[The following excerpt is taken from the book, “Rescuing Religion from Republican Reason.” It is the 1st of a 6-part series taken from the chapter entitled, “Pure Capitalism – How it Failed without Merciful Modifications”]
Opposite Evil: Socialism
Economics is complex. Throughout the history of civilization, nations would sometimes enjoy great prosperity. At other times, the very same nations would know nothing but want and suffering. Sometimes these crises resulted from war or famine, but in many cases, they simply happened without obvious causes. Economics is, in large part, the study of how these crises happen and of how to minimize their severity. Over the last two centuries, these complex problems have been addressed with three incredibly simple solutions: capitalism, socialism, and communism.
Capitalism promotes private ownership and private control of property, including businesses. Socialism, by dictionary and text book definition, is the public or government ownership of businesses (taxation is not the definition of socialism, contrary to what you may have been told). Communism is a communal ownership of all property, both business and personal, in which society shares all wealth equally.
Republican pundits and politicians tell us that pure capitalism is godly righteousness and that socialism is ungodly evil. They warn that any modifications to pure capitalism, such as taxation and business regulation, are socialist and therefore evil. By condemning any modifications to capitalism, Republican politicians and pundits condemn all economic solutions that don’t fit the simple-minded extreme of pure capitalism. (The pure capitalism of the late 1800s and 1900s was called “laissez-faire” capitalism. “Laissez-faire” is a French term, meaning “let it make.”) To Republicans, if this simple system can’t fix our problems, then there must be no fix, because all other solutions supposedly lead us closer to evil socialism.
The quote on how Satan attacks us with “pairs of opposite evils, so that we despise one so badly that we cling to the other,” applies to these Republican teachings every bit as much as it does to political party allegiances. History has shown that neither pure socialism, pure communism, nor pure capitalism have come close to solving humanity’s economic problems. This is why, unlike 50-100 years ago, nations have largely abandoned these systems. The Soviets and the Chinese ultimately abandoned pure communism and pure socialism, while Europe and the United States have abandoned pure capitalism. None of these systems worked, yet Republicans force us to choose between these simple-minded extremes and nothing else. They do this so we’ll despise the extreme of socialism so badly that we’ll cling to the extreme of pure capitalism, which favors the interests of the corporate power and wealth they represent.
Capitalism: What’s Good about It?
There are two major components to the version of capitalism we and much of the world practice: the free market and the corporation.
The free market has been around as long as people have conducted business transactions. It simply means that no laws interfere with the freedom to conduct business. No civilization practices it purely, as there are always some laws to prohibit unethical business conduct, but many have practiced it generally. Unlike government-planned economies (like socialism), the free market exists naturally. If a civilization has no system at all, it still has a free market.
The free market has great advantages over government-planned economies like communism. For example, a communist economy in which all people earn the same and share all property creates a disincentive to be productive. People in a communist economy know that working hard and working little have the same reward. Righteous people may work hard for the well-being of society, but selfish people will freeload as much as possible. In a free market economy, on the other hand, people can, to some extent, determine their earnings by how much and how effectively they work, and this increases economic productivity and innovation.
Socialist governments, unlike free market economies, bear the burden of having to control the allocation of resources. In other words, they must determine every price on every shelf and determine how much corn goes to one town and how much bread goes to another. The results are disastrous, because this task is far too large for any government to handle. What works better is letting supply and demand determine pricing and resource allocation. If a product fails to sell at one price, businesses lower the price to at least get some money for the product instead of taking a total loss. If a product sells out too soon, businesses raise the price in order to prevent a shortage and maximize revenues. Prices may vary from one neighborhood to another as supply and demand vary. These variations are best managed by many independent business managers than they are by one big government.
When socialist modifications are applied to capitalist economies, they sometimes fail. For example, if the government limits the price of tomatoes, because people say they’re too expensive, then farmers, who now earn less for each tomato grown, may stop growing them in favor of something more profitable, like asparagus. The result is a shortage of tomatoes. Now, instead of the people who most want tomatoes finding a way to pay high prices for them, nobody can buy tomatoes at all.
The free market is far superior to government-planned economies at providing products and services to the people who want them most. It also better aligns with the ways of God’s nation, ancient Israel, than a government-planned economy does. In fact, the free market is so biblical, even the Amish practice it! There is, however, a difference between Amish capitalism and the capitalism most of America practices. That difference is the corporation.
In capitalism without corporations, all companies are either sole proprietorships or partnerships. If a company falls on hard times and goes into debt, its owners are fully responsible for paying that debt, even if it means selling all of their personal property. In fact, in biblical times, if selling all property wasn’t enough, the owners would have to sell themselves and their children into slavery to pay debt. For example, Leviticus 25:39-40 says, “And if a countryman of yours becomes so poor with regard to you that he sells himself to you, you shall not subject him to a slave’s service. He shall be with you as a hired man, as if he were a sojourner with you, until the year of jubilee.” Exodus 22:3 says, “…A thief must certainly make restitution, but if he has nothing, he must be sold to pay for his theft [NIV].” And 2 Kings 4:1 tells us, “The wife of a man from the company of the prophets cried out to Elisha, ‘Your servant my husband is dead, and you know that he revered the Lord. But now his creditor is coming to take my two boys as his slaves.” Throughout history, the devastating consequences of debt kept companies small, since becoming part-owner meant your partners’ mistakes could cost you your freedom and possessions. Also, businesses took few risks with new products, services, or business practices, because the risks outweighed the rewards.
Corporate capitalism solved these debt problems. In corporate capitalism, the government provides liability protection for businesses that choose to become corporations. If a business’s owners run up large debts, they can declare bankruptcy, so that the corporation bears responsibility for the debts, while the owners are free to keep their personal possessions. The worst that can happen to a business owner in bankruptcy is that he or she loses money invested in the company. If the owner has 10 million dollars of property, but only invests one million in the business, the most the owner can lose is one million dollars, even if the business owes 10 million dollars. The corporation is effectively a non-living person who bears the responsibility when things go bad, but who pays its owners profits when business is good.
This system eliminates debt’s constraints on company size and risk-taking. Business owners are willing to take more risk and pursue profits more aggressively, thanks to the liability protection they receive when strategies fail. But even more important, corporations can raise money to become very large. While most people are afraid to invest in (and thus become part owner of) a business run by other people if doing so could cost them all they own, they are eager to invest in a promising company if the most they can lose is the money invested and nothing more. For them, there’s no limit to earnings, but there’s a strict limit to losses; they enjoy the benefits of ownership without the responsibility of ownership. Thus, a corporation can raise millions of dollars from many owners eager for gains and, in turn, grow far larger than any sole proprietorship or partnership ever could.
The benefits of large corporations are numerous. First, they can produce items en masse. A corporation that manufactures 1000 socks a day can produce them more cheaply than a one or two person operation can. They can buy supplies in bulk and can operate assembly lines in which many people and machines work simultaneously on different stages of the production process. Lower costs of supplying socks lead to lower sock prices for consumers. Second, corporations can produce products that no individual ever could, such as cars and jets, which make our lives more enjoyable, and washing machines, showers, and refrigerators, which have reduced the amount of time daily chores take from our lives. While socialist/communist countries, like the Soviet Union, also produced these products, they were far more expensive to produce than those of corporate capitalism, thanks to inefficiencies in the socialist/communist system.
[Next week – “The Failings of Corporate Capitalism”]