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Dec 2, 2019

What We Don’t Know About Socialism Can Hurt Us

While interest in socialism is on the rise among younger Americans, the history of global socialism should give pause.

There is much confusion over what the term socialism means. To Americans who lived during the Cold War, socialism invokes images of the Gulag in Soviet Union, the mass starvation due to Mao’s policies in China, or the rampant poverty and political oppression of Eastern Europe. Younger Americans, those born after 1989, seem to view socialism as a system aimed at alleviating social injustices. They want more government control of the economy and more wealth redistribution to address both historical and societal injustice. As such, they have uncoupled socialism from its history and redefined it as a more intense form of welfare capitalism (which has been around since at least the New Deal). As a result, we all seem to be talking past one another and thus incapable of understanding what we are actually debating.

Defining Capitalism

Words matter. Definitions matter. And most importantly, historical experience and context matters. If we want to change society, we must have some concept about what needs to be jettisoned, what needs to be reformed, and what is essential and must be kept. Without history such an endeavor is impossible. And yet the political conversation today is removed from that historical reality.

First, I think it is imperative that I explain what I mean by the term capitalism. Capitalism is a cultural and economic system that emerged in the late 18th and early 19th century in opposition to mercantilism, which was the dominant economic system of the time. Capitalism emphasized free trade, denounced protectionism, and depended on a set of liberal institutions – including the courts – to protect individuals’ rights to free speech, due process, and, perhaps most importantly, private property. Culturally, capitalism destabilized the hierarchical social structures of the 18th century and replaced them with an egalitarianism that granted dignity to men and, eventually, women who engaged in market-based transactions. Market engagement began to lose its stigma. The goal of the entrepreneurially-minded would no longer be to become a landed aristocrat who could wash his hands of commerce; rather, commerce became dignified.[1]

The incentive structures of western societies changed quite drastically. Entrepreneurship was directed toward new, more productive professions. Technological innovation emerged in response to the incentives created by the capitalist economic, social, and cultural system. Western Europe underwent rapid industrialization, experiencing both population and productivity booms that ultimately allowed urban workers to not only live but to also to thrive. However, as new cities, like Manchester in England, were created, the problems of industrialization also emerged: overcrowding, poor sanitation, and the loss of worker dignity as they moved from skilled artisanal labor to unskilled factory labor.[2]

Marx’s Critique on Capitalism

During the Second Industrial Revolution a German philosopher, Karl Marx, wrote Das Kapital, which was both a theory of history and a critique of capitalism. Based on the flawed concept of the labor theory of value, Marx argued that the profits of capitalists were the product of exploiting the labor of workers. Marx argued that capitalism was only a temporary stage in history and that the bourgeoise “forged the weapons that [would] bring death to itself” and had “called into existence the men who are to wield those weapons — the modern working class — the proletarians.” Marx believed that the poor working conditions and wages in factories would propel the proletariat to rise up, overthrow the capitalists, and establish collective control of the means of production. Yet capitalism was a necessary step toward communism – which Marx believed was the ultimate mode of production for civilized society.[3]

Contrary to Marx’s prediction, however, the bourgeoise reformed industrial life in response to worker agitation and labor market demand. Wages increased steadily throughout the 19th century and working conditions improved. Unions were formed and, in time, offered a place at the negotiating table. Capitalism evolved and addressed many of the concerns of workers. And so the proletariat, far from demanding revolution, started ordering from the Sears catalogue, drinking Coca-Cola, and spending their half day off on Saturday attending professional sporting events, like soccer in the UK and baseball in the United States. They were too busy to have time for revolution.

Socialism in World War I through the Cold War

In 1914, Russia did not rank high on the list of places primed for a communist revolution. After all, it had little industry, which Marx had said was a precondition for a worker revolution. Indeed, compared to Germany, France, or Britain it was quite poor and the majority of its population were farmers. And yet after October 1917 it would be Russia that would become a hotbed of Bolshevik action. Lenin, recognizing that the Russian people were not ready for true communism, advocated for a vanguard of the proletariat that would instruct the workers in revolutionary politics and make them aware of their class consciousness.[4]

In the wake of World War I, the Soviet Union became a pariah state that was shunned by the west. News of disconcerting happenings in the Soviet Union reached western presses, though some were unwilling to believe reports about the Holodomor, Stalin’s forced collectivization of farms in the Ukraine that killed about 3.5 million people.[5] The existence of a vast system of Siberian prisons for political prisoners, the Gulag, did little to help western public opinion, though the perception of the Soviet Union did improve slightly during the Great Depression of the 1930s when some western intellectuals and politicians travelled to the country to see how it had avoided the worst of the economic downturn. Collectivized farming and worker-organized factories captured the imaginations of some Left intellectuals, but no comparable movement for such a system in the United States emerged.

