Lecture 7: Capitalism and Socialism

Course: Advanced Worldview Analysis

Lecture: Capitalism and Socialism

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I am now going to move towards a beginning approach to economics. I want to give you at least an introduction of my simple analysis of economic systems. But what I do in this simple analysis of economic system is introduce many people for the first time in their lives to the real nature of capitalism, and the real nature of socialism and another position. It is sad that after so many years of debate over capitalism, socialism, most people are still operating with a false understanding of the true nature of socialism versus the true nature of capitalism. Let me begin with a little introduction here. Here are several reasons why Christians ought to care about economics and economic systems. Here's my first point. Christians ought to care about social issues. My second point, that concern however, must be linked to sound thinking. Early in my book, Social Justice and the Christian Church, I made this point. There are 2 sides to Christian social concern. If you listen to the liberals, they just say Christians ought to care about poor people, homeless people, etcetera. And by implication these Christian liberals want you to think that only liberals care. The sign of a truly non-caring person is the identification of him as a conservative. Let me respond to that in a non pejorative way. That's baloney! If you don't think that is non pejorative, you should know some of the other words I learnt growing up in Cleveland, Ohio. That's a non-pejorative term. Conservatives care. They recognize however that liberal approaches turn out to be counter- productive, or so in my usual ironic way, I have heard other people say. I wouldn’t say that myself. So there are 2 sides to Christian social concern. No. 1- Christians ought to care. The second side is- Christians ought to be grounded in sound social theory. You know, you don't go running off totally ignorant about economics and social theory and say "Oh, I just want to help the poor". You get grounded in social theory because so many liberal activities end up giving us more poor people who are worse off than they would have been without any governmental help. So, what's the second side of Christian social concern? We ought to care, that's No. 1. We ought to get grounded in adequate social theory. Things are not always what they seem. Good intentions are not enough.

What we're going to do first of all is draw a continuum. And what a continuum means is, it is a graded scale. That means there are degrees here. Then, what we're going to do is draw the names of 2 economic systems. Over here, towards the number 100, we are going to write the word 'socialism'. But because we are dealing with a continuum, it will become clear that are degrees of socialism in the world, right, just as there are degrees of statism. Do you see how these 2 continuums overlap? And then over here, down at the other end, the 0 end we are going to write the word 'capitalism'. And here again there will be degrees. But here's where everybody goes wrong. There's a 3rd economic system. And nobody or very few people talk about that third economic system. So we're going to write the name of this third economic system and we've got to give it 2 names. We can call it the mixed economy or we can call it interventionism. Now, we are also going to draw something else. We're going to draw little umbrellas, somewhat like this. And it's hard to describe. What we are showing here is that there are many degrees of capitalism. There are many degrees of socialism. And then we're going to draw another little umbrella around interventionism. But we're going to allow the umbrella for interventionism to overlap with socialism over here, or overlap with capitalism over here. Because at the extremes of interventionism it can become very difficult to figure out whether you are describing a very loose form of interventionism which might be confused with capitalism or you're describing a very heavy, hard sense of interventionism that could easily be confused with socialism.

Now, one of the reasons why adding interventionism to this diagram is so important is this. Whenever anything goes wrong with the American economy, I'll tell you what the real cause of it is. Whenever anything bad goes wrong with the American economy, it's because of interventionism. Governmental intervention with the market place. But let me tell you what liberals have learnt to do. Now, maybe I should tell you what some of these bad things are that happened to the economy. Inflation is bad, recession is bad, depression is bad, unemployment is bad. Whenever anything bad goes wrong with the economy, even though the true cause of that badness is interventionism, guess which of these 3 systems liberals always blame for those failings? They blame capitalism. Here's the cause. The liberals blame capitalism, selfishness, greed, materialism and then let me tell you what they do. They use their phony argument as a pretense to increase the amount of governmental intervention with the economy. They moved the failings that they have caused through their intervention to move the economy closer in the direction of socialism. They do.

I give an example. The Great Depression that started with the great stock market crash of October 1929. And do you know how long that Great Depression lasted? It was still going on when the Japanese attacked Pearl Harbor. Now, forgive me for saying this. There are some people who think that the President at that time took actions that he knew would make war inevitable. And he did that, far be it for me to suggest something this conspiratorial. He did that in order to solve the employment in the country. Why? Because suddenly we would have 10 million men under arms, 10 million men in the army, in the navy, in the armed services. Now, that might appear reckless to some people and I myself, of course, would never say that but there a lots of people out there who think something like that may have gone on. But if you look at the Great Depression, let me back up, what do liberals blame for the Great Depression. They blame capitalist excesses during the 1920s. The Great Depression was the product of capitalism going crazy in the 1920s, and it made the Great Depression inevitable. I've got 2 chapters about the Great Depression in my book 'Poverty and Wealth'. And what those 2 chapters do is they tell you what the true causes of the Great Depression were and it wasn't capitalism at all. You know what it was that caused it? It was interventionism. And i tell you the forms of that interventionism took. And you know why the Depression of the 1930s didn't end? It was because the government and the executive branch continued to make dumb mistake after dumb mistake and they made it worse. And many of those foolish mistakes were made by Herbert Hoover. Read chapters 11 and 12. Now in much liberal literature, Herbert Hoover is described as quintessential free market guy. But Herbert Hoover was not. Herbert Hoover was an interventionist. Let me show you on this chart where Herbert Hoover stood in the early years of his Presidency. Right about here, who's kind of an interventionist.

