule of law—are key to human well-being and environmental quality. Dividing a sample of countries into groups with low, medium, and high economic freedom and similar categories for the rule of law, Norton showed that in all cases except water pollution, countries with low economic freedom are worse off than those in countries with moderate economic freedom, while in all cases those in countries with high economic freedom are better off than those in countries with medium economic freedom. A similar pattern is evident for the rule-of-law measures.

Anderson explains this surprising result with the adage that “no one washes a rental car.” In free-market societies, property rights give individuals incentive to protect and preserve the resources they own. In countries without these property rights provisions, no one has the right incentives, much like no one has the incentive to wash a rental car (except the rental car companies). The video below further explains why free markets and cleaner environments go hand and hand.

What about health care? Many developed nations that have generally free economies have still opted for government-run health care. The programs vary by country. Even in the United States, the government plays a large role in health care. Large government programs such as Medicare and Medicaid provide health care to low-income families, the disabled, and seniors. Nevertheless, relative to most developed nations, the United States relies far more heavily on the private sector and markets.

In his essay  The Costs of Regulation and Centralization in Health Care  Dr. Scott Atlas compares health care in the United States with that in other developed nations. The United States consistently ranks high across a variety of quality metrics. The system offers shorter wait times and faster access to life-saving drugs and medical equipment. The result is that the US system tends to deliver better medical outcomes than other developed nations. Watch this video to learn more:

Part 5: Conclusion

We’ve seen that whether we look at income statistics or environmental outcomes, economies with freer markets tend to have better outcomes. Nevertheless, there still may be unseen dimensions of economic systems that these statistics don’t address. Is there another way to determine which system is best for human flourishing?

Perhaps the best method is to observe where people choose to live when offered the choice. In his essay  Leaving Socialism Behind: A Lesson from German History ,  Russell Berman catalogues widespread immigration from East Germany to West Germany during the Cold War. Watch this video to learn its causes:

Citations and Additional Reading

• Why did liberal democracies succeed while communist nations failed in the twentieth century? Hoover Institution senior fellow Peter Berkowitz provides an answer in his essay  Capitalism, Socialism, and Freedom .
• In his essay  Socialism vs. The American Constitutional Structure: The Advantages of Decentralization and Federalism , John Yoo highlights the constitutional provisions that would make it difficult for the United States to adopt widescale socialist policies.
• Explore the other Human Prosperity Project essays  here .

View the discussion thread.

Join the Hoover Institution’s community of supporters in ideas advancing freedom.

• Table of Contents
• Random Entry
• Chronological
• Editorial Information
• About the SEP
• Editorial Board
• How to Cite the SEP
• Special Characters
• Advanced Tools
• Support the SEP
• PDFs for SEP Friends
• Make a Donation
• SEPIA for Libraries
• Entry Contents

Bibliography

Academic tools.

• Friends PDF Preview
• Author and Citation Info
• Back to Top

Socialism is a rich tradition of political thought and practice, the history of which contains a vast number of views and theories, often differing in many of their conceptual, empirical, and normative commitments. In his 1924 Dictionary of Socialism , Angelo Rappoport canvassed no fewer than forty definitions of socialism, telling his readers in the book’s preface that “there are many mansions in the House of Socialism” (Rappoport 1924: v, 34–41). To take even a relatively restricted subset of socialist thought, Leszek Kołakowski could fill over 1,300 pages in his magisterial survey of Main Currents of Marxism (Kołakowski 1978 [2008]). Our aim is of necessity more modest. In what follows, we are concerned to present the main features of socialism, both as a critique of capitalism, and as a proposal for its replacement. Our focus is predominantly on literature written within a philosophical idiom, focusing in particular on philosophical writing on socialism produced during the past forty-or-so years. Furthermore, our discussion concentrates on the normative contrast between socialism and capitalism as economic systems. Both socialism and capitalism grant workers legal control of their labor power, but socialism, unlike capitalism, requires that the bulk of the means of production workers use to yield goods and services be under the effective control of workers themselves, rather than in the hands of the members of a different, capitalist class under whose direction they must toil. As we will explain below, this contrast has been articulated further in different ways, and socialists have not only made distinctive claims regarding economic organization but also regarding the processes of transformation fulfilling them and the principles and ideals orienting their justification (including, as we will see, certain understandings of freedom, equality, solidarity, and democracy). [ 1 ]

1. Socialism and Capitalism

2. three dimensions of socialist views, 3.1 socialist principles, 3.2.1 exploitation, 3.2.2 interference and domination, 3.2.3 alienation, 3.2.4 inefficiency, 3.2.5 liberal egalitarianism and inequality in capitalism, 4.1 central and participatory planning, 4.2 market socialism, 4.3 less comprehensive, piecemeal reforms, 5. socialist transformation (dimension diii), other internet resources, related entries.

Socialism is best defined in contrast with capitalism, as socialism has arisen both as a critical challenge to capitalism, and as a proposal for overcoming and replacing it. In the classical, Marxist definition (G.A. Cohen 2000a: ch.3; Fraser 2014: 57–9), capitalism involves certain relations of production . These comprise certain forms of control over the productive forces —the labor power that workers deploy in production and the means of production such as natural resources, tools, and spaces they employ to yield goods and services—and certain social patterns of economic interaction that typically correlate with that control. Capitalism displays the following constitutive features:

(i) The bulk of the means of production is privately owned and controlled . (ii) People legally own their labor power. (Here capitalism differs from slavery and feudalism, under which systems some individuals are entitled to control, whether completely or partially, the labor power of others). (iii) Markets are the main mechanism allocating inputs and outputs of production and determining how societies’ productive surplus is used, including whether and how it is consumed or invested.

An additional feature that is typically present wherever (i)–(iii) hold, is that:

(iv) There is a class division between capitalists and workers, involving specific relations (e.g., whether of bargaining, conflict, or subordination) between those classes, and shaping the labor market, the firm, and the broader political process.

The existence of wage labor is often seen by socialists as a necessary condition for a society to be counted as capitalist (Schweickart 2002 [2011: 23]). Typically, workers (unlike capitalists) must sell their labor power to make a living. They sell it to capitalists, who (unlike the workers) control the means of production. Capitalists typically subordinate workers in the production process, as capitalists have asymmetric decision-making power over what gets produced and how it gets produced. Capitalists also own the output of production and sell it in the market, and they control the predominant bulk of the flow of investment within the economy. The relation between capitalists and workers can involve cooperation, but also relations of conflict (e.g., regarding wages and working conditions). This more-or-less antagonistic power relationship between capitalists and workers plays out in a number of areas, within production itself, and in the broader political process, as in both the economic and political domains decisions are made about who does what, and who gets what.

There are possible economic systems that would present exceptions, in which (iv) does not hold even if (i), (ii) and (iii) all obtain. Examples here are a society of independent commodity producers or a property-owning democracy (in which individuals or groups of workers own firms). There is debate, however, as to how feasible—accessible and stable—these are in a modern economic environment (O’Neill 2012).

Another feature that is also typically seen as arising where (i)–(iii) hold is this:

(v) Production is primarily oriented to capital accumulation (i.e., economic production is primarily oriented to profit rather than to the satisfaction of human needs). (G.A. Cohen 2000a; Roemer 2017).

In contrast to capitalism, socialism can be defined as a type of society in which, at a minimum, (i) is turned into (i*):

(i*) The bulk of the means of production is under social, democratic control.

Changes with regard to features (ii), (iii), and (v) are hotly debated amongst socialists. Regarding (ii), socialists retain the view that workers should control their labor power, but many do not affirm the kind of absolute, libertarian property rights in labor power that would, e.g., prevent taxation or other forms of mandatory contribution to cater for the basic needs of others (G.A. Cohen 1995). Regarding (iii), there is a recent burgeoning literature on “market socialism”, which we discuss below, where proposals are advanced to create an economy that is socialist but nevertheless features extensive markets. Finally, regarding (v), although most socialists agree that, due to competitive pressures, capitalists are bound to seek profit maximization, some puzzle over whether when they do this, it is “greed and fear” and not the generation of resources to make others besides themselves better-off that is the dominant, more basic drive and hence the degree to which profit-maximization should be seen as a normatively troubling phenomenon. (See Steiner 2014, in contrast with G.A. Cohen 2009, discussing the case of capitalists amassing capital to give it away through charity.) Furthermore, some socialists argue that the search for profits in a market socialist economy is not inherently suspicious (Schweickart 2002 [2011]). Most socialists, however, tend to find the profit motive problematic.

An important point about this definition of socialism is that socialism is not equivalent to, and is arguably in conflict with, statism. (i*) involves expansion of social power—power based on the capacity to mobilize voluntary cooperation and collective action—as distinct from state power—power based on the control of rule-making and rule enforcing over a territory—as well of economic power—power based on the control of material resources (Wright 2010). If a state controls the economy but is not in turn democratically controlled by the individuals engaged in economic life, what we have is some form of statism, not socialism (see also Arnold n.d. in Other Internet Resources (OIR) ; Dardot & Laval 2014).

When characterizing socialist views, it is useful to distinguish between three dimensions of a conception of a social justice (Gilabert 2017a). We identify these three dimensions as:

(DI) the core ideals and principles animating that conception of justice; (DII) the social institutions and practices implementing the ideals specified at DI; (DIII) the processes of transformation leading agents and their society from where they are currently, to the social outcome specified in DII.

The characterization of capitalism and socialism in the previous section focuses on the social institutions and practices constituting each form of society (i.e., on DII). We step back from this institutional dimension in section 3, below, to consider the central normative commitments of socialism (DI) and to survey their deployment in the socialist critique of capitalism. We then, in section 4 , engage in a more detailed discussion of accounts of the institutional shape of socialism (DII), exploring the various proposed implementations of socialist ideals and principles outlined under DI. We turn to accounts of the transition to socialism (DIII) in section 5 .

3. Socialist Critiques of Capitalism and their Grounds (Dimension DI)

Socialists have condemned capitalism by alleging that it typically features exploitation, domination, alienation, and inefficiency. Before surveying these criticisms, it is important to note that they rely on various ideals and principles at DI. We first mention these grounds briefly, and then elaborate on them as we discuss their engagement in socialists’ critical arguments. We set aside the debate, conducted mostly during the 1980s and largely centered on the interpretation of Marx’s writings, as to whether the condemnation of capitalism and the advocacy for socialism relies (or should rely), on moral grounds (Geras 1985; Lukes 1985; Peffer 1990). Whereas some Marxist socialists take the view that criticism of capitalism can be conducted without making use—either explicitly or implicitly—of arguments with a moral foundation, our focus is on arguments that do rely on such grounds.

Socialists have deployed ideals and principles of equality, democracy, individual freedom, self-realization, and community or solidarity. Regarding equality , they have proposed strong versions of the principle of equality of opportunity according to which everyone should have “broadly equal access to the necessary material and social means to live flourishing lives” (Wright 2010: 12; Roemer 1994a: 11–4; Nielsen 1985). Some, but by no means all, socialists construe equality of opportunity in a luck-egalitarian way, as requiring the neutralization of inequalities of access to advantage that result from people’s circumstances rather than their choices (G.A. Cohen 2009: 17–9). Socialists also embrace the ideal of democracy , requiring that people have “broadly equal access to the necessary means to participate meaningfully in decisions” affecting their lives (Wright 2010: 12; Arnold n.d. [OIR] : sect. 4). Many socialists say that democratic participation should be available not only at the level of governmental institutions, but also in various economic arenas (such as within the firm). Third, socialists are committed to the importance of individual freedom . This commitment includes versions of the standard ideas of negative liberty and non-domination (requiring security from inappropriate interference by others). But it also typically includes a more demanding, positive form of self-determination, as the “real freedom” of being able to develop one’s own projects and bring them to fruition (Elster 1985: 205; Gould 1988: ch. 1; Van Parijs 1995: ch. 1; Castoriadis 1979). An ideal of self-realization through autonomously chosen activities featuring people’s development and exercise of their creative and productive capacities in cooperation with others sometimes informs socialists’ positive views of freedom and equality—as in the view that there should be a requirement of access to the conditions of self-realization at work (Elster 1986: ch. 3). Finally, and relatedly, socialists often affirm an idea of community or solidarity , according to which people should organize their economic life so that they treat the freedom and well-being of others as intrinsically significant. People should recognize positive duties to support other people, or, as Einstein (1949) put it, a “sense of responsibility for [their] fellow men”. Or, as Cohen put it, people should “care about, and, where necessary and possible, care for, one another, and, too, care that they care about one another” (G.A. Cohen 2009: 34–5). Community is sometimes presented as a moral ideal which is not itself a demand of justice but can be used to temper problematic results permitted by some demands of justice (such as the inequalities of outcome permitted by a luck-egalitarian principle of equality of opportunity (G.A. Cohen 2009)). However, community is sometimes presented within socialist views as a demand of justice itself (Gilabert 2012). Some socialists also take solidarity as partly shaping a desirable form of “social freedom” in which people are able not only to advance their own good but also to act with and for others (Honneth 2015 [2017: ch. I]).

Given the diversity of fundamental principles to which socialists commonly appeal, it is perhaps unsurprising that few attempts have been made to link these principles under a unified framework. A suggested strategy has been to articulate some aspects of them as requirements flowing from what we might call the Abilities / Needs Principle, following Marx’s famous dictum, in The Critique of the Gotha Program , that a communist society should be organized so as to realize the goals of producing and distributing “From each according to [their] abilities, to each according to [their] needs”. This principle, presented with brevity and in the absence of much elaboration by Marx (Marx 1875 [1978b: 531]) has been interpreted in different ways. One, descriptive interpretation simply takes it to be a prediction of how people will feel motivated to act in a socialist society. Another, straightforwardly normative interpretation construes the Marxian dictum as stating duties to contribute to, and claims to benefit from, the social product—addressing the allocation of both the burdens and benefits of social cooperation. Its fulfillment would, in an egalitarian and solidaristic fashion, empower people to live flourishing lives (Carens 2003, Gilabert 2015). The normative principle itself has also been interpreted as an articulation of the broader, and more basic, idea of human dignity. Aiming at solidaristic empowerment , this idea could be understood as requiring that we support people in the pursuit of a flourishing life by not blocking, and by enabling, the development and exercise of their valuable capacities, which are at the basis of their moral status as agents with dignity (Gilabert 2017b).

3.2 Socialist Charges against Capitalism

The first typical charge leveled by socialists is that capitalism features the exploitation of wage workers by their capitalist employers. Exploitation has been characterized in two ways. First, in the so-called “technical” Marxist characterization, workers are exploited by capitalists when the value embodied in the goods they can purchase with their wages is inferior to the value embodied in the goods they produce—with the capitalists appropriating the difference. To maximize the profit resulting from the sale of what the workers produce, capitalists have an incentive to keep wages low. This descriptive characterization, which focuses on the flow of surplus labor from workers to capitalists, differs from another common, normative characterization of exploitation, according to which exploitation involves taking unfair, wrongful, or unjust advantage of the productive efforts of others. An obvious question is when, if ever, incidents of exploitation in the technical sense involve exploitation in the normative sense. When is the transfer of surplus labor from workers to capitalists such that it involves wrongful advantage taking of the former by the latter? Socialists have provided at least four answers to this question. (For critical surveys see Arnsperger and Van Parijs 2003: ch. III; Vrousalis 2018; Wolff 1999).

The first answer is offered by the unequal exchange account , according to which A exploits B if and only if in their exchange A gets more than B does. This account effectively collapses the normative sense of exploitation into the technical one. But critics have argued that this account fails to provide sufficient conditions for exploitation in the normative sense. Not every unequal exchange is wrongful: it would not be wrong to transfer resources from workers to people who (perhaps through no choice or fault of their own) are unable to work.

A second proposal is to say that A exploits B if and only if A gets surplus labor from B in a way that is coerced or forced. This labor entitlement account (Holmstrom 1977; Reiman 1987) relies on the view that workers are entitled to the product of their labor, and that capitalists wrongly deprive them of it. In a capitalist economy, workers are compelled to transfer surplus labor to capitalists on pain of severe poverty. This is a result of the coercively enforced system of private property rights in the means of production. Since they do not control means of production to secure their own subsistence, workers have no reasonable alternative to selling their labor power to capitalists and to toil on the terms favored by the latter. Critics of this approach have argued that it, like the previous account, fails to provide sufficient conditions for wrongful exploitation because it would (counterintuitively) have to condemn transfers from workers to destitute people unable to work. Furthermore, it has been argued that the account fails to provide necessary conditions for the occurrence of exploitation. Problematic transfers of surplus labor can occur without coercion. For example, A may have sophisticated means of production, not obtained from others through coercion, and hire B to work on them at a perhaps unfairly low wage, which B voluntarily accepts despite having acceptable, although less advantageous, alternatives (Roemer 1994b: ch. 4).

The third, unfair distribution of productive endowments account suggests that the core problem with capitalist exploitation (and with other forms of exploitation in class-divided social systems) is that it proceeds against a background distribution of initial access to productive assets that is inegalitarian. A is an exploiter, and B is exploited, if and only if A gains from B ’s labor and A would be worse off, and B better off, in an alternative hypothetical economic environment in which the initial distribution of assets was equal (with everything else remaining constant) (Roemer 1994b: 110). This account relies on a luck-egalitarian principle of equality of opportunity. (According to luck-egalitarianism, no one should be made worse-off than others due to circumstances beyond their control.) Critics have argued that, because of that, it fails to provide necessary conditions for wrongful exploitation. If A finds B stuck in a pit, it would be wrong for A to offer B rescue only if B signs a sweatshop contract with A —even if B happened to have fallen into the pit after voluntarily taking the risk to go hiking in an area well known to be dotted with such perilous obstacles (Vrousalis 2013, 2018). Other critics worry that this account neglects the centrality of relations of power or dominance between exploiters and exploited (Veneziani 2013).

A fourth approach directly focuses on the fact that exploitation typically arises when there is a significant power asymmetry between the parties involved. The more powerful instrumentalize and take advantage of the vulnerability of the less powerful to benefit from this asymmetry in positions (Goodin 1987). A specific version of this view, the domination for self-enrichment account (Vrousalis 2013, 2018), says that A exploits B if A benefits from a transaction in which A dominates B . (On this account, domination involves a disrespectful use of A ’s power over B .) Capitalist property rights, with the resulting unequal access to the means of production, put propertyless workers at the mercy of capitalists, who use their superior power over them to extract surplus labor. A worry about this approach is that it does not explain when the more powerful party is taking too much from the less powerful party. For example, take a situation where A and B start with equal assets, but A chooses to work hard while B chooses to spend more time at leisure, so that at a later time A controls the means of production, while B has only their own labor power. We imagine that A offers B employment, and then ask, in light of their ex ante equal position, at what level of wage for B and profit for A would the transaction involve wrongful exploitation? To come to a settled view on this question, it might be necessary to combine reliance on a principle of freedom as non-domination with appeal to additional socialist principles addressing just distribution—such as some version of the principles of equality and solidarity mentioned above in section 4.1 .

Capitalism is often defended by saying that it maximally extends people’s freedom, understood as the absence of interference. Socialism would allegedly depress that freedom by prohibiting or limiting capitalist activities such as setting up a private firm, hiring wage workers, and keeping, investing, or spending profits. Socialists generally acknowledge that a socialist economy would severely constrain some such freedoms. But they point out that capitalist property rights also involve interference. They remind us that “private property by one person presupposes non-ownership on the part of other persons” (Marx 1991: 812) and warn that often, although

liberals and libertarians see the freedom which is intrinsic to capitalism, they overlook the unfreedom which necessarily accompanies capitalist freedom. (G.A. Cohen 2011: 150)

Workers could and would be coercively interfered with if they tried to use means of production possessed by capitalists, to walk away with the products of their labor in capitalist firms, or to access consumption goods they do not have enough money to buy. In fact, every economic system opens some zones of non-interference while closing others. Hence the appropriate question is not whether capitalism or socialism involve interference—they both do—but whether either of them involves more net interference, or more troubling forms of interference, than the other. And the answer to that question is far from obvious. It could very well be that most agents in a socialist society face less (troublesome) interference as they pursue their projects of production and consumption than agents in a capitalist society (G.A. Cohen 2011: chs. 7–8).

Capitalist economic relations are often defended by saying that they are the result of free choices by consenting adults. Wage workers are not slaves or serfs—they have the legal right to refuse to work for capitalists. But socialists reply that the relationship between capitalists and workers actually involves domination. Workers are inappropriately subject to the will of capitalists in the shaping of the terms on which they work (both in the spheres of exchange and production, and within the broader political process). Workers’ consent to their exploitation is given in circumstances of deep vulnerability and asymmetry of power. According to Marx, two conditions help explain workers’ apparently free choice to enter into a nevertheless exploitative contract: (1) in capitalism (unlike in feudalism or slave societies) workers own their labor power, but (2) they do not own means of production. Because of their deprivation (2), workers have no reasonable alternative to using their entitlement (1) to sell their labor power to the capitalists—who do own the means of production (Marx 1867 [1990: 272–3]). Through labor-saving technical innovations spurred by competition, capitalism also constantly produces unemployment, which weakens the bargaining power of individual workers further. Thus, Marx says that although workers voluntarily enter into exploitative contracts, they are “compelled [to do so] by social conditions”.

The silent compulsion of economic relations sets the seal on the domination of the capitalist over the worker…. [The worker’s] dependence on capital … springs from the conditions of production themselves, and is guaranteed in perpetuity by them. (Marx 1867 [1990: 382, 899])

Because of the deep background inequality of power resulting from their structural position within a capitalist economy, workers accept a pattern of economic transaction in which they submit to the direction of capitalists during the activities of production, and surrender to those same capitalists a disproportional share of the fruits of their labor. Although some individual workers might be able to escape their vulnerable condition by saving and starting a firm of their own, most would find this extremely difficult, and they could not all do it simultaneously within capitalism (Elster 1985: 208–16; G.A. Cohen 1988: ch. 13).

Socialists sometimes say that capitalism flouts an ideal of non-domination as freedom from being subject to rules one has systematically less power to shape than others (Gourevitch 2013; Arnold 2017; Gilabert 2017b: 566–7—on which this and the previous paragraph draw). Capitalist relations of production involve domination and the dependence of workers on the discretion of capitalists’ choices at three critical junctures. The first, mentioned above, concerns the labor contract. Due to their lack of control of the means of production, workers must largely submit, on pain of starvation or severe poverty, to the terms capitalists offer them. The second concerns interactions in the workplace. Capitalists and their managers rule the activities of workers by unilaterally deciding what and how the latter produce. Although in the sphere of circulation workers and capitalists might look (misleadingly, given the first point) like equally free contractors striking fair deals, once we enter the “hidden abode” of production it is clear to all sides that what exists is relationships of intense subjection of some to the will of others (Marx 1867 [1990: 279–80]). Workers effectively spend many of their waking hours doing what others dictate them to do. Third, and finally, capitalists have a disproportionate impact on the legal and political process shaping the institutional structure of the society in which they exploit workers, with capitalist interests dominating the political processes which in turn set the contours of property and labor law. Even if workers manage to obtain the legal right to vote and create their own trade unions and parties (which labor movements achieved in some countries after much struggle), capitalists exert disproportionate influence via greater access to mass media, the funding of political parties, the threat of disinvestment and capital flight if governments reduce their profit margin, and the past and prospective recruitment of state officials in lucrative jobs in their firms and lobbying agencies (Wright 2010: 81–4). At the spheres of exchange, production, and in the broader political process, workers and capitalist have asymmetric structural power. Consequently, the former are significantly subject to the will of the latter in the shaping of the terms on which they work (see further Wright 2000 [2015]). This inequality of structural power, some socialists claim, is an affront to workers’ dignity as self-determining, self-mastering agents.

The third point about domination mentioned above is also deployed by socialists to say that capitalism conflicts with democracy (Wright 2010: 81–4; Arnold n.d. [OIR] : sect. 4; Bowles and Gintis 1986; Meiksins Wood 1995). Democracy requires that people have roughly equal power to affect the political process that structures their social life—or at least that inequalities do not reflect morally irrelevant features such as race, gender, and class. Socialists have made three points regarding the conflict between capitalism and democracy. The first concerns political democracy of the kind that is familiar today. Even in the presence of multi-party electoral systems, members of the capitalist class—despite being a minority of the population—have significantly more influence than members of the working class. Governments have a tendency to adapt their agendas to the wishes of capitalists because they depend on their investment decisions to raise the taxes to fund public policies, as well as for the variety of other reasons outlined above. Even if socialist parties win elections, as long as they do not change the fundamentals of the economic system, they must be congenial to the wishes of capitalists. Thus, socialists have argued that deep changes in the economic structure of society are needed to make electoral democracy fulfill its promise. Political power cannot be insulated from economic power. They also, secondly, think that such changes may be directly significant. Indeed, as radical democrats, socialists have argued that reducing inequality of decision-making power within the economic sphere itself is not only instrumentally significant (to reduce inequality within the governmental sphere), but also intrinsically significant to increase people’s self-determination in their daily lives as economic agents. Therefore, most democratic socialists call for a solution to the problem of the conflict between democracy and capitalism by extending democratic principles into the economy (Fleurbaey 2006). Exploring the parallel between the political and economic systems, socialists have argued that democratic principles should apply in the economic arena as they do in the political domain, as economic decisions, like political decisions, have dramatic consequences for the freedom and well-being of people. Returning to the issue of the relations between the two arenas, socialists have also argued that fostering workers’ self-determination in the economy (notably in the workplace) enhances democratic participation at the political level (Coutrot 2018: ch. 9; Arnold 2012; see survey on workplace democracy in Frega et al. 2019). A third strand of argument, finally, has explored the importance of socialist reforms for fulfilling the ideal of a deliberative democracy in which people participate as free and equal reasoners seeking to make decisions that actually cater for the common good of all (J. Cohen 1989).

As mentioned above, socialists have included, in their affirmation of individual freedom, a specific concern with real or effective freedom to lead flourishing lives. This freedom is often linked with a positive ideal of self-realization , which in turn motivates a critique of capitalism as generating alienation. This perspective informs Marx’s views on the strong contrast between productive activity under socialism and under capitalism. In socialism, the “realm of necessity” and the correspondingly necessary, but typically unsavory, labor required to secure basic subsistence would be reduced so that people also access a “realm of freedom” in which a desirable form of work involving creativity, cultivation of talents, and meaningful cooperation with others is available. This realm of freedom would unleash “the development of human energy which is an end in itself” (Marx 1991: 957–9). This work, allowing for and facilitating individuals’ self-realization, would enable the “all-round development of the individual”, and would in fact become a “prime want” (Marx 1875 [1978b: 531]). The socialist society would feature “the development of the rich individuality which is all-sided in its production as in its consumption” (Marx 1857–8 [1973: 325]); it would constitute a “higher form of society in which the full and free development of every individual forms the ruling principle” (Marx 1867 [1990: 739]). By contrast, capitalism denies the majority of the population access to self-realization at work. Workers typically toil in tasks which are uninteresting and even stunting. They do not control how production unfolds or what is done with the outputs of production. And their relations with others is not one of fellowship, but rather of domination (under their bosses) and of competition (against their fellow workers). When alienated,

labor is external to the worker, i.e., it does not belong to his essential being; … in his work, therefore, he does not affirm himself but denies himself, does not feel content but unhappy, does not develop freely his physical and mental energy but mortifies his body and ruins his mind. … It is therefore not the satisfaction of a need; it is merely a means to satisfy needs external to it. (Marx 1844 [1978a: 74])

Recent scholarship has developed these ideas further. Elster has provided the most detailed discussion and development of the Marxian ideal of self-realization. The idea is defined as “the full and free actualization and externalization of the powers and the abilities of the individual” (Elster 1986: 43; 1989: 131). Self-actualization involves a two-step process in which individuals develop their powers (e.g., learn the principles and techniques of civil engineering) and then actualize those powers (e.g., design and participate in the construction of a bridge). Self-externalization, in turn, features a process in which individuals’ powers become visible to others with the potential beneficial outcome of social recognition and the accompanying boost in self-respect and self-esteem. However, Elster says that this Marxian ideal must be reformulated to make it more realistic. No one can develop all their powers fully, and no feasible economy would enable everyone always to get exactly their first-choice jobs and conduct them only in the ways they would most like. Furthermore, self-realization for and with others (and thus also the combination of self-realization with community) may not always work smoothly, as producers entangled in large and complex societies may not feel strongly moved by the needs of distant others, and significant forms of division of labor will likely persist. Still, Elster thinks the socialist ideal of self-realization remains worth pursuing, for example through the generation of opportunities to produce in worker cooperatives. Others have construed the demand for real options to produce in ways that involve self-realization and solidarity as significant for the implementation of the Abilities / Needs Principle (Gilabert 2015: 207–12), and defended a right to opportunities for meaningful work against the charge that it violates a liberal constraint of neutrality about conceptions of the good (Gilabert 2018b: sect. 3.3). (For more discussion on alienation and self-realization, see Jaeggi 2014: ch. 10.)

Further scholarship explores recent changes in the organization of production. Boltanski and Chiapello argue that since the 1980s capitalism has partly absorbed (what they dub) the “artistic critique” against de-skilled and heteronomous work by generating schemes of economic activity in which workers operate in teams and have significant decision-making powers. However, these new forms of work, although common especially in certain knowledge-intensive sectors, are not available to all workers, and they still operate under the ultimate control of capital owners and their profit maximizing strategies. They also operate in tandem with the elimination of the social security policies typical of the (increasingly eroded) welfare state. Thus, the “artistic” strand in the socialist critique of capitalism as hampering people’s authenticity, creativity, and autonomy has not been fully absorbed and should be renewed. It should also be combined with the other, “social critique” strand which challenges inequality, insecurity, and selfishness (Boltanski and Chiapello 2018: Introduction, sect. 2). Other authors find in these new forms of work the seeds of future forms of economic organization—arguing that they provide evidence that workers can plan and control sophisticated processes of production on their own and that capitalists and their managers are largely redundant (Negri 2008).

The critique of alienation has also been recently developed further by Forst (2017) by exploring the relation between alienation and domination. On this account, the central problem with alienation is that it involves the denial of people’s autonomy—their ability and right to shape their social life on terms they could justify to themselves and to each other as free and equal co-legislators. (See also the general analysis of the concept of alienation in Leopold 2018.)

A traditional criticism of capitalism (especially amongst Marxists) is that it is inefficient. Capitalism is prone to cyclic crises in which wealth and human potential is destroyed and squandered. For example, to cut costs and maximize profits, firms choose work-saving technologies and lay off workers. But at the aggregate level, this erodes the demand for their products, which forces firms to cut costs further (by laying off even more workers or halting production). Socialism would, it has been argued, not be so prone to crises, as the rationale for production would not be profit maximization but need satisfaction. Although important, this line of criticism is less widespread amongst contemporary socialists. Historically, capitalism has proved quite resilient, resurrecting itself after crises and expanding its productivity dramatically over time. In might very well be that capitalism is the best feasible regime if the only standard of assessment were productivity.

Still, socialists point out that capitalism involves some significant inefficiencies. Examples are the underproduction of public goods (such as public transportation and education), the underpricing and overconsumption of natural resources (such as fossil fuels and fishing stocks), negative externalities (such as pollution), the costs of monitoring and enforcing market contracts and private property (given that the exploited may not be so keen to work as hard as their profit-maximizing bosses require, and that the marginalized may be moved by desperation to steal), and certain defects of intellectual property rights (such as blocking the diffusion of innovation, and alienating those who engage in creative activities because of their intrinsic appeal and because of the will to serve the public rather than maximize monetary reward) (Wright 2010: 55–65). Really existing capitalist societies have introduced regulations to counter some of these problems, at least to some extent. Examples are taxes and constraints to limit economic activities with negative externalities, and public funding and subsidies to sustain activities with positive externalities which are not sufficiently supported by the market. But, socialists insist, such mechanisms are external to capitalism, as they limit property rights and the scope for profit maximization as the primary orientation in the organization of the economy. The regulations involve the hybridization of the economic system by introducing some non-capitalist, and even socialist elements.

There is also an important issue of whether efficiency should only be understood in terms of maximizing production of material consumption goods. If the metric, or the utility space, that is taken into account when engaging in maximization assessments includes more than these goods, then capitalism can also be criticized as inefficient on account of its tendency to depress the availability of leisure time (as well as to distribute it quite unequally). This carries limitation of people’s access to the various goods that leisure enables—such as the cultivation of friendships, family, and community or political participation. Technological innovations create the opportunity to choose between retaining the previous level of production while using fewer inputs (such as labor time) or maintaining the level of inputs while producing more. John Maynard Keynes famously held that it would be reasonable to tend towards the prior option, and expected societies to take this path as the technological frontier advanced (Keynes 1930/31 [2010]; Pecchi and Piga 2010). Nevertheless, in large part because of the profit maximization motive, capitalism displays an inherent bias in favor of the second, arguably inferior, option. Capitalism thereby narrows the realistic options of its constituent economic agents—both firms and individuals. Firms would lose their competitive edge and risk bankruptcy if they did not pursue profits ahead of the broader interests of their workers (as their products would likely be more expensive). And it is typically hard for workers to find jobs that pay reasonable salaries for fewer hours of work. Socialists concerned with expanding leisure time—and also with environmental risks—find this bias quite alarming (see, e.g., G.A. Cohen 2000a: ch. XI). If a conflict between further increase in the production of material objects for consumption and the expansion of leisure time (and environmental protection) is unavoidable, then it is not clear, all things considered, that the former should be prioritized, especially when an economy has already reached a high level of material productivity.

Capitalism has also been challenged on liberal egalitarian grounds, and in ways that lend themselves to support for socialism. (Rawls 2001; Barry 2005; Piketty 2014; O’Neill 2008a, 2012, 2017; Ronzoni 2018). While many of John Rawls’s readers long took him to be a proponent of an egalitarian form of a capitalist welfare state, or as one might put it “a slightly imaginary Sweden”, in fact Rawls rejected such institutional arrangements as inadequate to the task of realizing principles of political liberty or equality of opportunity, or of keeping material inequalities within sufficiently tight bounds. His own avowed view of the institutions that would be needed to realize liberal egalitarian principles of justice was officially neutral as between a form of “property-owning democracy”, which would combine private property in the means of production with its egalitarian distribution, and hence the abolition of the separate classes of capitalists and workers; and a form of liberal democratic socialism that would see public ownership of the preponderance of the means of production, with devolved control of particular firms (Rawls 2001: 135–40; O’Neill and Williamson 2012). While Rawls’s version of liberal democratic socialism was insufficiently developed in his own writings, he stands as an interesting case of a theorist whose defense of a form of democratic socialism is based on normative foundations that are not themselves distinctively socialist, but concerned with the core liberal democratic values of justice and equality (see also Edmundson 2017; Ypi 2018).

In a similar vein to Rawls, another instance of a theorist who defends at least partially socialist institutional arrangements on liberal egalitarian grounds was the Nobel Prize winning economist James Meade. Giving a central place to decidedly liberal values of freedom, security and independence, Meade argued that the likely levels of socioeconomic inequality under capitalism were such that a capitalist economy would need to be extensively tempered by socialist elements, such as the development of a citizens’ sovereign wealth fund, if the economic system were to be justifiable to those living under it (Meade 1964; O’Neill 2015 [OIR] , 2017; O’Neill and White 2019). Looking back before Meade, J. S. Mill can also be seen as a theorist who traveled along what we might describe as “the liberal road to socialism”, with Mill in his Autobiography describing his own view as the acceptance of a “qualified socialism” (Mill 1873 [2018]), and arguing for a range of measures to create a more egalitarian economy, including making the case for a steady-state rather than a growth-oriented economy, arguing for workers’ collective ownership and self-management of firms in preference to the hierarchical structures characteristic of most firms under capitalism, and endorsing steep taxation of inheritance and unearned income (Mill 2008; see also Ten 1998; O’Neill 2008b, Pateman 1970). More recently, the argument has been advanced that as capitalist economies tend towards higher levels of inequality, and in particular with the rapid velocity at which the incomes and wealth of the very rich in society is increasing, many of those who had seen their normative commitments as requiring only the mild reform of capitalist economies might need to come to see the need to endorse more radical socialist institutional proposals (Ronzoni 2018).

4. Socialist Institutional Designs (Dimension DII)

The foregoing discussion focused on socialist critiques of capitalism. These critiques make the case that capitalism fails to fulfill principles, or to realize values, to which socialists are committed. But what would an alternative economic system look like which would fulfill those principles, or realize those values—or at least honor them to a larger extent? This brings us to dimension DII of socialism. We will consider several proposed models. We will address here critical concerns about both the feasibility and the desirability of these models. Arguments comparing ideal socialist designs with actual capitalist societies are unsatisfactory; we must compare like with like (Nove 1991; Brennan 2014; Corneo 2017). Thus, we should compare ideal forms of socialism with ideal forms of capitalism, and actual versions of capitalism with actual versions of socialism. Most importantly, we should entertain comparisons between the best feasible incarnations of these systems. This requires formulating feasible forms of socialism. Feasibility assessments can play out in two ways: they may regard the (degree of) workability and stability of a proposed socialist system once introduced, or they may regard its (degree of) accessibility from current conditions when it is not yet in place. We address the former concerns in this section, leaving the latter for section 5 when we turn to dimension DIII of socialism and the questions of socialist transition or transformation.