The Soviets’ reputation took a further hit in 1939 when Stalin cut a deal with Hitler to divide Poland and other parts of Eastern Europe. This deal, known as the Molotov-Ribbentrop Pact, allowed both Germany and the Soviet Union to fulfill their expansionist desires without fighting one another. The West felt betrayed, but the reality was that Hitler couldn’t stand communists any more than he liked western liberals. In 1939 there were three different visions for modernity:

The first was a fascist modernity based on racialized theories in which the German and Anglo-Saxon races were superior and as such should dominate the world. Fascists believed that the economy should be subservient to the nation and so organized their economies from the top down. They allowed private property ownership although only to the extent that those owners embraced the nation’s vision for economic activity and expansion. All of society, including the economy, was to be directed toward the betterment of the German volk.[6]

The second was the communist vision of a socialist economy directed by those elected from local and national workers councils (called ‘soviets’). The government – or in the idealized state, the workers – would own the means of production and would rationally dictate what should be produced and in what quantities. Individual economic and social needs were relegated to the determination of the collective.

The third vision for modernity was the western liberal capitalist vision marked by individual liberty and international markets. Here individualism was encouraged and private property was seen as essential to economic vitality. Furthermore, a price system based on market supply and demand – rather than a team of technocrats – dictated the type and quantity of goods that needed to be produced. In short, spontaneous order rather than State-imposed order would direct society’s economic activities.

Of course, we know that Hitler ultimately betrayed Stalin and that the United States, after Pearl Harbor, entered World War II. As a result, the United States and the Soviet Union found themselves allies during the war. It was clear very early on, however, that Franklin Delano Roosevelt and Stalin had very different conceptions of what the postwar world would look like. Stalin wanted an Eastern European buffer zone between the Soviet Union and Germany in which he could guarantee the election of pro-communist regimes. For its part, the United States would demand free elections in the liberated parts of Western Europe.[7]

However, after Hitler was defeated, the US recognized the need for international institutions to encourage democratic development and stimulate international trade across the globe. The liberal project of globalization threatened Stalin’s global goals, so he and the other allies were unable to come to an agreement on the future of Germany. As a result, Germany was divided, with the East placed under Soviet supervision and the West under the supervision of the US, France, and Britain. Berlin, which was located in Eastern Germany, was likewise divided into an eastern socialist zone and a western capitalist zone.

The Cold War that ensued was a competition between conflicting worldviews: liberal democratic capitalism versus authoritarian socialism. The American and Soviet superpowers forced newly formed nations across Africa and Asia to pick sides and choose between the Americans or the Soviets. Due to the oppressive history of western European colonization, more than a few of these countries gravitated into the Soviet camp.

While the world was being divided, West Germany was becoming a problem for the Soviets. Under the leadership of Chancellor Konrad Adenauer and his ordoliberal Minister of Economics, Ludwig Erhard, West Germany experienced an “economic miracle” brought about by a stable currency, dramatic middle-class tax cuts (from a ~85% marginal rate to 18%), and heavy capital investment.[8]

Many East Germans wanted to be part of that miracle and East German emigration to West Germany became a massive problem for the Soviets. From 1950 to 1953 alone, around 1 million people fled socialist East Germany to capitalist West Germany, prompting the authorities to create a barbed wire fence with checkpoints between the two countries. This effectively shut down emigration from east to west. However, East Germans quickly realized that there was a loophole to these restrictions, the city of Berlin.

The city became a magnet for East Germans who wanted to escape to the West. By 1961, 3.5 million people, or 20% of the population, had fled East Germany. Of those escaping after 1953, 90 percent left through Berlin. In response, the East German government built barriers to keep their own citizens from escaping. Initially, the divide was simply barbed wire, but in time the East Germans built a massive wall, dividing families and establishing a physical barrier between the impoverished east and the prosperous west.[9] Even with the wall in place, however, enterprising East Germans would smuggle people into apartments overlooking West Germany. Journalists captured dramatic scenes of people jumping out of apartment windows and being caught by the West German fire department waiting with a safety net below. In response, the East Germans blocked up the windows so even this loophole couldn’t be exploited.[10]

The Berlin Wall accomplished its purpose of keeping East Germans in East Germany and it deescalated tensions in the Cold War. However, it became the physical representation of the oppressiveness of governments in the Soviet-dominated Eastern bloc countries and an acknowledgement of socialism’s inability to compete with the capitalist west in terms of providing political freedom and economic prosperity to its citizens.

The fact that capitalism outperformed socialism isn’t really up for debate. Even looking at the admittedly dubious statistics from the Soviet government, GDP per capita in the United States was over three times what it was in the Soviet Union in the mid-1980s. When the Soviet Union collapsed in 1991, it was widely accepted that US diplomat George Kennan had been correct when he argued at the outset of the Cold War that, if contained, the Soviet Union would decay from the inside out, largely because of its inept command economy. It was also widely accepted after the dissolution of the Soviet Union that the contest between capitalism and socialism had been settled as well.