Let me tell you where Franklin Roosevelt stood during his first campaign for the Presidency. He stood over here. He made himself look less interventionist than Herbert Hoover. But as soon as Franklin Roosevelt became President, guess where he moved. He moved increasingly towards more and more governmental interference and intervention. Now somewhere in my 2 chapters, let's just look at it. Let's look at the unemployment numbers from the 1930s. Let me find the page right away. Maybe you didn't bring this book. The unemployment numbers for the 1930s, page 144 in this book. The number of unemployed people, average unemployed in 1929 was 429,000.That was less than 1% of the late..That's incredible! I hadn't looked at that before. Less than 1% of the American labor force in 1929 was unemployed. Immediately, 1930, Hoover's President. The unemployed percentage jumped to almost 8%. But even that, we have higher rates than that recently. Then it jumped to 16%, 25%, 25%, 20%. All of this being under Roosevelt. See. Now, what many people don't know is that during his 2nd term, Roosevelt made a number of under the table agreements with the biggest labor unions. So that even though the recession was beginning to ease, and unemployment figures were going down, Roosevelt was so committed to statism that he made these agreements with the labor unions and look what happened. Immediately, after those new laws were passed, laws that favored the major labor unions, unemployment in 1937 had dropped to 12%. We were on our way out of the recession. But right after Roosevelt pushed through those new laws, unemployment jumped back up to almost 19%. Roosevelt is often described as the savior of America. He saved America from socialism. No he didn't. The truth is that Franklin Delano Roosevelt is the only President in history who ever created a depression within a depression. He did. We were in the middle of a depression and he created a new one. Why? Because of statist measures.

One more thing before I leave this. National economies move back and forth on this continuum. Let's take 2 examples here. Let's take first the example of communist China. In the mid 1970s, communist China was as far towards,.. Marxism and Leninism. It was as far towards Leninism. It was as far towards total statism economically that you could get. And you want to know what was going on in the Chinese economy? They couldn't feed their own people. The People's Republic of China had to, what's the word I want here, they had to buy foodstuff from other countries in order to prevent mass starvation. So I want to tell you what happened. Slowly, the people in communist China began to introduce small degrees of economic freedom. Not much. Fe example, they allowed peasants who were growing the foodstuff throughout the People's Republic of China to have little plots of ground. And guess what? They produced more foodstuff through those privately farmed plots of land than the collective farms produced. And there had to be an incentive there so that people could sell their radishes, or their beets, or whatever they grew, and that gave them a little more pocket change. We have a name for that. We call it capitalist incentive, where you let people keep their own money. Sorry, don't mean to get excited here. These little advances towards a market economy actually, it was a movement towards interventionism produced so much robustness in the Chinese economy that by the time you get to the mid or late 1980s communist China was exporting food to other countries. Largely other socialist countries which couldn't feed their own people, see.

But during this process, the Chinese communists forgot 1 thing. Once you give people a taste of freedom, what do they want? They want more freedom. Is that understandable? And so you begin to get activists in communist China trying to get not just economic freedom but political freedom and then the horrible clashes in Beijing, in Tiananmen Square in 1989 occurred. The communists in China had a choice. They could sit back and let the people's cry for more freedom go on until their safety, their security and their wealth, it was their wealth, was threatened, or else they clamped down and go back in this direction. And that's what's happened in communist China. Thousands of dissidents jailed. Many of them killed, wounded and that set back economic growth in China for a long time.

Now another story. The Soviet Union. The Soviet Union also could not feed itself, its people. But something different happened. Gorbachev took a different tact. Not that he was a noble man, even though he got the Nobel Peace Prize. What the totalitarian in Russia or the Soviet Union did was not done out of a sense of liberty. They did it to save their own skins. They knew this thing was rapidly getting out of control. So they moved in the Glasnost and all of that other stuff, never thinking that it would get out of control until finally in the fall of August or September of 1991, the Soviet Union collapsed. Now, some people had wondered about a possible coincidence here. I delivered my lectures in Moscow in May and June of 1991. 2 months later the Soviet Union collapsed. Is there any connection? I don't know. I don't know. Could be. I'll tell you this. I myself could not imagine anything more exciting than being part, being there to watch this. Not so much in 1991 but when I went back and I honestly believed that the Soviet Union or Russia was going to make it. I really believed they were going to make it. They were moving in this direction. They had a stock market. They were moving towards interventionism. And I fell in love with those people. Not the KGB, but those poor people. You never saw such horrible poverty in your life.

The typical Soviet family lived in an 800 square foot flat. That's all of the room, 800 sq feet. And while I was over there, they told me about, this was an old couple. They just wanted to live their last years together and then they were ready to die but 1 day the knock came on their door. They had 800sq feet and because of the shortage of housing, the secret police, or whatever, they said, we're going to move in a young couple. And what they did was they built a bed over the kitchen stove for the couple to sleep on. No freedom at all. You can't let those people die in peace. So, but what nobody predicted was the venality, the criminality, the corruption of the politicians and the rise of the Russian mafia. Where politicians would sell their souls and their votes for whatever the mafia would give them and today, maybe someday, Russia would come out of this, but the old government probably couldn’t hold a candle to the corruption of the criminals in the Soviet Union.

Now, what I want to do next, I'm going to give you definitions of these 3 terms. I'm going to give you a definition of Socialism. I'm going to give you a definition of interventionism, and then I'll give you a definition of capitalism. Now, here's my definition of Socialism. You can compare my definition of Socialism with that of some of the religious left guys that I quote later on. For example, and I don't mean any of this in any kind of pejorative way. Intervarsity Press published a horrible book called "The Good News of the Kingdom Coming", in which the author of the book, and I name him in my book on the "Religious Left", thanks God for Socialism, for Marxism because it leads to the growing dignity of human beings. Oh man! Well, here is the true nature of Socialism. You can think of it as a triangle. And way at the top of the triangle is a group of people that we call the central planners. Now, they are the State. They are the people who decide.

There used to be a joke in Russia. Can I remember? Some big shot bureaucrat in the Russian government, he says I've got good news and bad news. What's the good news? For making you Commissioner of Agriculture. [laugh] What's the bad news? You got to produce at least these many tons of corn and cattle and pigs and if you don't we are going to shoot you. That's the bad news. That's what we call a command economy. And I'm going to tell you something. You don't produce cows, pigs, goats and wheat by snapping your fingers. You don't do it that way. This is a command economy in which all power flows from the top down. And that's the opposite of a market economy because in a market economy market decisions are made freely down here where the people live without coercion from government. Now, some of you must be thinking. "Hey, Nash, what you're calling a market economy which must be capitalism doesn't sound like America". Did I say this was America? I said this is what capitalism is. Please understand the American economy is not a capitalist economy. The American economy is an interventionist economy.

Let's go back to my 3 systems. The American economy is and has been, maybe in perpetuity. It's an interventionist economy. Now, there is a difference. If 1 of our political parties takes control, the interventionism will grow more and more severe. If the other political party takes control, there will be definite movement in the direction of a market economy and less interventionism. Now what are the names? I have no idea here. Help me out. What are the names of these 2 political parties? Which political party, which one in power tends to move in the direction of Socialism? What do we call that political party again? No, come on. I've been fair all semester. The Democrats, thank you. You're right, the Democrats. It's amazing. There's ground swell of opinion here. And what do we call this other party? With some exceptions we call it the Republican Party, OK? But there are different kinds of Republicans, are there not? There is Ronald Reagan who was clearly pushing us in this direction. Then there was Richard Nixon who took a big about face and he became an interventionist almost beyond all interventionists. He imposed wage and price controls.

I'll tell you a true story. The year was 1970, I think it was right after Nixon's second election. He imposed controls such that a lot of education institutions felt that they were forbidden to grant raises to their employees. I got to be very careful here because people involved in this were good friends of mine. We had a very good guy as President, nice guy. If he is listening, 'Hi'. But, some of us were a little angry at Richard Nixon. You wouldn't think I'm capable of doing this, but I and another member of the faculty met secretly with a reporter from the Louisville Courier Journal. That's the big liberal newspaper in the state of Kentucky. And we leaked a story but he was pledged not to reveal our identities. The rascal. Dirty rat. "No one will ever know who you guys are". OK. And we raised a protest about the fact that we weren't going to get any raises and this was a enorgen?? and unjustifiable interpretation of the law. I mean we could get raises. The newspaper came out the next day. I ran to our faculty house, open it up and that reporter quoted a bald headed department head. I knew I was a dead duck. So, I went right to the office of the President and I said you might as well know that I am the guy quoted in the Courier Journal. And he laughed. He thought it was funny thing that I got caught like that. He said, "That's alright, Nash. I won't fire you. I'll let somebody else do it". Maybe in 20 years someone else will get you. I don't know. That really happened, OK? Listen whenever you get caught like that, don't wait, don't let them catch you. You go right down and admit that you did it. I think we finally got our raises, I don't know. I must have gotten an extra 100 dollars or so. So, that's interventionism.

One more point. Don't ever let anybody fool you into thinking that Hitler's Nazi movement was supportive of Capitalism. Don't you ever let anybody kid you. Hitler was a socialist. Nazi was a derivation of national socialism. So the Soviets, and the Nazis, this was not a clash between right and left, this was a clash between 2 socialist systems. But there was a difference. Hitler's Fascism was actually a kind of state, what we could call, well, it was heavily Statist. There's no need to try to do that any further.