Would socialism do better than capitalism regarding the ideals of equality, democracy, individual freedom, self-realization, and solidarity? This depends on the availability of workable versions of socialism that fulfill these ideals (or do so at least to a greater extent than workable forms of capitalism). A first set of proposals envision an economic system that does away with both private property in the means of production and with markets. The first version of this model is central planning . This can be understood within a top-down, hierarchical model. A central authority gathers information about the technical potential in the economy and about consumers’ needs and formulates a set of production objectives which seek an optimal match between the former and the latter. These objectives are articulated into a plan that is passed down to intermediate agencies and eventually to local firms, which must produce according to the plan handed down. If it works, this proposal would secure the highest feasible levels of equal access to consumption goods for everyone. However, critics have argued that the model faces serious feasibility hurdles (Corneo 2017: ch. 5: Roemer 1994a: ch. 5). It is very hard for a central authority to gather the relevant information from producers and consumers. Second, even if it could gather enough information, the computation of an optimal plan would require enormously complex calculations which may be beyond the capacity of planners (even with access to the most sophisticated technological assistance). Finally, there may be significant incentive deficits. For example, firms might tend to exaggerate the resources they need to produce and mislead about how much they can produce. Without facing strong sticks and carrots (such as the prospects for either bankruptcy and profit offered by a competitive market), firms might well display low levels of innovation. As a result, a planned economy would likely lag behind surrounding capitalist economies, and their members would tend to lose faith in it. High levels of cooperation (and willingness to innovate) could still exist if sufficiently many individuals in this society possessed a strong sense of duty. But critics find this unlikely to materialize, warning that “a system that only works with exceptional individuals only works in exceptional cases” (Corneo 2017: 127).

Actual experiments in centrally planned economies have only partially approximated the best version of it. Thus, in addition to the problems mentioned above (which affect even that best version), they have displayed additional defects. For example, the system introduced in the Soviet Union featured intense concentration of political and economic power in the hands of an elite controlling a single party which, in turn, controlled a non-democratic state apparatus. Despite its successes in industrializing the country (making it capable of mobilizing in a war effort to defeat Nazi Germany), the model failed to generate sufficient technical innovation and intensive growth to deliver differentiated consumer goods of the kind available within advanced capitalist economies. Furthermore, it trampled upon civil and political liberties that many socialists would themselves hold dear.

Responding to such widespread disempowerment, a second model for socialist planning has recommended that planning be done in a different, more democratic way. Thus, the participatory planning (or participatory economy, “Parecon”) model proposes the following institutional features (Albert 2003, 2016 [OIR] ). First, the means of production would be socially owned. Second, production would take place in firms controlled by workers (thus fostering democracy within the workplace). Third, balanced “job complexes” are put in place in which workers can both engage in intellectual and manual labor (thus fostering and generalizing self-realization). Fourth, in a solidaristic fashion, remuneration of workers would track their effort, sacrifice, and special needs (and not their relative power or output—which would likely reflect differences in native abilities for which they are not morally responsible). Finally, and crucially, economic coordination would be based on comprehensive participatory planning. This would involve a complex system of nested worker councils, consumer councils, and an Iteration Facilitation Board. Various rounds of deliberation within, and between, worker and consumer councils, facilitated by this board, would be undertaken until matches between supply and demands schedules are found—with recourse to voting procedures only when no full agreement exists but several promising arrangements arise. This would turn the economy into an arena of deliberative democracy.

This proposal seems to cater for the full palette of socialist values stated in section 4.1 . Importantly, it overcomes the deficits regarding freedom displayed by central planning. Critics have warned, however, that Parecon faces serious feasibility obstacles. In particular, the iterative planning constituting the fifth institutional dimension of the Parecon proposal would require immense information complexity (Wright 2010: 260–5). It is unlikely that participants in the operations of this board, even with the help of sophisticated computers, would manage it sufficiently well to generate a production plan that satisfactorily caters to the diversity of individuals’ needs. A defense of Parecon would retort that beyond initial stages, the process of economic decision-making would not be too cumbersome. Furthermore, it might turn out to involve no more paperwork and time devoted to planning and to assessment behind computer terminals than is found in existing capitalist societies (with their myriad individual and corporate budgeting exercises, and their various accounting and legal epicycles). And, in any case, even if it is more cumbersome and less efficient in terms of productivity, Parecon might still be preferable overall as an economic system, given its superior performance regarding the values of freedom, equality, self-realization, solidarity, and democracy (Arnold n.d. [OIR] : sect. 8.b).

Some of the above-mentioned problems of central planning, regarding inefficiency and concentration of power, have motivated some socialists to explore alternative economic systems in which markets are given a central role. Markets generate problems of their own (especially when they involve monopolies, negative externalities, and asymmetric information). But if regulations are introduced to counter these “market failures”, markets can be the best feasible mechanism for generating matches between demand and supply in large, complex societies (as higher prices signal high demand, with supply rushing to cover it, while lower prices signal low demand, leading supply to concentrate on other products). Market socialism affirms the traditional socialist desideratum of preventing a division of society between a class of capitalists who do not need to work to make a living and a class of laborers having to work for them, but it retains from capitalism the utilization of markets to guide production. There has been a lively debate on this approach, with several specific systems being proposed.

One version is the economic democracy model (Schweickart 2002 [2011], 2015 [OIR] ). It has three basic features. First, production is undertaken in firms managed by workers. Worker self-managed enterprises would gain temporary control of some means of production (which would be leased out by the state). Workers determine what gets produced and how it is produced, and determine compensation schemes. Second, there is a market for goods and services. The profit motive persists and some inequalities within and between firms are possible, but likely much smaller than in capitalism (as there would be no separate capitalist class, and workers will not democratically select income schemes that involve significant inequality within their firms). Finally, investment flows are socially controlled through democratically accountable public investment banks, which determine funding for enterprises on the basis of socially relevant criteria. The revenues for these banks come from a capital assets tax. This system would (through its second feature) mobilize the efficiency of markets while also (through its other features) attending to socialist ideals of self-determination, self-realization, and equal opportunity. To address some potential difficulties, the model has been extended to include further features, such as a commitment of the government as an employer of last resort, the creation of socialist savings and loans associations, the accommodation of an entrepreneurial-capitalist sector for particularly innovative small firms, and some forms of protectionism regarding foreign trade.

Self-management market socialism has been defended as feasible by pointing at the experience of cooperatives (such as the Mondragón Corporation in the Basque Country in Spain, which has (as of 2015) over 70,000 worker-owners participating in a network of cooperative businesses). But it has also been criticized on five counts (Corneo 2017: ch. 6). First, it would generate unfair distributions, as workers doing the same work in different enterprises would end up with unequal income if the enterprises are not equally successful in the market. Second, workers would face high levels of financial risk, as their resources would be concentrated in their firm rather than spread more widely. Third, it could generate inefficient responses to market prices, as self-managed enterprises reduce hiring if prices for their products are high—so that members keep more of the profit—and hire more if the prices are low—to cover for fixed costs of production. Given the previous point, the system could also generate high unemployment. Having the government require firms to hire more would lead to lower productivity. However, the further features in the model discussed above might address this problem by allowing for small private enterprises to be formed, and by having in the background the government play a role as an employer of last resort (although this might also limit overall productivity). Finally, although some of the problems of efficiency could be handled through the banks controlling investment, it is not clear that the enormous power of such banks could be made sufficiently accountable to a democratic process so as to avoid the potential problem of cooptation by elites. (See, however, Malleson 2014 on democratic control of investment.)

Another market socialist model, proposed by Carens (1981, 2003), does not impose worker self-management. The Carensian model mirrors the current capitalist system in most respects while introducing two key innovative features. First, there would be direct governmental provision regarding certain individually differentiated needs (via a public health care system, for example). Second, to access other consumption goods, everyone working full time would get the same post tax income. Pre-tax salaries would vary, signaling levels of demand in the market. People would choose jobs not only on the basis of their self-regarding preferences, but also out of a sense of social duty to use their capacities to support others in society. Thus, honoring the Abilities / Needs Principle , they would apply for jobs (within their competencies) in which the pre-tax income is relatively high. If it worked, this model would recruit the efficiency of markets, but it would not involve the selfish motives and inegalitarian outcomes typically linked to them in capitalism.

One worry about the Carensian model is that it might be unrealistic to expect an economic system to work well when it relies so heavily on a sense of duty to motivate people to make cooperative contributions. This worry could be assuaged by presenting this model as the long-term target of a socialist transformation which would progressively develop a social ethos supporting it (Gilabert 2011, 2017a), by noting empirical findings about the significant traction of non-egoistic motives in economic behavior (Bowles and Gintis 2011) and the feasibility of “moral incentives” (Guevara 1977, Lizárraga 2011), and by exploring strategies to mobilize simultaneously various motivational mechanisms to sustain the proposed scheme. Two other worries are the following (Gilabert 2015). First, the model makes no explicit provision regarding real opportunities for work in self-managed firms. To cater more fully for ideals of self-determination and self-realization, a requirement could be added that the government promote such opportunities for those willing to take them. Second, the model is not sufficiently sensitive to different individual preferences regarding leisure and consumption (requiring simply that everyone work full time and wind up with the same consumption and leisure bundles). More flexible schedules could be introduced so that people who want to consume more could work longer hours and have higher salaries, while people who want to enjoy more free time could work fewer hours and have lower salaries. Considerations of reciprocity and equality could still be honored by equalizing the incomes of those working the same number of hours.

Many forms of market socialism allow for some hierarchy at the point of production. These managerial forms are usually defended on grounds of greater efficiency. But they face the question of how to incentivize managers to behave in ways that foster innovation and productivity. One way to do this is to set up a stock market that would help to measure the performance of the firms they manage and to push them to make optimal decisions. An example of this approach (there are others—Corneo 2017: ch. 8) is coupon market socialism . In Roemer’s (1994a) version, this economic system operates with two kinds of money: dollars (euros, pesos, etc.) and coupons. Dollars are used to purchase commodities for consumption and production, and coupons are used in a stock market to purchase shares in corporations. The two kinds of money are not convertible (with an exception to be outlined below). Each person, when reaching adulthood, is provided with an equal set of coupons. They can use them in a state-regulated stock market (directly or through mutual investment funds) to purchase shares in corporations at market price. They receive the dividends from their investments in dollars, but they cannot cash the coupons themselves. When they die, people’s coupons and shares go back to the state for distribution to new generations—no inherited wealth is allowed—and coupons cannot be transferred as gifts. Thus, there is no separate class of capital owners in this economy. But there will be income inequality resulting from people’s different fortunes with their investments (dividends) as well as from the income they gain in the jobs they take through the labor market (in managerial and non-managerial positions). Coupons can however be converted into dollars by corporations; they can cash their shares to pay for capital investments. The exchange is regulated by a public central bank. Further, public banks or public investment funds, operating with relative independence from the government, would steer enterprises receiving coupons so that they maximize profit in the competitive markets for the goods and services they produce (so that they maximize the returns on the coupons invested). Part of that profit is also taxed for direct welfare provisions by the state.

This model caters for ideals of equality of opportunity (given equal distribution of coupons) and democracy (given the elimination of capitalist dynasties that have the ability to transform massive economic power into political influence). It also gives people freedom to choose how to use their resources and includes solidaristic schemes of public provision to meet needs regarding education and health care. Via the competitive markets in consumption goods and shares, it also promises high levels of innovation and productivity. (In some versions of the model this is enhanced by allowing limited forms of private ownership of firms to facilitate the input of highly innovative entrepreneurial individuals—Corneo 2017: 192–7). The model departs from traditional forms of socialism by not exactly instituting social property in means of production (but rather the equal dispersal of coupons across individuals in each generation). But defenders of this model say that socialists should not fetishize any property scheme; they should instead see such schemes instrumentally in terms of how well they fare in the implementation of core normative principles (such as equality of opportunity) (Roemer 1994a: 23–4, 124–5). Critics have worries, however, that the model does not go far enough in honoring socialist principles. For example, they have argued that a managerial (by contrast to a self-management) form of market socialism is deficient in terms of self-determination and self-realization at the workplace (Satz 1996), and that the levels of inequalities in income, and the competitive attitudes in the market that it would generate, violate ideals of community (G.A. Cohen 2009). In response, a defender of coupon market socialism can emphasize that the model is meant to be applied in the short-term, and that further institutional and cultural arrangements more fully in line with socialist principles can be introduced later on, as they become more feasible (Roemer 1994a: 25–7, 118). A worry, however, is that the model may entrench institutional and cultural configurations which may diminish rather than enhance the prospects for deeper changes in the future (Brighouse 1996; Gilabert 2011).

The models discussed above envision comprehensive “system change” in which the class division between capitalists and wage laborers disappears. Socialists have also explored piecemeal reforms that stop short of that structural change. An important historical example is the combination of a market economy and the welfare state . In this model, although property in the means of production remains private, and markets allocate most inputs and outputs of production, a robust governmental framework is put in place to limit the power of capitalists over workers and to improve the life-prospects of the latter. Thus, social insurance addresses the risks associated with illness, unemployment, disability, and old age. Tax-funded, state provision of many of those goods that markets typically fail to deliver for all is introduced (such as high-quality education, public transportation, and health care). And collective bargaining gives unions and other instruments of workers’ power some sway on the determination of their working conditions, as well as providing an important foundation for the political agency of the working class (O’Neill and White 2018).

This welfare state model was developed with great success during the three decades after World War II, especially in Northern Europe, but also, in weaker but significant forms, in other countries (including some in the Global South). However, since the 1980s, this model has been in significant retreat, or even in crisis. Wealth and income inequality have been increasing dramatically during this time (Piketty 2014; O’Neill 2017). The financial sector has become extremely powerful and able largely to escape governmental regulation as globalization allows capital to flow across borders. A “race to the bottom” features states competing with each other to attract investment by lowering tax rates and other regulations, thus undermining states’ ability to implement welfare policies (see, e.g., Dietsch 2015, 2018). Some socialists have seen this crisis as a reason to abandon the welfare state and pursue more comprehensive changes of the kind discussed above. Others, however, have argued that the model should be defended given that it has been proven to work quite well while the alternatives have uncertain prospects.

One example of the approach of extending or retrenching the mixed economy and welfare state proposes a combination of two moves (Corneo 2017: ch. 10, Epilogue, Appendix). The first move is to revamp the welfare state by introducing mechanisms of greater accountability of politicians to citizens (such as regulation of the dealings of politicians with private companies, and more instances of direct democracy in order to empower citizens), an improvement of the quality of public services delivered by the welfare state (introducing exacting audits and evaluations and fostering the training and recruitment of excellent civil servants), and international coordination of tax policies to prevent tax competition and tax evasion. The second move in this proposal is to run controlled experiments of market socialism to present it as a credible threat to the powerful actors seeking to undermine the welfare state. This threat would help stabilize the welfare state as the menace of communist revolution did after 1945. Specifically, welfare states could create new institutions that would be relatively independent from governments and be run by highly competent and democratically accountable civil servants. “Sovereign Wealth Funds” would invest public money in well-functioning enterprises, to yield an equal “social dividend” for citizens (on Sovereign Wealth Funds, see also Cummine 2016, O’Neill and White 2019). The second institution, a “Federal Shareholder”, would go further by using some of these funds to buy 51% of the shares of selected enterprises and take the lead within their boards of directors or supervisory boards. The objective would be to show that these enterprises (which would include significant participation of workers in their management, and ethical guidelines regarding environmental impacts and other concerns) maximize profits and thus offer a desirable and feasible alternative to the standard capitalist enterprise. Effectively, this strategy would run controlled experiments of shareholder market socialism. The working population would learn about the feasibility of market socialism, and capitalist opponents of welfare entitlements would be disciplined by fear of the generalization of such experiments to settle again for the welfare state.

Another strategy is to introduce various experiments seeking to expand the impact of social power (as different from state and economic power) within society (as defined in sect. 1). (See survey in Wright 2010: chs. 6–7). A set of mechanisms would target the deepening of democracy. Forms of direct democracy could foster citizens’ deliberative engagement in decision-making, as exemplified by the introduction of municipal participatory budgeting in Porto Alegre, Brazil (which features citizens’ assemblies identifying priorities for public policy). The quality of representative democracy can be enhanced (and its subservience to the power of capitalists decreased) by introducing egalitarian funding of electoral campaigns (e.g., by giving citizens a sum of money to allocate to the parties they favor, while forcing parties to choose between getting funding from that source and any other source—such as corporations), and by creating random citizen assemblies to generate policy options which can then be subject to society-wide referenda (as in the attempt to change the electoral system in British Columbia in Canada). Finally, forms of associational democracy can be introduced that feature deliberation or bargaining between government, labor, business, and civil society groups when devising national economic policies or when introducing regional or local (e.g., environmental) regulations. A second set of mechanisms would foster social empowerment more directly in the economy. Examples are the promotion of the social economy sector featuring economic activity involving self-management and production oriented to use value (as displayed, e.g., by Wikipedia and child care units in Quebec), an unconditional basic income strengthening people’s ability to engage in economic activities they find intrinsically valuable, and the expansion of the cooperative sector. None of these mechanisms on its own would make a society socialist rather than capitalist. But if we see societies as complex “ecologies” rather than as homogeneous “organisms”, we can notice that they are hybrids including diverse institutional logics. An increase in the incidence of social empowerment may significantly extend the socialist aspects of a society, and even eventually make them dominant (a point to which we return in the next section).

A final point worth mentioning as we close our discussion of dimension DII of socialism concerns the growing interest in addressing not only the economic arena, but also the political and personal-private ones. Some scholars argue that classical socialists neglected the increasing “functional differentiation” of modern society into these three “spheres”, concentrating in an unduly narrow way on the economic one (Honneth 2015 [2017]). Thus, recent socialist work has increasingly explored how to extend socialist principles to the organization of relatively autonomous governmental institutions and practices and to the shaping of intimate relationships among family members, friends, and lovers, as well as to the relations between these diverse social arenas (see also Fraser 2009, 2014; Albert 2017). There is, of course, also a long-standing tradition of feminist socialism that has pushed for a wide scope in the application of socialist ideals and a broader understanding of labor that covers productive and reproductive activities beyond the formal workplace (see, e.g., Arruzza 2013, 2016; Dalla Costa and James 1972; Federici 2012; Ehrenreich 1976 [2018]; Gould 1973–4; Rowbotham et al 1979; Rowbotham 1998).

We turn now to the last dimension of socialism (DIII), which concerns the transformation of capitalist societies into socialist ones. The discussion on this dimension is difficult in at least two respects which call for philosophical exploration (Gilabert 2017a: 113–23, 2015: 216–20). The first issue concerns feasibility. The question is whether socialist systems are accessible from where we are now—whether there is a path from here to there. But what does feasibility mean here? It cannot just mean logical or physical possibility, as these would rule out very few social systems. The relevant feasibility parameters seem instead to involve matters of technical development, economic organization, political mobilization, and moral culture. (For some discussion on these parameters see Wright 2010: ch. 8; Chibber 2017.) But such parameters are comparatively “soft”, in that they indicate probability prospects rather than pose strict limits of possibility, and can be significantly changed over time. When something is not feasible to do right now, we could have dynamic duties to make it feasible to do later by developing our relevant capacities in the meantime. The feasibility judgments must then be scalar rather than binary and allow for diachronic variation. These features make them somewhat murky, and not straightforwardly amenable to the hard-edged use of impossibility claims to debunk normative requirements (via contraposition on the principle that ought implies can).

A second difficulty concerns the articulation of all things considered appropriate strategies that combine feasibility considerations with the normative desiderata provided by socialist principles. The question here is: what is the most reasonable path of transformation to pursue for socialists given their understanding of the principles animating their political project, viewed against the background of what seems more or less feasible to achieve at different moments, and within different historical contexts? Complex judgments have to be formed about the precise social systems at which it would be right to aim at different stages of the sequence of transformation, and about the specific modes of political action to deploy in such processes. These judgments would combine feasibility and desirability to assess short-term and long-term goals, their intrinsic costs and benefits, and the promise of the former to enhance the achievement of the latter. The difficulty of forming such judgments is compounded by the uncertainty about the prospects of large societal changes (but also about the long-term consequences of settling for the status quo).

Marx (1875 [1978b]) himself seemed to address some of these issues in his short text “The Critique of the Gotha Program” of 1875. Marx here envisioned the process of socialist transformation as including two phases. The final phase would fully implement the Abilities / Needs Principle . But he did not take that scenario to be immediately accessible. An intermediate step should be pursued, in which the economy would be ruled by a Contribution Principle requiring that (after some provisions are put aside to fulfill basic needs regarding health care, education, and support for those unable to work) people gain access to consumption goods in proportion to how much they contribute. This lower phase of socialist transformation would be reasonable because it would enhance the prospects of transitioning away from capitalism and of generating the conditions for the full realization of socialism. The implementation of the Contribution Principle would fulfill the promise systematically broken by capitalism that people would benefit according to their labor input (as in capitalism capitalists get much more, and workers much less, than they give). It would also incentivize people to increase production to the level necessary for the introduction of socialism proper. Once such level of development is in place, the social ethos could move away from the mantra of the “exchange of equivalents” and instead adopt a different outlook in which people produce according to their diverse abilities, and consume according to their diverse needs. This sequential picture of transformation features diachronic judgments about changes in feasibility parameters (such as the expansion of technical capacity and a change in patterns of motivation). Marx also envisioned political dimensions of this process, including a “dictatorship of the proletariat” (which would not, as some popular interpretations hold, involve violation of civil and political rights, but a change in the political constitution and majoritarian policies that secure the elimination of capitalist property rights (Elster 1985: 447–9)). In time, the state (understood as an apparatus of class rule rather than, more generally, as an administrative device) would “wither away”.

History has not moved smoothly in the direction many socialists predicted. It has not been obvious that the following steps in the expected pattern materialized or are likely to do so: capitalism generating a large, destitute, and homogeneous working class; this class responding to some of the cyclical crises capitalism is prone to by creating a coherent and powerful political movement; this movement gaining control of government and resolutely and successfully implementing a socialist economic system (G.A. Cohen 2000b: ch.6; Laclau and Mouffe 1985). Given the fact that this process did not materialize, and seems unlikely to do so, it turns out that it would be both self-defeating and irresponsible to fail to address difficult questions about the relative feasibility and moral desirability of different strategies of potential socialist transformation. For example, if the process of transformation involves two or more stages (be they the two mentioned above, or some sequence going, say, from the welfare state to shareholder or coupon market socialism and then to the Carensian model), it might be asked who is to evaluate and decide upon what is to be done at each stage of the process, on what grounds can it be expected that earlier stages will enhance the likelihood of the success of later stages rather than undermine them (e.g., by enshrining institutions or values that will make it hard to move further along the path), what transitional costs can be accepted in earlier stages, and whether the costs expected are outweighed by the desirability and the increased probability of attaining the later stages. Such questions do not want for difficulty.

Addressing questions such as these dilemmas of transitional strategy, socialists have envisaged different approaches to social and political transformation. Four significant examples (extensively discussed in Wright 2010: Part III, 2015b, 2016—which we follow here) are articulated by considering two dimensions of analysis regarding (a) the primary goal of the strategy (either (i) transcending the structures of capitalism, or (ii) neutralizing the worst harms of it) and (b) the primary target of the strategy (either (i) the state and other institutions at the macro-level of the system, or (ii) the economic activities of individuals, organizations, and communities).

The first strategy, smashing capitalism , picks out the combination of possibilities (a.i) and (b.i). A political organization (e.g., a revolutionary party) takes advantage of some of the crises generated by capitalism to seize state power, proceeding to use that power to counter opposition to the revolution and to build a socialist society. This is the strategy favored by revolutionary socialists and many Marxists, and pursued in the twentieth century in countries such as Russia and China. If we look at the historical evidence, we see that although this strategy succeeded in some cases in transitioning out of previously existing capitalist or proto-capitalist economic systems, it failed in terms of building socialism. It led instead to a form of authoritarian statism. There is debate about the causes of these failures. Some factors may have been the economically backward and politically hostile circumstances in which the strategy was implemented, the leaders’ deficits (in terms of their tactics or motives), and the hierarchical frameworks used to suppress opposition after the revolution which remained in place for the long-term to subvert revolutionaries’ aims. Large system changes normally have to face a “transitional trough” after their onset, in which the material interests of many people are temporarily set back (Przeworski 1985). A political dilemma arises, in that, if liberal democratic politics is retained (with a free press, liberty of association, and multiparty elections) the revolutionaries may be unseated due to citizens’ political response to the “valley of transition”, while if liberal democratic politics are supplanted, then authoritarian statism may be the consequence, eradicating the possibility of a socialist outcome to which it would be worthwhile to seek to transition.

A second strategy, picking out the combination of possibilities (a.ii) and (b.i), has been taming capitalism . It mobilizes the population (sometimes in sharp political struggles) to elect governments and implement policies that respond to the worst harms generated by capitalism, with the aim of neutralizing them. New policies include social insurance responding to risks faced by the population (e.g., illness and unemployment), tax funded, state provision of public goods which markets tend to fail to provide (e.g., education, public transportation, research and development, etc.), and regulation of negative externalities produced in markets (e.g., regarding pollution, product and workplace hazards, predatory market behavior, etc.). The strategy, implemented by social-democratic parties, worked quite well during the three decades of the “Golden Age” or Trente Glorieuses following World War II. However, progress was halted and partly rolled back since the retreat of social democracy and the introduction of neoliberalism in the 1980s. Possible explanatory factors are the financialization of capitalism, and the effects of globalization, as discussed above in section 4.3 . There is a debate as to whether capitalism is really tamable—it may be that the Golden Age was only a historical anomaly, borne out of a very particular set of political and economic circumstances.

The third strategy, escaping capitalism , picks out the combination of possibilities (a.ii) and (b.ii). Capitalism might be too strong to destroy. But people could avoid its worst harms by insulating themselves from its dynamics. They could focus on family and friendships, become self-subsistence farmers, create intentional communities, and explore modes of life involving “voluntary simplicity”. However, this strategy seems available mostly to relatively well-off people who can fund their escape with wealth they have amassed or received from capitalist activities. The working poor may not be so lucky.

The final strategy, eroding capitalism , picks out the combination of (a.i) and (b.ii). Economic systems are here seen as hybrids. People can introduce new, socialist forms of collective activity (such as worker cooperatives) and progressively expand them, eventually turning them from marginal to dominant. Recently this kind of strategy of the erosion of capitalism through institutional transformation rather than piecemeal changes within existing economic structures, has been referred to as “the institutional turn” in leftist political economy (see Guinan and O’Neill 2018). Wright (2015b, 2016) suggests the analogy of a lake ecosystem, with the introduction of a new species of fish that at first thrives in one location, and then spreads out, eventually becoming a dominant species. Historically, the transformation from feudalism to capitalism in some parts of Europe has come about in this way, with pockets of commercial, financial, and manufacturing activity taking place in cities and expanding over time. Some anarchists seem to hold a version of this strategy today. It offers hope for change even when the state seems uncongenial, and likely to remain so. But critics find it far-fetched, as it seems unlikely to go sufficiently far given the enormous economic and political power of large capitalist corporations and the tendency of the state to repress serious threats to its rules. To go further, the power of the state has to be at least partially recruited. The fourth strategy then, according to Wright, is only plausible when combined with the second.

As discussed by Wright, this combined strategy would have two elements (we could see Corneo’s proposal discussed in section 4.3 as another version of this approach). First, it would address some important, problematic junctures to expand state action in ways that even capitalists would have to accept. And second, the solutions to the crises introduced by state action would be selected in such a way that they would enhance long-term prospects for socialist change. One critical juncture is global warming, and the social and political problems of the Anthropocene era (Löwy 2005; Purdy 2015; Wark 2016). Responding to its effects would require massive generation of state-provided public goods, which could remove neoliberal compunctions about state activism. A second critical juncture concerns the large levels of long-term unemployment, precariousness, and marginalization generated by new trends in automation and information technology. This involves threats to social peace, and insufficient demand for the products corporations need to sell on the consumption market. Such threats could be averted by introducing an unconditional basic income policy (Van Parijs and Vanderborght 2017), or by the significant expansion of public services, or by some other mechanism that secures for everybody a minimally dignified economic condition independent of their position within the labor market. Now, these state policies could foster the growth of social power and the prospects for socialist change in the future. Workers would have more power in the labor market when they came to be less reliant upon it. They could also be more successful in forming cooperatives. The social economy sector could flourish under such conditions. People could also devote more time to political activism. Together, these trends from below, combined with state activism from above, could expand knowledge about the workability of egalitarian, democratic, and solidaristic forms of economic activity, and strengthen the motivation to extend their scope. Although some critics find this strategy naïve (Riley 2016), proponents think that something like it must be tried if the aim is democratic socialism rather than authoritarian statism. (For specific worries about the political feasibility of a robust universal basic income policy as a precursor to rather than as a result of socialism, see Gourevitch and Stanczyk 2018).

Other significant issues regarding dimension DIII of socialism are the identification of appropriate political agents of change and their prospects of success in the context of contemporary globalization. On the first point, socialists increasingly explore the significance not only of workers’ movements, but also their intersection with the efforts of activists focused on overcoming gender- and race-based oppression (Davis 1981; Albert 2017). Some argue that the primary addressee of socialist politics should not be any specific class or movement, but the more inclusive, and politically equal group of citizens of a democratic community. For example, Honneth (2015 [2017: ch. IV]), following in part John Dewey and Juergen Habermas, argues that the primary addressee and agent of change for socialism should be the citizens assembled in the democratic public sphere. Although normatively appealing, this proposal may face serious feasibility difficulties, as existing democratic arenas are intensely contaminated and disabled by the inequalities socialists criticize and seek to overcome. The second issue is also relevant here. There is a traditional question whether socialism is to be pursued in one country or internationally. The tendency to embrace an internationalist horizon of political change is characteristic among socialists as they typically see their ideals of freedom, equality, and solidarity as having global scope, while they also note that, as a matter of feasibility, the increasing porousness of borders for capitalist economic activity make it the case that socialist politics may not go very far in any country without reshaping the broader international context. A difficulty here is that despite the existence of international social movements (including workers’ movements, international NGOs, human rights institutions and associations, and other actors), institutional agency beyond borders that can seriously contest capitalist frameworks is not currently very strong. In addressing these difficulties, action and research on socialist justice must interact with ongoing work in the related areas of gender, race, democracy, human rights, and global justice. [ 2 ]

• Akyeampong, Emmanuel, 2018, “African Socialism; or, the Search for an Indigenous Model of Economic Development?”, Economic History of Developing Regions , 33(1): 69–87. doi:10.1080/20780389.2018.1434411
• Albert, Michael, 2003, Parecon: Life After Capitalism , London: Verso.
• –––, 2017, Practical Utopia: Strategies for a Desirable Society , Oakland: PM Press.
• ANC (African National Congress), 1955, The Freedom Charter: Adopted at the Congress of the People at Kliptown, Johnannesburg, on June 25 and 26, 1955 . [ ANC 1955 available online , from Wits Historical Papers, University of Witwatersrand.]
• Aricó, José, 2017, José Aricó: dilemas del marxismo en América Latina, antología esencial , Martín Cortés (ed.), Buenos Aires: CLACSO. [ Aricó 2017 available online ]
• Arneson, Richard, 2016, “Exploitation, Domination, Competitive Markets, and Unfair Division: Exploitation, Domination, Competitive Markets, Unfair Division”, The Southern Journal of Philosophy , 54(S1-Exploitation): 9–30. doi:10.1111/sjp.12182
• Arnold, Samuel, 2012, “The Difference Principle at Work”, Journal of Political Philosophy , 20(1): 94–118. doi:10.1111/j.1467-9760.2010.00393.x
• –––, 2017, “Capitalism, Class Conflict, and Domination”, Socialism and Democracy , 31(1): 106–124. doi:10.1080/08854300.2016.1215810
• Arnsperger, Christian and Philippe Van Parijs, 2003, Éthique économique et sociale , Paris: La Découverte.
• Arruzza, Cinzia, 2013, Dangerous Liaisons: The Marriages and Divorces of Marxism and Feminism , (IIRE Notebook for Study and Research 55), Pontypool, Wales: Merlin Press.
• –––, 2016, “Functionalist, Determinist, Reductionist: Social Reproduction Feminism and Its Critics”, Science & Society , 80(1): 9–30. doi:10.1521/siso.2016.80.1.9
• Barry, Brian, 2005, Why Social Justice Matters , Cambridge: Polity.
• Blackburn, Robin, 2011, “Reclaiming Human Rights: Review of The Last Utopia by Samuel Moyn”, New Left Review , 69(May/June): 126–138. [ Blackburn 2011 available online ]
• Boltanski, Luc and Eve Chiapello, 2018, The New Spirit of Capitalism , London: Verso.
• Bowles, Samuel and Herbert Gintis, 1986, Democracy and Capitalism: Property, Community and the Contradictions of Modern Social Thought , New York: Routledge.
• –––, 2011, A Cooperative Species: Human Reciprocity and Its Evolution , Princeton, NJ: Princeton University Press. doi:10.23943/princeton/9780691151250.001.0001
• Brennan, Jason, 2014, Why Not Capitalism? New York: Routledge.
• Brighouse, Harry, 1996, “Transitional and Utopian Market Socialism”, in Wright 1996: 187–208.
• Carens, Joseph H., 1981, Equality, Incentives, and the Market: An Essay in Utopian Politico-Economic Theory , Chicago: University of Chicago Press.
• –––, 2003, “An Interpretation and Defense of the Socialist Principle of Distribution”, Social Philosophy and Policy , 20(1): 145–177. doi:10.1017/S0265052503201072
• Castoriadis, Cornelius, 1979, Le Contenu du Socialisme , Paris: Éditions 10/18.
• Chakrabarty, Bidyut, 2014, Communism in India: Events, Processes and Ideologies , New Delhi: Oxford University Press. doi:10.1093/acprof:oso/9780199974894.001.0001
• –––, 2018, Left Radicalism in India , New York: Routledge
• Chibber, Vivek, 2017, “Rescuing Class from the Cultural Turn”, Catalyst , 1(1).
• Cohen, G. A., 1988, History, Labour, and Freedom , Oxford: Oxford University Press.
• –––, 1995, Self-ownership, Freedom, and Equality , Cambridge: Cambridge University Press.
• –––, 2000a, Karl Marx’s Theory of History: A Defense , expanded edition, Princeton: Princeton University Press.
• –––, 2000b, If You’re an Egalitarian, How Come You’re So Rich? Cambridge, MA: Harvard University Press.
• –––, 2008, Rescuing Justice and Equality , Cambridge, MA: Harvard University Press.
• –––, 2009, Why Not Socialism? Princeton: Princeton University Press.
• –––, 2011, On the Currency of Egalitarian Justice and Other Essays in Political Philosophy , Princeton: Princeton University Press.
• Cohen, Joshua, 1989, “The Economic Basis of Deliberative Democracy”, Social Philosophy and Policy , 6(2): 25–50. doi:10.1017/S0265052500000625
• Cohen, Joshua and Joel Rogers, 1995, Associations and Democracy: The Real Utopias Project, Volume 1 , London: Verso.
• Cole, G. D. H., 1929, The Next Ten Years in British Social and Economic Policy , London: Routledge.
• Collins, Hugh, Gillian Lester, and Virginia Mantouvalou (eds.), 2018, Philosophical Foundations of Labour Law , Oxford: Oxford University Press. doi:10.1093/oso/9780198825272.001.0001
• Corneo, Giacomo, 2017, Is Capitalism Obsolete? A Journey through Alternative Economic Systems , Cambridge, MA: Harvard University Press.
• Coutrot, Thomas, 2018, Libérer le travail , Paris: Seuil.
• Cummine, Angela, 2016, Citizens’ Wealth , New Haven, CT: Yale University Press.
• Dalla Costa, Mariarosa and Selma James, 1972, The Power of Women & the Subversion of Community , Bristol: Falling Wall Press Ltd. ( Dalla Costa and James 1972 available online )
• Dardot, Pierre and Christian Laval, 2014, Commun. Essai sur la révolution au XXIe siècle , Paris: La Découverte.
• Davis, Angela, 1981, Women, Race and Class , New York: Random House.
• Dietsch, Peter, 2015, Catching Capital: The Ethics of Tax Competition , New York: Oxford University Press. doi:10.1093/acprof:oso/9780190251512.001.0001
• –––, 2018, “The State and Tax Competition: A Normative Perspective”, in Taxation: Philosophical Perspectives , Martin O’Neill and Shepley Orr (eds.), Oxford: Oxford University Press, chapter 12.
• Dussel, Enrique, 1998, Etica de la liberación , Madrid: Trotta.
• Edmundson, William A., 2017, John Rawls: Reticent Socialist , Cambridge: Cambridge University Press.
• Ehrenreich, Barbara, 1976 [2018], “What is Socialist Feminism?” WIN Magazine . Reprinted with a new introduction in Jacobin , 07.30.2018. [ Ehrenreich 1976 [2018] available online ]
• Einstein, Albert, 1949, “Why Socialism?”, Monthly Review , 1. Reprinted in 2009, Monthly Review , 61(1): 55–61. doi:10.14452/MR-061-01-2009-05_7
• Elster, Jon, 1985, Making Sense of Marx , Cambridge: Cambridge University Press.
• –––, 1986, An Introduction to Karl Marx , Cambridge, Cambridge University Press.
• –––, 1989, “Self-Realization in Work and Politics: The Marxist Conception of the Good Life”, in Elster and Moene 1989: 127–158.
• Elster, Jon and Karl Ove Moene (eds.), 1989, Alternatives to Capitalism , Cambridge: Cambridge University Press.
• Fanon, Frantz, 1952, Peau noire, masques blancs , Paris: Seuil.
• –––, 1961, Les damnés de la terre , Paris: Maspero.
• Federici, Silvia, 2012, Revolution at Point Zero: Housework, Reproduction and Feminist Struggle , Oakland, CA: MP Press.
• Fleurbaey, Marc, 2006, Capitalisme ou démocratie? L'alternative du XXIe siècle , Paris: Grasset & Fasquelle.
• Forst, Rainer, 2017, “Noumenal Alienation: Rousseau, Kant and Marx on the Dialectics of Self-Determination”, Kantian Review , 22(4): 523–551. doi:10.1017/S1369415417000267
• Frega, Roberto, Lisa Herzog, and Christian Neuhäuser, 2019, “Workplace Democracy—The Recent Debate”, Philosophy Compass , 14(4): e12574. doi:10.1111/phc3.12574
• Fraser, Nancy, 2009, “Feminism, Capitalism and the Cunning of History”, New Left Review , 56(Mar/Apr): 97–117. [ Fraser 2009 available online ]
• –––, 2014, “Behind Marx’s Hidden Abode: For an Expanded Conception of Capitalism”, New Left Review , 86(Mar/Apr): 55–72. [ Fraser 2014 available online ]
• Fraser, Nancy and Rahel Jaeggi, 2018, Capitalism , Cambridge: Polity.
• Gargarella, Roberto, 2010, The Legal Foundations of Inequality: Constitutionalism in the Americas, 1776–1860 , Cambridge: Cambridge University Press. doi:10.1017/CBO9780511750618
• Geras, Norman, 1985, “The Controversy about Marx and Justice”, New Left Review , 1/150(Mar/Apr): 47–85. [ Geras 1985 available online ]
• Getachew, Adom, 2019, Worldmaking after Empire: The Rise and Fall of Self-Determination , Princeton, NJ: Princeton University Press. doi:10.23943/princeton/9780691179155.001.0001
• Gilabert, Pablo, 2011, “Debate: Feasibility and Socialism”, Journal of Political Philosophy , 19(1): 52–63. doi:10.1111/j.1467-9760.2010.00383.x
• –––, 2012, “Cohen on Socialism, Equality and Community”, Socialist Studies/Études Socialistes , 8: 101–121. doi:10.18740/S4W019
• –––, 2015, “The Socialist Principle ‘From Each According To Their Abilities, To Each According To Their Needs’”, Journal of Social Philosophy , 46(2): 197–225. doi:10.1111/josp.12096
• –––, 2017a, “Justice and Feasibility: A Dynamic Approach”, in Political Utopias: Contemporary Debates , Michael Weber and Kevin Vallier (eds.), Oxford: Oxford University Press, 95–126. doi:10.1093/acprof:oso/9780190280598.003.0006
• –––, 2017b, “Kantian Dignity and Marxian Socialism”, Kantian Review , 22(4): 553–577. doi:10.1017/S1369415417000279
• –––, 2018a, Human Dignity and Human Rights , Oxford: Oxford University Press. doi:10.1093/oso/9780198827221.001.0001
• –––, 2018b, “Dignity at Work”, in Collins, Lester, and Mantouvalou 2018: 68–86.
• Goodin, Robert, 1987, “Exploiting a Person and Exploiting a Situation”, in Modern Theories of Exploitation , Andrew Reeve (ed.), London: SAGE, 166–200.
• Gould, Carol C., 1973–4, “The Woman Question: Philosophy of Liberation and the Liberation of Philosophy”, Philosophical Forum , 5: 5–44.
• –––, 1981, “Socialism and Democracy”, Praxis International , 1: 49–63.
• –––, 1988, Rethinking Democracy: Freedom and Social Cooperation in Politics, Economy, and Society , Cambridge: Cambridge University Press.
• Gourevitch, Alex, 2013, “Labor Republicanism and the Transformation of Work”, Political Theory , 41(4): 591–617. doi:10.1177/0090591713485370
• Gourevitch, Alex and Lucas Stanczyk, 2018, “The Basic Income Illusion”, Catalyst , 1(4).
• Guevara, Ernesto, 1977, El Socialismo y El Hombre Nuevo , Mexico DF: Siglo XXI.
• Guinan, Joe and Martin O'Neill, 2018, “The Institutional Turn: Labour’s New Political Economy”, Renewal: A Journal of Social Democracy , 26(2): 5–16. [ Guinan and O'Neill 2018 available online ]
• Harnecker, Marta, 2015, A World to Build. New Paths towards Twenty-First Century Socialism , New York: Monthly Review Press.
• Holmstrom, Nancy, 1977, “Exploitation”, Canadian Journal of Philosophy , 7(2): 353–369. doi:10.1080/00455091.1977.10717024
• Honneth, Axel, 2015 [2017], Die Idee des Sozialismus. Versuch einer Aktualisierung , Berlin: Suhrkamp Verlag. Translated as The Idea of Socialism: Towards a Renewal , Joseph Ganahl (trans.), Cambridge: Polity.
• Jaeggi, Rahel, 2014, Alienation , New York: Columbia University Press.
• James, C. L. R., 1984, At the Rendezvous of Victory: Selected Writings , London: Allison and Busby.
• –––, 2001, The Black Jacobins: Toussaint L'ouverture and the San Domingo Revolution , new edition. London: Penguin Books [original publication 1938]
• Keat, Russell and John O’Neill, 2011, “Socialism”, in Routledge Encyclopedia of Philosophy , London: Routledge. doi:10.4324/9780415249126-S058-2
• Keynes, John Maynard, 1930/1931 [2010], “Economic Possibilities for Our Grandchildren”, The Nation and Athenaeum) and reprinted in his, 1931, Essays in Persuasion . Reprinted 2010, London: Palgrave Macmillan UK, 2010, 321–332. doi:10.1007/978-1-349-59072-8_25
• Kołakowski, Leszek, 1974 [2008], Main Currents of Marxism , London: W. W. Norton & Company.
• Laclau, Ernesto, and Mouffe, Chantal, 1985, Hegemony and Socialist Strategy , London: Verso.
• Lal, Priya, 2015, African Socialism in Postcolonial Tanzania: Between the Village and the World , Cambridge: Cambridge University Press. doi:10.1017/CBO9781316221679
• Le Bot, Yvon, 1997, Subcomandante Marcos. El sueño Zapatista. Entrevistas con el Subcomandante Marcos, el mayor Moisés y el comandante Tacho, del Ejército Zapatista de Liberación Nacional , Barcelona: Plaza & Janés.
• Leopold, David, 2018, “Alienation”, The Stanford Encyclopedia of Philosophy (Fall 2018 Edition), Edward N. Zalta (ed.), URL = < https://plato.stanford.edu/archives/fall2018/entries/alienation/ >
• Lewis, Su Lin, 2019, “Asian Socialists and the Forgotten Architects of Post-Colonial Freedom, 1952–56”, Journal of World History , 30 (1&2): 55–88.
• Lizárraga, Fernando, 2011, El marxismo y la justicia social. La idea de igualdad en Ernesto Che Guevara , Chile: Escaparate Ediciones.
• Lohia, Ram Manohar, 1963, Marx, Gandhi and Socialism , Hyderabad: Navahind.
• Löwy, Michel, 2005, Ecosocialism. A Radical Alternative to Capitalist Catastrophe , Chicago, IL: Haymarket Books.
• Lukes, Steven, 1985, Marxism and Morality , Oxford: Oxford University Press.
• Malleson, Tom, 2014, After Occupy: Economic Democracy for the 21st Century , Oxford: Oxford University Press. doi:10.1093/acprof:oso/9780199330102.001.0001
• Manley, Michael, 1990, The Politics of Change: a Jamaican Testament , Washington DC: Howard University Press [first published 1974]
• –––, 1991, The Poverty of Nations: Reflections on Underdevelopment and the World Economy , London: Pluto Press.
• Mariátegui, José Carlos, 1928, Siete Ensayos de Interpretación de la Realidad Peruana , Caracas, Venezuela.
• –––, 2010, La tarea americana , Buenos Aires: Prometeo.
• Marx, Karl, 1857–8 [1973], Grundrisse , London: Penguin. Original composition 1857–8.
• –––, 1844 [1978a], “Economic and Philosophic Manuscript of 1844”, in in The Marx-Engels Reader , R. Tucker (ed.), second edition, New York: Norton, 66–125. Original composition 1844.
• –––, 1875 [1978b], “Critique of the Gotha Program”, in The Marx-Engels Reader , R. Tucker (ed.), second edition, New York: Norton, 525–541. Original composition 1875.
• –––, 1867 [1990], Capital 1 , London: Penguin. Original publication 1867.
• –––, 1991, Capital 3 , London: Penguin. Original composition: incomplete manuscript later edited and released by Friedrich Engels.
• Meade, James, 1948, Planning and the Price Mechanism , London: Routledge.
• –––, 1964, Efficiency, Equality and the Ownership of Property , London: Routledge.
• –––, 1967, An Intelligent Radical’s Guide to Economic Policy , London: Routledge.
• Meiksins Wood, Ellen, 1995, Democracy Against Capitalism: Renewing Historical Materialism , Cambridge: Cambridge University Press. Reprinted by Verso in 2016.
• Mill, John Stuart, 2008, Principles of Political Economy and Chapters on Socialism , Jonathan Riley (ed.), Oxford: Oxford University Press. [ Principles of Political Economy originally published 1848; Chapters on Socialism originally published 1879]
• –––, 1873 [2018], Autobiography , Oxford: Oxford University Press. [originally published 1873]
• Morsink, Johannes, 1999, The Universal Declaration of Human Rights. Origins, Drafting and Intent , Philadelphia, PA: University of Pennsylvania Press.
• Narayan, Jayaprakash, 1980, A Revolutionary's Quest: Selected Writings of Jayaprakash Narayan , Bimal Prasad (ed.), New Delhi: Oxford University Press.
• Negri, Antonio, 2008, Goodbye Mr. Socialism , New York: Sever Stories Press.
• Nell, Edward and Onora O’Neill, 1992 [2003], “Justice Under Socialism”, in Transformational Growth and Effective Demand , by Edward J. Nell, London: Palgrave Macmillan UK, 663–674. Reprinted in Justice , fourth edition, J. Sterba (ed.), Toronto: Thomson-Wadsworth, 2003, 77–85. doi:10.1007/978-1-349-21779-3_28
• Nielsen, Kai, 1985, Equality and Liberty , Totowa, NJ: Rowman & Allanheld.
• Nkrumah, Kwame, 1961, I Speak of Freedom: a Statement of African Ideology , New York: Frederick A. Praeger.
• –––, 1963, Africa Must Unite , New York: International.
• –––, 1965, Neocolonialism: The Last Stage of Imperialism , New York: Internationalism.
• Nove, Alec, 1991, The Economics of Feasible Socialism Revisited , London: Harper Collins.
• –––, 2008, “Socialism”, in The New Palgrave Dictionary of Economics , Steven N. Durlauf and Lawrence E. blume (eds.), London: Palgrave Macmillan UK. doi:10.1057/978-1-349-95121-5_1718-2
• Nyerere, Julius, 1967, Freedom and Unity: A Selection from Writings and Speeches 1952–1965 , Dar es Salaam: Oxford University Press.
• –––, 1968a, Freedom and Socialism: A Selection from Writings and Speeches 1965–1967 , Dar es Salaam: Oxford University Press.
• –––, 1968b, Ujamaa: Essays on Socialism , London: Oxford University Press.
• O’Neill, Martin, 2008a, “What Should Egalitarians Believe?”, Philosophy & Public Affairs , 36(2): 119–156. doi:10.1111/j.1088-4963.2008.00130.x
• –––, 2008b, “Three Rawlsian Routes towards Economic Democracy”, Revue de Philosophie Économique , 9(1): 29–55
• –––, 2012, “Free (and Fair) Markets without Capitalism. Political Values, Principles of Justice, and Property-Owning Democracy”, in O’Neill and Williamson 2012: 75–100.
• –––, 2017, “Survey Article: Philosophy and Public Policy after Piketty”, Journal of Political Philosophy , 25(3): 343–375. doi:10.1111/jopp.12129
• O’Neill, Martin and Stuart White, 2018, “Trade Unions and Political Equality”, Collins, Lester, and Mantouvalou 2018: 252–268.
• –––, 2019, “James Meade, Public Ownership, and the Idea of a Citizens’ Trust”, International Journal of Public Policy , 15(1/2): 23–37. doi:10.1504/IJPP.2019.099052
• O’Neill, Martin and Thad Williamson (eds.), 2012, Property-Owning Democracy: Rawls and Beyond , Oxford: Wiley-Blackwell. doi:10.1002/9781444355192
• Pateman, Carole, 1970, Participation and Democratic Theory , Cambridge: Cambridge University Press. doi:10.1017/CBO9780511720444
• Pecchi, Lorenzo and Gustavo Piga (eds), 2010, Revisiting Keynes , Cambridge, MA: MIT Press.
• Peffer, Rodney, 1990, Marxism, Morality, and Social Justice , Princeton: Princeton University Press.
• Piketty, Thomas, 2014, Capitalism in the Twenty-First Century , Cambridge, MA: Harvard University Press.
• Przeworski, Adam, 1985, Capitalism and Social Democracy , Cambridge: Cambridge University Press.
• Purdy, Jedediah, 2015, After Nature: A Politics for the Anthropocene , Cambridge, MA: Harvard University Press.
• Rappoport, Angelo, 1924, Dictionary of Socialism , London: T. Fischer Unwin.
• Rawls, John, 2001, Justice as Fairness. A Restatement , Cambridge, MA: Harvard University Press.
• Reiman, Jeffrey, 1987, “Exploitation, Force, and the Moral Assessment of Capitalism: Thoughts on Roemer and Cohen”, Philosophy and Public Affairs , 16(1): 3–41.
• Riley, Dylan, 2016, “An Anticapitalism That Can Win”, Jacobin , 1.7.16. ( Riley 2016 available online )
• Roemer, John E. (ed.), 1986, Analytical Marxism , Cambridge: Cambridge University Press.
• –––, 1994a, A Future for Socialism , Cambridge, MA: Harvard University Press.
• –––, 1994b, Egalitarian Perspectives: Essays in Philosophical Economics , Cambridge: Cambridge University Press. doi:10.1017/CBO9780511528293
• –––, 2017, “Socialism Revised”, Philosophy & Public Affairs , 45(3): 261–315. doi:10.1111/papa.12089
• Ronzoni, Miriam, 2018, “How Social Democrats May Become Reluctant Radicals: Thomas Piketty’s Capital and Wolfgang Streeck’s Buying Time ”, European Journal of Political Theory , 17(1): 118–127. doi:10.1177/1474885115601602
• Rowbotham, Sheila, 1998, “Dear Dr. Marx: A Letter from a Socialist Feminist”, in The Communist Manifesto Now. Socialist Register 1998 , Leo Panitch (ed.), London: Merlin Press, 1-17.
• Rowbotham, Sheila, Lynne Segal, and Hilary Wainwright (eds), 1979, Beyond the Fragments: Feminism and the Making of Socialism , London: Merlin Press.
• Sassoon, Donald, 1996 [2013], One Hundred Years of Socialism: The West European Left in the Twentieth Century , London: I. B Tauris. New edition 2013.
• Satz, Debra, 1996, “Status Inequalities and Models of Market Socialism”, in Wright 1996: 71–89.
• Schweickart, David, 2002 [2011], After Capitalism , Lantham, MD: Rowman & Littlefield. Second edition 2011.
• Steiner, Hillel, 2014, “Greed and Fear”, Politics, Philosophy & Economics , 13(2): 140–150. doi:10.1177/1470594X14528649
• Svampa, Maristella, 2016, Debates Latinoamericanos. Indianismo, desarrollo, dependencia y populismo , Buenos Aires: Edhasa.
• Sypnowich, Christine, 2017, Equality Renewed. Justice, Flourishing and the Egalitarian Ideal , New York: Routledge. doi:10.4324/9781315458335
• Ten, C. L., 1998, “Democracy, Socialism, and the Working Classes”, in The Cambridge Companion to Mill , John Skorupski (ed.), Cambridge: Cambridge University Press, 372–395. doi:10.1017/CCOL0521419875.011
• White, Stuart, 2015, “Basic Capital in the Egalitarian Toolkit?”, Journal of Applied Philosophy , 32(4): 417–431. doi:10.1111/japp.12129
• Van Parijs, Philippe, 1993, Marxism Recycled , (Studies in Marxism and Social Theory), Cambridge: Cambridge University Press.
• –––, 1995, Real Freedom for All: What (If Anything) Can Justify Capitalism? Oxford: Oxford University Press. doi:10.1093/0198293577.001.0001
• Van Parijs, Philippe and Yannick Vanderborght, 2017, Basic Income. A Radical Proposal for a Free Society and a Sane Economy , Cambridge, MA: Harvard University Press.
• Veneziani, Roberto, 2013, “Exploitation, Inequality and Power”, Journal of Theoretical Politics , 25(4): 526–545. doi:10.1177/0951629813477275
• Vrousalis, Nicholas, 2013, “Exploitation, Vulnerability, and Social Domination”, Philosophy & Public Affairs , 41(2): 131–157. doi:10.1111/papa.12013
• –––, 2018, “Exploitation: A Primer”, Philosophy Compass , 13(2): e12486. doi:10.1111/phc3.12486
• Wark, McKenzie, 2016, Molecular Red: Theory for the Anthropocene , London: Verso.
• Williams, Eric, 1944 [1994], Capitalism and Slavery , Chapel Hill, NC: University of North Carolina Press.
• Wolff, Jonathan, 1999, “Marx and Exploitation”, The Journal of Ethics , 3(2): 105–120. doi:10.1023/A:1009811416665
• Wright, Erik Olin (ed.), 1996 Equal Shares. Making Market Socialism Work , London: Verso.
• –––, 2000 [2015], “Working-Class Power, Capitalist-Class Interests, and Class Compromise”, American Journal of Sociology , 105(4): 957–1002. Reprinted in his Understanding Class , London: Verso, 2015, 85–230. doi:10.1086/210397
• –––, 2010, Envisioning Real Utopias , London: Verso.
• –––, 2015a, “Eroding Capitalism: A Comment on Stuart White’s ‘Basic Capital in the Egalitarian Toolkit’: Eroding Capitalism”, Journal of Applied Philosophy , 32(4): 432–439. doi:10.1111/japp.12128
• –––, 2015b, “How to Be an Anticapitalist Today”, Jacobin 12.2.15. ( Wright 2015b available online )
• –––, 2016, “How to Think About (And Win) Socialism”, Jacobin , 4.27.16. ( Wright 2016 available online )
• Ypi, Lea, 2018, “The Politics of Reticent Socialism”, Catalyst , 2(3): 156–175.
• Žižek, Slavoj, 2005, “Against Human Rights”, New Left Review , 34(July/Aug): 115–131. [ Žižek 2005 available online ]

How to cite this entry . Preview the PDF version of this entry at the Friends of the SEP Society . Look up topics and thinkers related to this entry at the Internet Philosophy Ontology Project (InPhO). Enhanced bibliography for this entry at PhilPapers , with links to its database.

• Albert, Michael, 2016, “What’s Next? Parecon, or Participatory Economics”. [ Albert 2016 available online ]
• Arnold, Samuel, n.d., “Socialism”, Internet Encyclopedia of Philosophy , Accessed 20 June 2019. [ Arnold n.d. available online ]
• O’Neill, Martin, 2015, “James Meade and Predistribution: 50 Years Before his Time”, Policy Network: Classics of Social Democratic Thought , 28 May 2015. ( O’Neill 2015 available online )
• Schweickart, David, 2015, “Economic Democracy: An Ethically Desirable Socialism That Is Economically Viable”, The Next System Project , October. URL = < https://thenextsystem.org/economic-democracy >
• Marxists Internet Archive , (primary texts from various Marxist thinkers)
• Marx-Engels Gesamtausgabe (German), includes much of Marx’s and Engels’s correspondence
• New Left Review
• Marx bibliography , maintained by Andrew Chitty (University of Sussex)

alienation | common good | critical theory | democracy | domination | economics [normative] and economic justice | egalitarianism | equality | exploitation | feminist philosophy, topics: perspectives on class and work | justice | justice: distributive | liberty: positive and negative | markets | Marx, Karl | Marxism, analytical | Mill, John Stuart | Mill, John Stuart: moral and political philosophy | property and ownership | revolution

Acknowledgments

For helpful discussion, comments and suggestions we thank a referee, Samuel Arnold, Christopher Brooke, Lee Churchman, Michaela Collord, Chiara Cordelli, Katrina Forrester, Roberto Gargarella, Carol Gould, Alex Gourevitch, Alex Guerrero, Daniel Hill, Brendan Hogan, Juan Iosa, Bruno Leipold, Su Lin Lewis, Fernando Lizárraga, Romina Rekers, Indrajit Roy, Sagar Sanyal, Claire Smith, Lucas Stanczyk, Roberto Veneziani, Nicholas Vrousalis, Stuart White, Jonathan Wolff, and Lea Ypi.

Copyright © 2019 by Pablo Gilabert < pablo . gilabert @ concordia . ca > Martin O’Neill < martin . oneill @ york . ac . uk >

• Accessibility

Support SEP

Mirror sites.

View this site from another server:

• Info about mirror sites

The Stanford Encyclopedia of Philosophy is copyright © 2023 by The Metaphysics Research Lab , Department of Philosophy, Stanford University

Library of Congress Catalog Data: ISSN 1095-5054

Choose Your Test

Sat / act prep online guides and tips, the 9 key capitalism vs socialism differences, explained.

General Education

Capitalism vs socialism is often framed as the major political face-off of our time. People often think of capitalism vs socialism as two totally opposite political ideologies. But are they really completely different systems? And should we compare capitalism and socialism at all? 

Here’s the facts: it does make sense to compare capitalism and socialism because they’re the main economic systems used in developed countries today. But to truly understand the differences between capitalism and socialism, we have to look to unbiased sources . These terms refer to complex philosophies that can’t be summed up by a meme, stereotype, or hot take! 

Capitalism vs socialism can be a complex topic, which is why we’re here to help you gain an objective understanding of capitalism vs socialism. In this article, we’ll provide a full guide to capitalism vs socialism that includes the following: 

• A deep dive into socialism, and a deep dive into capitalism
• A guide to the differences between democratic socialism vs capitalism
• A socialism vs capitalism chart with side-by-side comparisons
• A brief comparison of these concepts and other political theories, particularly capitalism vs socialism vs communism

Let’s get started!

Featured Image: Expert364/ Wikimedia

Capitalism vs Socialism: What’s the Difference?

Capitalism is an economic system in which the means of production are under private ownership, rather than government control. The means of production generally refers to entrepreneurship, capital goods, natural resources, and labor. Capitalism depends on a free market economy driven by supply and demand. 

In simplest terms, socialism is an umbrella term for types of economic systems that aim to eradicate inequality through shared ownership. To socialists, wealth should belong to the  workers who make the products, rather than groups of private owners. In practice, this means that the means of production are run and controlled by the government, which represents the will of the people.

As such, socialism is ultimately designed to increase social justice and equality regardless of class, race, or other socioeconomic factors . 

As models for economic systems, the primary difference between capitalism and socialism is the extent to which the government controls the economy. Capitalists believe that private enterprise, or privately owned business, is better at using economic resources. Asa result, capitalism argues that private business is what facilitates equitable distribution of wealth through a free market. In contrast, socialists believe that income inequality is most effectively managed through tight control of businesses and redistribution of wealth through social programs that are run by the government, such as free healthcare, education, and housing.

At first glance, capitalism and socialism might seem entirely incompatible. The truth is, most developed countries today implement some combination of capitalist and socialist practices in their economic structure and domestic policy. To help you understand how capitalism and socialism can be integrated in practice, we’ll do a deep dive into both socialism and capitalism, starting with socialism, next. 

What Is Socialism?

We’ve covered the core differences between capitalism vs socialism, so let’s take a closer look at socialism next. Below, we’ll give you a more comprehensive definition of socialism, go over the history of the term, explain democratic socialism vs capitalism, and provide some examples of socialist governments today . 

Because socialism and communism are often easily confused, we’ll also touch on capitalism vs socialism vs communism.

Socialism: Overview and Definition

Socialism is a social, economic, and political doctrine that calls for collective ownership of a society’s means of production. The main goal of socialism is to eliminate socioeconomic classes by ensuring equal distribution of wealth among the people. To accomplish this, a socialist government--which is elected by the people--has control over the country’s economy, including major businesses and industries and the labor market. At its core, socialism is designed to eliminate inequality through government regulation.

The word “socialism” comes from the Latin sociare, which means to combine or to share. But the modern term “socialism” didn’t appear until the 19th century. French philosopher and revolutionary Henri de Saint-Simon coined the term in his writings about the  abuses of the capitalist system and the  Industrial Revolution. 

The thing to keep in mind about socialism is that it’s a blanket term that covers a wide variety of socialist ideas, practices, and theories. In his 1924 encyclopedia of socialism, historian Angelo Rappoport identified forty different definitions of socialism. This is why it’s tough to pin down a universal definition of socialism today. 

As an economic system and political theory, socialism has been applied in many different countries in many different ways . For example, communism is at its heart a form of socialism because it argues that everything in a society should be collectively owned and distributed to each according to their needs. But democratic socialism--which can combine capitalist and socialist ideologies--is also a type of socialism! 

Having said that, socialism is almost always employed as a critique of some aspect of capitalism . In some cases, socialism is also employed to replace capitalism. In most cases, though, socialism and capitalism are used together so that each ideology can make up for the other’s shortcomings. 

History of Socialism

Socialism was first used to criticize capitalist systems at the height of the Industrial Revolution in the 19th century. Henri de Saint-Simon and other prominent French philosophers were the first to critique the poverty and inequality of industrialized capitalism, and socialist thinkers advocated the transformation of society into small communities without private property. 

Socialism gained international recognition at the end of the 19th century. It was during this time that the movement became more oriented toward revolutionary thinking . This strain of socialist thought is largely attributed to the work of German philosophers Karl Marx and Friedrich Engels . In 1848, Marx and Engels wrote and dispersed a pamphlet called The Communist Manifesto detailing their ideas about socialism . 

According to the Communist Manifesto, socialism must eventually evolve into a more advanced system: communism . In the communist form of socialism as described by Marx and Engels (called Marxism), there would be no state, no money, and no social classes. Essentially, communism argues that private enterprise shouldn’t exist, and that the public (through the government) should own all the means of production in a society. 

This means that when socialism evolves into communism, it is fundamentally incompatible with capitalism . That’s because communism argues everything should be owned by the people and managed by government, whereas capitalism believes that economies should be run on private enterprise, which is controlled by individuals and not the government.This is why capitalism vs socialism vs communism can often be confusing. Just remember: the key difference between socialism and communism is that communism seeks to eliminate capitalism. But communism is just one type of socialism, and many other forms of socialism can be integrated into a capitalist economy. 

Marx and Engels helped popularize socialism, and in the 20th century, the first socialist governments appeared . The first mass party in Latin America, the Socialist Party of Argentina, was established in the 1890s, and in 1902, the British Labour Party won its first seats in Parliament. These elections of socialist politicians ushered in a new era of political legitimacy for the socialist movement. 

More radical forms of socialism emerged following World War I . In 1917, the Bolshevik Revolution occurred in Russia, led by philosopher Vladimir Lenin . Lenin and the Bolshevik faction of socialists overthrew the Russian monarchy and installed the first ever constitutionally socialist state, known as the Russian Socialist Federative Soviet Republic. Socialists who embrace Lenin’s methods today are most often referred to as communists.

By the 1920s, socialism in various forms had become the dominant secular movement on a global scale. That’s not to say that most governments were “socialist,” but they had definitely begun incorporating socialist ideas into their political policies. As socialism became more accepted, new forms of socialism continued to emerge, including the most common forms of socialism today: social democracy and democratic socialism. 

Bernie Sanders is the most well-known proponent of democratic socialism in the United States. (Secret-Name101/WikiMedia) 

Democratic Socialism vs Capitalism

Democratic socialism brings three core concepts together: democracy , socialism, and capitalism. Generally speaking, democratic socialism co mbines the safety net of a socialist economy with the wealth creation of capitalism within a democratic system of government. 

Here’s what that means. First things first: the organizational structure of the government is a democracy. Every citizen of a country can vote in a free and fair election to elect officials to represent them in government. These officials then represent the will of the people that elected them. You can learn more about democracies (vs republics and other types of government) in this article. 

Democratic socialism also combines aspects of socialism and capitalism in terms of its political ideologies and economic systems. Under democratic socialism , the elements of society that provide for basic human needs--like healthcare, labor protections, and childcare--are owned collectively and run by the government. 

However, democratic socialism also embraces aspects of capitalism--usually in terms of economic structure. Democratic socialism recognizes the importance of private enterprise, especially in terms of building national wealth. When the two are combined, though, capitalism is more tightly regulated by the government. 

Examples of Socialist Governments Today

There are many different ways that a country can implement socialism today . Socialism is a broad category that encompasses multiple types of economic systems. It’s also compatible with various government systems. 

While there aren’t any purely socialist countries in the world today, there are nations that are categorized as communist by virtue of how much power the government has over social and economic systems. Those countries are: 

• China, or the People’s Republic of China
• Cuba, or Republic of Cuba
• Laos, or Lao People’s Democratic Republic
• Vietnam, or Socialist Republic of Vietnam
• North Korea, or Democratic People’s Republic of Korea

Most countries implement aspects of socialism that are compatible with their form of government and economy in order to create equality for all people. These countries tend to have prominent socialist or democratic socialist political parties. Having a socialist political party does not necessarily mean that a country “is socialist.” Most of the time, it just means that some aspects of a country’s domestic agenda are influenced by socialism. 

Some of the countries with very influential socialist parties include the following: 

• Denmark 
• Poland 
• South Korea
• United Kingdom
• Venezuela 

Because democratic socialism is such a popular topic today, let’s look more closely at one country that implements democratic socialism: Sweden.

Sweden adheres to the Nordic Model , which refers to the economic and social policies common to the Nordic countries of Denmark, Finland, Iceland, Norway, and Sweden. The Nordic Model in Sweden fits the description of democratic socialism for two main reasons: it supports a universalist welfare state to promote social mobility, but it remains committed  to a market-based economy that’s partially fueled by private enterprise.

Sweden’s democratic government provides free health care, education, and lifetime retirement income. As a result, their Swedish citizens pay some of the highest taxes in the world. A high percentage of Sweden’s workers belong to a labor union, and the country is ranked high for protection of workers’ rights because of its strong social partnership between employers, trade unions, and the government.

At the same time, Sweden has a mixed-market capitalist economic system and high degrees of private ownership. To regulate its capitalist economy, Sweden allows free trade combined with collective risk sharing. These measures provide a form of protection against the risks associated with economic openness.

In other words: the country combines socialism and capitalism! in order to ’s political ideology is socialist, but its economy is capitalist. 

Because the government meets most of their needs, the Swedish people aren’t very concerned with accumulating wealth. As of 2020, Sweden also ranks high on the Global Peace Index and is ranked in the top 10 on the World Happiness Report.

Many people associate capitalism with making money. That's because capitalism believes that privately owned businesses should be the bedrock of a national economy.

What Is Capitalism?

Now that we’ve covered socialism, let’s tackle capitalism next . Below, we’ll give you a comprehensive definition and history of capitalism, and we’ll provide some examples of capitalist governments today . 

Capitalism: Overview and Definition

Capitalism is an economic system in which the private sector owns most of the means of production . In a capitalist economy, the government plays a lesser role. The main goal of capitalism is to employ the means of production to make a profit and generate capital. To accomplish this, capitalism usually has a free market economy , which is based on supply and demand and limited government control. At its core, capitalism is designed to enable private entities, which are often corporations, to make a profit . 

The term capitalism is derived from the word “capital,” which evolved from the late Latin word capitale . Capitale is based on the Latin word caput , which means "head" and connotes something of value, such as money, property, or livestock. Capitale emerged in the 12th to 13th centuries to refer to funds, stocks of merchandise, sum of money, or money carrying interest. By 1283, it was used to describe the capital assets of a trading firm . By this time, capital was often used interchangeably with other words, including wealth, money, funds, goods, assets, and property.

In English language usage, the term “capitalism” first appears in author William Makepeace Thackeray’s 1854 novel, The Newcomes. In Thackeray’s novel, “capitalism” refers to “having ownership of capital.” Other initial usage of capitalism in the modern period employs the term to describe a new type of economy. In this economy, capital, or the source of income, doesn’t belong to the workers who generate it through labor. Instead, it belongs to the people who own the businesses and companies that pay for the labor. 

Also keep in mind that just like socialism, capitalism exists on a spectrum . But whereas types of socialism are often categorized by how much power a centralized government has, types of capitalism are usually defined by how free and unregulated the economy is. 

History of Capitalism

Capitalism developed out of systems of feudalism and mercantilism in Europe during the Renaissance. In these systems, capital existed in the form of simple commodity exchange and production. 

At the end of the 16th century, the economic foundations of the agricultural feudal system began to break down in England. Land and resources became concentrated in the hands of a few private owners, and the labor market became more competitive. The expanding system put pressure on owners and workers to increase productivity to make greater profits. By the early 17th century, feudalism was effectively replaced by a new centralized state and economic market in England.

Between the 16th and 18th centuries in England, an economic doctrine of mercantilism prevailed. Merchant traders explored foreign lands and engaged in trade for profit. Under the rule of Queen Elizabeth I, merchants were granted state support. Through subsidies and other economic incentives, merchants expanded commerce and trade and made profits by buying and selling goods. 

The continued growth of capitalism required specific technologies for mass production, which early feudalist societies and individual merchants didn’t have. These technologies became widely available during the Industrial Revolution, and those who owned them were called industrialists. Industrialists facilitated the development of factory systems and manufacturing . These systems required a complex division of labor and established the modern concept of the capitalist mode of production. 

The Industrial Revolution established the dominance of capitalism as an economic system in the western world. By the 19th century, capitalism had spread globally . And by the end of the 19th century, goods and information were able to circulate around the world at a whole new pace. This was due to technologies such as the telegraph, the steamship, and railway. But this growth also hinged on a large--and cheap--labor force. 

When the Great Depression had a global impact in the 1930s, socialist practices first entered into the capitalist economies of the world. By the end of World War II, governments began  regulating these open, capitalist markets. Welfare states emerged in capitalist countries during this time as well. Since then, there hasn’t been a purely capitalist system in the world. Today, most capitalist economies incorporate some form of socialist practice. 

Many countries embrace capitalism...even if they also implement socialist policies. One good example of this is the United Kingdom, which has strong social programs but still allows for a robust private sector.

Examples of Capitalism Governments Today

There are many types of capitalism in existence today. Different countries’ implementation of capitalism may feature different economic policies and institutional structures. However, at their core, all capitalist countries share a common element: they are primarily based on private ownership of the means of production, generating profit through production, market-based control of resources, and accumulation of capital. 

Today, there are over 100 countries that have a capitalist economy . Here are a few examples of countries have some form of a capitalist economy:

• Austria 
• Chile 
• Ireland 
• Japan 
• Mauritius 
• Netherlands 
• United States of America

It’s important to recognize that none of these countries implement pure capitalism . Instead, they implement a form of capitalism that may be combined with other types of economic markets or political ideologies, including socialism. Let’s look at an example of a capitalist economy to understand what capitalism looks like in practice next.

The United States has a democratic capitalist political-economic system . The U.S. economy is also referred to as a mixed market economy. This means that it has characteristics of both capitalism and socialism that are combined with a democratic system of government. 

In the form of capitalism implemented by the U.S., the means of production are based on private ownership and for-profit business. In other words: most businesses and services are privately owned, and those companies’ primary goal is to make money. But because the economy has regulations, taxation, and some subsidization, the U.S. can’t be considered a purely capitalist economy. 

Prior to World War II, the U.S. more closely resembled a truly free market . However, the government has always had some role in controlling the U.S. economy. Today, the U.S. government has partial control over education, physical infrastructure, healthcare, and postal deliveries. The government also provides subsidies to oil and financial companies and agricultural producers. While private businesses have a high degree of autonomy in the U.S., they are required to register with government agencies.

Some critics argue that the U.S. capitalist system serves the interests of a small percentage of the population, known as the one percent. Because of income inequality and intensifying class divisions in the U.S., many critics of capitalism advocate for the adoption of more socialist policies as a means to bridge that class divide . Two well-known advocates of increasing socialist policy in the U.S. are senator Bernie Sanders of Vermont and Alexandria Ocasio-Cortez of New York. 

Socialism vs Capitalism: Chart Comparison

We’ve covered a lot of info concerning capitalism vs socialism, so let’s condense things down to the core differences between capitalism and socialism next. 

Keep reading for a side by side comparison of capitalism and socialism in our chart below.

Fascism, Communism, and Marxism: A Quick Comparison 

Now that we’ve covered the differences between capitalism and socialism, let’s explain how they compare to other systems that they’re sometimes confused with. We’ll briefly clarify the differences between the socialist and capitalist systems and communism and fascism. 

Fascism vs Capitalism and Socialism

Fascism is a political ideology that supports authoritarianism and ultra-nationalism. Fascist states are ruled under dictatorships. They also suppress opposition by force and tightly control society and the economy. 

But how does fascism compare to socialism and capitalism? Socialism is generally considered incompatible with fascism. Socialism is liberally-minded and progressive, and it’s a relatively flexible ideology, whereas fascism is none of these things. In fact, because it is a far-right ideology, fascism opposes socialism. 

The relationship between capitalism and fascism is a little more complicated. Historically, fascism has sought to do away with capitalism because of its emphasis on autonomy and limited state control. However, fascism supports private ownership, wealth accumulation among private individuals, and a market economy. This means that fascism can support a very specific kind of capitalism, but capitalist economies are rarely fascist.

Communism vs Capitalism and Socialism

Let’s talk now about capitalism and socialism in relation to communism. Communism proposes a socioeconomic structure and political system that completely replaces a capitalist system with public ownership and communal control of the means of production. In communism, everything is collectively owned and private enterprise is eliminated. Because it seeks to eliminate money and social classes, communism is ultimately incompatible with capitalism.

However, socialism and communism are more closely related. In simplest terms, communism is a more revolutionary form of socialism , based on the ideology of Karl Marx. Socialism and communism share a core goal of placing power over the means of production in the hands of workers. Unlike communism, though, socialism is widely compatible with other forms of government. Forms of socialism can also be integrated into other economic systems, such as capitalism. 

Marxism vs Capitalism And Socialism 

You may also be wondering how Marxism relates to socialism and capitalism . Marxism is the political and economic theory proposed by Karl Marx and Friedrich Engels. Marxist theory was adapted by followers of Marx and Engels to articulate a specific approach to communism. This means that Marxism is a type of communism that incorporates socialist principles. Ultimately, socialism is a much broader concept than Marxism.

Marxism also addresses capitalism, though. In his book, Das Kapital, Karl Marx describes a capitalist mode of production. He is often credited as defining the modern concept of capitalism through his harsh critiques of it . He ultimately believed that capitalism would eventually stagnate, and socialism would take its place. 

What’s Next? 

If you want to learn more about how different governments work , check out our article on democracies versus republics.

The U.S. government is set up in three parts where no one section of the government has more power than the other . We’ll teach you everything you need to know about this checks and balances system.

If all of these topics are fascinating to you, then you might be interested in majoring in political science. Our experts will teach you everything you need to know about a political science degree , including what types of careers are available for poli-sci grads.

Ashley Sufflé Robinson has a Ph.D. in 19th Century English Literature. As a content writer for PrepScholar, Ashley is passionate about giving college-bound students the in-depth information they need to get into the school of their dreams.

Student and Parent Forum

Our new student and parent forum, at ExpertHub.PrepScholar.com , allow you to interact with your peers and the PrepScholar staff. See how other students and parents are navigating high school, college, and the college admissions process. Ask questions; get answers.

Ask a Question Below

Have any questions about this article or other topics? Ask below and we'll reply!

Improve With Our Famous Guides

• For All Students

The 5 Strategies You Must Be Using to Improve 160+ SAT Points

How to Get a Perfect 1600, by a Perfect Scorer

Series: How to Get 800 on Each SAT Section:

Score 800 on SAT Math

Score 800 on SAT Reading

Score 800 on SAT Writing

Series: How to Get to 600 on Each SAT Section:

Score 600 on SAT Math

Score 600 on SAT Reading

Score 600 on SAT Writing

Free Complete Official SAT Practice Tests

What SAT Target Score Should You Be Aiming For?

15 Strategies to Improve Your SAT Essay

The 5 Strategies You Must Be Using to Improve 4+ ACT Points

How to Get a Perfect 36 ACT, by a Perfect Scorer

Series: How to Get 36 on Each ACT Section:

36 on ACT English

36 on ACT Math

36 on ACT Reading

36 on ACT Science

Series: How to Get to 24 on Each ACT Section:

24 on ACT English

24 on ACT Math

24 on ACT Reading

24 on ACT Science

What ACT target score should you be aiming for?

ACT Vocabulary You Must Know

ACT Writing: 15 Tips to Raise Your Essay Score

How to Get Into Harvard and the Ivy League

How to Get a Perfect 4.0 GPA

How to Write an Amazing College Essay

What Exactly Are Colleges Looking For?

Is the ACT easier than the SAT? A Comprehensive Guide

Should you retake your SAT or ACT?

When should you take the SAT or ACT?

Stay Informed

Get the latest articles and test prep tips!

Looking for Graduate School Test Prep?

Check out our top-rated graduate blogs here:

GRE Online Prep Blog

GMAT Online Prep Blog

TOEFL Online Prep Blog

Holly R. "I am absolutely overjoyed and cannot thank you enough for helping me!”

Capitalism, Socialism and Democracy revisited

• September 8, 2023

Niall Ferguson

• Themes: Geopolitics, History

In the titanic struggle between capitalism and socialism, there can only be one winner.

This essay was first published in Past and Present: Perspectives from the Engelsberg Seminar, Axess Publishing , 2020 . It was published by  Bokförlaget Stolpe , in collaboration with the  Axel and Margaret Ax:son Johnson Foundation .

Joseph Schumpeter was pessimistic. ‘Can capitalism survive?’ he asked in his book Capitalism, Socialism and Democracy (1942). His answer was stark: ‘No. I do not think it can.’ He then posed and answered a second question: ‘Can socialism work? Of course it can.’ Perhaps the Austrian-born economist’s pessimism was simply the effect of teaching at Harvard. Yet Schumpeter offered four plausible reasons for believing that socialism’s prospects would be brighter than capitalism’s in the second half of the twentieth century, even if he signalled his strong preference for capitalism in his ironical discussion of socialism.

First, he suggested, capitalism’s greatest strength — its propensity for ‘creative destruction’ – is also a source of weakness. Disruption may be the process that clears out the obsolescent and fosters the advent of the new, but precisely for that reason it can never be universally loved. Second, capitalism itself tends towards oligopoly, not perfect competition.

The more concentrated economic power becomes, the harder it is to legitimize the system, especially in America, where ‘big business’ tends to get confused with ‘monopoly’. Third, capitalism ‘creates, educates and subsidizes a vested interest in social unrest’ — namely, intellectuals.

Finally, Schumpeter noted, socialism is politically irresistible to bureaucrats and democratic politicians.

The idea that socialism would ultimately prevail over capitalism was quite a widespread view — especially in Cambridge, Massachusetts. It persisted throughout the Cold War . ‘The Soviet economy is proof that, contrary to what many sceptics had earlier believed, a socialist command economy can function and even thrive’, wrote Paul Samuelson, Schumpeter’s pupil, in the 1961 edition of his economics textbook — a sentence that still appeared in the 1989 edition. In successive editions, Samuelson’s hugely influential book carried a chart projecting that the gross national product of the Soviet Union would exceed that of the United States at some point between 1984 and 1997 (see figure 1). The 1967 edition suggested that the great overtaking could happen as early as 1977. By the 1980 edition, the timeframe had been moved forward to 2002–2012. The graph was quietly dropped after the 1980 edition.

Samuelson was by no means the only American scholar to make this mistake. Other economists in the 1960s and 1970s — notably Campbell McConnell and George Bach — were ‘so over-confident about Soviet economic growth that evidence of model failure was repeatedly blamed on events outside the model’s control’, such as ‘bad weather’. Curiously, McConnell’s textbook more or less consistently estimated US GNP to be double that of the USSR between its 1960 and its 1990 editions, despite also insisting in the same period that the Soviet economy had a growth rate roughly double the American. Yet it was Lorie Tarshis whose textbook drew the most damaging fire (from William F. Buckley amongst others) for its sympathetic treatment of economic planning, despite the fact that Tarshis was more realistic in his assessment of Soviet growth. The uncritical use of the simplistic ‘production possibility frontier’ framework — in which all economies essentially make a choice between guns and butter — was a key reason for the tendency to overrate Soviet performance. For example, as late as 1984 John Kenneth Galbraith could still insist that ‘the Russian system succeeds because, in contrast with the Western industrial economies, it makes full use of its manpower.’ Economists who discerned the miserable realities of the planned economy, such as G. Warren Nutter of the University of Virginia, were few and far between — almost as rare as historians, such as Robert Conquest , who grasped the enormity of the Soviet system’s crimes against its own citizens.

The majority view exemplified by Samuelson and Galbraith was of course wrong. Despite Schumpeter’s pessimism, capitalism survived precisely because socialism did not work. After 1945, according to Angus Maddison’s estimates , the Soviet economy was never more than 44 percent the size of that of the United States. By 1991, Soviet GDP was less than a third of US GDP. The tendency of American intelligence experts was to exaggerate the extent of Soviet success. But those who visited the Soviet Union could hardly miss its inferiority.

Moreover, beginning in around 1979, the very term ‘socialism’ went into a decline, at least in the English-speaking world. Use of ‘capitalism’ also declined — as the two terms were in some senses interdependent, often appearing on the same page — but not as much. This was a humiliating reversal of fortune; socialism had led from the second half of the nineteenth century until the mid-1920s, and again in the 1960s and 1970s.

The terms ‘capitalism’ and ‘socialism’ had their origins in the British Industrial Revolution . As the Chicago economist Thorstein Veblen argued, nineteenth-century capitalism was an authentically Darwinian system , characterized by seemingly random mutation, occasional speciation and differential survival. Yet precisely the volatility of the more or less unregulated markets created by the Industrial Revolution caused consternation amongst many contemporaries. Until there were significant breakthroughs in public health, mortality rates in industrial cities were markedly worse than in the countryside. Moreover, the advent of a new and far from regular ‘business cycle’, marked by periodic crises of industrial over-investment and financial panic, generally made a stronger impression on people than the gradual increase in the economy’s average growth rate. Though the Industrial Revolution manifestly improved life over the long run, in the short run it seemed to make things worse.

Intellectuals, as Schumpeter observed, were not slow to draw attention to this shadow side. Steeped in German literature and philosophy, the Scottish philosopher Thomas Carlyle was the first to identify what seemed the fatal flaw of the industrial economy: that it reduced all social relations to what he called, in his great essay Past and Present, ‘the cash nexus’.

That phrase so much pleased the son of an apostate Jewish lawyer from the Rhineland that he and his co-author, the heir of a Wuppertal cotton mill-owner, purloined it for the outrageous ‘manifesto’ they published on the eve of the 1848 Revolutions.

The founders of communism, Karl Marx and Friedrich Engels, were just two of many radical critics of the industrial society, but it was their achievement to devise the first internally consistent blueprint for an alternative social order. A mixture of Georg Wilhelm Friedrich Hegel’s philosophy , which represented the historical process as dialectical, and the political economy of David Ricardo, which posited diminishing returns for capital and an ‘iron’ law of wages, Marxism took Carlyle’s revulsion against the industrial economy and substituted a utopia for nostalgia.

The essence of Marxism was the belief that the industrial economy was doomed to produce an intolerably unequal society divided between the bourgeoisie, the owners of capital, and a property-less proletariat. Capitalism inexorably demanded the concentration of capital in ever fewer hands and the reduction of everyone else to wage slavery, which meant being paid only ‘that quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer’.

Before identifying why they were wrong, we need to acknowledge what Marx and his disciples were right about. Inequality did increase as a result of the Industrial Revolution. Between 1780 and 1830 output per laborer in the UK grew over 25 percent but wages rose barely 5 percent.

The proportion of national income going to the top percentile of the population rose from 25 percent in 1801 to 35 percent in 1848. In Paris in 1820, around 9 percent of the population were classified as ‘proprietors and rentiers’ (living from their investments) and owned 41 percent of recorded wealth. By 1911 their share had risen to 52 percent. In Prussia, the share of income going to the top 5 percent rose from 21 percent in 1854 to 27 percent in 1896 and to 43 percent in 1913. Industrial societies, it seems clear, grew more unequal over the course of the nineteenth century. This had predictable consequences. In the Hamburg cholera epidemic of 1892, for example, the mortality rate for individuals with an income of less than 800 marks a year was thirteen times higher than that for individuals earning over 50,000 marks.

It was not necessary to be an intellectual to be dismayed by the inequality of industrial society. The Welsh-born factory-owner Robert Owen envisaged an alternative economic model based on co-operative production and utopian villages like the ones he founded at Orbiston in Scotland and New Harmony, Indiana. It was in a letter to Owen, written by Edward Cowper in 1822, that the word ‘socialism’ in its modern sense first appears. An unidentified woman was, Cowper thought, ‘well adapted to become what my friend Jo. Applegath calls a Socialist’. Five years later, Owen himself argued that ‘the chief question … between the modern … Political Economists, and the Communionists or Socialists, is whether it is more beneficial that this capital should be individual or in common.’

The term ‘capitalism’ made its debut in an English periodical in April 1833 — in the London newspaper the Standard — in the phrase ‘tyranny of capitalism’, part of an article on ‘the ill consequences of that greatest curse that can exist amongst men, too much money-power in too few hands’. Fifteen years later, the Caledonian Mercury referred with similar aversion to ‘that sweeping tide of capitalism and money-loving which threatens our country with the horrors of a plutocracy’.

Yet the revolution eagerly anticipated by Marx never materialized — at least, not where it was supposed to, in the advanced industrial countries. The great bouleversements of 1830 and 1848 were the results of short-run spikes in food prices and financial crises more than of social polarization. As agricultural productivity improved in Europe, as industrial employment increased and as the amplitude of the business cycle diminished, the risk of revolution declined. Instead of coalescing into an impoverished mass, the proletariat subdivided into ‘labour aristocracies’ with skills and a Lumpenproletariat with vices. The former favoured strikes and collective bargaining over revolution and thereby secured higher real wages. The latter favoured gin. The respectable working class had their trade unions and working men’s clubs. The ruffians had the music hall and street fights.

The prescriptions of the Communist Manifesto were in any case singularly unappealing to the industrial workers they were aimed at. Marx and Engels called for the abolition of private property; the abolition of inheritance; the centralization of credit and communications; the state ownership of all factories and instruments of production; the creation of ‘industrial armies for agriculture’; the abolition of the distinction between town and country; the abolition of the family; ‘community of women’ (wife-swapping) and the abolition of all nationalities. By contrast, mid-nineteenth-century liberals wanted constitutional government , the freedoms of speech, press and assembly, wider political representation through electoral reform, free trade and, where it was lacking, national self-determination (‘Home Rule’). In the half-century after the upheaval of 1848 they got a great many of these things — enough, at any rate, to make the desperate remedies of Marx and Engels seem de trop. In 1850 only France, Greece and Switzerland had franchises in which more than a fifth of the population got to vote. By 1900 ten European countries did, and Britain and Sweden were not far below that threshold. Broader representation led to legislation that benefited lower-income groups; free trade in Britain meant cheap bread, and cheap bread plus rising nominal wages thanks to union pressure meant a significant gain in real terms for workers. Building labourers’ day wages in London doubled in real terms between 1848 and 1913. Broader representation also led to more progressive taxation. Britain led the way in 1842 when Sir Robert Peel introduced a peacetime income tax; by 1913 the standard rate was 14 pence in the pound. Prior to 1842 nearly all British tax revenue had come from the indirect taxation of consumption, via customs and excise duties, regressive taxes that take a proportionately smaller amount of your income the richer you are. By 1913 a third of revenue was coming from direct taxes on the relatively rich. In 1842 the central government had spent virtually nothing on education and the arts and sciences. In 1913 those items accounted for 10 percent of expenditure. By that time, Britain had followed Germany in introducing a state pension for the elderly.

Marx and Engels were wrong on two scores, then. First, their iron law of wages did not exist. Wealth did indeed become highly concentrated under capitalism, and it stayed that way into the second quarter of the twentieth century, but income differentials began to narrow as real wages rose and taxation became less regressive. Capitalists understood what Marx missed: that workers were also consumers. It therefore made no sense to try to grind their wages down to subsistence levels. On the contrary, as the case of the United States was making increasingly clear, there was no bigger potential market for capitalist enterprises than their own employees. Far from condemning the masses to ‘immiseration’, the mechanization of textile production created growing employment opportunities for Western workers — albeit at the expense of Indian spinners and weavers — and the decline in the prices of cotton and other goods meant that Western workers could buy more with their weekly wages.

The second mistake Marx and Engels made was to underestimate the adaptive quality of the nineteenth-century state — particularly when it could legitimize itself as a nation-state. In his Contribution to a Critique of Hegel’s Philosophy of Right , Marx had famously called religion the ‘opium of the masses’. If so, then nationalism was the cocaine of the middle classes. Between 1830 and 1905 eight nation-states achieved either independence or unity: Greece (1830), Belgium (1830–39), Romania (1856), Italy (1859–71), Germany (1864–71), Bulgaria (1878), Serbia (1867–78) and Norway (1905). But the American Southerners failed in their bids for statehood, as did the Armenians, the Croats, the Czechs, the Irish, the Poles, the Slovaks, the Slovenes and the Ukrainians. The Hungarians, like the Scots, made do with the role of junior partners in dual monarchies with empires they helped to run. As for such ethno-linguistically distinct peoples as the Roma, Sinti, Kashubes, Sorbs, Wends, Vlachs, Székelys, Carpatho-Rusyns and Ladins, no one seriously thought them capable of political autonomy.

Entities like Italy or Germany, composites of multiple statelets, offered all their citizens a host of benefits: economies of scale, network externalities, reduced transaction costs and the more efficient provision of key public goods like law and order, infrastructure and health. The new states could make Europe’s big industrial cities, the breeding grounds of both cholera and revolution, finally safe. Slum clearance, boulevards too wide to barricade, bigger churches, leafy parks, sports stadiums and above all more policemen — all these things transformed the great capitals of Europe, not least Paris, which Baron Georges Haussmann completely recast for Napoleon III. All the new states had imposing façades; even defeated Austria lost little time in reinventing itself as ‘imperial-royal’ Austria-Hungary, its architectural identity set in stone around Vienna’s Ringstrasse.

But behind the façades there was real substance. Schools were built, the better to drum standardized national languages into young heads. Barracks were erected, the better to train the high-school graduates to defend their fatherland. And railways were constructed in places where their profitability looked doubtful, the better to transport the troops to the border, should the need arise. Peasants became Frenchmen — or Germans, or Italians, or Serbs, depending where they happened to be born.

So effective was the system of nation-building that when the European governments resolved to go to war over two arcane issues — the sovereignty of Bosnia-Herzegovina and the neutrality of Belgium — they were able, over more than four years, to mobilize in excess of 70 million men as soldiers or sailors. In France and Germany around a fifth of the pre-war population — close to 80 percent of adult males — ended up in uniform.

When the leaders of European socialism met in Brussels at the end of July 1914, they could do little more than admit their own impotence. A general strike could not halt a world war. What gave socialism a shot was that the hypertrophic nationalism of the first half of the twentieth century plunged the world into not just one but two world wars . Without these catastrophes, it is inconceivable that so many devotees of Marx would have come to power in the seventy years after 1917. The world wars made the case for socialism in multiple ways.

First, they seemed to confirm the destructive tendencies of ‘imperialism, the highest form of capitalism’. Second, they greatly expanded the role of the state, which became the principal purchaser of goods and services in most combatant countries, creating precisely the kind of state-controlled economy that socialist theory claimed would perform better than free markets. Third, the wars acted as a great leveller, imposing very high marginal rates of taxation, wage controls and price controls in ways that tended to reduce wealth and income disparities. Fourth, in 1917 the German government financed the Bolshevik coup in Russia that brought Lenin to power.

The tragedy was that those who promised utopia generally delivered hell on earth. According to the estimates in the Black Book of Communism , the ‘grand total of victims of Communism was between 85 and 100 million’ for the twentieth century as a whole. The lowest estimate for the total number of Soviet citizens who lost their lives as a direct result of Stalin’s policies was more than 20 million, a quarter of them in the years after World War II. Mao alone, as Frank Dikötter has shown, accounted for tens of millions: two million between 1949 and 1951, another three million by the end of the 1950s, a staggering 45 million in the man-made famine known as the ‘Great Leap Forward’, yet more in the mayhem of the Cultural Revolution. Even the less bloodthirsty regimes of Eastern Europe killed and imprisoned their citizens on a shocking scale. In the Soviet Union, 2.75 million people were in the Gulag at Stalin’s death. The numbers were greatly reduced thereafter, but until the very end of the Soviet system its inhabitants lived in the knowledge that there was nothing but their own guile to protect them from an arbitrary and corrupt state. Other communist regimes around the world, including the very durable dictatorships in North Korea and Cuba, were strikingly similar in the miseries they inflicted on their own citizens.

The various socialist regimes could not even justify their murderous behaviour by providing those they spared with higher living standards than their counterparts living under capitalism. On the contrary, they were economically disastrous. The collectivization of agriculture invariably reduced farming productivity. A substantial proportion of the victims of Communism lost their lives because of the famines that resulted from collectivization in the Soviet Union and China. North Korea had a similarly disastrous experience. Central planning was a miserable failure for reasons long ago identified by Ludwig von Mises, Friedrich Hayek and Janos Kornai, amongst others. Indeed, the economic performance of strictly socialist countries got worse over time because of rigidities and perverse incentives institutionalized by planning.

Moreover, the evidence is clear that, as countries moved away from socialist policies of state ownership and towards a greater reliance on market forces, they did better economically. The most striking example — but one of many — is that of China, which achieved a true great leap forward in economic output after beginning to dismantle the restrictions on private initiative in 1978. After the collapse of ‘real existing socialism’ in Central and Eastern Europe in 1989 and the dissolution of the Soviet Union in 1991, there was widespread recognition (the ‘Washington consensus’) that all countries would benefit from reducing state ownership of the economy through privatization and lowering marginal tax rates. As figure 4 shows, the highest marginal personal income tax rate was reduced in nearly all OECD countries between the mid-1970s and mid-2000s.

By 2007, socialism seemed dead almost everywhere. Only the most ardent believers could look at Cuba or Venezuela — much less North Korea — as models offering a better life than capitalism. Even when the era of globalization and deregulation ended in the disarray of the global financial crisis, socialism did not initially show much sign of making a comeback. In most countries, the financial crisis of 2008–9 was more politically beneficial to the populists of the right, illustrating that, as in the 19th century, national identity tended to trump class consciousness whenever the two came into conflict.

Why, then, has socialism come back into vogue in our time — and in America, of all places? To answer this question, it is helpful to turn back to Schumpeter. It will be remembered that he argued, first, that capitalism’s propensity for ‘creative destruction’ was also a source of weakness; second, that capitalism tends towards oligopoly, not perfect competition; third, that capitalism ‘creates, educates and subsidizes a vested interest in social unrest’, namely intellectuals; and, finally, that socialism is politically attractive to bureaucrats and (many) democratic politicians. All four tendencies are visible in the United States today. Although policymakers have been successful in reducing the volatility of output and the rate of unemployment since the financial crisis — and very successful in raising the prices of financial assets above their pre-crisis level — the relative losers of the past decade have been succumbing in alarming numbers to what Case and Deaton have called ‘deaths of despair’. A number of authors have noted the decline in competition that has afflicted the United States in the recent past, most obviously but by no means only in the information technology sector, which has come to be dominated by a handful of network platforms . The American academy is now skewed much further to the left than it was in Schumpeter’s time. And, just as Schumpeter might have anticipated, a new generation of ‘progressive’ politicians has come forward with the familiar promises to soak the rich to fund new and bureaucratic entitlement programmes. It is noteworthy that younger Americans — nine out of ten of whom now pass through the country’s left-leaning college system — are disproportionately receptive to these promises.

New York Representative Alexandria Ocasio-Cortez is often portrayed as an extremist for the democratic socialist views that she espouses. However, survey data show that her views are close to the median for her generation. The Millennials and Generation Z — that is, Americans aged 18 to 38 — are burdened by student loans and credit card debt. Millennials’ early working lives were blighted by the financial crisis and the sluggish growth that followed. In later life, absent major changes in fiscal policy, they seem unlikely to enjoy the same kind of entitlements enjoyed by current retirees. Under different circumstances, the under-39s might conceivably have been attracted to the entitlement-cutting ideas of the Republican Tea Party (especially if those ideas had been sincere). Instead, we have witnessed a shift to the political left by young voters on nearly every policy issue, economic and cultural alike. As figure 5 shows, it is the youngest voters in American who are most attracted to socialism, to the extent that those aged under 25 profess to prefer it to capitalism. This must be a matter of serious concern for Republicans, as ten years from now, if current population trends hold, Gen Z and Millennials together will make up a majority of the American voting-age population. Twenty years from now, they will represent 62 percent of all eligible voters.

Of course, it depends what is meant by ‘capitalism.’ According to a 2018 Gallup poll, just 56 percent of all Americans have a positive view of capitalism. However, 92 percent have a positive view of ‘small business’, 86 percent have positive view of ‘entrepreneurs’ and 79 percent have a positive view of ‘free enterprise’. It also depends what is meant by ‘socialism’. Asked by Gallup to define socialism, a quarter of Democrats (and Republicans) said it meant equality; 13 percent of Democrats saw it as government services, such as free health care; around the same proportion thought that socialism implied government ownership. (About 6 percent believed that socialism meant being social, including activity on social media.)

Asked by Anderson Cooper to define socialism, Ocasio-Cortez replied: ‘What we have in mind and what my policies most closely re-resemble are what we see in the UK, in Norway, in Finland, in Sweden.’ But just how socialist is Sweden today? The country is 9th in the World Economic Forum’s Competitiveness ranking, 12th in the World Bank’s Ease of Doing Business league table, and 19th in Heritage’s Economic Freedom ladder. Many young Americans seem to have in mind the 1970s, rather than the present, when they wax lyrical about Swedish socialism.

So what does American socialism amount to? According to a Harvard poll, 66 percent of Gen Z support single-payer health care. Slightly fewer (63 percent) support making public colleges and universities tuition-free.

The same share supports Ocasio-Cortez’s proposal to create a federal jobs guarantee. Many Gen Z voters are not yet in the workforce, but nearly half (47 percent) support a ‘militant and powerful labour movement’. Millennial support for these policies is lower, but only slightly. Although wary of government in the abstract, young Americans nevertheless embrace it as the solution to the problems they perceive. Among voting-age members of Gen Z, seven in ten believe that the government ‘should do more to solve problems’ and ‘has a responsibility to guarantee health care to all’.

These polling results strongly suggest that what young Americans mean by ‘socialism’ is nothing of the kind. What they have in mind is not the state taking over ownership of the means of production, which is the true meaning of socialism. They merely aspire to policies on healthcare and education that imply a more European system of fiscal redistribution, with higher progressive taxation paying for cheaper or free healthcare and higher education. As figure 6 shows, OECD countries vary widely in the extent to which they reduce inequality by means of taxes and transfers. At one extreme is Chile, which only minimally reduces its Gini coefficient through its fiscal system; at the other is Ireland, which would be an even less egalitarian country than Chile without taxes and transfers, but which reduces inequality by more than any other OECD country through the various levers of fiscal policy. American voters may one day opt for an Irish level of egalitarianism, but it would be a mistake to regard this is a triumph for socialism. So long as it is a large private sector that is being taxed to pay for the benefits being disbursed to lower income groups, socialism is not le most juste .

A final cause of confusion that remains to be resolved is what to make of ‘ socialism with Chinese characteristics ’? According to the Economist, ‘The non-state sector contributes close to two-thirds of China’s GDP growth and eight-tenths of all new jobs.’ Clearly, the most dynamic Chinese corporations — Alibaba and Tencent, for example — are not state-owned enterprises. The state sector has shrunk in relative terms significantly since the beginning of economic reform in the late 1970s. A common conclusion drawn by many Western visitors is that China is now socialist in name only; functionally it is a capitalist economy.

One objection to that conclusion is that, since the accession to power of Xi Jinping , there has been a deliberate revival of the state sector. In 2012, for example, private sector companies received 52 percent of new loans issued by the official bank sector, compared with 32 percent to SOEs. But in 2016 private companies received just 11 percent of new loans, while more than 80 percent flowed to SOEs. The balance has shifted back in the other direction in more recent years, but the central government retains an option to direct credit in this discriminatory way, just as it relies on capital controls to prevent Chinese investors sending more money of their abroad, and on anti-corruption procedures to confiscate the property of officials and businessmen deemed to have transgressed.

Schumpeter largely omitted from his analysis an important variable which helps explain why socialism did not prevail in most countries in the second half of the twentieth century — namely, the rule of law. Because socialism at root means a violation of private property rights — the forced acquisition of assets by the state, with or without compensation — the most effective barrier to its spread is in fact an independent judiciary and a legal tradition that protects property owners from arbitrary confiscation.

A common error made in the wake of the 1989 revolutions was to argue that it was capitalism and democracy that were interdependent, whereas in reality it is capitalism and the rule of law. On this basis, it is striking not only that China is so much inferior to the United States by most measures in the World Justice Index, but also that Sweden is some way ahead of the United States.

The defining characteristic of socialist states is not their lack of democracy, but their lack of law. So long as China does not introduce a meaningful reform of the law — creating an independent judiciary and a truly free legal profession — all property rights in that country are contingent on the will of the Communist Party. It is perhaps worth adding that, precisely because property rights in a socialist state are so constrained, there is almost no limit to the negative externalities that can be foisted on citizens and neighbouring countries by polluting state enterprises (see figure 8).

Nearly eighty years ago, Schumpeter was right to identify the inbuilt weaknesses of capitalism and the strengths of socialism, and to perceive that democracy alone would not necessarily uphold the free market system. He correctly identified the enemies within, which would turn against capitalism even in its most propitious habitat, the United States.

He did not, however, spend enough time thinking about what institutions might be counted upon to defend capitalism against socialism. In a characteristically sarcastic passage setting out the supposed benefits of socialism, Schumpeter notes that: ‘A considerable part of the total work done by lawyers goes into the struggle of business with the state and its organs. It is immaterial whether we call this vicious obstruction of the common good or defence of the common good against vicious obstruction. In any case the fact remains that in socialist society there would be neither need nor room for this part of legal activity. The resulting saving is not satisfactorily measured by the fees of the lawyers who are thus engaged. That is inconsiderable. But not inconsiderable is the social loss from such unproductive employment of many of the best brains. Considering how terribly rare good brains are, their shifting to other employments might be of more than infinitesimal importance.’

Conspicuously, Schumpeter did not subsequently acknowledge that defending business against the state is in fact an economically beneficial activity, insofar as it upholds the rights of private property and makes it difficult to violate them. Perhaps he did not feel that he needed to state something so obvious. Yet sometimes it is the responsibility of a public intellectual to do just that.

What makes socialism pernicious is not so much the inefficiency that invariably attends state ownership of any asset, as the erosion of property rights that tends inevitably to be associated with the state’s acquisition of private assets. Where — as in Sweden in the 1950s and 1960s — socialists acquired a dominant political position without overthrowing property rights in pursuit of direct state ownership, it proved possible to roll it back, once the inefficiencies of state control became apparent. But where — as in China or Venezuela — the rule of law has essentially ceased to exist, such self-correction becomes almost impossible. The socialist economy can then go down only one of two possible paths: towards authoritarianism, to rein in the oligarchs and carpetbaggers, or towards anarchy. This is a lesson that young Americans might have been taught at college. It is unfortunate that, as Schumpeter predicted, the modern American university is about the last place one would choose to visit if one wished to learn the truth about the history of socialism.

More from Geopolitics

Inside sudan’s forever war, erdogan prepares to leave the stage, europe needs a grand strategy, fearing russia’s futures, russia, america and the roads not taken, more from history, how beate klarsfeld grappled with europe’s demons, frank kitson and the myth of the counter-insurgent, europe’s eastward march, why scotland lost its tongue, the deep history and dangers of just wars, latest essays, the salvation of spinoza, ai’s attention deficit.

Module 16: Work and the Economy

Capitalism and socialism, learning outcomes.

• Compare and contrast capitalism and socialism both in theory and in practice

Figure 1.  Vladimir Ilyich Lenin was one of the founders of Russian communism. J.P. Morgan was one of the most influential capitalists in history. They have very different views on how economies should be run. (Photos (a) and (b) courtesy of Wikimedia Commons)

Mechanization of the manufacturing process led to the Industrial Revolution which gave rise to two major competing economic systems: capitalism and socialism. Under capitalism, private owners invest their capital and that of others to produce goods and services they can sell in an open market. Prices and wages are set by supply and demand and competition. Under socialism, the means of production is commonly owned, and part or all of the economy is centrally controlled by government. Several countries’ economies feature a mix of both systems.

Watch this video to review the sectors of the economy and then to learn more about economic revolution and the main distinctions between capitalism and socialism.

Figure 2.  The New York Stock Exchange is where shares of stock in companies that are registered for public trading are traded (Photo courtesy of Ryan Lawler/Wikimedia Commons)

Scholars don’t always agree on a single definition of capitalism. For our purposes, we will define capitalism as an economic system in which there is private ownership (as opposed to state ownership) and where there is an impetus to produce profit, and thereby wealth. This is the type of economy in place in the United States today. Under capitalism, people invest capital (money or property invested in a business venture) in a business to produce a product or service that can be sold in a market to consumers. The investors in the company are generally entitled to a share of any profit made on sales after the costs of production and distribution are taken out. These investors often reinvest their profits to improve and expand the business or acquire new ones. To illustrate how this works, consider this example. Sarah, Antonio, and Chris each invest $250,000 into a start-up company that offers an innovative baby product. When the company nets $1 million in profits its first year, a portion of that profit goes back to Sarah, Antonio, and Chris as a return on their investment. Sarah reinvests with the same company to fund the development of a second product line, Antonio uses his return to help another start-up in the technology sector, and Chris buys a yacht.

To provide their product or service, owners hire workers to whom they pay wages. The cost of raw materials, the retail price they charge consumers, and the amount they pay in wages are determined through the law of supply and demand and by competition. When demand exceeds supply, prices tend to rise. When supply exceeds demand, prices tend to fall. When multiple businesses market similar products and services to the same buyers, there is competition. Competition can be good for consumers because it can lead to lower prices and higher quality as businesses try to get consumers to buy from them rather than from their competitors.

Wages tend to be set in a similar way. People who have talents, skills, education, or training that is in short supply and is needed by businesses tend to earn more than people without comparable skills. Competition in the workforce helps determine how much people will be paid. In times when many people are unemployed and jobs are scarce, people are often willing to accept less than they would when their services are in high demand. In this scenario, businesses are able to maintain or increase profits by not increasing workers’ wages.

Capitalism in Practice

As capitalists began to dominate the economies of many countries during the Industrial Revolution, the rapid growth of businesses and their tremendous profitability gave some owners the capital they needed to create enormous corporations that could monopolize an entire industry. Many companies controlled all aspects of the production cycle for their industry, from the raw materials, to the production, to the stores in which they were sold. These companies were able to use their wealth to buy out or stifle any competition.

In the United States, the predatory tactics used by these large monopolies caused the government to take action. Starting in the late 1800s, the government passed a series of laws that broke up monopolies and regulated how key industries—such as transportation, steel production, and oil and gas exploration and refining—could conduct business. The main statutes were the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These Acts, first, restricted the formation of cartels and prohibit other collusive practices regarded as being in restraint of trade. Second, they restricted the mergers and acquisitions of organizations that could substantially lessen competition. Third, they prohibited the creation of a monopoly and the abuse of monopoly power.

The United States is considered a capitalist country. However, the U.S. government has a great deal of influence on private companies through the laws it passes and the regulations enforced by government agencies. Through taxes, regulations on wages, guidelines to protect worker safety and the environment, plus financial rules for banks and investment firms, the government exerts a certain amount of control over how all companies do business. State and federal governments also own, operate, or control large parts of certain industries, such as the post office, schools, hospitals, highways and railroads, and many water, sewer, and power utilities. Debate over the extent to which the government should be involved in the economy remains an issue of c ontention today. Some criticize such involvements as socialism (a type of state-run economy), while others believe intervention and oversight is necessary t o protect the rights of workers and the well-being of the general population.

Figure 3 . This chart shows how Amazon has developed monopoly-like power in retail when compared with other major corporations like Walmart, Target and JCPenny. How do you think monopolies are in direct contradiction to the idea of competition in capitalist societies? Source: Visual Capitalist, https://www.visualcapitalist.com/extraordinary-size-amazon-one-chart/.

Further Research

One alternative to traditional capitalism is to have the workers own the company for which they work. To learn more about company-owned businesses check out The National Center for Employee Ownership .

Figure 4.  The economies of China and Russia after World War II were both based on a communist system. (Photo courtesy of Wikimedia Commons)

Socialism is an economic system in which there is government ownership (often referred to as “state run”) of goods and their production, with an impetus to share work and wealth equally among the members of a society. Under socialism, everything that people produce, including services, is considered a social product. Everyone who contributes to the production of a good or to providing a service is entitled to a share in any benefits that come from its sale or use. To make sure all members of society get their fair share, governments must be able to control property, production, and distribution.

The focus in socialism is on benefitting society, whereas capitalism seeks to benefit the individual. Socialists claim that a capitalistic economy leads to inequality, with unfair distribution of wealth and individuals who use their power at the expense of society. Socialism strives, ideally, to control the economy to avoid the problems inherent in capitalism.

Within socialism, there are diverging views on the extent to which the economy should be controlled. One extreme believes all but the most personal items are public property. Other socialists believe only essential services such as healthcare, education, and utilities (electrical power, telecommunications, and sewage) need direct control. Under this form of socialism, farms, small shops, and businesses can be privately owned but are subject to government regulation.

The other area on which socialists disagree is on what level society should exert its control. In communist  countries like the former Soviet Union, or modern-day China, Vietnam, and North Korea, the national government controls both politics and the economy, and many  goods are owned in common. Ideally, these goods would be available to all as needed, although this often plays out differently in theory than in practice . Communist governments generally have the power to tell businesses what to produce, how much to produce, and what to charge for it. There are varying practices within and between communist nations; for example, while  China is still considered to be a communist nation, it has adopted many aspects of a market economy.  Other socialists believe control should be decentralized so it can be exerted by those most affected by the industries being controlled. An example of this would be a town collectively owning and managing the businesses on which its residents depend.

Because of challenges in their economies, several of these communist countries have moved from central planning to letting market forces help determine many production and pricing decisions. Market socialism describes a subtype of socialism that adopts certain traits of capitalism, like allowing limited private ownership or consulting market demands. This could involve situations like profits generated by a company going directly to the employees of the company or being used as public funds (Gregory and Stuart 2003). Many Eastern European and some South American countries have mixed economies. Key industries are nationalized and directly controlled by the government; however, most businesses are privately owned but regulated by the government.

LInk to Learning

Watch this Crash Course video “Capitalism and Socialism”  on capitalism and socialism to learn more about the historical context and modern applications of these two political and economic systems.

Organized socialism never became powerful in the United States. The success of labor unions and the government in securing workers’ rights, joined with the high standard of living enjoyed by most of the workforce, made socialism less appealing than the controlled capitalism practiced here.

Figure 5.  This map shows countries that have self-proclaimed to be a socialist state at some point. Most of these followed Marxist-Leninist socialism and were also considered communist. The colors indicate the duration that socialism prevailed. (Map courtesy of Wikimedia Commons)

Socialism in Practice

As with capitalism, the basic ideas behind socialism go far back in history. Plato, in ancient Greece, suggested a republic in which people shared their material goods. Early Christian communities believed in common ownership, as did the systems of monasteries set up by various religious orders. Many of the leaders of the French Revolution called for the abolition of all private property, not just the estates of the aristocracy they had overthrown. Thomas More’s Utopia , published in 1516, imagined a society with little private property and mandatory labor on a communal farm. A utopia has since come to mean an imagined place or situation in which everything is perfect. Most experimental utopian communities have had the abolition of private property as a founding principle.

Modern socialism really began as a reaction to the excesses of uncontrolled industrial capitalism in the 1800s and 1900s. The enormous wealth and lavish lifestyles enjoyed by the propertied classes contrasted sharply with the miserable conditions of the workers.

Some of the first great sociological thinkers studied the rise of socialism. Max Weber admired some aspects of socialism, especially its rationalism and its emphasis on social reform, but he worried that letting the government have complete control could result in an “iron cage of future bondage” from which there is no escape (Greisman and Ritzer 1981). Pierre-Joseph Proudon (1809−1865) was another early socialist who thought socialism could be used to create utopian communities. In his 1840 book, What Is Property? , he famously stated that “property is theft” (Proudon 1840). By this he meant that if an owner did not work to produce or earn the property, then the owner was stealing it from those who did. Proudon believed economies could work using a principle called mutualism , under which individuals and cooperative groups would exchange products with one another on the basis of mutually satisfactory contracts (Proudon 1840).

By far the most important influential thinker on socialism is Karl Marx. Through his own writings and those with his collaborator, industrialist Friedrich Engels, Marx used a scientific analytical process to show that throughout history, the resolution of class struggles caused economic and cultural changes. He saw the relationships evolving from slave and owner, to serf and lord, to journeyman and master, to worker and owner. Neither Marx nor Engels thought socialism could be used to set up small utopian communities. Rather, they believed a socialist society would be created after workers rebelled against capitalistic owners and seized the means of production. They felt industrial capitalism was a necessary step that raised the level of production in society to a point where it could then be reconfigured so as to produce a more egalitarian socialist and then communist state (Marx and Engels 1848). Marxist ideas have provided much of the foundation for the influential sociological paradigm called conflict theory.

POlitics and Socialism: A Few Definitions

In the 2008 presidential election, the Republican Party latched onto what is often considered a dirty word to describe then-Senator Barack Obama’s politics: socialist. (Watch clip from the History channel on Socialism to learn more about the history of the word “socialism.”) It may have been because the president was campaigning by telling workers it’s good for everybody to “spread the wealth around.” But whatever the reason, the label became a weapon of choice for Republicans during and after the campaign. In 2012, Republican presidential aspirant Rick Perry continued this pitch. A New York Times article quotes him as telling a group of Republicans in Texas that President Obama is “hell bent on taking America towards a socialist country” (Wheaton 2011). Meanwhile, during the first few years of his presidency, Obama worked to create universal healthcare coverage and pushed forth a partial bailout of the nation’s failing automotive industry. President Obama is not the first president to be called a socialist. Franklin D. Roosevelt, 32nd president of the U.S., was attacked as being a socialist when he proposed his New Deal, which included Social Security and unemployment insurance, both of which Americans still enjoy today [1] .

In 2016, Bernie Sanders ran for president on the Democratic party platform as a self-described democratic socialist. Two prominent democratic socialists were elected to Congress during the 2018 midterm elections: Alexandria Ocasio-Cortez, from New York’s 14th congressional district, and Rashida Tlaib, representing Michigan’s 13th congressional district. They are all part of a broader movement within the Democratic party to address inequality in the United States with the goal of instituting some socialist policies alongside existing democratic features.

In Donald Trump’s 2019 State of the Union address, he said, “Here, in the United States, we are alarmed by new calls to adopt socialism in our country. … Tonight, we renew our resolve that America will never be a socialist country,” [2]

Are Rick Perry and Donald Trump correct? Is America headed towards socialism?

Socialism can be interpreted in different ways; however it generally refers to an economic or political theory that advocates for shared or governmental ownership and administration of production and distribution of goods. Often held up in counterpoint to capitalism, which encourages private ownership and production, socialism is not typically an all-or-nothing plan. For example, both the United Kingdom and France, as well as other European countries, have socialized medicine, meaning that medical services are run nationally to reach as many people as possible. These nations are, of course, still essentially capitalist countries with free-market economies.

It seems as though the complicated past of the word socialism, especially as that term has been confused with the repressive totalitarian communism of the Cold War period (1945-1991), has many people worried that any sort of socialist policy, such as universal healthcare, is also an attack on personal freedom. Watch this clip from a Washington Post opinion piece that explains how socialism today is not “your grandfather’s concept of socialism.” Do you think the term means the same thing that it used to?

Convergence Theory

We have seen how the economies of some capitalist countries such as the United States have features that are very similar to socialism. Some industries, particularly utilities, are either owned by the government or controlled through regulations. Public programs such as welfare, Medicare, and Social Security exist to provide public funds for private needs. We have also seen how several large communist (or formerly communist) countries such as Russia, China, and Vietnam have moved from state-controlled socialism with central planning to market socialism, which allows market forces to dictate prices and wages and for some business to be privately owned. In many formerly communist countries, these changes have led to economic growth compared to the stagnation they experienced under communism (Fidrmuc 2002).

In studying the economies of developing countries to see if they go through the same stages as previously developed nations did, sociologists have observed a pattern they call convergence. This describes the theory that societies move toward similarity over time as their economies develop.

Convergence theory explains that as a country’s economy grows, its societal organization changes to become more like that of an industrialized society. Rather than staying in one job for a lifetime, people begin to move from job to job as conditions improve and opportunities arise. This means the workforce needs continual training and retraining. Workers move from rural areas to cities as they become centers of economic activity, and the government takes a larger role in providing expanded public services (Kerr et al. 1960).

Supporters of the theory point to Germany, France, and Japan—countries that rapidly rebuilt their economies after World War II. They point out how, in the 1960s and 1970s, East Asian countries like Singapore, South Korea, and Taiwan converged with countries with developed economies. They are now considered developed countries themselves.

Figure 6.  Sociologists look for signs of convergence and divergence in the societies of countries that have joined the European Union. (Map courtesy of the European Union)

To experience this rapid growth, the economies of developing countries must to be able to attract inexpensive capital to invest in new businesses and to improve traditionally low productivity. They also need access to new, international markets for buying and selling goods. If these characteristics are not in place, then their economies cannot catch up. This is why the economies of some countries are diverging rather than converging (Abramovitz 1986).

Another key characteristic of economic growth regards the implementation of technology. A developing country can bypass some steps of implementing technology that other nations faced earlier. Television and telephone systems are a good example. While developed countries spent significant time and money establishing elaborate system infrastructures based on metal wires or fiber-optic cables, developing countries today can go directly to cell phone and satellite transmission with much less investment.

Another factor affects convergence concerning social structure. Early in their development, countries such as Brazil and Cuba had economies based on cash crops (coffee or sugarcane, for instance) grown on large plantations by unskilled workers. The elite ran the plantations and the government, with little interest in training and educating the populace for other endeavors. This restricted economic growth until the power of the wealthy plantation owners was challenged (Sokoloff and Engerman 2000). Improved economies generally lead to wider social improvement. Society benefits from improved educational systems, and more broadly shared prosperity will ideally allow people more time for learning and leisure.

Short Answer

• Explain the difference between state socialism with central planning and market socialism.
• In what ways can capitalistic and socialistic economies converge?

Contribute!

Improve this page Learn More

• Roosevelt Institute (2012). Franklin D. Roosevelt: Socialist or “Champion of Freedom”? Retrieved from  http://rooseveltinstitute.org/rediscovering-governmentfranklin-d-roosevelt-socialist-or-champion-freedom/ . ↵
• Pramuk, Jacob (2019). Expect Trump to make more ‘socialism’ jabs as he faces tough 2020 re-election fight.  CNBC. Retrieved from https://www.cnbc.com/2019/02/06/trump-warns-of-socialism-in-state-of-the-union-as-2020-election-starts.html . ↵
• Modification, adaptation, and original content. Authored by : Rebecca Vonderhaar for Lumen Learning. Provided by : Lumen Learning. License : CC BY: Attribution
• Economic Systems. Authored by : OpenStax CNX. Located at : https://cnx.org/contents/[email protected]:NvnPk5xd@4/Economic-Systems . License : CC BY: Attribution . License Terms : Download for free at http://cnx.org/contents/[email protected].
• Antitrust Law. Provided by : Wikipedia. Located at : https://en.wikipedia.org/wiki/United_States_antitrust_law . License : CC BY-SA: Attribution-ShareAlike
• Economic Systems & the Labor Market: Crash Course Sociology #29. Provided by : CrashCourse. Located at : https://www.youtube.com/watch?v=wslCc0Di978&list=PL8dPuuaLjXtMJ-AfB_7J1538YKWkZAnGA&index=31&t=0s . License : Other . License Terms : Standard YouTube License
• The Extraordinary Size of Amazon in One Chart. Authored by : Jeff Desjardins. Provided by : Visual Capitalist. Located at : https://www.visualcapitalist.com/extraordinary-size-amazon-one-chart/ . License : All Rights Reserved

• Search Search Please fill out this field.

What Is Capitalism

What is socialism, historical perspectives, how capitalism works, how socialism works, hybrid economies, socialism vs. capitalism debate in the u.s., examples of socialism in the u.s., main differences between capitalism and socialism, both systems exist on a spectrum, types of capitalism and socialism, what is the difference between communism and socialism, which countries have socialist economies today, what are the main benefits and drawbacks of capitalism, what are the main benefits and drawbacks of socialism.

• Government & Policy

Capitalism vs. Socialism: What's the Difference?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

While capitalism and socialism are often presented as opposing economic systems, in reality, the economies of most countries exist on a spectrum incorporating elements of both. No economy is purely capitalist or socialist. Rather, most feature markets and social welfare systems tailored to meet the unique needs, cultural values, and historical contexts of their societies.

This article will provide an overview of both systems, including their definitions, history, key principles, and real-world examples.

Key Takeaways

• The capitalist economic model relies on free market conditions for the creation of wealth; the production of goods and services is based on supply and demand in the general market.
• In a socialist economic model, the production of goods and services is either partially or fully regulated by the government; this is referred to as central planning, and the economic structure that is created is known as a planned economy or a command economy.
• Most countries are mixed economies, falling somewhere on the spectrum between pure capitalism and pure socialism.

Capitalism is an economic system based on the private ownership of the means of production (i.e., factories, offices, tools & equipment, etc.) and their operation for profit. Central characteristics of capitalism include private property , capital accumulation, wage labor, voluntary exchange, and a price system derived from competitive markets.

In a capitalist economy, decision-making and investments are determined by the owners of capital (i.e., wealth, property, and production capacity), whereas prices and the distribution of goods and services are mainly determined by competition in markets for goods and services.

Some of the fundamental principles of capitalism include:

• Business owners who control the means of production and hire labor, who are paid wages
• Private property rights
• Competitive markets
• Minimal government intervention in the economy

Under capitalism, the prices and production of goods and services are determined by the voluntary interactions of individuals and companies in the marketplace. Capitalists argue this free market mechanism leads to the most efficient allocation of resources.

Socialism is an economic system where the means of production are owned by the society as a whole, meaning the value made by workers belongs to everyone in that society, rather than a group of private owners and investors. It is an economic philosophy based on the principles of shared ownership and cooperation.

Production under socialism is meant to directly satisfy economic demands and human needs, rather than indirect satisfaction of needs through making profits and capital accumulation. The essential goal of socialism is to increase equality among members of society.

Some of the key tenets of socialism include:

• Collective or public ownership of major industries and resources
• Central planning and regulations to ensure equal distribution of wealth and fair provision of goods
• Production for social need rather than profit
• Cooperative management of the economy

With socialism, the means of production are commonly owned by the community or state on behalf of its citizens. Resource allocation and production are determined through central planning, with the goal of ensuring an equitable distribution of wealth and benefits to all members of society.

In addition to capitalism and socialism, the other major school of contemporary economic thought is communism . While there are certain core similarities between socialism and communism, there are also important distinctions between them .

The concepts of capitalism and socialism originated in Europe in the early 19th century. Prior to their advent, the economic landscape of Europe was shaped largely by feudalism and mercantilism.

Feudalism, a hierarchical system prevalent in medieval Europe, relied on a fixed class structure wherein nobles granted lands to vassals (serfs) in exchange for loyalty and military service. With the decline of feudalism, many individuals, no longer tied to the land, sought work in cities, marking the beginnings of wage labor.

Another system known as mercantilism emerged around the late 16th century as cities began to attract large populations and become centers of society. Under mercantilism, governments began to regulate their economies with an aim to augment state power, promoting exports over imports to accumulate wealth and encouraging colonization for resource access. These systems established the foundation for the emergence of a labor market and facilitated the accumulation and concentration of wealth, thereby setting the stage for capitalism. The advent of capitalism and socialism also coincided with a period of rapid industrialization and urbanization in the 19th century. As agricultural production became more efficient, populations shifted from rural areas to cities in search of better-paying jobs. Urban centers swelled as people moved to find work in the new factories and mills. This rupture of traditional agrarian lifestyles produced immense social displacements. Traditional bonds of family and community often broke down, replaced by impersonal labor relations. The sheer scale and speed of urbanization under early industrial capitalism led to major problems like overcrowded, unsanitary slums, child labor, grueling working conditions, and stark inequalities of wealth. This climate of rapid social change and worker exploitation catalyzed calls for reform and regulation.

The Rise of Capitalism

The restrictive trade practices of mercantilism were increasingly seen as inhibiting the potential of the burgeoning market economy. Mercantilist policies often involved protectionist measures like tariffs, quotas, and subsidies to boost local industries. Colonies were exploited as sources of cheap raw materials and captive export markets. The prevalent thought was that trade was a zero-sum game - one nation could only enrich itself at the expense of others.

The rise of capitalism challenged these mercantilist assumptions. Adam Smith's The Wealth of Nations , published in 1776, made a case against government interference in trade based on the efficiency of free markets guided by the “ invisible hand .” Over time, capitalist ideas shifted economic ideology toward free trade and open competition.

By the end of the 19th century, capitalism had become the dominant economic model in the Western world. The rise of industrialization during this period led to unprecedented economic growth and wealth in capitalist societies.

However, it also exacerbated socio-economic disparities, leading to the emergence of a working class that was often subject to unsafe working conditions and low wages. These inequalities sparked social and political unrest, leading to the rise of trade unionism and political movements advocating for social justice and labor rights.

It is important to also understand the rise of capitalism in the context of European colonialism and the transatlantic slave trade, which paved the way for capital accumulation and consumption in today's capitalist societies. The slave trade enabled European businesses to profit enormously from the forced labor of millions of enslaved Africans on colonial plantations producing sugar, tobacco, cotton, and other commodities sold for world consumption.

The Rise of Socialism

The origins of socialism can be traced back to the late 18th century, particularly the works of philosophers like Robert Owen and Charles Fourier. But socialism did not become a prominent political and economic movement until the mid-19th century as a reaction to the social problems created by industrial capitalism at the time and the growing inequality between the small group of wealthy business owners and the masses of poor workers. Socialist parties began forming by the end of the 19th century in Europe and the United States, advocating public ownership of industry.

In 1848, Karl Marx and his collaborator Friedrich Engels published The Communist Manifesto , which outlined a critique of capitalism based on the concept of class struggle. Marx believed capitalism was inherently exploitative and alienating. He argued that workers were denied the full value of their labor while owners reaped profits, creating unequal social relations between the bourgeoisie owners and the proletariat workers.

Marx predicted that the internal tensions and contradictions of capitalism would heighten class conflict and ultimately lead to revolution by the oppressed workers. The Manifesto concludes by declaring, "The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries unite!" This rallying cry bolstered the burgeoning socialist movement.

Socialist and Marxist ideas spread among the working classes through labor unions, worker cooperatives, political parties, and activist organizations. Major early victories included winning the right to form unions , instituting child labor laws, establishing the 8-hour work day, and other progressive reforms. Outside Europe, socialist and even communist revolutions occurred in places like Russia, China, and Cuba where peasants and rural populations suffered extreme inequality and poverty.

Under capitalism, the means of production (i.e., the factories, tools, equipment, raw materials, etc., that are used to produce goods) are primarily owned by private enterprises and individuals. Companies produce goods and services in order to generate profit, and so they decide what to produce based on what is most profitable given market demand and they compete with each other for customers in free markets. In this way, successful companies and entrepreneurs can accumulate substantial wealth. But unsuccessful ones risk bankruptcy and closure.

Labor in a capitalist economy is provided by workers in exchange for wages or salaries. These workers, unlike the capitalists who control the means of production and reap the profits from their sales, only earn their wages. They do not own the tools or machinery they use in production, nor are they entitled to profits derived from selling the goods they produce. This structure effectively creates a societal divide between owners (capitalists) and workers (labor).

Market forces, particularly supply and demand , drive prices in a capitalist economy rather than government price controls or mandates. Business owners are incentivized to maximize efficiency and minimize costs to boost profits and increase their market share, which fosters intense competition. Importantly, this competition fuels innovation and technological progress. In search of profits and market share, companies develop and invent new processes or improve existing ones in order to undercut their competitors. This mechanism has led to significant technological advancements in many areas including healthcare, communications, transportation, and more.

However, these benefits of a market economy are not without certain drawbacks. Critics contend that unfettered capitalism can also concentrate wealth in the hands of a small number of large corporations and individuals. This could lead to monopolistic tendencies or oligopolies that undermine competition. Capitalism's focus on profits may also incentivize negative externalities such as environmental damage, worker exploitation, short-term thinking, and financial instability in the absence of thoughtful regulation.

There is active debate among economists and policymakers regarding these potential benefits and drawbacks of capitalist systems. Some argue that prudent regulation can temper capitalism's excesses while preserving economic freedom. Others advocate for a greater role of government planning or altered incentive structures under capitalism.

Under socialism, society as a whole owns and controls the major means of production. This often takes the form of the state (i.e., government) controlling industries on behalf of the people. Rather than markets, which distribute goods according to who can afford what, central planners decide what should be produced and in what quantities based on consumer needs and fair allocation. Prices are set to ensure affordable access for all citizens. As such, it is sometimes known as a command economy .

In theory, socialism aims to eliminate class divisions and create a more egalitarian society through shared ownership and democratic control of industry. Production is intended to directly satisfy human needs rather than maximize profits, where individuals receive access to basic necessities like healthcare, education, housing and employment that is either heavily subsidized or free of charge, funded by taxation.

Personal property and small business still exist under socialism, but larger corporations and important industries are placed under public and cooperative ownership. Income levels are generally more equitable due to policies focused on worker protections, economic inclusion, and social welfare programs.

Critics argue that socialist central planning is inefficient compared to free markets. Excessive regulation stifles innovation. Removing the profit motive reduces incentives for productivity and quality control. Dependence on the state could also erode individual liberties.

While some argue that removing the profit incentive under socialism stifles innovation, innovation can still occur in the absence of profits or competition. For example, publicly-funded research and development initiatives have achieved major innovations in areas like space exploration, medicine, and technology. Open source software has also innovated rapidly through non-profit collaboration.

Most modern economies are, in fact, mixed economies. This means they exist somewhere on a continuum between pure capitalism and pure socialism, with the majority of countries practicing a mixed system of capitalism wherein the government regulates and owns some businesses and industries.

In the purest form of a capitalistic system (sometimes referred to as laissez-faire capitalism), private individuals are unrestrained, and the economy operates without any government checks or controls. Private individuals and businesses may determine where to invest, what to manufacture and sell, and the prices of goods and services.

In a purely socialist system, all means of production are collective or state-owned. Proponents argue this eliminates class divisions and allows for equal distribution of resources and profits. However, critics contend it concentrates excessive power in the hands of the state and removes market incentives. In practice, very few socialist countries have ever fully abolished all private ownership, even if the state exerts major control over the economy.

Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems. In these economies, the government intervenes to prevent any individual or company from having a monopolistic stance and undue concentration of economic power. Resources in these systems may be owned by both the state and by individuals. The balance between public and private control is constantly debated, but mixed systems allow societies to harness benefits of both capitalist and socialist structures.

The debate between socialism and capitalism has long played out in America's economic policies and political discourse, as well as in Europe and elsewhere. Since its inception as a nation, capitalism has been deeply ingrained in the American social fabric, fostering a culture of entrepreneurship and a diverse marketplace of goods and services. The U.S. is often regarded as the epitome of a capitalist society with its strong emphasis on free markets, private property, and individual liberty. It has been, and still is, home to many of the world's largest and most influential corporations and has produced a significant number of successful entrepreneurs.

However, the prevalence of capitalism has not entirely extinguished socialist ideas from the American discourse. In the late 19 th and early 20 th centuries, socialist and communist ideas gained some prominence in America, leading to reforms like public education, antitrust regulations, the five-day work week, and child labor laws. In the wake of the Great Depression in the 1930s, President Franklin D. Roosevelt introduced the New Deal , a series of government programs and regulations aimed at providing relief, recovery, and reform. Many of these initiatives, such as Social Security and Medicare, have a socialistic nature as they involved government intervention to promote social welfare.

During the Cold War era, socialism as an economic system became entangled with the politics of Soviet communism in the American psyche. Capitalism was pitted against communism in an ideological battle of good vs. evil, leading to heightened resistance to socialist policies in the U.S. This binary framing left little space for nuance or balance, making socialism a dirty word in much of the mainstream discourse throughout the Cold War period. Any policy or program that smacked of collectivism, increased government involvement, centralized planning, or wealth redistribution was branded as a dangerous slippery slope towards Soviet-style communism and generated irrational fear and distrust of socialist ideas among the American public.

In recent years, the socialism versus capitalism debate has re-emerged in America. High-profile politicians like Bernie Sanders and Alexandria Ocasio-Cortez, have helped bring socialist ideas like universal healthcare , tuition-free college, and higher taxes on the wealthy back into the mainstream. While critics still equate socialism with excessive government control and a loss of individual liberties, defenders argue that socialist policies can coexist with capitalism and democracy in ways that promote the greater good. Public opinion has indeed become more favorable towards some government intervention in capitalism. For example, a Gallup poll in 2021 found around 40% of Americans believed some form of socialism would be good for the country – a level that has held steady since the 2010s. The rise of a more democratic socialism demonstrates many Americans wish to seek a middle ground between unchecked capitalism and government-dominated socialism.

It is wrong to imply that capitalism always inherently leads to inequality, while socialism leads to equality. In truth, there are variations of both systems, and outcomes depend greatly on implementation and broader political structures and social institutions.

While the U.S. has remained fundamentally capitalist, many programs incorporate socialist principles:

• Social Security - Provides retirement and disability benefits through a centralized, social insurance system funded by taxes.
• Medicare – Federal government-provided health insurance for the elderly.
• Medicaid – State government-provided health insurance for low-income residents
• Public Schools - Primary and secondary education funded by government at local, state, and federal levels.
• State Colleges and Universities – Higher education subsidized by state governments.
• U.S. Military - Collectively owned defense force funded through taxes.
• Law Enforcement, Fire Departments, & Garbage Collection - Local government services available to all residents.
• Public Libraries - Local libraries available to all residents, funded by taxes.
• Public Parks - Recreational parks built and maintained by local governments.
• Public Broadcasting - Radio and TV stations funded by the government and donations, such as PBS and NPR.
• Interstate Highway System - Federally funded network of highways available for public use.
• Progressive Taxation - Higher earners pay a larger share of their income in taxes to fund social services,
• Federal Deposit Insurance Corporation ( FDIC ) - Government insurance on bank deposits to protect savers.
• Public Housing - Subsidized rental housing for low-income families and individuals.
• Food Stamps/ SNAP - Federal food assistance vouchers for low-income households.
• Veterans Benefits & GI Bill - Variety of programs to support and compensate military veterans.

Very few societies adopt pure forms of either capitalism or socialism in practice. Most have mixed systems that combine elements of both philosophies . This demonstrates that capitalism and socialism exist more on a spectrum than as diametric opposites.

For instance, the U.S. is generally considered a very capitalist country. But the government does regulate certain industries like financial markets, healthcare, utilities, environmental standards, labor laws, and consumer protections. Moreover, the U.S. subsidizes industries such as agriculture, transportation, and energy, and implements public welfare programs like Social Security and Medicare—pointing to socialistic elements in the largely capitalist economy. Even in areas where private companies operate, such as postal services or waste management, the government often chooses who can run those operations and sets strict regulations and standards.

At the same time, countries like Sweden or France that are viewed as socialist democracies still allow substantial private ownership of businesses in most sectors. Their market economies coexist with expanded social welfare programs funded via taxation. Sweden, for example, has very generous universal social programs, but large and profitable companies like IKEA and H&M flourish with private ownership. And while France nationalized several industries after WWII, private enterprise drives most of its economy today.

Then there's China, a unique case that has evolved into a hybrid of capitalism and socialism. After its revolution in 1949, China was fundamentally a command economy, where the government controlled all the means of production and dictated economic output. However, from the late 1970s onward, under the leadership of Deng Xiaoping, China began to introduce market reforms. While it still identifies as a socialist country with "Chinese characteristics," it has embraced a mixed economy. In this model, large state-owned enterprises (SOEs) dominate strategic sectors such as energy, telecommunications, and defense, while private businesses and foreign investment have been allowed and even encouraged in other sectors. Today, China's economy is characterized by a mix of socialist planning, state ownership in the crucial sectors, and an open-market capitalism in its burgeoning private sector. This balance of public ownership and market competition has led to unprecedented economic growth and lifted hundreds of millions of people out of poverty

A " mixed economy " approach allows societies to incorporate the perceived benefits of both capitalism and socialism. Private ownership and free markets can incentivize innovation and production. But government intervention and redistribution of resources can potentially address areas where markets fail to serve social needs equitably. The balance between capitalist and socialist policies remains a continuous debate.

Given that most economies exist along a spectrum, there are different forms of capitalism and socialism with varying degrees of government intervention:

Varieties of Capitalism

• Laissez-faire - Strict free market model with no government involvement outside law enforcement and national defense.
• Welfare capitalism - Maintains free markets but government provides basic social services and protections.
• State capitalism - Government exerts strong direction of investment and some state ownership.
• Corporate capitalism - Economy dominated by large corporations and minimal competition.
• Crony capitalism - Wealthy elites exert political influence to manipulate policies and maintain power.
• Responsible capitalism - Private enterprise combined with ethics and social responsibility. Aims to balance profits with public welfare.

Varieties of Socialism

• Communism - Sometimes lumped in with socialism, communism is a classless society with communal ownership and no private property.
• Democratic socialism - Socialist principles achieved through democratic political processes. Many industries are nationalized or cooperatively run.
• Market socialism - Worker-owned cooperatives and publicly owned industry compete in market economies.
• Pragmatic socialism - Socially-owned sectors of the economy coexist with private enterprise and markets. Focused on achieving socialist goals gradually through reform. 

Examples of Socialist-Leaning Countries

• China : Remains officially communist but has implemented market reforms that allow substantial private business. The economy exhibits a mix of socialist planning and capitalist characteristics.
• Cuba : Agriculture, industry, and services are almost entirely state-run and planned. Private businesses are very limited.
• Vietnam : Similar to China, Vietnam maintains public ownership over major industries but has increasingly integrated market-based reforms.
• Venezuela : Oil production largely nationalized along with many other sectors. But sizable private businesses exist in consumer industries. Suffering severe economic crises.
• Bolivia - Socialist president elected in 2006 implemented sweeping nationalization policies.
• Sweden : While private companies dominate and Sweden ranks highly on business freedom, they have high taxes and an extensive welfare system.

Examples of Capitalist-Leaning Countries

• United States : Economy based on private ownership and free markets. But government regulates many industries and provides welfare programs.
• Japan : Private ownership dominates but the government plays a more active role in directing some investment and business activity compared to other capitalist countries.
• Singapore : Extremely business-friendly, free market economy. Consistently ranks among the most capitalist countries in measurements of economic freedom.
• Australia - Free market economy with some government intervention. Ranks high on economic freedom.
• Canada - Mostly free market economy with universal healthcare and other social programs.
• Ireland - Business-friendly economy with low corporate tax rates to attract foreign investment.
• Switzerland - Long tradition of capitalism, free trade, and minimal regulation. Powerful financial sector.

Key Thinkers: Capitalism

• Adam Smith : Developed modern free market economics. Wrote "The Wealth of Nations" advocating laissez-faire policies.
• John Stuart Mill : Influential classical liberal philosopher who supported free markets and individual liberty.
• Friedrich Hayek : Influential Austrian economist. Defended free markets and criticized socialist planning.
• Ludwig von Mises : Prominent leader of the Austrian school of economics. Advocated laissez-faire capitalism and criticized government intervention.
• Milton Friedman : Prominent advocate of free markets and limited government. Leader of the Chicago school of economics.
• Ayn Rand - Bestselling author and radical defender of capitalism and individualism. Major influence on American libertarianism. 

Key Thinkers: Socialism

• Karl Marx : Philosopher and economist. Wrote "The Communist Manifesto" and defined modern socialism and communism. He collaborated closely with Freidrich Engels.
• Vladimir Lenin : Leader of the Bolshevik Revolution and architect of the Soviet Union's socialist model.
• Leon Trotsky: Marxist revolutionary who promoted socialism worldwide, including permanent revolution.
• John Maynard Keynes : Founder of Keynesian economics. He advocated for government intervention and public spending to achieve full employment and avoid recession.
• Paul Sweezy : American Marxist economist. Sweezy helped popularize Marxian economics in the 20th century.
• Erik Olin Wright : Contemporary analytical Marxist sociologist known for his work on class structure and social stratification. Wright sought to pragmatically insert socialist elements into larger capitalist structures.

Socialism and communism both advocate collective ownership of production and economic equality. But communism takes this further and seeks to establish a classless, egalitarian society with common ownership of all property and wealth. Under communism, the state is expected to eventually wither away after economic equality is achieved.

No countries today have purely socialist economies currently. But some examples of nations that have extensive socialist policies include China and the Nordic countries like Sweden and Norway. Most countries have mixed economies that combine elements of both capitalism and socialism.

Proponents argue capitalism promotes economic growth, innovation and individual choice through free market incentives and competition. Capitalism also encourages entrepreneurship, risk-taking, and innovation. Consumers benefit from greater efficiency, lower prices and higher quality goods and services resulting from businesses pursuing profits.

Critics, however, contend that unfettered capitalism leads to inequality, concentration of wealth, and lack of economic mobility. This is because it prioritizes profit over social welfare, public goods, and environmental concerns. Some economists have identified capitalism as contributing to cyclical instability and the tendency towards large monopolies/oligopolies without regulation or oversight.

In theory, socialism offers several advantages including greater equality, fairness, and shared prosperity through collective ownership of the means of production. Programs that provide basic services like healthcare and education are available to all citizens, and both workers and consumers are protected through careful regulation and oversight.

Critics argue that removing market incentives reduces productivity and economic output over time. Central planning is thought to react slower to changing consumer needs and preferences. Moreover, the fear of excessive government power and corruption at the top could also lead to reduced individual liberties and authoritarian tendencies.

The Bottom Line

Capitalism and socialism represent two opposing schools of thought when it comes to how economic systems and societies should operate. In their purest forms, neither system has ever been fully implemented in practice. Most modern nations have complex mixed economies that incorporate elements of both private enterprise and government control. The balance between free markets and centralized planning remains an ongoing source of political debate and economic reform around the world.

International Monetary Fund. " What Is Capitalism? "

Internet Encyclopedia of Philosophy. " Socialism ."

Braudel, F. (1992). Civilization and capitalism, 15th-18th century, vol. II: The wheels of commerce (Vol. 2). Univ of California Press.

Fulcher, J. (2015). Capitalism: A very short introduction (Vol. 108). Oxford University Press, USA.

Adam Smith. " An Inquiry into the Nature and Causes of the Wealth of Nations , " Project Gutenberg.

Taylor, Charles. " What's Wrong With Capitalism? ,"  New Left Review ,  2 (March/April), 5-11.

Bestor, Arthur. " The Evolution of the Socialist Vocabulary ."  Journal of the History of Ideas , Vol. 9, No. 3, 259-302.

Karl Marx and Friedrich Engels. " The Communist Manifesto ."

Piketty, T. (2014). Capital in the twenty-first century . Harvard University Press.

Patton, J. W. (1993). Winiecki, Jan. The Distorted World of Soviet-Type Economies . Journal of Interdisciplinary Studies , 5 (1/2), 205-206.

Economics Help. " Mixed Economy ."

Johnston, Gordon. " Revisiting The Cultural Cold War ." Social History, Vol 35 No. 3, Pages 290-307.

The Economist. " Millennial Socialists Want To Shake up the Economy and Save the Climate ."

Gallup. " Socialism, Capitalism Ratings in U.S. Unchanged ."

Robins, Fred. " China: A New Kind of 'Mixed' Economy? ," Asian Business and Management , Vol. 9, Pages 23-46.

Paul Sweezy. " The Theory of Capitalist Development ," NYU Press, 1970.

Erik Olin Wright. " Envisioning Real Utopias ," Verso, 2010.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

• Liberty Fund
• Adam Smith Works
• Law & Liberty
• Browse by Author
• Browse by Topic
• Browse by Date
• Search EconLog
• Latest Episodes
• Browse by Guest
• Browse by Category
• Browse Extras
• Search EconTalk
• Latest Articles
• Liberty Classics
• Search Articles
• Books by Date
• Books by Author
• Search Books
• Browse by Title
• Biographies
• Search Encyclopedia
• #ECONLIBREADS
• College Topics
• High School Topics
• Subscribe to QuickPicks
• Search Guides
• Search Videos
• Library of Law & Liberty
• Home   /  

ECONLIB Guides

Capitalism and Socialism

Barry, Norman, “The Tradition of Spontaneous Order” ( Literature of Liberty, 1982)

Brief Review

Brennan, Jason.  Why Not Capitalism?

Even in an ideal world, private property and free markets would be the best way to promote mutual cooperation, social justice, harmony, and prosperity. Socialists seek to capture the moral high ground by showing that ideal socialism is morally superior to realistic capitalism. But, Brennan responds, ideal capitalism is superior to ideal socialism, and so capitalism beats socialism at every level.

Cohen, G.A.  Why Not Socialism?

Is socialism desirable, possible, or moral? Cohen makes his case in this slim volume.

See also Arnold Kling’s review of this title and James Otteson on The End of Socialism at EconTalk.

Friedman, Milton, Capitalism and Freedom .

How can we benefit from the promise of government while avoiding the threat it poses to individual freedom? In this classic book, Milton Friedman provides the definitive statement of an immensely influential economic philosophy—one in which competitive capitalism serves as both a device for achieving economic freedom and a necessary condition for political freedom.

Guyot, Yves,  The Tyranny of Socialism .

One of several books Guyot wrote attacking socialism in the late 19th and early 20th centuries. In this volume, in the tradition of Bastiat, he criticises what he calls “socialistic sophisms,” socialistic legislation, strikes, subsidies to business, and the connection between militarism, protectionism, and socialism.

Hayek, F. A., (ed.), Capitalism and the Historians

Mill, John Stuart, Chapters on Socialism in  Essays on Economics and Society, Part II, part of the Collected Works of John Stuart Mill .

Mises, Ludwig, Socialism .

Mises’ book is is the definitive refutation of nearly every type of socialism ever devised. Mises presents a wide-ranging analysis of society, comparing the results of socialist planning with those of free-market capitalism in all areas of life.

See also Steven Horwitz’s Liberty Classic and Rosolino Candela’s Liberty Classic on this title.

Mises, Ludwig von Mises,  The Anti-Capitalistic Mentality .

Mises plainly explains the causes of the irrational fear and hatred many intellectuals and others feel for capitalism. In five concise chapters, he traces the causation of the misunderstandings and resultant fears that cause resistance to economic development and social change.

Molinari, Gustave de, The Society of To-morrow

Sweeping look at a world evolving from a state of war and expropriation to one of peace and liberty. Molinari proposes and explores interesting implications of competitive economic theory, such as competitively supplied governments replacing historical nationalities

See also the Annotated Bibliography of Gustave de Molinari, by David Hart.

Rogge, Benjamin A., Can Capitalism Survive? 1979

Benjamin Rogge (1920-1980, Professor at Wabash College, Indiana) collected together his entertaining essays in a volume titled after one of his most famous essays, Can Capitalism Survive? He touches on dozens of topics useful in the classroom and exciting as provocative reading, from the economics of cities, to one of his favorites: how to finance education, to the ways in which capitalism and free trade are discussed by the press, politicians, and in the classroom.

See also Dwight Lee’s Liberty Classic on this title.

Seldon, Arthur,  The Virtues of Capitalism .

The Virtues of Capitalism,  lays the foundation of Seldon’s views and theories of capitalism and its alternatives.  The first part,  Corrigible Capitalism; Incorrigible Socialism,  was first published in 1980. It explains why, Seldon believes, “private enterprise is imperfect but redeemable,” but the “state economy promises the earth, and ends in coercion to conceal its incurable failure.” The second part,  Capitalism , is widely considered to be Seldon’s finest work. It covers a wide range of the classical liberal thought that inspired the movement toward free-market reforms in Great Britain and intellectually opposed the collectivist tide of socialism.

Shaw, George Bernard and Wilshire, Henry Gaylord,  Fabian Essays on Socialism .

This collection of essays by the so-called “Fabian Socialists” (who advocated socialism by means of gradual political and economic reform instead of by revolution as preferred by the Marxists) prompted a vigorous defense of laissez-faire economic policies by leading English classical liberals in the early 1890s.

Spencer, Herbert The Man Versus The State, with Six Essays on Government, Society, and Freedom. 1992; first published 1884.

Herbert Spencer’s collection of essays on sociology, political organization, representative government, and the role of government arrived at the cusp of classical liberal thought. Opposed to both imperialism and socialism (because each ultimately depended on servitude—slavery to an outside force as opposed to individual freedom), Spencer struggled to present his ideas to a world that, during his lifetime, continued inexorably down those very paths.

Six more of his essays on related topics, originally published between 1843 and 1891 in a variety of the many magazines to which Spencer contributed and sometimes served as editor, have been added in subsequent editions, and are available in this Econlib edition.

Schumpeter, Joseph, Capitalism, Socialism and Democracy .

Joseph A. Schumpeter introduced the world to the concept of “ creative destruction ,” which forever altered how global economics is approached and perceived.

Essay on Capitalism Vs Socialism

Students are often asked to write an essay on Capitalism Vs Socialism in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Capitalism Vs Socialism

What is capitalism.

Capitalism is like a big open market where anyone can set up a shop. People own their businesses and compete to sell things like toys, clothes, or phones. The goal is to make money, and customers choose what to buy. If you work hard and have good ideas, you can become very successful.

What is Socialism?

Socialism is more like a team sport. The government often owns the businesses, and everyone works together. Instead of competing, people share what they make. The idea is to make sure everyone has enough, like food and a place to live, even if they can’t afford it.

Main Differences

The big difference is freedom versus fairness. In capitalism, you have the freedom to start a business but might face tough competition. In socialism, things are more fair for everyone, but you might not get to run your own business. Each system has its own way of helping people and its own challenges.

250 Words Essay on Capitalism Vs Socialism

Capitalism is like a big market where everyone can set up their own shop. People who own these shops can decide what to sell and for how much. If you have a good idea and work hard, you can make a lot of money. But if your shop doesn’t do well, you might lose money. In capitalism, the idea is that if everyone tries to make the best shop, this will not only help them but also make the whole market better.

Socialism is more like a community garden. Instead of everyone having their own shop, people work together and share what they grow. If the garden does well, everyone gets an equal share of the fruits and vegetables. If the garden doesn’t do well, they all have less to eat. Socialism believes that sharing everything equally is fairer because some people might not have the same chances to start their own shop.

Differences in Ownership

In capitalism, people own their businesses and keep their profits. It’s like saying, “What’s mine is mine.” In socialism, the community or government often owns businesses, and profits are shared. It’s like saying, “What’s mine is ours.”

Competition vs. Cooperation

Capitalism thrives on competition, like a race where everyone tries to be the fastest. Socialism focuses on cooperation, where everyone works together like a team in a relay race, passing the baton to help the whole team win.

Capitalism and socialism are two different ways societies can organize their economies. Capitalism is about individual success and owning your business, while socialism is about working together and sharing equally. Each system has its own ideas about what is fair and how to help people live better lives.

500 Words Essay on Capitalism Vs Socialism

What are capitalism and socialism.

Capitalism and socialism are two different ways countries can organize their economies. In capitalism, people and companies own the businesses and property. They make things or provide services to earn money. The main goal is to make as much profit as possible. In socialism, the community or the government usually owns and controls the main businesses and property. The focus is on sharing everything more equally among people.

The Basics of Capitalism

In a capitalist system, if you start a lemonade stand, you own it. You decide what kind of lemonade to sell, how much to charge, and what to do with the money you make. If lots of people buy your lemonade, you can make a lot of money. But if no one likes your lemonade, you might not make any money at all. It’s all about competition – the better your lemonade, the more customers you’ll get.

The Basics of Socialism

In a socialist system, the lemonade stand might be owned by everyone in the neighborhood. You wouldn’t decide everything on your own. Instead, you’d work with others to make decisions about the lemonade. The money made from the stand would be shared with everyone in the neighborhood. If the lemonade stand does well, everyone benefits. If it doesn’t do well, no one loses too much.

Freedom vs. Equality

Capitalism is like a race where everyone starts at different places. Some people have a big head start because they have more money or better opportunities. This means not everyone has the same chance to succeed. But people have the freedom to try any business idea they have.

In socialism, it’s like everyone starts the race at the same place. The idea is to make sure everyone has the same chance to do well. But this can also mean that people have less freedom to start their own business or make a lot of money from their ideas.

Pros and Cons

Capitalism can lead to a lot of new inventions and businesses. This is because people want to make money, so they try to create things that others will want to buy. But, it can also mean that the rich get richer and the poor get poorer.

Socialism tries to make sure that everyone has enough to live on and that the gap between rich and poor isn’t too big. Yet, some say this can stop people from working hard because they might not get to keep all the money they earn.

Capitalism and socialism are like two different recipes for making a country’s economy work. Each has ingredients that some people like and others don’t. In capitalism, you have more freedom to make your own choices, but not everyone gets a fair chance. In socialism, things are more equal, but you might not be able to make all the choices you want. Countries often mix a bit of both to find a balance that works for them. It’s important to think about what we value more – the chance to make lots of money or making sure everyone has a fair share.

That’s it! I hope the essay helped you.

If you’re looking for more, here are essays on other interesting topics:

• Essay on Capitalism
• Essay on Cancer Prevention
• Essay on Cancer Awareness

Apart from these, you can look at all the essays by clicking here .

Happy studying!

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Differences Between Capitalism and Socialism Essay

Capitalism and socialism constitute opposing economic and political ideologies. The main proponents of modern capitalism and socialism are Adam Smith and Karl Marx respectively. Among the best models of free market economies include Hong Kong and Singapore. Some eastern European nations run variants of socialism (Hanson, 2003, p. 121).

Capitalism is an ideology of production in which factors of manufacturing belong to and are controlled by individuals with the object of profit making (Gale Group, 2010a). A capitalist economic system is characterized by wage labour, accumulation of capital and competitive markets.

Socialist economic systems are marked by state ownership and control of factors of production (Gale Group, 2010b). In such a system, the economy is managed through cooperative enterprises. The model is grounded on the tenet of production for consumption, where goods and services are made to meet people’s needs and economic demands (Hanson, 2003, p. 121).

There exist clearly cut differences between the capitalist and the socialist economic systems. The altercations in the capitalist-socialist discourse concern equality and function of government. Capitalists contend that individuals are more adept to efficiently using resources than the state (Gale Group, 2010a). On the contrary, socialists hold that the government has an obligation to correct the economic inequalities existing in the society (Gale Group, 2010b).

The philosophies and ideologies behind capitalism and socialism are divergent. Capitalism is founded on the philosophy of private ownership of capital with the motive of making profit. Capitalists have little concern for the workforce as emphasis is laid on the profit accruing from an investment. On the flip side, socialism is grounded on the principle of public ownership of the factors of production. Individuals in this system are compensated depending on their contribution in the production process.

Capitalism calls for the creation of a laissez-faire economic system (Gale Group, 2010a). The capitalists argue the government intervention in the production process leads to inefficiencies and hence the free market is the best placed economic model to achieve efficiency in resource allocation. Socialists believe in the ideology of collective benefit (Hanson, 2003, p. 121).

Economic planning and coordination are also at the centre of the capitalist-socialist discussion. In capitalist economies investment, manufacturing and distribution decisions are determined by the markets (Gale Group, 2010a). Markets in a capitalist economy may be free, regulated or mixed with some extent of government directed plans and planning by the private sector.

Socialist economies depend heavily on state planning to chart investment and manufacturing decisions. Centralized or decentralized planning may be exercised in a socialist economy. Though the competitive markets may also exist in socialist system, their function is to allocate the factors of production to different publicly owned enterprises (Lavigne, 1995, p. 52).

In capitalist economic models, the rate of employment is determined by the pressures of demand and supply in the labor markets. At times of economic boom the level of joblessness in market economies decline tremendously (Gale Group, 2010a). Nevertheless, during an economic recess the capitalist systems of production witness soaring levels of unemployment. In socialist economic systems, the state directs employment.

This implies that governments can lender full employment even when employees are not engaged in anything essential. Price determination is also a major aspect of departure between capitalism and socialism. In capitalist economic models price determination is within the ambit of market forces. Companies with monopoly power are able to take advantage of their position and levy higher prices. In economic systems modeled in the socialist ideologies the state sets and controls prices (Gale Group, 2010b).

Some advocates hold that capitalism is the bedrock of personal and political freedom (Gale Group, 2010a). It is argued that social interactions can only be best organized in a capitalist society because it provides space for free will and reason. Generally, socialists value justice more than profit (Gale Group, 2010b). Leading socialists blame the world economic crisis, poverty and environmental degradation on the profit seeking culture.

Reference List

Gale Group. (2010a). Capitalism: Opposing Viewpoints in Context . Web.

Gale Group. (2010b). Socialism: Opposing Viewpoints Online Collection . Web.

Hanson, P. (2003). The Rise and Fall of the Soviet Economy: An Economic History of the USSR. Harlow: Pearson Education.

Lavigne, M. (1995). The Economies of Transition: From Socialist Economy to Market Economy. London: Macmillan.

• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2024, February 22). Differences Between Capitalism and Socialism. https://ivypanda.com/essays/differences-between-capitalism-and-socialism/

"Differences Between Capitalism and Socialism." IvyPanda , 22 Feb. 2024, ivypanda.com/essays/differences-between-capitalism-and-socialism/.

IvyPanda . (2024) 'Differences Between Capitalism and Socialism'. 22 February.

IvyPanda . 2024. "Differences Between Capitalism and Socialism." February 22, 2024. https://ivypanda.com/essays/differences-between-capitalism-and-socialism/.

1. IvyPanda . "Differences Between Capitalism and Socialism." February 22, 2024. https://ivypanda.com/essays/differences-between-capitalism-and-socialism/.

Bibliography

IvyPanda . "Differences Between Capitalism and Socialism." February 22, 2024. https://ivypanda.com/essays/differences-between-capitalism-and-socialism/.

• 19th Century Social Theory: Socialists
• Research of Utopian Socialist Ideas
• Socialist vs. Capitalist Approach to Social Issues
• Running Economies: Capitalism and Socialism
• Political Ideologies: Capitalism vs. Socialism
• Socialism: Conservative Critique by Dagger, Santoni and Somerville
• Socialists of Revolutionary Times
• Similarities Between Capitalism and Socialism. Compare & Contrast
• Socialism as an Economic Model
• Corporate Social Responsibility: Socialist and Capitalist Perspective
• Relationship between Economic Growth and Nation's Health
• Can Capitalism Be Ethical?
• Capitalism and Its Role in Commodity Exchange and Value
• Kenya’s Economic Growth
• Gross Domestic Product

• Undergraduate
• High School
• Architecture
• American History
• Asian History
• Antique Literature
• American Literature
• Asian Literature
• Classic English Literature
• World Literature
• Creative Writing
• Linguistics
• Criminal Justice
• Legal Issues
• Anthropology
• Archaeology
• Political Science
• World Affairs
• African-American Studies
• East European Studies
• Latin-American Studies
• Native-American Studies
• West European Studies
• Family and Consumer Science
• Social Issues
• Women and Gender Studies
• Social Work
• Natural Sciences
• Pharmacology
• Earth science
• Agriculture
• Agricultural Studies
• Computer Science
• IT Management
• Mathematics
• Investments
• Engineering and Technology
• Engineering
• Aeronautics
• Medicine and Health
• Alternative Medicine
• Communications and Media
• Advertising
• Communication Strategies
• Public Relations
• Educational Theories
• Teacher's Career
• Chicago/Turabian
• Company Analysis
• Education Theories
• Shakespeare
• Canadian Studies
• Food Safety
• Relation of Global Warming and Extreme Weather Condition
• Movie Review
• Admission Essay
• Annotated Bibliography
• Application Essay
• Article Critique
• Article Review
• Article Writing
• Book Review
• Business Plan
• Business Proposal
• Capstone Project
• Cover Letter
• Creative Essay
• Dissertation
• Dissertation - Abstract
• Dissertation - Conclusion
• Dissertation - Discussion
• Dissertation - Hypothesis
• Dissertation - Introduction
• Dissertation - Literature
• Dissertation - Methodology
• Dissertation - Results
• GCSE Coursework
• Grant Proposal
• Marketing Plan
• Multiple Choice Quiz
• Personal Statement
• Power Point Presentation
• Power Point Presentation With Speaker Notes
• Questionnaire
• Reaction Paper
• Research Paper
• Research Proposal
• SWOT analysis
• Thesis Paper
• Online Quiz
• Literature Review
• Movie Analysis
• Statistics problem
• Math Problem
• All papers examples
• How It Works
• Money Back Policy
• Terms of Use
• Privacy Policy
• We Are Hiring

Capitalism vs Socialism, Essay Example

Pages: 1

Words: 316

Hire a Writer for Custom Essay

Use 10% Off Discount: "custom10" in 1 Click 👇

You are free to use it as an inspiration or a source for your own work.

Capitalism might be termed the theory and practice of private property. Its opposite, socialism , might be termed the theory and practice of public property. These are nutshell descriptions but the point is that they are two different systems with one thing in common.

Critics of capitalism say that it is heartless because it really only rewards the making of money — specifically capital , which is money available for investment in profitable enterprises. Those enterprises then generate more capital. It pays workers as little as it can and gives to owners and stockholders as much as it can. Karl Marx, the first modern critic of capitalism, readily admitted that capitalism could work wonders of production, but that it was fundamentally unsustainable because wage-earning workers would increasingly be unable to purchase the products that they helped make, and that runaway production would destroy earned capital.

Critics of socialism say that it really is just capitalist investment and labor in disguise. Instead of private individuals taking private risk for private and public gain, the state does so, but in so doing sees to its own political needs first, which are different from private needs. As a result, socialist economies are wasteful and inefficient: their primary goals are political, not economic. Earnings are diverted from increased productive investment to satisfy an insatiable demand from politicians who themselves take their cues from their constituents, ever eager for subsidies and welfare in the form of generous unemployment insurance, pensions, and workman’s compensation. Adam Smith, one of the first economists of the modern world, readily admitted that people left to themselves were basically selfish, but that such people, if left alone to pursue their own selfish ends, would benefit their nations as if guided by an “invisible hand . ”

Probably the most famous hybrids of capitalism and socialism were National Socialism as practiced by Adolf Hitler; and Fascism , as practiced by Benito Mussolini. Both ended in 1945.

Stuck with your Essay?

Get in touch with one of our experts for instant help!

The Break-Even Point, Assessment Example

The Process of Social Change, Essay Example

Time is precious

don’t waste it!

Plagiarism-free guarantee

Privacy guarantee

Secure checkout

Money back guarantee

Related Essay Samples & Examples

Voting as a civic responsibility, essay example.

Words: 287

Utilitarianism and Its Applications, Essay Example

Words: 356

The Age-Related Changes of the Older Person, Essay Example

Pages: 2

Words: 448

The Problems ESOL Teachers Face, Essay Example

Pages: 8

Words: 2293

Should English Be the Primary Language? Essay Example

Pages: 4

Words: 999

The Term “Social Construction of Reality”, Essay Example

Words: 371

An official website of the United States government

The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

The site is secure. The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

• Publications
• Account settings

Preview improvements coming to the PMC website in October 2024. Learn More or Try it out now .

• Advanced Search
• Journal List
• Springer Nature - PMC COVID-19 Collection

Does capitalism have a future? A review essay of Peter Boettke’s The Struggle for a Better World and Daniel Bromley’s Possessive Individualism: A Crisis of Capitalism

Ilia murtazashvili.

Graduate School of Public and International Affairs, University of Pittsburgh, Pittsburgh, PA 15260 USA

In this review essay, I compare and contrast Peter Boettke’s The Struggle for a Better World (Mercatus Center, 2021) and Daniel Bromley’s Possessive Individualism: A Crisis of Capitalism (Oxford University Press, 2019). Each of these books considers the future of capitalism. Boettke’s Struggle sees capitalism as the only morally and economically justifiable system but that continual effort is necessary to ensure the capitalist enterprise succeeds. Bromley’s Crisis sees capitalism as a spent force that no longer does what it was meant to do—namely, improve the economic well-being of households. There are surprisingly many points of agreement in these books, most notably a concern for the downtrodden in society and an appreciation for the legitimation crisis confronting capitalism. There are also important differences that will give anyone interested in the future of capitalism much to ponder. Boettke sees unconstrained government as the primary threat to legitimacy; Bromley identifies the possessive individualism that lies at the heart of our current capitalist system as the source of the crisis. Both books make a significant contribution to our understanding of the institutions governing capitalist economies and powerful arguments as we contemplate the future of capitalism.

Introduction

Does capitalism have a future? In this review essay, I compare and contrast two books that offer sweeping, insightful accounts of the past, present, and future of capitalism. Peter Boettke’s The Struggle for a Better World ( 2021 ) (hereafter Struggle ) is an eloquent defense of liberalism—a “doctrine of economic and political life grounded in the recognition that we are one another’s dignified equals, and that justice demands equal treatment of equals” (p. 7). Liberalism is about power for the people, not the privileged elites. Boettke’s collection of essays offers a superb defense of capitalism grounded in an appreciation for the way that spontaneous order makes the best use of the human imagination and a deep concern for the damage done when government becomes unshackled Leviathan.

Daniel Bromley’s Possessive Individualism: A Crisis of Capitalism ( 2019 ) (hereafter Crisis ) sees capitalism as a spent force because its concern with improving the well-being of households has been replaced by its singular focus on profiting by what Bromley calls “wrangler capitalists” – those capitalists who specialize in buying, selling, and reorganizing businesses (pp. 55–56). According to Bromley, the problem is possessive individualism: an overwhelming concern is to “stay focused on controlling costs,” much like what a comptroller does (p. 23). Economics used to be concerned with how households provide for themselves but has become preoccupied with the atomistic individual. Did, as Boettke suggests, and as Deirdre McCloskey and Art Carden ( 2020 ) have persuasively argued, liberalism make us better and richer humans? Not so, for Bromley. We have more stuff, but what about the quality of our working lives? For many workers, the current situation is nothing to gloat about.

Each author speaks from a position of credibility as a scholar and institution builder. Boettke has done as much as anyone to advance contemporary Austrian economics. Bromley is known for work in the tradition of the so-called old institutionalists, such as John Commons. There are important differences between the traditions. For one, Austrians and institutionalists differ in their beliefs about general economic truths: Austrians think there are such truths but question whether mathematical formalism is the way to find them, while institutionalists, especially the old institutionalists, find such truths chimeral (Boettke et al., 2003 ).

Despite differences in their perspectives, these books have much in common. The shared framework should not come as much of a surprise. Though institutionalism is sometimes contrasted with institutionalism in economics, Austrians, as Boettke ( 1989a ) explains, are and always have been institutionalist. Austrian institutionalists such as Hayek and Mises are completely in agreement with the old institutionalists (and the new version) that the structure and scope of economics ought to be concerned first and foremost with “the consequences of alternative institutional arrangements” (Boettke, 1989b , p. 78). Simply put, Austrian economics is institutional economics (Palagashvili et al., 2017 ).

Besides a shared concern with institutions, each of these books recognizes a legitimacy crisis. Boettke’s Struggle begins by noting that trust in public institutions of governance, private institutions of finance and commerce, and social institutions of community are confronting a severe stress test. For example, George Floyd’s murder cannot be tolerated in a liberal society. Rust Belt cities such as Detroit and Pittsburgh continue to grapple with economic malaise, despair, and addiction. True radical liberals, as Boettke explains, have inherited a problematic past and face a troubling present. There is no shortage of interesting work pointing out how we are so much better off now than in earlier centuries. But pointing out how economic freedom is associated with wealth does not really explain why there is so much anger, and the fact is that much of the world remains extremely poor. Boettke knows not all is well in society, though liberalism is not the problem.

Bromley’s Crisis is motivated in part by the recent electoral victory of populist leaders, including Donald Trump. Trump is a grifter, but this surprising victory was not a cause of the crisis. Trump, in Bromley’s words, is “merely a noxious messenger” (p. 232). Bromley contends that people are angry because managerial capitalism, with its emphasis on cutting costs, has failed them.

John Meadowcroft ( 2019 ) explains that James M. Buchanan was especially concerned with the status of the status quo. So too are Boettke and Bromley’s books. But their understandings of the causes differs. Boettke argues that public misconduct, not private misconduct, ruins nations. Unshackled Leviathan is the problem. For Bromley, the problem is capitalism.

My goal in this review essay is to consider where these books differ in their understanding of capitalism, their diagnosis of the problem giving rise to the legitimation crisis, and their suggestions about what ought to be done. It is not to choose one argument over another. Each of these books masterfully weaves together insights gained through the authors’ decades of careful inquiry on the nature of capitalism. Each shows a masterful understanding of institutions. I hope that anyone especially optimistic about capitalism will take Bromley’s critique seriously and that anyone especially optimistic about government’s ability to solve the problem will consider carefully Boettke’s impassioned arguments.

The rest of this essay is structured as follows. First, I suggest that an important difference is that Struggle focuses on capitalism as exchange of goods and services, while Crisis places much more emphasis on the transition from merchant capitalism to industrial, then financial, and then managerial capitalism. By the time we get to managerial capitalism, goods and services are still exchanged, but labor has far less bargaining power under the current system of capitalism than under previous ones. Next, I consider differences in how these books conceptualize the problem: Boettke’s issue is with government, while Bromley’s is with possessive individualism. Finally, I contrast the two authors’ advice about the future.

Capitalism or capitalisms?

Boettke’s Struggle places Adam Smith at the forefront. One might think this is an obvious starting point since we are concerned with economies. But anyone familiar with the typical PhD program’s course sequence in microeconomics will know that Smith is treated as a footnote in a course devoted mainly to proving one’s mathematical chops.

But ignoring Smith has significant costs, especially if we are concerned with vulnerable people. In Boettke’s hands, Smith becomes a figure much like Johnny Cash: someone profoundly concerned with the voiceless and the downtrodden. Liberalism, as Boettke explains, means extending a hand to strangers in order to lift the dispossessed and the desperate out of poverty. 1 Smith’s Wealth of Nations argued that individuals should be free from domination and that those who are more powerful should not determine the material conditions of those who have less power because no society can flourish if the greater part of its members are poor and miserable. This is the central theme in the liberal tradition. F.A. Hayek understood the liberal project as the abolition of privileges of the few that kept down the many. It is a point made explicitly in the 1956 edition of The Road to Serfdom “The essence of the liberal position is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others” ( 1956 [1994], p. xxxvi). In addition, in The Constitution of Liberty , Hayek states that the “true contrast to a reign of status is the reign of general and equal laws, of the rules which are the same for all, or, we might say, of the rule of leges in the original meaning of the Latin word for laws – leges that is, as opposed to the privi-leges ” (emphasis original, Hayek, 1960 , p. 154). Buchanan believed that the struggle for political liberalism is an effort to free individuals from the ruling elite. Boettke favorably references McCloskey’s Why Liberalism Works ( 2019 ) in noting that true liberalism means no racism, no imperialism, no unnecessary taxes, and no slaves at all. 2

Boettke’s essays ( Crisis is a collection of essays bookended by a wonderful introduction and conclusion) are exceptionally useful as a corrective to any argument that classical liberalism supports oppressive institutions such as slavery and segregation. Others have debunked such arguments (see, for example, Fleury and Marciano 2018 ). Struggle is not a direct response to those criticisms. Rather, it shows that Smith was an ardent defender of consent as a general organizing principle and an enemy of privilege as a means of organizing economic activities.

But could Smith have foreseen the evolution of capitalism? And should we place blame on government when capitalism and democracy seem so intrinsically bound up that it seems impossible to even separate them? 3 Bromley’s Crisis recognizes that the capitalism that Smith understood so well has changed a great deal since his time. And we know that the core of Bromley’s book is to analyze the transition from merchant capitalism to industrial capitalism to financial capitalism and, finally, to the managerial capitalism of today. These gradual shifts are characterized by “the primacy of a central personified medium—the entrepreneur of merchant capitalism, the engineer of industrial capitalism, the banker of financial capitalism, and the wrangler of today’s managerial capitalism” (emphasis original, p. 55). 4

Bromley’s description of capitalism is significant and useful, especially when we consider that Smith introduced new ideas about how we think about capital and capitalism. 5 Before Smith wrote about it, capital was a sum of money that was to be invested or had been invested. But then it became the things themselves – the goods traded. Conceptualizing of capital as physical things and capitalism as exchange was a historical sleight of hand, one with important consequences: it makes us lose track of the changes in capitalism since we become concerned with physical things rather than legal relationships and the rules governing capitalism.

Smith’s novel approach to capital and capitalism meant that the conversation about capitalism was often less institutionally rich than it could have been. This does not mean Smith had no role for institutions. Gary Anderson and Robert Tollison ( 1982 ) showed that Smith was critical of the English East Indian Company. Smith believed the problem was government failure rather than a market failure. And Nathan Rosenberg recognized Smith’s preoccupation with establishing the conditions under which market mechanisms operate most effectively and that tree operation of “certain impulses, motivations, and behavior patterns were calculated to thwart, rather than to reinforce, the beneficent operation of market forces” ( 1960 , p. 569). Institutions, including government ones, are necessary because cooperation is not inevitable. Rather, Smith’s institutionalism, like Boettke’s, focuses on the political side of the institutions governing capitalism as the problem. 6 Thus, when Smith speaks of capitalism requiring an appropriate constitutional framework, it is mostly about ensuring that the government limits its activities – a view quite similar to Boettke’s Struggle . Bromley, in contrast, is much more interested in the evolutionary stages of capitalism, and the consequences of these shifts.

What changes ought we to be concerned with? The rigid hierarchies of precapitalist relations came under pressure as labor’s bargaining power improved as a result of plague and warfare in the fourteenth century. By the end of the fourteenth century, most agricultural laborers had become quasi-independent agricultural entrepreneurs who were no longer willing to underwrite wars. Copyhold emerged as an institution – and with it, rental contracts to use land replaced in-kind payment for privileges to use land. Now lords held the king’s land and independent families held the lord’s land. Copyhold put us on the road to fee simple, the most complete property right. 7 This institutional development enabled the rise of merchant capitalism and the entrepreneur, but much would be lost as capitalism evolved. Workers lost control of their means of production (labor) with the rise of industrial capitalism and the factory system and the accompanying separation between owners of capital—commercial land, sophisticated machines, large factories—and owners of labor power. Labor then became a commodity to be bought and sold just like any other factor of production. McCloskey’s Bourgeois Dignity ( 2010 ) concerns how we talk about entrepreneurs. Bromley’s concern is with the rise of a body of compliant laborers whose lives are very different from those of entrepreneurs.

The factory system was not the only development. Financial capitalism—which came because industry at a massive scale required financing on a grand scale—introduced rapid movement of liquidity around the world. But that was not the end. In managerial capitalism, “the wrangler rules. The entrepreneur of merchant capitalism surrendered his autonomy to the engineer of industrial capitalism. The engineer was soon pushed aside by the money managers and bankers of financial capitalism. Now, it seems reasonable to suggest that the financial wizards are answerable to the wrangler. Someone very meticulous is now minding the store” (Bromley, p. 82).

Bromley then shifts to an argument that scholars interested in collective action will appreciate. He describes firms as hedgehogs and households as foxes. Hedgehogs know one thing and foxes know many. Households, under managerial capitalism, have to know many things, and some even have to hold several jobs. The firm, however, is an artificial construct with a singular goal: to lower costs. It is for this reason that the hedgehogs dominate the foxes; the foxes have no chance. Walmart and Amazon are too big to resist. The foxes face a much larger collective action problem, one that is exacerbated by the massive scale of capitalism.

Boettke’s essays do not focus as much as Crisis on the historical evolution of capitalism; rather, they focus on the importance of freedom of choice. Struggle defends significant figures such as Ludwig von Mises, Hayek, and Milton Friedman. Bromley counters the arguments of the great defenders of capitalism. Freedom of choice—not being forced to work a specific job—is a narrow conception of freedom. Freedom to choose means little if the choice set, which is shaped by institutions, is not of our choosing. Bromley puts it this way: living is good (we have more stuff to consume), but what about work life? Capitalism is thriving in some parts of urban areas, but anger with the current situation is especially pronounced in rural areas in the United States, Britain, and Western Europe. And outside of those countries, many countries have experienced little improvement in material conditions in the past several centuries. Some workers may enjoy the life of the fox, moving from job to job in the gig economy, but for many, there is despair: “The unavoidable consequence of possessive individualism is that capitalism no longer comprises a source of hope. It has evolved into a system—an ‘ism’—without a compelling moral basis for its continuation” (Bromley, p. 123).

These books thus differ in what they mean by capitalism: trade in goods and services (in Struggle ) or trade in labor (in Crisis ). However, each aspect of capitalism is significant, and so they are in a sense complementary contributions. Trade in goods and services has its benefits, though the increase in goods and services available to us comes with greater vulnerability for households excepting their greater consumption choices. Together, the books offer profound insight into the productive power of capital and its costs.

Another reason to praise Boettke’s and Bromley’s books is that they move beyond Thomas Piketty’s ( 2014 ) concern with the empirical relationship between inequality and capitalism in at least three ways. First, they remind us that any attempt to relate capitalism to inequality leaves out important changes in the nature of capitalism over the past several hundred years. This is significant because unless we understand which capitalism we are talking about, we may misdiagnose the problem. Second, Boettke and Bromley each recognize that anger and illegitimacy are based not on inequality but on vulnerability. They disagree about their source of the problems: for Boettke, vulnerability is a result of government or regulation; for Bromley, capitalism – specifically, what he calls wrangler capitalism (and before it, industrial capitalism – is the reason households struggle to find meaningful employment). Third, it is abundantly clear that the wealth tax suggested by Piketty and increasingly supported by politicians is a magic bullet. Rather, our focus, if we agree with Boettke, is that we ought to be concerned with political institutions (why should we expect that the revenues will be spent addressing the real problems?). And if we agree with Bromley, we ought to direct our concern to economic institutions, not simply fiscal policies (why should we expect a wealth tax will solve the problem of vulnerability, if managerial capitalism remains unimpeded?).

One term that does not come up much in either book is neoliberalism, and for good reason: the term is often used as a pejorative to criticize a certain group of economists. 8 Critics of “neoliberalism” would do well to consider carefully specifying what kind of capitalism they are talking about and whether they have accurately diagnosed the problem they see, and whether it works. 9 Bromley’s work suggests their concern is not so much with the recommendations of scholars such as Friedman as with the specific institutional features of capitalism as we currently experience it, while Boettke suggests that the problems they see may be government failures rather than problems with supposedly laissez-faire economic policies.

Is unshackled Leviathan or capitalism the problem?

Each offers a diagnosis of the problem. In Struggle , the diagnosis is public predation. In Crisis , it is possessive individualism and the collective action problem confronting workers in their dealings with firms.

In chapter 2 of Struggle , “Economics and Public Administration,” Boettke contends that an institutional framework is necessary to realize gains from exchange because of the paradox of government: addressing private predation opens the possibility of public predation. The fundamental cause of development—as viewed by scholars from Mises to McCloskey—is ideas about what to produce and how to produce it, as well as idea about what kinds of rules make savings and capital accumulation safe. That is, idea about how to govern ourselves.

Chapter 5 of Struggle (aptly titled “Is State Intervention in the Economy Inevitable?”) argues that government intervention in the economy is not inevitable but probable without restraints on government, given that the demand for state intervention is constant. Chapter 6 is a clearly written essay that eloquently argues that government overspends because it has too much power. Nor is the problem with the people. One of the things that comes out in this book is Boettke’s deep appreciation for the role of institutions as an explanation of our current situation. As Boettke explains, “Blaming public unions for asking for improved benefits from their members or blaming elected officials for responding to those demands in order to win votes is like criticizing a wasp for stinging you when you step on its nest. The problem isn’t the people; it is the institutional regime that produces the pattern of behavior” (Boettke, p. 126). Like Bromley, Boettke is concerned above all with institutions and their consequences.

Boettke, as we know from his Public Administration in the Classical Liberal Tradition (Aligica et al.,  2019 ), written with Paul Dragos Aligica and Vlad Tarko, is deeply appreciative of Vincent and Elinor Ostroms’ vision of public administration. The essays of Struggle show the evolution of many of the ideas in the earlier book. In the emergent view of public administration, the idea of a unitary state populated by omniscient and benevolent expert bureaucrats is rejected in favor of a view of government populated by ordinary individuals who have limited knowledge and respond to incentives. This is the Ostromian vision. The implication is clear: we ought to adjust our expectations of what to expect from bureaucrats. Public entrepreneurs are the ones with the vision required to make changes, though making changes requires that these entrepreneurs and those who they interact with have some autonomy. The problem is not government. Our central problem is that government has gotten out of hand and that we have collectively moved away from the Ostromian vision of self-governance as the unifying theme of public administration.

Most of the examples in Boettke’s book are examples of unshackled Leviathan doing bad things. This is most obvious in his reflections on the evils of what Geoffrey Hodgson ( 2019 ) calls “big” socialism: central planning. But so too are there many significant examples of government predation, including in policing—arguably one of the most significant examples of the predatory state in society. 10

Turning to Crisis , we direct our gaze to the problems arising from capitalism. Central to Bromley’s diagnosis of the problem is the parable of the fox and the hedgehog. As noted above, managerial capitalists are the hedgehogs; households and workers are the foxes. The foxes of the world have to deal with increasing atomization: “In a fully atomized world, the flowering of meritocratic processes then tends to threaten political coherence and a shared sense of purpose within a community. Meritocracies reward merit, but they also begin to generate institutional arrangements—public policies—that tend to reinforce such self-interested inclinations” (Bromley, p. 16).

Bromley points to economics as the dubious enabler of the hedgehogs. Economics shifted its concern from organization to the atomized individual. It was originally concerned with how individuals and societies organize to provide for themselves. The two key organizations are the household (which is natural) and the firm (which is artificial). But then formalism took hold, and the maximizing individual became sovereign. Possessive individualism is the view that individual rationality and the sanctity of the consumer are the most significant building blocks of the economy. This view overlooks that there had to be organizations in order for there to be something to trade. As far as I can tell, Bromley and Boettke are fully in agreement on the problems that arise from the Max U or “man as machine” approach in much of economics. 11

Crisis offers up possessive individualism as the cause of the current dissatisfaction with capitalism. Bromley engages a topic of concern to many in the Austrian tradition: do markets make us more virtuous than we would otherwise be? 12 Bromley summarizes the case that markets make us moral as follows. Market economies come to be composed of individuals who are socialized to master the virtuous character traits of market societies. These acquired traits are inevitable consequences of the need to orient one’s actions toward mutually advantageous social interactions, which are the reason why societies adopted markets in the first place.