Liberalism Takes Hold

The 1980s and 1990s were an era of broad liberalization across the world. Trade barriers went down, cooperation between nations increased, and global poverty sharply declined.[11] Some historians proclaimed it the end of history – liberalism as an ideology, they said, had won. In economics departments, classes like comparative economic systems, which had studied the differences between command economies and marked economies in a more or less neutral fashion, were stripped from the books. Liberal bourgeois capitalism had seemingly won. There was no other efficient way to organize society.[12]

Nations across the world, including the Scandinavian countries and Great Britain, deregulated, lowered their tax rates, and decreased barriers to trade.[13] But, as has often happened since the advent of liberalism, prosperity sowed the seeds of discontent. As Hans Rosling reminds us, while things are in many ways better than they have ever been, people often don’t recognize the tremendous progress that has been made. Instead, we focus on all the things that are wrong.[14]

And so here we are. We live in the most prosperous time in human history and yet no one is very pleased with the current state of affairs. Older, blue-collar workers lament the loss of industrial jobs and young, woke, college-educated Americans denounce the evils of capitalism and its exploitation of marginalized peoples. As such, both groups have taken to denouncing capitalism in favor of protectionist nationalism on the right and democratic socialism on the left.

Why are we so wrong about the world? Well, as a historian, I think the answer is obvious – we don’t know our history. The history I have just recounted to you has either been forgotten by large swaths of the population or it was never learned in the first place.

Young Americans support socialism at a much higher rate than older Americans, partly because they didn’t live through the Cold War. However, they likely wouldn’t acknowledge Soviet socialism as resembling what they call socialism. After all, democratic socialism is supposed to empower the marginalized, not crush them as Soviet socialism often did. At the same time, however, 96 percent of Americans support small businesses and have a positive view of entrepreneurship, both of which are bedrocks of a capitalist society.[15] Furthermore, American consumers love the sharing economy and online shopping. Just try to take away UBER, Amazon’s two-day shipping, or Starbuck’s mobile ordering system and I will guarantee a riot.

To be honest, I must conclude that most people advocating for socialism today don’t really want socialism defined as government control of the means of production. They seem to want something different – social justice, a larger welfare state, redistributive justice, attention to systematic oppression, etc. The desire to fight injustice is laudable, but justice has not been historically achieved by societies that have socialist economies. Indeed, the history of the twentieth century seems to confirm Milton Friedman’s assertion that “a society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” To be sure, there is still room for improvement, but the reality is that humankind has made tremendous progress over the past 200 years. It would be a shame to let the perfect become the enemy of the good. It would be a shame if Americans abandoned the free enterprise system, which remains the greatest vehicle yet invented for human flourishing.


[1]My conception of capitalism is drawn from the work of Joel Mokyr and Diedre McCloskey. Specifically Mokyr’s The Enlightened Economy: An Economic History of Britain, 1700-1850 (New Haven: Yale University Press, 2012), Mokyr’s A Culture of Growth: The Origins of the Modern Economy (Princeton: Princeton University Press, 2018), and Diedre McCloskey’s Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (Chicago: University of Chicago Press, 2017).

[2] For more see F.A. Hayek’s Capitalism and the Historians (Chicago: University Pres of Chicago, 1963).

[3] Karl Marx, The Communist Manifesto, 1848

[4] Vladimir Lenin, What is to be Done? 1902. For a full history of the Bolshevik Revolution see Edward Hallett Carr’s trilogy: The Bolshevik Revolution, 1917-1923.

[5]Ralph B. Levering et al. Debating the Origins of the Cold War: American and Russian Perspectives (New York: Rowman & Littlefield, 2002). Anne Applebaum, Gulag: A History (New York: Anchor Books, 2003).

[6] For more on the ideological underpinnings of Nazi Germany consult George L. Mosse’s The Crisis of German Ideology: Intellectual Origins of the Third Reich, 1964.

[7] There are many good histories of the Cold War including: Walter LaFeber, America, Russia, and the Cold War, 1945-1996 (New York: McGraw-Hill, 1997 (originally published in 1967); John Lewis Gaddis, The United States and the Origins of the Cold War, 1941-1947 (New York: Columbia University Press, 1972); John Lewis Gaddis, The Cold War: A New History (New York: Penguin Books, 2005); and Odd Arne Westad, The Global Cold War (Cambridge: Cambridge University Press, 2007). The details of the Cold War recounted here are a product of my years teaching the subject and were drawn from the before listed sources as well as many others.

[8] For more consult David R. Henderson’s article “German Economic Miracle” on Econlib. