Macroeconomics 122
When you think about arguments against Socialism, or Communism, or Marxism, what comes to mind? Most of my students struggle to clearly define any of those terms—although I’m sure they heard people refer to them hundreds of times, it seems like we’ve failed to communicate what they are or coherent arguments against them. In fact, many of my students react to those three words in a way that reminds me of another set of three words… Trump Derangement Syndrome, aka Orange Man Bad. If you support President Trump and you see someone writing you off without intellectually engaging or making an attempt to understand where you are coming from, that causes a breakdown. I’m seeing more and more breakdowns, and I’m afraid it’s from failures in our education system.. too much indoctrination, and not enough real learning and independent thinking.
Here it is, a working set of definitions:
Capitalism is an economic system based on private property and the free market. The means of production and distribution are privately owned, and it relies on Adam Smith’s “Invisible Hand” to coordinate individual self-interest with the best outcomes for society.
Socialism is an economic system in which the means of production (capital) is centrally, collectively owned. There is still some correlation between individual input and output into the system: “From each according to his ability, to each according to his contribution.”
Communism‘s goal is to create a classless society coinciding with the elimination of private property entirely. “From each according to his ability, to each according to his need.” Citizens are supposed to operate on “enlightened” self-interest, which puts the group ahead of the individual.
Marxism refers to a broader social, political, and economic philosophy, viewing society’s movement from Capitalism to Socialism to Communism as inevitable; it’s only a matter of time. Marx advocated for workers (proletariat) to unite and revolt against the Capitalists (bourgeoisie) to speed up the process. Did you know “boujee” is slang for upper class, lush, etc? Marx is still trendsetting…
Two key differences, if you’re taking notes: 1) private property vs. public property, and 2) decentralized planning vs. centralized planning.
Every semester, after I ask my students to define these alternative economic systems, I ask them what their best arguments against them are.
First, they tell me that these systems cannot work because people are lazy. Any sort of collective breaks down because someone can stop working but still be supported by the others, then that attitude spreads until nobody is working. “The laziness problem.”
Second, they tell me these systems cannot work because there are no examples of them working in the past. Look at the Union of Soviet Socialist Republics, look at the People’s Republic of China, look at the Bolivarian Republic of Venezuela. “The precedent problem.”
Done. Can we move on now? Nope.
Those two arguments may be sufficient to confirm your own bias, but they are not moving the needle against a true believer. Are you aware your opinion of human nature is just that, an opinion? Western tradition is based on a belief in man having a sinful, fallen nature, and that being a fixed, static reality. This is built into our worldview, our paradigm. There are plenty of serious thinkers who argue human nature is good, or believe it is malleable and can change depending on the environment. When it comes to human nature, no side can *prove* they are right.
Building on this, it’s a logical fallacy to think something that has happened in the past must continue to happen in the future. Just because we have woken up every day of our lives so far doesn’t mean we are immortal. Just because an outside-shooting team has never won the NBA Finals doesn’t mean they never will. As a matter of fact, isn’t our society supposed to universally endorse the phrase “If at first you don’t succeed, try, try again!”? Are you allowed to pick and choose when you embrace that mentality?
Do you know what the standard Capitalist approach to arguing against Marxism reminds me of? It reminds me of the standard Atheist argument against Christianity.
Let’s take a closer look at Marxism.
Karl Marx is not the bogeyman. He grew up in the back half of the first Industrial Revolution, and he saw how factory workers were treated. He coined the term “capital” and wrote ~1,400 pages in Das Kapital to critique “capitalism”. He thought on a nearly incomprehensibly “macro” scale, and simultaneously cared about the well-being of the individual people who make up the working class AND was willing to trade millions of lives in the present for potential benefits to billions of future workers. His ideas spread so quickly the first Communist revolution was in 1917, only 34 years after his death.
I’m not going to go in-depth humanizing him, the point is simple: Marx is a compelling theorist and has legitimate critiques of Capitalism, and there are large groups of educated, intelligent, good people who feel like Marx has their back in areas Capitalism turns its back on. If you write him off, you are oversimplifying and underestimating Marxism.
This is the 12-page excerpt we usually read: Economic and Philosophical Manuscripts of 1844 — Estranged Labour. I’ll summarize a few points for you (if you read it, note that Marx uses “political economy” to refer to Adam Smith’s concept of classical free market Capitalism, more or less).
Marx claims Capitalism “takes for granted what it is supposed to explain”, demanding an explanation for private property being the foundation of the economy.
Marx claims free market competition is only “war amongst the greedy”, i.e. Capitalism incentivizes greed (and brings out the worst side of our nature).
Marx claims wage laborers become commodities, and worse—”the worker becomes all the poorer the more wealth he produces”. Basically, a worker paid by the hour is enriching his employer by being good at his job, and benefitting consumers as well. If increased productivity from the hourly worker means the boss and the customer are both getting wealthier, but the worker is not, it’s the equivalent of getting poorer.
Marx argues Capitalism causes workers to become “alienated” in three stages: first, it’s unnatural to create something and not have any claim of ownership in it. So, the products of a worker’s labour becomes foreign and appear “hostile”. Second, since the labour is “coerced”, then it starts a process in which “what is human becomes animal, and what is animal becomes human”. Workers start to feel free only in their animal functions (eating, drinking, procreating), and feel like an animal in what should be their human function—working. This leads to the third stage. Marx says that work, labour, production, is what separates us from animals. “The animal is one with it’s life activity…[Man] has conscious life activity. Ultimately, Marx claims wage labor dehumanizes people, alienating workers from their “species-being”.
Marx is not easy to read, so we take it slow. There are reading questions, discussions, and accompanying “diary” prompts. We talk about how many people we know seem to feel fulfilled by their jobs, the culture of “working for the weekend”, and how many hours of your day you would trade for various levels of wealth. We discuss the tradeoffs to specialization and division of labor—is it possible to overspecialize? (spoiler: definitely). One diary question, no joke, asks how you would spend your time if going to school was not compulsory. Going forward, that response will be more evidence-based… More often than not, I feel like this is the first time in their lives my students have directed any real thought toward the idea Marx may have justifiable points, and they are so reluctant to engage I’m often forced to oversell it just to shake them out of their comfort zone. If you think Marx is the devil, it might wake you up to hear your teacher take his side.
Once I am convinced they are convinced Marxism is something to be taken seriously, we move forward and cover practical, economic arguments for why Socialism or Communism can never work on a large scale.
Marxism versus Capitalism is the ultimate “theory” versus “practice” conflict. Aspects of Marxism sound good to me, in fact I would suggest the ideal family structure, or even a good high school team sport dynamic, is closer to Marxist than Capitalist. Everyone does what they can, finds a role in which they can contribute, and prioritizes collective success ahead of individual success. It has to be voluntary, though; these things cannot be coerced.
“‘I am, at the Fed level, libertarian;
at the state level, Republican;
at the local level, Democrat;
and at the family and friends level, a socialist.’
If that saying doesn’t convince you of the fatuousness of left vs. right labels, nothing will.”
Nassim Nicholas Taleb / Skin In The Game
Free market Capitalism is a flawed system, but it scales well. It’s okay to say it out loud. Pretending it’s perfect only makes it worse. Married couples who face their shortcomings are healthier than those who ignore them. Opponents will respect your argument more if you acknowledge their critiques are valid. You can lose battles and still win the war.
Winston Churchhill is credited with a few relevant quotes.
First, “Democracy is the worst form of government, except for all the others.” [this is how I view Capitalism]
Second, “The inherent vice of Capitalism is the unequal sharing of blessings; the inherent vice of Socialism is the equal sharing of miseries.”
Or this quote from Oscar Wilde: “A cynic is a man who knows the price of everything, and the value of nothing.” [substitute “cynic” with “Capitalist”]
Consider two competing economic systems. One is proven to be good at creating wealth, but has a history of failing to value people. The other claims to be good at valuing people, but has a history of failing to create wealth and failing to value people. Those are your options.
So which is more reasonable? Teaching Capitalists to empathize with other human beings on interpersonal levels, or teaching Marxists how to efficiently create wealth on large scales? Turns out, you can’t just teach markets to be efficient. You can teach humans empathy. These are your tradeoffs, people. Here’s the proof.
Ludwig von Mises is the O.G. Austrian economist, and he wrote Human Action. The handout we cover in class is entitled Liberalism: In the Classical Tradition. Mises points out societies without free market economies are always going to be inefficient, because they have no basis to make calculations. Consider a private company in a free market economy who is determining the best way to build a railroad from point A to point B. If there is a mountain in the way, do you go around, go over, or go through? This requires a lot of calculations, including materials, maintenance, and time. In a socialist or communist state, without free market prices, there is no reliable way to determine the most efficient route, so they have to guess. In that example, they have a one in three chance of being correct (four, if you count *not* building), but think about it. The government makes every decision and every decision the government makes is a guess? And every decision more than three choices. Even with the railroad, each of the three decisions can be broken down into hundreds more. The odds are stacked against efficiency, and without efficiency, you will lose wealth, not create it.
In pure free market Capitalism, the companies who make bad calculations are held accountable, and they lose money. If they do it repeatedly, they go out of business, and a more efficient company takes their place. Perhaps the industry itself isn’t efficient, so it is phased out. This is how wealth is created. If a business fails and the government’s response is to take money from other people to keep it afloat, that is not efficient, and that is not capitalism.
Practical economic argument number one against Marxism working on a large scale: The Calculation Problem, by Ludwig von Mises.
Back to F.A. Hayek, who was a student of Mises and built off his critiques. His most famous book is The Road to Serfdom, but his essay The Use of Knowledge in Society was published in 1945, and it’s brilliant. He starts by laying out the basic problem economies have to solve: ever-changing knowledge. No single person has all the knowledge to make the most efficient decision, and even if they did, the variables are constantly changing. Imagine someone tasked with deciding how much meat to butcher for a city or state the following week or month or year. How long does it take to gather the information? Once you have the information, how long does it take to do anything about it? The point is, the “right” answer is constantly changing. No central planning system can possibly keep up, thus, no central planning system can be efficient. Hayek is the one who specifically points out the value of “knowledge of specific time and place” in comparison with “scientific knowledge”. Think about a farmer or a teacher or a small business owner who has decades of experience in their industry. They know things experts will never know and no statistic can ever quantify. In fact, every person knows something no one else knows, and we make decisions every day based on this exclusive knowledge. What if we could invent a system in which every individual can share their exclusive knowledge with everyone else in the world, practically instantaneously? Hayek says this would be considered the most marvelous invention in history, and it already exists: the free market price system. We all make decisions based on what we know, and our decisions are translated into prices. You don’t need to know who made the decisions or why, but you can see the price of meat going up, and you adjust your behavior accordingly. Numbers are the universal language, and the price system is basically a hive mind. Without the free market, there is no way for this knowledge to be communicated efficiently.
Practical economic argument number two against Marxism working on a large scale: The Knowledge Problem, by F.A. Hayek.
If you default to “The Laziness Problem” or “The Precedent Problem” when arguing against Marxism, please upgrade. And don’t feel bad about empathizing along the way, McCarthyism is *mostly* in the rearview mirror. Marxism is admirable in theory and practice on a small scale, and on large scale it is still compelling in theory, but ultimately doomed and deadly in practice. The best way to prevent it from spreading it to understand its strengths and weaknesses, not blind indoctrination and demonization.
I do have a book recommendation for you, on this fine Thursday. Man’s Search for Meaning, by Viktor Frankl. Written by a psychiatrist who survived Auschwitz, it’s a short (146 page), moving book on the power of meaning and how to approach suffering.
“Life is not primarily a quest for pleasure, as Freud believed, or a quest for power, as Alfred Adler taught, but a quest for meaning.”
Viktor Frankl / Man’s Search for Meaning
A few years ago I bought that book for my brother for Christmas, and few months later he was reading it in a coffee shop when a random girl sat down at his table. They started talking. Now they’re married. True story.
I have three copies to give away, no restrictions on winners or time. No guarantees you’ll fall in love while reading it, but I’ve seen worse strategies.
Thanks for reading my blog during remote teaching; it’s been an honor.