Bromley’s response to the markets-as-moral-spaces argument is that its proponents are concerned only with buyers and sellers seeking to exchange commodities or services in a normal market. However, the desire to engage in market transactions is not itself a virtue, as many exchanges are repugnant and many choices are not good even for the individuals doing the choosing. Most significantly, most of these market transactions reapportion wealth rather than create new wealth.

Any focus on buying and selling is thus incomplete. Labor has been commodified, and many workers cling to the belief that they need choice. But workers now have fewer choices and much less bargaining power. The hedgehog dominates under managerial capitalism, and many foxes do not even know it, and when they do, they cannot really do much about it. This is not a problem that arises from government. Rather, it is a problem of capitalism; more fundamentally, the problem is that the ideology of possessive individualism has been wielded to justify the institutions that give rise to the anger that has contributed to deplorable phenomena such as Trumpism.

These books are also an invitation to additional empirical research. Bromley offers sweeping critiques of managerial capitalism, with a masterful institutional analysis of our current situation. But many of the contentions are empirical ones. Does the market erode social capital? Mark Pennington and John Meadowcroft ( 2008 ) find that spontaneous order produces bridging and bonding social capital. Art Carden recently notes that Walmart is not as bad as it seems, contrary to corporate dystopia narratives in the tradition of John Kenneth Galbraith’s New Industrial State ( 1967 ). While Walmart is one of the largest firms in the world by profits, its profits are only about one-tenth of one percent of US GDP (Carden, 2021 ). Carden’s empirical studies provide further evidence that Walmart is actually good – there is less hunger (Courtemanche & Carden, 2011 ), more art and leisure (Carden & Courtemanche, 2009 ), and no decline in social capital, such as club membership, in communities with a Walmart (Carden et al., 2009 ). One might see this as empirical evidence in support of Boettke, though for reasons noted, Bromley is certainly on to something, as the anger with the current work situation is still palpable, despite low prices.

It is straightforward to see how Bromley and Boettke differ. It is certainly true, as Boettke claims, that goods being reshuffled and reallocated in response to changes in prices can be a good thing—even a great thing, as we know from Amazon Prime getting many of us through the COVID-19 pandemic or from how the supply lines for toilet paper and paper towels came through despite the hoarding behavior of some customers. But what if we replace goods and services in the above account with workers reshuffled and reallocated in response to changes in prices? After all, the definitive change in capitalism as we moved from merchant capitalism to industrial capitalism is that the worker became a fictitious commodity. Foxes are not simply buying goods and services; they are goods and services. The point here is not to choose a side, but to note that the Industrial Revolution ensured that the question of what is being purchased would become not only about the stuff we want, but about labor.

Another difference worth noting is about embracing people with open arms. Libertarians will love Boettke’s characterization of welcoming strangers with an open hand. 13 Bromley’s perspective is a bit more nuanced. The reason why people want to come to countries such as the United States is not that they do not have market freedom. Many African countries have an abundance of market freedom, but that is not enough to provide political order. Nor is it clear that the open hand comes without costs. George Borjas ( 2016 ) has made this point in reflecting on immigration. Nor is xenophobia or racism the obvious reason why people support Trump, as some workers have rational reasons to worry about their situation with inflows of people (Murtazashvili et al., 2021 ). But this should be clear enough from any economics lesson on immigration, since the argument is about net benefits from immigration, not that every single person is better off with new entrants into the labor force. And we cannot necessarily rely on government to address the challenge that comes with new migrants to a region, as those who are left out do not always feel they have much voice in politics. Possessive individualism is part of the reason people want to leave one place; and in their destination, its pernicious effects on politics mean that those people may be subject to the same forces of insecurity and instability brought on by wrangler capitalists. Bromley’s point is that today’s immigrants might be the disaffected Rust Belt workers of tomorrow, and we ought to spend more time thinking about why the disaffected Rust Belt workers might be concerned about immigration beyond merely asserting that they are economically irrational or xenophobic racists.

What is to be done?

Struggle leaves no uncertainty about what is not to be done: “There is no justice to be achieved from socialism, only equality in misery and despair as daily life devolves into one of economic deprivation and political terror” (Boettke, p. 7). The case is made more fully in Boettke’s collection of essays titled Calculation and Coordination ( 2001 ). Socialism ought to be eliminated from the menu of potentially desirable organizational forms of economic, political, and social life. Chapter 13 (“Rebuilding the Liberal Project”) is more constructive in suggesting that the liberal project cannot be saved by repackaging a fixed doctrine of eternal truths. True liberalism faces a threat from conservative movements on the right and socialism on the left. In the US and the UK, the populist threat comes from both the Left and Right. Liberalism above all is about toleration. The answer to populism is toleration. Cosmopolitanism is the answer to populism. Boettke’s argument is a case for freedom to choose. 14 One of the reasons openness is justified is, per Julian Simon ( 1981 ), that the ultimate resource is human imagination.

Boettke’s concluding chapter provides one of the most eloquent defenses of the liberal society as an open society. Libertarian champions of economic freedom would do well to consider Boettke’s nuanced perspective on the current situation. At best, we have pockets of liberal commerce that raise living standards tremendously. At worst, we have power and privilege. There is a growing concern about global inequality. In the end, the struggle of ideas is about correcting two misconceptions: (1) the rich get rich at the expense of the poor, and (2) the poor do not get rich faster than the rich get richer. Critics point to neoliberalism as the problem. Boettke explains why we ought not to do that.

For Bromley, inequality is the intended result of possessive individualism, which compels individuals to pursue a livelihood strategy, including the types of jobs we choose and what we collectively expect of our workers, based on the celebration of rights and the illusory idea of being free to choose. Despite many individuals believing that individualism is the only and right way to organize society, they seem not to realize that they are at the mercy of capitalist firms equally committed to possessive individualism, and that when push comes to shove, the capitalists mostly win. Consumers, as Bromley notes, are often all too eager to denounce China for predatory trade policies while filling up their minivans with abundant clothing, toys, and plastic products from China. Lower prices are a good thing. But Bromley argues that that is not a good reason, but rather an excuse. The more honest reason why consumers continue the endless quest for bargains is the “enduring culturally prized urge toward persistent low-cost acquisitiveness” (p. 237).

Bromley is not engaging in Marxist false consciousness theorizing. Rather, it is an empirical statement that many of the policies individuals support contribute to the vulnerability of workers and that the fact that they have more choice does not eliminate the more general precarity of their work situation. Low-cost acquisitiveness has costs.

One might of course respond that individualism is not necessarily bad, especially when we think of individualism as inquisitiveness and hard work. Certainly the empirical literature finds that individualism is associated with greater wealth (see, for example, Williamson and Mathers 2011 ). Bromley’s criticism is different. Freedom has come to mean aggressively pursuing self-interest and desiring to make sure others do not have what we enjoy. Possessive individualism is not the social capital that Boettke and colleagues have so clearly shown to be significant in responding to crises (Boettke et al., 2007 ). Overcoming possessive individualism – crass individualism – requires us to recognize that we can reconstitute a market economy in the interest of greater equality and other-regarding behavior. The capitalist firm must be transformed into a public trust. However, this will not be sufficient. Improved livelihoods will also require that the possessive individual be reimagined.

Bromley notes that the word “community” is now used to separate us into silos, a practice facilitated by identity politics. Rather than separating ourselves, it is crucial to recognize that personhood requires a community that acknowledges one’s personhood. It requires engagement. But managerial capitalism denies the relevance of community. Mindless and numb workers are the new automatons. Ultimately we need exchange on equal terms since under managerial capitalism the fox always loses.

These books also discuss the future of economics as a science. One of Boettke’s contributions is demonstrating the ongoing significance of the classical liberal tradition. Economics has lost its way in its search for clever research designs and its focus on mathematics. Paradoxically, that makes it challenging for us to understand how people behave since the assumption of maximization eliminates volition (as well as makes challenge consideration of time, uncertainty, and ignorance).

Bromley is perhaps more critical of economics, especially the kind that sees efficiency as a guide to policy. To quote Bromley: “Efficiency is not and cannot possibly be a design criterion. The only approach to meaningful institutional change is to: (1) focus on careful diagnosis of problematic settings and circumstances; (2) entertain new ideas that seem most promising in solving a particular problem; (3) embrace the most reasonable of those possibilities; and (4) then undertake ex post monitoring and assessment as the new policies are allowed to run their course” (p. 123). Anyone who agrees with Peter Leeson’s ( 2020 ) and Yoram Barzel’s ( 2002 ) eloquent defense of the idea that maximization is a critical concept to economists ought to consider Bromley’s explanation why utility maximization cannot provide a guide for human action and why efficiency can never explain why we choose a specific policy. Rather, we need to appreciate that the process of institutional change is one of realizing our collective and shared futures through a process of reasoning about what works, what does not work, and how things can be better. 15

Is capitalism a liberal emancipatory project worth saving? Or is it a spent force? Boettke does a masterful job clarifying what capitalism does well, explaining the problems arising from centralized-government intervention in the economy, and reminding us of the evils of socialism. But all is not well in the kingdom. Work life is not great, and while nobody doubts that the Bourgeois Deal contributed to riches, it only made some rich. And anger in places such as the rural United States is not simply a consequence of unrestrained government. Capitalism is to blame, according to Bromley, but it is not Adam Smith’s capitalism. Managerial capitalism puts workers in a bind, and collective action does not favor the fox.

Despite these differences, there are similarities between Boettke’s Austrian institutionalism and Bromley’s old institutionalism. Each author sees institutions as the central concern for economics. Boettke is also a self-professed disciple of mainline economics, which includes public choice (clearly concerned with rules) and the Ostroms’ polycentric view (also concerned with rules). Still, one discerns a richness in Bromley’s analysis of institutions that one does not see as often in much of the mainline tradition, except perhaps for McCloskey’s work and, arguably, Boettke’s work on socialism. The greatest strength of Boettke’s essays may be in the institutional criticism of socialism, and Bromley’s most significant contribution is to discern the institutional problem with managerial capitalism. 16 In my view, these are complementary insights that counsel humility when assessing capitalism and socialism.

The institutional approach of these books has profound policy significance. Much of the current conversation in the post-COVID economy is about infrastructure—some version of a new Marshall Plan, but for the rich countries. This simplistic application of Keynesian reasoning, as these books make so clear, is insufficient because it does not appreciate that the problem is institutional. Boettke and Bromley differ in their diagnosis of the problem; they agree that institutions are the key, and neither proposes a magic bullet. They understand that the process of institutional change is a struggle. Boettke and Bromley also appreciate the significance of ideas in the process of institutional change. Ideas give rise to beliefs, and changes in beliefs ultimately lead to changes in institutions. Their appreciation for ideas, along with history, is too often pushed aside in economics these days.

There is an important difference when it comes to spontaneous order. Boettke, like the great Austrians before him, appreciates spontaneous order. Hayek famously divided orders into planned and spontaneous orders. Hayek of course followed Menger’s distinction between organic and pragmatic orders. Austrian economists tend to see spontaneous orders as the more interesting aspect of social science, while old and new institutionalists tend to see directed orders as more significant, in part because such orders vary so much. Hayek also thought spontaneous order was the most interesting aspect of social science. Bromley shows why there is much we do not understand about the planned orders that are so important to capitalist economies and that there is nothing simple about understanding why and how planner orders work. But Boettke does not succumb to the view that only spontaneous order is interesting or try to define everything as a spontaneous order. Unlike many of the earlier Austrians, who were content to praise the virtues of the market, Boettke has a deep appreciation for Vincent Ostrom’s insights into public administration and therefore appreciates the problem of explaining the success of directed orders. Thus, each book can be thought of as a major contribution to institutionalism, however we define it.

Anyone interested in the future of capitalism will be better off after reading these books. The books could be read as a defense of markets and criticism of government by an Austrian–public choice economist versus an impassioned criticism of capitalism by a disciple of the progressive John Commons. But that would be a mistake. Each book illustrates a deep commitment to institutional analysis and offers a wealth of knowledge about how to compare institutions. They both put institutional analysis at the forefront of economics, where it should be. There is no Max U in either of these impressive books. The perspectives are very much complementary. The battle for the future of capitalism is indeed a battle of ideas, and the ideas in these books give us much to reflect on.

Acknowledgments

I had the idea to write this essay after a book talk by Dan Bromley at the Center for Governance and Markets at the University of Pittsburgh in March 2021. Mark Pennington served as a discussant for the seminar, and his willingness to engage Dan’s book constructively was a breath of fresh air. Mark’s constructive dialogue reminded me how much can be gained by carefully considering work with which we disagree. Since I had been reading Pete Boettke’s book at the time, it seemed natural to continue that conversation by comparing and contrasting these books. I thank Rosolino Candela for encouraging me to write this piece and for offering extensive and thoughtful suggestions on the essay. Thanks to Nick Cowen, Rabih Helou, and Jen Murtazashvili reding and commenting on the essay and Art Carden for sharing some of his recent work on Walmart that fit nicely with the themes of this essay. Most importantly, thanks to Dan and Pete for their mentorship over the years and for inspiring so many of us.

1 See also William Easterly’s ( 2020 ) brilliant essay on Adam Smith’s anticolonialism.

2 Boettke might also have added W.H. Hutt to the list of liberals against racism, as Hutt’s impassioned critique of apartheid was based on an appreciation for consumer sovereignty (Magness et al., forthcoming ).

3 Randall Holcombe’s ( 2018 ) concept of political capitalism also gets at Bromley’s concern about the close relationship between economic and political elites in capitalist democracies.

4 One could, as Aligica and Tarko ( 2015 ) suggest, simply do away with the notion of capitalism and recognize that we are dealing with capitalisms: crony capitalism, state capitalism, and so on. Bromley’s classification of capitalisms is a useful complement to the ones familiar to those in the public choice literature.

5 Two excellent books on the meaning of capitalism and the significance of legal rules are Geoffrey Hodgson’s Conceptualizing Capitalism (2015) and Katharina Pistor’s The Code of Capital ( 2019 ).

6 If there’s a limitation with Smith’s view, it may be that he did not anticipate how well self-governance works when people have these conflicts of interests. Peter Leeson’s Anarchy Unbound ( 2014 ) shows just how well it works, and why.

7 Though much attention is paid to fee simple, the most significant conclusion of the property rights approach regardless of school of thought—Austrian, public choice, or Ostromian—is that the most appropriate property regime is one that evolves in response to local conditions (Harris et al., 2020 ).

8 Nick Cowen’s ( 2021 ) perspective offers a compelling and productive framework that eschews the desire to see neoliberalism as a bogeyman standing in for policies one wishes to criticize.

9 For an excellent discussion of the history of the term neoliberalism, see Leeson and Harris ( Forthcoming ). They also explain why there is no good reason to see Hayek as a neoliberal who only argued for market fundamentalism. Some of Hayek’s writing were very much opposed to state efforts to implement markets, as Hayek of course understood the knowledge problem of doing so.

10 Brandon Davis ( 2021 ) explicitly places the American carceral state in the framework of the predatory state.

11 Indeed, Boettke et al. ( 2003 ) contend that only the Austrians and old institutionalists truly put people at the forefront of analysis.

12 Anyone looking for a response to Bromley’s criticism would do well to consider Ginny Choi and Virgil Storr’s Do Markets Corrupt Our Morals ? ( 2019 ).

13 Ben Powell and Alex Nowrasteh ( 2020 ) make an important case that the benefits of immigration exceed its costs.

14 Ilya Somin’s ( 2020 ) discussion of foot voting fits nicely with the defense of freedom to choose: through foot voting, people can choose better institutions, including political ones, and contribute to greater political freedom. Foot voting is just limited to voting, but where one lives, among other things.

15 Bromley’s Sufficient Reason ( 2006 ) more fully develops this argument about beliefs and the process of institutional change.

16 It would probably make the most sense to accept Smith as the first institutionalist, given his concern with the constitutional rules necessary for a well-functioning market, as Geoffrey Brennan and Buchanan ( 1985 ) argued.

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

• Aligica PD, Tarko V. Capitalist alternatives: Models, taxonomies, scenarios. Routledge; 2015. [ Google Scholar ]
• Aligica PD, Boettke PJ, Tarko V. Public Governance and the classical-liberal perspective: Political economy foundations. Oxford University Press; 2019. [ Google Scholar ]
• Anderson GM, Tollison RD. Adam Smith’s analysis of joint-stock companies. Journal of Political Economy. 1982; 90 (6):1237–1256. doi: 10.1086/261119. [ CrossRef ] [ Google Scholar ]
• Barzel Y. A theory of the state: Economic rights, legal rights, and the scope of the state. Cambridge University Press; 2002. [ Google Scholar ]
• Boettke PJ. Evolution and economics: Austrians as institutionalists. Research in the History of Economic Thought and Methodology. 1989; 6 :73–89. [ Google Scholar ]
• Boettke PJ. Austrian institutionalism: A reply. Research in the History of Economic Thought and Methodology. 1989; 6 :181–202. [ Google Scholar ]
• Boettke PJ. Calculation and coordination: Essays on socialism and transitional political economy. Routledge; 2001. [ Google Scholar ]
• Boettke, P. J. (2021). The struggle for a better world . Mercatus Center.
• Boettke PJ, Coyne CJ, Leeson PT. Man as machine: The plight of 20th century economics. Annals of the Society for the History of Economic Thought. 2003; 43 (1):1–10. [ Google Scholar ]
• Boettke PJ, Chamlee-Wright E, Gordon P, Ikeda S, Leeson PT, Sobel R. The political, economic, and social aspects of Katrina. Southern Economic Journal. 2007; 74 (2):363–376. doi: 10.1002/j.2325-8012.2007.tb00843.x. [ CrossRef ] [ Google Scholar ]
• Borjas GJ. We wanted workers: Unraveling the immigration narrative. WW Norton & Company; 2016. [ Google Scholar ]
• Brennan G, Buchanan JM. The reason of rules: Constitutional political economy. Cambridge University Press; 1985. [ Google Scholar ]
• Bromley DW. Sufficient reason: Volitional pragmatism and the meaning of economic institutions. Princeton University Press; 2006. [ Google Scholar ]
• Bromley DW. Possessive individualism: A crisis of capitalism. Oxford University Press; 2019. [ Google Scholar ]
• Carden, A. (2021). July 2, 1962: The Day Retail Changed Forever. American Institute for Economic Research , July 2. https://www.aier.org/article/july-2-1962-the-day-retail-changed-forever/ .
• Carden A, Courtemanche C. Wal-Mart, leisure, and culture. Contemporary Economic Policy. 2009; 27 (4):450–461. doi: 10.1111/j.1465-7287.2009.00167.x. [ CrossRef ] [ Google Scholar ]
• Carden A, Courtemanche C, Meiners J. Does Wal-Mart reduce social capital? Public Choice. 2009; 138 (1–2):109–136. doi: 10.1007/s11127-008-9342-6. [ CrossRef ] [ Google Scholar ]
• Courtemanche C, Carden A. Supersizing supercenters? The impact of Walmart supercenters on body mass index and obesity. Journal of Urban Economics. 2011; 69 (2):165–181. doi: 10.1016/j.jue.2010.09.005. [ CrossRef ] [ Google Scholar ]
• Cowen N. Neoliberal social justice: Rawls unveiled. Edward Elgar; 2021. [ Google Scholar ]
• Davis BR. Predation in state and nation. Race and Justice. 2021; 11 (2):205–225. doi: 10.1177/2153368718785229. [ CrossRef ] [ Google Scholar ]
• Easterly, W. (2020). Progress by consent: Adam Smith as development economist. The Review of Austrian Economics .
• Fleury J-B, Marciano A. The sound of silence: A review essay of Nancy MacLean’s democracy in chains: The deep history of the radical right’s stealth plan for America. Journal of Economic Literature. 2018; 56 (4):1492–1537. doi: 10.1257/jel.20181502. [ CrossRef ] [ Google Scholar ]
• Galbraith JK. The new industrial state. Hamish Hamilton; 1967. [ Google Scholar ]
• Harris C, Cai M, Murtazashvili I, Murtazashvili JB. The origins and consequences of property rights: Austrian, public choice, and institutional economics perspectives. Cambridge University Press; 2020. [ Google Scholar ]
• Hayek, F. A. (1956 [1994]). The road to serfdom: Fiftieth (anniversary edition). The University of Chicago Press.
• Hayek FA. The constitution of liberty. University of Chicago Press; 1960. [ Google Scholar ]
• Hodgson GM. Is socialism feasible?: Towards an alternative future. Edward Elgar Publishing; 2019. [ Google Scholar ]
• Holcombe RG. Political capitalism: How political influence is made and maintained. Cambridge University Press; 2018. [ Google Scholar ]
• Leeson PT. Anarchy unbound: Why self-governance works better than you think. Cambridge University Press; 2014. [ Google Scholar ]
• Leeson PT. Logic is a harsh mistress: Welfare economics for economists. Journal of Institutional Economics. 2020; 16 (2):145–150. doi: 10.1017/S1744137419000109. [ CrossRef ] [ Google Scholar ]
• Leeson, P. T., & Harris, C. (Forthcoming). Hayek, neoliberalism, and the Washington consensus. In Candela, R.A. (Ed.), A companion to F.A. Hayek . Universidad Francisco Marroquín.
• Magness, P. W., Carden, A., & Murtazashvili, I. (Forthcoming). “The danger of deplorable reactions:” W.H. Hutt on liberalism, populism, and the constitutional political economy of racism. The Independent Review: A Journal of Political Economy.
• McCloskey DN. Why liberalism works: How true liberal values produce a freer, more equal, prosperous world for all. Yale University Press; 2019. [ Google Scholar ]
• McCloskey DN. Bourgeois dignity: Why economics can’t explain the modern world. University of Chicago Press; 2010. [ Google Scholar ]
• McCloskey DN, Carden A. Leave me alone and I’ll make you rich: How the bourgeois deal enriched the world. University of Chicago Press; 2020. [ Google Scholar ]
• Meadowcroft J. Why are there no Austrian social democrats? Advances in Austrian Economics. 2019; 24 :89–100. doi: 10.1108/S1529-213420190000024009. [ CrossRef ] [ Google Scholar ]
• Meadowcroft J, Pennington M. Bonding and bridging: Social capital and the communitarian critique of liberal markets. The Review of Austrian Economics. 2008; 21 (2–3):119–133. doi: 10.1007/s11138-007-0032-2. [ CrossRef ] [ Google Scholar ]
• Murtazashvili JB, Murtazashvili I, Mylovanov T. American institutional exceptionalism and the Trump presidency. The Independent Review: A Journal of Political Economy. 2021; 26 (1):97–114. [ Google Scholar ]
• Nowrasteh A, Powell B. Wretched refuse? The political economy of immigration and institutions. Cambridge University Press; 2020. [ Google Scholar ]
• Palagashvili L, Piano E, Skarbek D. The decline and rise of institutions: A modern survey of the Austrian contribution to the economic analysis of institutions. Cambridge University Press; 2017. [ Google Scholar ]
• Piketty T. Capital in the twenty-first century. Harvard University Press; 2014. [ Google Scholar ]
• Pistor K. The code of capital: How the law creates wealth and inequality. Princeton University Press; 2019. [ Google Scholar ]
• Rosenberg N. Some institutional aspects of the wealth of nations . Journal of Political Economy. 1960; 68 (6):557–570. doi: 10.1086/258392. [ CrossRef ] [ Google Scholar ]
• Simon JL. The ultimate resource. Princeton University Press; 1981. [ Google Scholar ]
• Somin I. Free to move: Foot voting, migration, and political freedom. Oxford University Press; 2020. [ Google Scholar ]
• Storr VH, Choi G. Do markets corrupt our morals? Palgrave Macmillan; 2019. [ Google Scholar ]
• Williamson CR, Mathers RL. Economic freedom, culture, and growth. Public Choice. 2011; 148 (3–4):313–335. doi: 10.1007/s11127-010-9656-z. [ CrossRef ] [ Google Scholar ]

• Facebook Icon
• Twitter Icon

Ayn Rand Had a Fragile Ego, Incoherent Ideas, and Bad Taste

• Back Issues

New issue out now. Subscribe to our print edition today.

Ayn Rand believed that the path to social harmony ran through the inferior masses’ acceptance of brutal rule by their natural superiors. Her perspective was wrong, and its implications were just as grim and nasty as her atrocious personality.

Ayn Rand in New York City, 1957. (New York Times Co. / Getty Images)

Those of us familiar with Ayn Rand’s ardent pro-capitalism and renowned meanspiritedness may be disinclined to immerse ourselves in her writing. Nonetheless, we can’t deny her significance. Rand’s work and personality have come to define the politics and economics, and even more so the mood, of the world we live in today.

The thought of losing precious hours in the nightmarescape of Rand’s literary oeuvre is unappealing, but understanding her worldview and legacy is imperative. Fortunately, Lisa Duggan has written a smart, engaging, and mercifully short book, Mean Girl: Ayn Rand and the Culture of Greed , distilling all we need to know about Ayn Rand.

Duggan spoke to Daniel Denvir, host of the Jacobin Radio podcast the Dig. The following is an edited transcript of their conversation . Duggan is a historian, journalist, and activist who teaches at New York University. She’s the author of several other books, including Twilight of Equality?: Neoliberalism, Cultural Politics, and the Attack on Democracy and Sex Wars: Sexual Dissent and Political Cultur e.

You write that what ties all of Ayn Rand together, and what ties Rand to the core of today’s political economy, is a mood. This goes some way to explaining why Rand’s ideas are so popular, because it’s not really about her ideas. You write, “The unifying threads are meanness and greed, and the spirit of the whole hodgepodge is Ayn Rand.” What is the affective register Rand is writing in?

I’ll start by saying that in my field, American Studies, when people write about empire and colonialism, they include discussions about desire, fantasy, libido, as well as race, gender, sexuality, and intimacy. So if you read about empire or colonialism, you’ll find that it’s not just treated as a rational system based solely on institutions. It’s also about fantasy and desire. However, most people who write about neoliberalism are social scientists who overlook fantasy, desire, and libido. But it seems to me that neoliberalism is actually full of these elements. That’s one of the ways people are recruited to support brutal neoliberal policies — through their feelings and fantasies.

Most people start out reading Ayn Rand’s two most famous novels, Atlas Shrugged and The Fountainhead, in high school. The novels are a kind of conversion machine. Many people who go on to a wide range of right-wing and pro-capitalist politics start out by being fans of Ayn Rand, and then they encounter Milton Friedman or the International Monetary Fund or the Cato Institute or the Koch brothers. But they’re set up through Ayn Rand’s fantasies of heroic, sexy, entrepreneurial supremacy. She’s a gateway drug. Her work is filled with a sense of aspiration to superiority, a sense of “me against the world” that appeals to adolescents a lot. So it’s a big machine for converting adolescents to a set of feelings and fantasies that then fold into conservative, right-wing, and pro-capitalist politics.

Ayn Rand was originally from Russia, and her primary formation was rooted in her opposition to the Bolsheviks. After becoming an expat and coming to the United States, her core belief was against solidarity. She used the term “collectivism,” but what she truly opposed was unity among less successful and dependent individuals. Ayn Rand believed that when inferior people come together, they negatively impact the world.

This outlook led to feelings of contempt, derision, and a sense of superiority, which shaped her early years. These sentiments carried on throughout the entire twentieth century, leading her to oppose the New Deal due to its perceived compassion issue. She also became anti-communist. Her opposition was not just practical, but strongly felt. Because solidarity is not just an alliance, it’s a feeling. It’s a way of connecting with others and their struggles. It’s not merely a shared set of interests; it’s also an emotional experience. For example, when you witness a teachers’ strike and you are moved to tears, the emotion you feel in that moment is solidarity. This is the feeling she opposed.

What makes Ayn Rand an icon of neoliberalism, even though she herself was not a neoliberal?

Her formation is too early for her to be a neoliberal, but she becomes an icon of neoliberalism. As it was formed in Western welfare states, the affect of neoliberalism was a kind of rejection of the New Deal — and not just the policies of the New Deal, but the affective underpinnings of the New Deal. Sympathy with others, solidarity with the poor and with working people across color lines.

She produced an affective of rejection of the New Deal that came to sit at the heart of neoliberalism. We don’t care about children in cages. We don’t care about losers and moochers. We don’t care about the feeling center at the heart of the policies . She is one of the primary suppliers of that, such that she becomes a reference point across the conservative political spectrum. All different kinds of conservatives and right-wingers reference her as an influence, even when they haven’t actually read her.

You take Lauren Berlant’s concept of “cruel optimism,” which refers to the feelings necessary to keep hustling against the odds, and you flip it on its head to illuminate Rand’s register of “optimistic cruelty.” Explain these two concepts and their relation to each other in American life today.

Lauren Berlant’s book Cruel Optimism explores the challenging reality of staying motivated and striving for a better life despite facing numerous losses and hardships resulting from the erosion of the social safety net, the disappearance of decent jobs, and other consequences of neoliberal policies. People endure these difficulties by holding onto some version of the good life, even when they can see it slipping away.

They continue to pursue higher education or job opportunities, even when prospects are bleak. They take on precarious jobs, believing that eventually they will achieve security and improvement. Berlant skillfully examines the emotional traces that sustain individuals in the face of overwhelming odds and evidence to the contrary. To Berlant, cruel optimism is the belief of a better future despite the absence of actual flourishing. She views this optimism as cruel to those who embrace it. This is a consequence of policy.

Berlant is discussing the 99 percent, addressing ordinary people and how they persevere. I wanted to delve into how people begin to identify with the 1 percent, even if they do not belong to that category. I wanted to explore how these identifications form, causing individuals’ aspirations to align, for example, with Donald Trump, even when their own lives do not. Therefore I introduced the term “optimistic cruelty,” and specifically applied it to Ayn Rand’s ideas. These ideas fuel the rise of capitalism in the United States. These forms of cruelty, hierarchies, and brutalities are believed to ultimately lead to the best life for everyone.

Optimistic cruelty is the idea that entrepreneurs will make jobs; and even though people won’t make very much money, they don’t really deserve and can’t really appreciate more than that; and that we’ll get the best world possible if we have brutal, raw, competitive, unregulated capitalism. The premise of Atlas Shrugged is that when the New Deal erodes that kind of raw capitalism, the world disintegrates and collapses, and the entrepreneurs have to escape to their little utopian — or what we would see as dystopian — “Gulch” in order to escape the world that’s collapsing in the face of the erosion of capitalism.

So that’s optimistic cruelty. I would use the term “optimistic cruelty” to talk about the twentieth-century layering in of Ayn Rand’s feelings as they applied to the rise and triumph of a certain kind of capitalism. But at this point I’m not sure I would call it optimistic anymore. It’s a much grimmer and darker vision that advocates of Ayn Rand have today, whether they’re in the Trump administration or in Silicon Valley. They are no longer investing in a vision of ultimate good and triumph, but rather openly taking everything while it burns to the ground.

You write that Rand’s work “creates a moral economy of inequality to infuse her softly pornographic romance fiction with the political eros that would captivate a mass readership.” You also write, “ The Fountainhead offered simultaneously eroticized and moralized character studies embedded in a heroic romance plot for the purpose of generating desire for capitalism.” And, you write, “Ayn Rand made acquisitive capitalists sexy. She launched thousands of teenage libidos into the world of reactionary politics on a wave of quivering excitement.”

How does Rand’s work use the erotic structure of her characters’ interpersonal relationships as a vehicle for the eroticization of capitalism?

That’s really key to the influence she has, because the erotic force of her novels works as the conversion machine. She began as a child in St Petersburg, reading imperial children’s fiction. She identified with, say, British captains in India, who demonstrated their superiority over the Hindu masses, among other things. She had a kind of erotic thrill about these characters as a child, and she wrote about them in her journals and so forth. These were very Aryan characters who were physically “perfect,” who were dominant over the lower orders, who were contemptuous — and to her, that was sexiness. Her fantasy was of their superiority.

So when she wrote her masculine characters, she eroticized these qualities. She does not invent these ideas; rather, she taps into deep threads of civilizational discourse. So people read and they recognize the way that a kind of civilizational domination has been eroticized as part of the project of empire. She incorporates this discourse into her stories, creating romance plots with characters who embody this eroticized civilizational discourse. There’s always a little soft BDSM going on.

The female characters are also eroticized in a parallel way. She’s kind of an Ann Coulter feminist. She believes in gender equality as long as there’s a strong gender binary, where women are glamorous and men are manly. And women can be equal to men in all aspects — in Atlas Shrugged , the female hero runs a railroad — except sex, where the women are all femme power bottoms. Their power in the world is derived from their glamorous and sexy femininity, which is tied to their whiteness, slenderness, their Aryan blonde looks. The only area where they prove their femininity is through submission to a male hero.

Teenagers read this work and they often find points of sexiness where they identify aspirationally with the heroic characters. Like, “I will be the exceptional creative figure who breaks out from the mediocre, and there’s a set of identifications that attach, and that will make me sexy.” You can see that in the way that, say, Silicon Valley tech moguls who maybe were nerds in high school invent themselves into Ayn Rand heroes. Donald Trump thinks he’s an Ayn Rand hero. He imagines himself to be Howard Roark. In fact, he’s an Ayn Rand villain. He’s a crony capitalist. He doesn’t have the type of body that Ayn Rand would have found powerful and sexy, and she would’ve made hideous fun of him. But he eroticizes his own being in the world as an Ayn Rand hero.

Given that Rand believed herself to be the smartest person who ever lived, why was it so difficult for her to portray a female hero who ultimately dominates men?

Because that would have contradicted her fundamental commitment to a binary gender structure. In her work and novels, femininity itself is defined by submission, though she tries to somewhat mitigate this by suggesting that submission only exists in the bedroom and not in other areas of life.

In her personal life, things were different. She essentially cast her husband based on her own Aryan hero ideal: tall, handsome, blonde, and slender. But he was a wallflower. Well, he was a florist. He loved peacocks. He dressed beautifully. He was very passive. He did everything she told him to. He sat around and looked glamorous. He was basically almost her butler. And then he died of alcoholism. But she always introduced him as her hero — This is my masculine Ayn Rand hero. He looked like one, but he had none of the other characteristics that she ascribed.

Her life and work are full of incredible contradictions. So here she is, the ultimate rationalist who had a complete mental breakdown when she found out her boyfriend was cheating on her. She’s the ultimate individualist who is the head of a cult where everyone has to follow and believe everything that she says. So her life and even her work itself is just rife with contradiction.

Also, she was a Benzedrine addict.

Yes. That’s how she wrote Atlas Shrugged . It took her thirteen years. She did it mostly on Benzedrine. And after she went off Benzedrine when she finished Atlas Shrugged , she fell into a major, major depression that she pretty much never really recovered from.

Was she a prisoner of her own cruel optimism?

I really resist diagnosing her because when we diagnose someone, we sometimes remove them from the cultural context and say, “This person is an exceptional person because they have a diagnosis,” and so they’re not representative of their culture. She is so deeply embedded in our cultural context and drawing so deeply from the discourses and narratives that are at the core of the culture that we live in that I don’t want to single her out by diagnosing her.

But when we start talking about her as an individual, it’s a little hard to completely evade the fact that she had the characteristics of a malignant narcissist. She undermined herself with narcissistic rage every time things did not go exactly as she wanted them to go. And people didn’t respond exactly as she wanted them to respond. So she melted down.

That also sounds familiar.

Yeah. It is very Trumpian.

Her vision for herself began in this optimistic arc where she thought she was a genius, and she believed she’d go to Hollywood and she’d really make it there. But in fact, she didn’t understand Hollywood or how Hollywood worked. So she got driven out of Hollywood. She went to Washington. She tried to be part of the anti-communist program there in the McCarthy era. She so misunderstood the message that they didn’t even invite her back for a second day of testimony before the House Un-American Activities Committee. She went to New York, and she was rude and demanding and alienated everyone. And by the end of her life, she was depressed and alone. She died of lung cancer. She had been a smoker all her life who always denied that smoking had any connection with lung cancer. And she asserted that unto her death of lung cancer, pretty much alone.

She started out optimistic about the future of herself and of capitalism. By the time she died, which was in 1982 — so right at the beginning of the real state project of neoliberalism — she was grim and depressed and no longer optimistic about anything. She was in constant rage at the time of her death. And you can see a parallel between her personal arc and the twentieth-to-twenty-first-century arc of neoliberalism as well.

Rand’s first English language novel, which was never completed, depicted a hero based on a Los Angeles multiple murderer named William Hickman, who, among other things, kidnapped, murdered, and dismembered a twelve-year-old girl in the most horrifically gruesome way imaginable. Rand was impressed by Hickman’s demeanor.

She had a crush on him.

Hickman summed up his own personality in his defense as “I am like the state. What is good for me is right.”

He said that at his trial. Yes.

Gore Vidal wrote in 1961, “Ayn Rand’s ‘philosophy’ is nearly perfect in its immorality, which makes the size of her audience all the more ominous and symptomatic as we enter a curious new phase in our society. Moral values are in flux. The muddy depths are being stirred by new monsters and witches from the deep. Trolls walk the American night. Caesars are stirring in the Forum. There are storm warnings ahead.”

That’s prescient, isn’t it?

Was Rand distinctive among right-wing ideologues in her explicit anti-morality? Or, as you suggested, was she just prescient?

Well, she did something that was not unusual, but she did it to extremes. With regards to religious morality, she argued that altruism and compassion were immoral because they encouraged the weak and incompetent to have more power and resources, and then they would mess it up for all of us. She believed that being selfish and greedy was moral, like the slogan “Greed is good” from the film Wall Street . While she was not the only one saying this, she was part of a more extreme group of right-wingers during the early twentieth century. They were sidelined until neoliberalism gained popularity, which further elevated her influence.

Another thing she did is she reversed the terms of conventional religious morality and appropriated and reworked some of the assumptions, logics, concepts, and slogans of the Left — like the producers producing all value. The first title of Atlas Shrugged was actually The Strike, because it was a capital strike.

This is a good moment to pause and explain her philosophy of Objectivism, or at least attempt to. She succinctly explained it as follows: 1) metaphysics: objective reality, 2) epistemology: reason, 3) ethics: self-interest, 4) politics: capitalism. What does that mean? And what is she drawing on? Because there is no evidence that she read deeply or widely.

Oh, she had a superficial approach to reading. She joined a reading group organized by Isabelle Paterson, another right-wing writer and journalist, and through that she read some secondary right-wing literature, but she never really delved deep into most of these texts. She didn’t have a clear understanding of capitalism, despite being portrayed as its most important advocate. It’s worth noting that when she was in Hollywood, her main criticism of Cecil B. DeMille was that he prioritized pursuing box office success, which is quite remarkable considering what capitalism actually involves.

The Fountainhead revolves around an architect who stays true to his own vision while facing obstacles from other mediocre architects, pandering newspapers, collectivist bureaucrats, and profit-driven businessmen. The protagonist is portrayed as the hero in this story. This is how she saw herself in Hollywood — the creative intellectual hindered by studio executives and directors and the business of Hollywood, the box office chasing, which prevented her from being the star writer she was supposed to be.

That’s another example of her misunderstanding. Capitalism is a collectivist and corporate enterprise. It’s a class project. She really didn’t understand that. She failed to grasp that capitalism is inherently a collaborative effort between the state and capitalists, which is a defining characteristic of its history. Instead she perpetuated the fantasy that capitalism is driven by brilliant and superior individuals who are not hindered by mediocre people. Her understanding of capitalism was flawed, and she never self-critiqued or acknowledged that her perspective was incorrect. She simply believed that everyone else was practicing capitalism incorrectly.

This relates to the core conflict that you have identified in Rand’s work — the tension between her portrayal of victorious conquerors and her portrayal of great individuals who are marginalized and denied their rightful place as rulers. How does this arrogant valorization of the ruling class function alongside this deep sense of resentment, this grievance over naturally great people wrongly being denied their place as rulers?

You know, what is particularly interesting about her and what makes her, in my opinion, the breakout icon that she became, is that she doesn’t just stop at promoting the complacent view of the superiority of European civilization, white supremacy, and capitalism. While she does do that, her personal experiences as a Jewish person in Russia and as a woman meant that she herself faced exclusion and was unable to achieve many of the things she believed she deserved. She was bitterly angry about her own situation, despite having antisemitic views herself and holding a view that femininity ultimately required submission. People patronized and dismissed her due to her Jewish heritage, Russian immigrant background, and gender. She resented not being accepted into the privileged, complacent elite of capitalists and intellectuals she aspired to be a part of.

So her fiction and her thinking are a combination of advocating the deep hierarchies of Western civilization and expressing her anger about feeling like an outsider. Her plots and characters are influenced by these experiences, providing points of identification for those who also feel marginalized. It is worth noting that she has a significant following beyond just the right-wing. She has a large queer fan base, including those who write fan fiction. An article in a recent issue of Gay & Lesbian Review explored the homoerotic themes in The Fountainhead — without delving into the broader context of the book, which is quite common.

Her representation of marriage in her works emphasizes it as something that holds individuals back, despite her own marriage, which was for citizenship purposes, not producing any children. She portrays the limitations imposed by family, state, and church, and the desire to break free from them. Many teenagers identify with this notion, feeling that the family, church, and state inhibit their true selves, and her work is about how a creative individual can rebel against these constraints. As a result, she has garnered a sizable following, even among progressives who may overlook the broader context of her book.

For example, a well-respected Belgian social democratic gay playwright named Ivo van Hove recently staged a production of The Fountainhead at the Brooklyn Academy of Music. It was very well-reviewed. It was full of the cultural elite of Manhattan. And it was uncritical. It was very well done, you know, a faithful dramatization of The Fountainhead . He was interviewed about it, and he said someone gave him a copy of The Fountainhead , and he loved it. He loved it so much that he knew he had to stage it. And it was because of this struggle of the creative individual.

To create what you envision against all the interference of people who want to take you down — he resonated with that. The fact that everybody’s sitting there in this theater and on the stage, I mean, what happens in the end is Howard Roark blows up a public housing project because it isn’t built according to his specifications, and everyone is supposed to cheer.

And these are progressives! These are New York anti-Trump liberals, and the author of this document is a European social democrat. They are ignoring the context. I actually went around and talked to people outside the production. I went multiple times, and what I observed is that they simply overlook the context because it is so deeply familiar to them. It is culturally ingrained. They don’t even recognize the brutality, cruelty, inequality, and racism that are present in the story. Instead, they focus on the romantic plot and individual creative achievements, and they’re not even registering the larger context.

So I think that is, in a sense, the problem of liberalism. Even when it’s advocated by people who are not elite, there’s a dropping away of the political-economic context to focus on one particular kind of struggle without considering the broader context. Ayn Rand facilitates these identifications from outsiders because she was, in a sense, an outsider herself. Her anger about this is not explicitly addressed in her work, but it finds its way into her plots and characters, making it easier for outsiders to resonate with her ideas without fully recognizing the brutality of the larger context. One of the reasons I wrote this book was to make it impossible, or less possible, for anyone to ignore the broader context behind the popularity of her fiction.

This contradiction between the celebration of elitism and outsider grievance reminds me of Trump. The idea that leaders are natural winners, but also that the best people are winners who have been wronged by losers denying their natural right to lead and win.

That’s what it is at its expressive heart. However, there is also room for centrist Democrats who feel excluded because of their gender or sexual orientation. They find a way into that universe and end up accepting the capitalist discourse as the context within which they’re seeking their place. So even outside of the Trumpian version, it is available.

Given the shortcomings of mid-twentieth-century capitalism, which fell short of the capitalism she believed in, did Ayn Rand in some ways anticipate capitalism’s ability to absorb and redeploy the aesthetic critique of the gray, managerial, bureaucratic capitalism of that era?

You know, she was such a black-and-white thinker that she could only understand capitalism as being corrupted by those corporations. So she saw capitalism as failing and being corrupted by its managerialism, its collaborations with the state, but in order to see capitalism as corrupted, she also had to have a fantasy version of the history of capitalism. Because, of course, capitalism has never been independent of the state. The creation of the very context of markets and the set of relations that allow capitalism to function has always been embedded in the state.

The idea that there’s a laissez-faire version of capitalism without the state is complete malarkey. And most of the actual neoliberals knew that. They had a rhetoric of laissez-faire, but themselves, they knew what they needed to do was restructure markets and states, not eliminate them, even though their public rhetoric was “be free of the state.”

Ayn Rand, on the other hand, was just like “be free of the state.” She had no capacity or knowledge to really understand how markets and economies and states actually operated. She couldn’t do the technocratic work of libertarianism, let alone neoliberalism. And by the way she hated libertarians. She called them right-wing hippies.

The foundational role of the state is absent in Rand’s work, and productive labor as value-producing is nowhere to be seen. Meanwhile, reproductive labor is also nowhere to be seen. In Anthem, a female character becomes pregnant. But in her later work, there are no pregnancies, no children — just what you call “intensely eroticized romantic triangles.”

In The Fountainhead , maternity is demonized with this character who is disparaged whose weakness is conveyed by the fact that he loves his mother, which is supposed to be prima facie obvious. Other women are portrayed very negatively too, as nagging parasites or starving primitives, and incompetent. And then, in Atlas Shrugged , when the capitalists go on strike, they retreat to a place called the Gulch, which is, you write, “free of detectable labor exploitation and nearly free of any trace of reproductive labor or family life.”

How does Rand render labor’s creation of value invisible in this microcosmic utopia? And what is the connection between her invisibilization of productive labor and her invisibilization of reproductive labor?

She glorifies the entrepreneur and the capitalist, viewing the idea and its creation as belonging solely to the entrepreneur. As a result, she sees the productive laborers, who construct the buildings and implement the plans devised by the brilliant architect, as no different than oxen. They’re people who perform the labor in a relatively mechanical way that has been set out by the brilliant individual, the superior entrepreneur. So labor is invisibilized as productive and creative. It’s just kind of brute and uncreative, no brain involved.

In her novel We the Living , which is her only novel set in Russia, she has a section where she describes peasant life in Russia. And it is so brutally demeaning, portraying the stupid, brutal peasants and the stupid brutality of peasant life. That’s her view of workers as well. But there’s nowhere in her writing where she’s as explicit about that as she is about the Russian peasantry.

They’re almost racialized as genetic inferiors.

And so reproductive labor is a similarly brute animal. It’s like growing a plant, right? You’re no different than the soil. She doesn’t see reproduction as creative or productive labor, either. She just sees it as like a brute bare life.

Because she saw her escape from Russia as being an escape from the state, the family, and the church, these are aligned to her. She sees them all as the site of a kind of negative solidarity. The family will keep you down, the state will keep you down, the church will keep you down — and the only way to achieve is to escape them. And for Rand, the nanny state is very much like the wife. They do servile labor. They also nag and try to control you.

So the regulated managerial state is also aligned with the wife, and wives are terrible in her fiction. They’re all horrifying, nagging, controlling harridans. And all the sexy women are all mistresses without children, mostly without husbands, or their husbands are serially discarded. Meanwhile the men, if they have families, their families have a totally destructive impact on them.

The feeling of wanting to escape the family, the church, and the state is an opening for a certain kind of identification — but she’s not producing a liberation politics out of that, which is an understatement. For her it’s really just that women are a drag. Children are a drag. And the only way a woman can not be a drag is if she basically is a professional, Aryan, achieving coproducer. That’s her route to being a person. Other than that, she’s not a person. She’s a representative of the kind of brute world that brings you down. So there’s tremendous misogyny in her representations. Even as she produces this sort of very limited, specific kind of equivalence, I wouldn’t call it equality.

Rand was an atheist and didn’t believe in the family. Do you think she shared something fundamentally in common with the Christian right’s family values in terms of the bedrock support for orders of domination that extend from the private sphere to the entirety of political economy? In other words, did Rand redeploy the basic logic of the family, but shorn of its Christian ornamentation?

Well, I wouldn’t put it that way. I think what she was deploying was a kind of civilizational imperial model of domination, not a familial one. She was pretty hostile to nationalism and religion. She was anti-nationalist, militantly atheist, and anti-family. So, it wouldn’t be accurate to say it’s the logic of the Christian right. And I think there are very few Ayn Rand fans in the Christian right. There are a lot of Ayn Rand fans in the alt-right, in Silicon Valley, and in the hybrid zombie neoliberal faux-nationalist racists in the Trump administration. But not in the real right wing.

Paul Ryan ran into trouble when he gave out Atlas Shrugged to every member of his staff, but then a newspaper reporter clocked him and said that she was an atheist, and was against drug laws, and she also had an abortion. And he came back the next day and said “My Real favorite writer is Thomas Aquinas.”

Safer answer.

Because there’s no way to really defend Ayn Rand in the Christian right context. There is a logic of domination, and it’s built on imperialistic ideas, like the British captain and the Hindu savages. And embedded in that history of civilizational empire is a kind of gender order that she adheres to. But I don’t think it’s quite equivalent to the kind of familial solidarity found on the Christian right, which is not her focus.

You mentioned that Orientalist film and literature had a significant influence on Ayn Rand. One children’s magazine called the Mysterious Valley , a French publication, featured a hero who was a British infantry captain in India engaging in orientalist activities in Russia. While she was at the state institute for cinematography in the ’20s, her favorite movie, which she watched frequently, was called the Indian Tomb .

You write, “The physical descriptions, characterizations, thrill of conquest, eroticization of dominant masculinity, and the figures of the hero and the mob can all be traced to the representation of romanticized imperialism prevalent in her surroundings.” She once told a Native American West Point cadet, “It is always going to transpire that when a superior technological culture meets up with an inferior one, the superior will prevail.”

On the other hand, you also mention that she opposed the 1964 Civil Rights Act on libertarian grounds, advocating for the so-called color-blind right to contract instead of using language of biological or civilizational racism.

Yes, she supported it, but her position was similar to that of Barry Goldwater.

You write, “The movies outlined the cultural terms of national consolidation at the turn of the century” — as you write, “an American culture industry built by immigrants at the top, primarily Eastern European Jewish moguls, stridently assimilationist.” These businessmen generally downplayed their past in an embrace of their new country.

According to film scholars, these creative outsiders manufactured an American dream fantasy machine, a machine that idealized the United States by erasing its settler-colonial origins, imperial aspirations, and stark capitalist inequalities. How did Rand come to know the US first through the mediation of this cultural industry? How did this industry shape her politics?

That’s how her understanding, her fantasy of the US was built — entirely on the early Hollywood movies that she went to compulsively when she was in school in St Petersburg. So she would go first to European movies and then Hollywood movies. And she just loved Hollywood. She loved Hollywood movies. She loved the glamor, she loved the sparkle. She transferred her erotic fantasy life and identifications from European imperial children’s fiction to these Hollywood versions of gendered, eroticized, white supremacist capitalism.

Then she came to the US and went right to Hollywood. Her first job was as a script reader for Cecil B. DeMille. So she went right into the Hollywood machine, and her fantasies and the fantasies of those moguls were close. She wanted to be violently assimilationist. She was born Alisa Rosenbaum — she changed her name to Ayn Rand to erase her gender, religious ethnicity, and national origin in order to be able to be aggressively assimilationist. Her fantasy was that she would achieve easy and immediate success and that she would be glamorous and participate in this fantasy. And then she ran up against the ways that the fantasy being retailed in movies clashed not only with the actual material conditions in the United States but also with how the movie business was run, as a capitalist enterprise.

And even though she thought she was pro-capitalist, she didn’t realize that the decisions she objected to were a result of capitalism. She had transferred her idealized vision of Europe from children’s fiction to her perception of the United States, shaped by Hollywood movies. She expected the world she entered to be similar to that image, which was created by immigrants like herself within the capitalist system to appeal to a broad audience in the context of the rising US empire. But this vision of American success ignored the underlying conditions that led to that success, including settler colonialism, labor exploitation, mistreatment of immigrants, and other forms of inequality. These issues were conveniently omitted from the films, as well as any acknowledgment of the labor and inequalities that supported the world they depicted.

Yeah. Just as Rand would never feature a Jewish hero in her book, neither would the Jewish Hollywood moguls have cast Jewish heroes in their films.

Never. They would never have done that. They would’ve understood that as being a bad business decision.

And Rand, by contrast, didn’t see it as a bad business decision, but as basically a bad ideological decision.

Yeah. She absorbed antisemitic tropes so that her losers and moochers often had Jewish characteristics. So they would be small or they would wear glasses — I’m talking about stereotypical Jewish characteristics. Even though she was deeply anti-fascist, she absorbed antisemitism as deeply as she absorbed misogyny, even while she also tried to defend herself as a Jewish woman, which created massive contradictions in her work and her images. But that also produced novels that people identified with.

What do you make of these extremely long novels full of extremely long speeches being Rand’s primary medium for philosophical expression? And that she only really dedicated herself to nonfiction writing and stopped writing fiction in the ’60s and ’70s?

She had the Benzedrine crash, and then started lecturing at the Nathaniel Branden Institute. He was born Nathan Blumenthal changed his name to Nathaniel Branden, and he became her sidekick, and eventually her boyfriend, twenty-five years younger. He encouraged her to turn to nonfiction writing. It had taken thirteen years to write Atlas Shrugged , and she was so burned out on Benzedrine that she never really had it in her to write another novel.

So she turned to nonfiction writing, which was never successful. People don’t read her nonfiction except for her Objectivist cult. The cult describes themselves as a philosophical movement aligned with Rand’s nonfiction work. They’re a very small group of people. Her nonfiction work is not particularly popular. It’s the novels that are massively popular.

Because Rand loved movies and her fans loved her books that were like movies.

Yes. Though they did have — and here’s the part that’s hard to explain — these long, incredibly tedious speeches in them, which are just. . .

Totally. And she’s a preacher. She’s sharing the truth with you through the voice of one of her heroes. So she has her hero go on for sixty pages — subtle, you know. And it’s like just explaining the truth to you, you idiot.

When the books came out, they initially received terrible reviews in the newspapers and the literary press, but they had real word-of-mouth growth. People were not only drawn to her melodrama, heroics, and the sexiness of her characters and romance plots, but there was something about this kind of didactic activism that also created believers. The novels worked like Gone with the Wind or Uncle Tom’s Cabin . They functioned ideologically and polemically even more than they did as a novel.

They circulated those long speeches, and when you read the novel you not only participated imaginatively in the romance plot, but you were also recruited into a belief system. And that was fairly effective. The thousand-page novels became massively popular. And their sales spiked every now and then. Like right after the crash in 2008, their sales spiked again. At all the Tea Party rallies people had signs that said “Who is John Galt?” — John Galt being the hero from Atlas Shrugged . So decade after decade, new recruits and huge sales for what appeared to be almost unreadable novels. And people memorized lines from them, and they can circulate the sayings and characters from them.

People may find affirmation for pretty horrifying ideas in her work, which contributes to her appeal. Would you say her allure stems from her transgression and deviance?

Oh, definitely. To say the thing that provokes everyone, her iconoclasm, her ability to look you dead in the eye and say the thing that’s going to tick you off. It’s like the thrill that people get from alt-right figures like Milo Yiannopoulos. And he gets a thrill too from saying exactly what he knows is going to provoke everyone. She had that kind of appeal. She was the master of deliberate provocation. She loved to speak to college audiences and just set their hair on fire. You know, just say outrageous things and combine ideas that they didn’t think went together. And she did it all with her cigarette holder and her gold pen with a dollar sign on it. She pronounced it in a way that made her seem like a character, a character in her own fictional world.

Rand, of course, is definitionally an elitist, as we’ve discussed. But the culture that she embraced and pervaded is, in fact, middlebrow and popular. Like the movies, she loves surfaces. And so does Trump. Your book reminded me of an essay in Jacobin on Trump’s book The Art of the Deal . Corey Robin writes, “Trump seems to be sincerely moved by the surface of things. The surfaces are garish and gauche, but you sense some kind of inner stirring in him when he writes about those surfaces, a stirring you otherwise never feel.”

What do you make of this dedicated superficiality? It’s a funny combination of celebrating elitism but embodying middlebrow.

Yeah. I mean, all of her tastes were middlebrow, including her preferences in music and literature. Her favorite television show at the end of her life was Charlie’s Angels , which she loved. She had a genuine affinity for pop culture with a middlebrow appeal. She didn’t appreciate European high culture, despite identifying with a superior, creative elite and being inspired by Bauhaus, especially in her architectural fantasies in The Fountainhead .

It’s an interesting combination because, on one hand, she’s like Liberace with the gold, marble, capes, and all the obvious indulgence. In Trump’s case, he mixes this celebrity resonance with a hard-edged, unsympathetic, anti-solidaristic political stance. He combines an appeal to popular tastes with advocating for the absolute triumph of the wealthiest. It’s not just a hierarchy of wealth, but also a dismissal of a hierarchy of taste. The cultural elite is despised, while the donors to the party represent the hierarchy of wealth. It’s a combination of popular taste and the promotion of radical wealth inequality.

But then it was the other way around in her own critique of Hollywood, where she thought the hierarchy of wealth was tarnishing the hierarchy of taste.

Well, I mean, she just thought that people weren’t letting her do what she wanted to do. [Laughs] And later she was such a thorn in the director King Vidor’s side on the set of The Fountainhead because she wanted to control all the speeches and so forth. Her idea of what was quality ultimately made the film fail, at which point she became very angry and blamed them when she’s the one who made it so boring. So she thought the business culture ruined Hollywood by not allowing the creative individual (her) to impose her middlebrow taste on the popular movie. So the contradictions there are so legion. It doesn’t ultimately add up and make any sense because the sole logic is the logic of narcissism.

On one hand, capitalist morality is fundamentally about blaming people’s condition on poor personal choices. But when Rand doesn’t get exactly what she wants in Hollywood, she immediately blames the inferiority of actually existing American capitalism for all of her own career troubles.

For not being really capitalist, as she might put it. Everybody fails her and disappoints her because they don’t live up to her superior values. It’s the logic of narcissism, and there’s no other consistency in the way that these contradictory positions hang together. It’s not rational. It’s not like the fantasy of pure neoliberal or capitalist rationality.

To the extent that she’s a sociopath or a malignant narcissist, that’s what capitalism is. She’s reflecting the history of empire, colonialism, and capitalism as being narcissistic and sociopathic. It’s not her individual diagnosis.

Neoliberal luminary Ludwig von Mises wrote to Rand in 1958, “You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the effort of men who are better than you.” He was praising Atlas Shrugged.

How does Rand’s style of extreme elitism get translated into mass populist politics? Does she believe in an ideal where the rabble can be good by recognizing their inferiority, and thus creating a harmonious social whole? Or is her vision more fatalistically tragic, a world that will always be bad because the masses will never quietly accept rule by their superiors?

That’s the question for our time. How do people get recruited to and come to identify with the desires, fantasies, and aspirations of the social order that is crushing them? And that’s what makes Lauren Berlant’s idea of cruel optimism so brilliant. She’s trying to explain that in a way that isn’t just answering “false consciousness” and then we go home.

The popularity of Ayn Rand raises that same question in a different frame, the way you laid it out. She’s saying quite directly, as Mises judged her to be saying, that the masses of people are inferior and that the only path to social success is to recognize their own inferiority and accept rule by their superiors.

The people who are buying her books and being recruited into this would overwhelmingly be among the inferior masses. But they don’t see themselves that way because her version of individualism allows them to exceptionalize themselves from the masses and make an aspirational identification with the sexy entrepreneurial hero. The millionaire or billionaire — they have a chance to be that. And if they were to accept solidarity with the mass losers, they would be sacrificing their chance to rise out by their own efforts.

For Rand, only individualist capitalism can support innovation and progress. In Atlas Shrugged , capitalists going on strike forces society back into a state of nature. Why was technology so central to Rand’s vision? And why, in turn, have technologists become among her most fervent fans?

Again, this is contradictory, as so much is in Ayn Rand’s works. She did worship technology in the sense that individual inventors, as portrayed in Anthem , which is governed by a socialist government clearly inspired by the Bolsheviks, were not allowed to use the word “I,” and everyone had to use “we.” Technology is forbidden because if one person has invented the light bulb, they try to suppress it because it would jeopardize the livelihoods of candlemakers. And, you know, Ayn Rand can be funny. She can be really funny alongside her didactic and boring moments. Anthem is funny, and the guy who invents the light bulb is her hero.

In Atlas Shrugged , a guy invents this magical motor that runs without fuel, and he becomes the hero of the story. Technology and the ability to innovate are central to her ideas. She sees the superiority of the West over indigenous populations as being related to technology. However, due to her individualism, her vision is focused on the individual inventor, and she can’t envision a mass collective technological society.

Galt’s Gulch is hilarious in its anachronisms. Here’s this utopia of entrepreneurial inventors. It’s like an Old West town that has been reinvented. It’s very low tech, but each piece of technology there has an individual inventor. There’s an individual inventor who runs the mill that grinds the corn or whatever. But everybody dresses like it’s a Wild West town. It’s the ideal of the individualist American West married to this kind of idealization of the inventor. They don’t go together very well, but that’s what Galt’s Gulch is.

And everyone in the Wild West town, each inventor, has their own science fair set up in the book to show off their project.

It’s a romance of individual achievement that then can’t imagine capitalist technology.

The reason it appeals to these Silicon Valley guys is because that’s how they see themselves. They see themselves as individual entrepreneurs who have innovated this start-up or this platform. They should be left alone by the government. They should not have to meet labor standards. The people who work for them are just the ants that put the phones together, not the geniuses who invent the phones. Their vision of themselves aligns pretty tightly with Ayn Rand’s view of the individual, not the world they actually live in, which requires a collective class project of investment. Their vision of themselves as the individual producer to whom all values should accrue without interference, that aligns very much with an Ayn Rand fantasy.

So all these techno-libertarians love Rand, but Rand hated libertarians. In the ’70s, she called them right-wing hippies, and said, “If such hippies hope to make me their [Herbert] Marcuse, it will not work.”  Which is really funny, actually. But it did work.

Yes, they did make her their Marcuse.

And she couldn’t stop them. What happened?

Yeah. Well, at the moment when she was developing her distaste for libertarians, it was during the emergence of the Libertarian Party in the ’70s , which had various wings. Among them, there was a countercultural wing. In fact, she encountered many vocal individuals who identified as countercultural in some way. Some were even anarcho-libertarians, in addition to the business-oriented libertarians she had a longer history with. However, she strongly disliked these new libertarians of the 1970s and the libertarian movement as a whole. She reviled them and made fun of them relentlessly. They attempted to claim her, but she despised them. She wrote extensively, ridiculing them.

While some of her writing is quite amusing, time has passed. If Ayn Rand were to return to the world today, I believe she would highly approve of the Koch version of libertarianism, which aligns with her own views, rather than the countercultural, anarcho-capitalist libertarianism of the 1970s that she regarded as too countercultural. However, she lacked the analytical ability to discern the various strands within the movement. Instead, she formed her opinions based on emotional reactions to phenomena and then expressed them without much depth of understanding. Her sources mainly consisted of anecdotal encounters, TIME magazine articles, or television broadcasts.

She didn’t like normal hippies either, even though she was a libertine of sorts. Or is libertine not the right terminology for her?

Libertine, no. But she was nonmonogamous.

Nonethical nonmonogamy. [Laughs]

Well, it was ethical, but it was coercively ethical. She and her lover Nathaniel Branden negotiated with their spouses to allow this affair to occur. They got permission to have sex once a week for a couple of hours while her husband left the apartment. So it was all negotiated.

Her negotiation with her husband was very egalitarian, give and take.

She was very upset because he apparently didn’t really like to have sex with her. And shockingly she didn’t consider him sufficiently dominating in the bedroom. Anyway it was ethical in that superficial way, but it was coerced. The consent was coerced consent. Their spouses didn’t have much of a choice, given that both of them were economically dependent on Nathaniel and Ayn.

And then what makes it also veer into the unethical, aside from the coercive nature of the consent, was that she kept it a secret, a very deep secret. She didn’t want anyone in her circle or her movement to know. So here’s this proponent of truth and honesty, and she has this deep secret that doesn’t get exposed until the ’80s when Nathaniel Branden’s wife wrote a book called The Passion of Ayn Rand after Rand has died to talk about this affair. And when the affair broke up because Nathaniel had yet another secret girlfriend, and Ayn Rand felt that that was a violation of morality, decency, and everything valuable, that he had lied to her about his sex life with a less valuable woman.

That violates her narrative ideal of these weird sex triangles, where the woman has to choose the better man of the two. Instead, Nathaniel chose the inferior woman over Rand, who’s obviously the superior.

One. And that’s —

A problem obviously. That reflects poorly on him. [Laughs]

Exactly. And in fact, because she was his chosen successor and the head cult leader, the fact that he had done this meant he violated her entire philosophical system by choosing a lesser value and lying about it. This meant to her that her whole philosophical system was attacked and demeaned. She never recovered from that. She had a total meltdown.

She threw him out of Objectivism. She denounced him to everyone but never admitted the reasons for it. She claimed it was financial fraud, which was a lie. There was no financial fraud. She made everybody choose sides and had him shunned.

He went to California with the new girlfriend and became a rich Los Angeles therapist writer and the founder of what became known as the self-esteem movement.

Wow. A New Agey huckster.

Yes. That’s what he became. But in summary, she had an unconventional arrangement that was full of contradictions and unethical practices. But, nevertheless, she hated the counterculture. She wrote a book called The Return of the Primitive that’s basically about environmentalists and hippies. She saw them as wanting to take things back to the dominance of savages, to roll back Western civilization to the age of the Asian, African, and other “native” hordes.

That’s what environmentalists wanted, in her view — to turn us back to the primitiveness and savagery of the hordes of color in the Third World. And if they succeeded, that’s what would happen. Western civilization would be destroyed, and all the values that she held dear would be destroyed. She was a particular attacker of environmentalism and environmental politics.

Because she saw that as a fundamental threat to capitalism and technology.

Yes, to capitalism, but also to Western civilization.

Which both require the domination of nature. I was speaking with Silvia Federici the other day about how the people who are to be dominated are associated with nature.

Yes. And they should both be exploitable. The earth and the inferior others are exploitable resources. And if we say we can’t exploit the earth, then that means we can’t exploit the natural resources of this labor pool. Then the entire structure will come down. And she wasn’t wrong about that. She was just wrong about hating it. [Laughs]

To close out, as you mentioned earlier, while Trump is a perfect distillation of Rand’s mood as a person, he is, write quote, “in most ways, a Rand villain.” A businessman who relies on cronyism and manipulation of government, who advocates interference in so-called “free markets,” who bullies big companies to do his bidding — in short, her character sketches of sellouts and dirtbags. What does it reveal about Rand’s enormous influence that the ultimate product of her politics uncannily represents precisely what she so ardently claimed to hate?

It’s really all about the affect. It’s about the feeling. It’s not about the ideas. Her ideas are cartoonish, and while some people become fans of her ideas, it’s the feeling attached to the ideas that sucks people in. It’s the contempt, dismissal, and indifference that has the influence. And that’s what Trump has. He’s not an Aryan idea, he doesn’t actually look like Howard Roark, but he thinks he does, or he wants to. He wants the hair, you know.

He was the best baseball player in New York at some point, he said.

The contempt, the indifference, the assumption of superiority. Those are all very Randian. But his actual practices make him a villain, even in her worldview. And she would be merciless about him if she were alive. I mean, it would be entertaining to see her be merciless. She would criticize everything from the way he looks in his tennis outfit to every crummy self-dealing government thing that he does. He would be a cartoon villain for her.

But Trump imagines himself to be an Ayn Rand hero. And that’s the power of her vision, that there is such a wide swath of people with overlapping and sometimes conflicting political and policy views who can imagine themselves in her scenarios. And the end result of that is primarily this affective, cruel, greedy meanness that is the takeaway from bonding with an Ayn Rand novel.

• Share full article

Advertisement

Subscriber-only Newsletter

David Wallace-Wells

Javier milei is a new prophet of apocalyptic capitalism.

By David Wallace-Wells

Opinion Writer

In Davos, Switzerland, this January, a new icon of capitalist resentment took the stage. President Javier Milei of Argentina won a landslide victory in November on a platform of unapologetic libertarian economics and a campaign of ready-to-meme speeches and interviews. Already, his chain saw agenda has been hitting some predictable roadblocks at home — legislative resistance , pushback from unions and ( sometimes violent ) public protest . But he arrived in the Alps very much in character, looking like a future world leader hologram projected from a certain corner of billionaire-brain social media.

“Today I am here to tell you that the Western world is in danger,” Milei began. “And it is in danger because those who are supposed to defend the values of the West are co-opted by a vision of the world that inexorably leads to socialism and thereby to poverty.” He meant the belief that governments should try to help people.

Milei, a longtime economist, spoke in an academic monotone, but his analysis was vehement, almost a mirror image of the rhetoric Greta Thunberg used when announcing herself and her brand of climate alarm at Davos five years earlier. Spain’s El País called the speech “the apocalypse according to Javier Milei,” and for 23 minutes he gave a pretty millenarian account of the precarious state of the global free market system, as he saw it, which was losing its battle, he said, against the forces of collectivism, social justice, environmentalism and feminism, which he grouped as forces of inevitable immiseration. State power was the source of all the world’s problems, Milei said, all tax was coercion, and all market outcomes just. Those assembled at the World Economic Forum had been seduced by neo-Marxism, and the war on progress and achievement had been essentially started by the women’s movement (exemplified by what he called the “bloody abortion agenda”).

Hyperbole is not rare in geopolitics, but even in a time of tumult, it is striking to see an outspoken anarcho-capitalist in the role of head of state; he is certainly the first avowed anarchist to be running a large modern government and may well be the first genuine libertarian to do so, too. In a gesture of pragmatism, Milei has taken to describing his ideology as “minarchist,” meaning that he would like to preserve only the defense and law-enforcement functions of the state. But in Argentina he has revved chain saws at rallies and once dressed as an ideological superhero of his own devising, General AnCap. And in positioning himself as a hands-off prophet at Davos, he was not afraid to look like a libertarian troll. Between neo-Keynesians and Nazis, he declared, “there are no major differences.” The same went for social democrats and fascists, progressives and communists, populists and globalists — all just different shades of statists aiming for total social control.

He was speaking as an Argentine, contorting his country’s economic history into a neat ideological narrative. But he was at Davos, he said, to offer the same prescription to the rest of the world, projecting a global vision combining entrepreneurial heroism and the end of the state as we know it — or, as he put it, “to invite the Western world to get back on the path to prosperity.”

And he was applauded — not by everyone but by many. The Wall Street Journal published an excerpt from the speech and gushed, “Milei gives the Davos crowd a spine transplant.” The conservative historian Niall Ferguson called the lecture “a magnificent defense of individual liberty and the free market economy.” The venture capitalist Marc Andreessen also celebrated Milei’s appearance, as did Elon Musk, who meme-tweeted an image of a couple having sex while watching the president pontificate onstage (commenting, “so hot rn”).

A year ago, if you had eyed the political leaders of South America and wondered who might make the biggest mark on world diplomacy in 2024, you surely would have picked Brazil’s president, Luiz Inácio Lula da Silva, who regained power in 2023 after 12 years in the wilderness. Riding back into office on a new Latin American pink tide, Lula seemed to embody a progressive alternative to the old neoliberal consensus that had fractured so visibly since he last held office.

But the exit from that old consensus has been bumpy, with no single obvious successor ideology to the one that largely governed the world between, say, the fall of the Berlin Wall and the rise of Donald Trump. This year, there are elections scheduled in countries that are home to half the world’s population — perhaps the single most democratic year in human history. But the meaning of those elections remains very much to be decided. There are Trumpy nationalists in a loose anti-elite alignment; old Western institutionalists across Europe and a continental new right still on the march; authoritarian alliances, oriented around China or Russia and their strongmen; and global leftists, like Lula, agitating for progressive solidarity across the developing world.

And then there is Milei. Flamboyant, combative, eccentric and erratic, he shares a certain style with Trump, but he’s more serious and ideologically committed. He has been praised by Vivek Ramaswamy and Matt Schlapp, as well as by Trump, who embraced Milei at the Conservative Political Action Conference and has wished him luck in making Argentina great again. But as the culture-war intellectual Sohrab Ahmari has pointed out , “Milei rejects nearly everything ‘MAGA’ populists in the United States, and analogue movements across the developed world, claim to stand for.” What Ahmari means is that Milei is not a protectionist trade warrior speaking to the losers of globalization but a radical free marketeer who believes too much has been done to console them. In this way, Milei may have more in common with the Latin American dictators of the 1970s and ’80s — his AnCap chain saw a sort of populist shock doctrine and his Ayn Rand regime a free-market junta, this time imposed not militarily but by 55.7 percent of the popular vote.

Is there a global constituency for a politics like this? In Argentina the conditions were set by an exceptional inflation crisis to punctuate a century of economic and political frustration, and the first test of Milei-ism is likely to be local, too . But globally what is most striking is how Milei’s language echoes similar language issuing forth since the beginning of the pandemic from many corners of the business elite — particularly by those who in the age of social media have anointed themselves or been anointed by public acclaim as popular philosophers of progress. You have probably heard about the war on merit; diversity, equity and inclusion as a woke mind virus; and perhaps even the case for a more urgent at-all-costs technological accelerationism. These are just the most acute expressions of a more pervasive backlash phenomenon: Many of the world’s richest people have rapidly become some of the most outspoken critics of the establishment and status quo, which they believe is almost uniformly arrayed against them.

In his “ Techno-Optimist Manifesto ,” published to much Silicon Valley applause last fall, Andreessen opened what was meant to be an infectious call for positivity with the line “We are being lied to,” which, he quickly elaborated, meant we are “told to be pessimistic.” Later, he wrote that “our present society has been subjected to a mass demoralization campaign for six decades — against technology and against life — under varying names like ‘existential risk,’ ‘sustainability,’ ‘E.S.G.,’ ‘sustainable development goals,’ ‘social responsibility,’ ‘stakeholder capitalism,’ ‘precautionary principle’” and a host of others. “Our enemy is anti-merit, anti-ambition, anti-striving, anti-achievement, anti-greatness,” he added.

Over 15 years of global disquiet, we’ve gotten used to seeing the aftermath of the financial crisis as an age of populist outrage, with those left behind rising to demand more — at least more of a voice. But if Milei is an expression of this age of populism, it is a novel form. In the paradigm pervasive in the Trump and Brexit years, elites were seen as exploitative enemies of the people; now they are enemies of greatness. And it’s a different kind of person carrying pitchforks into town.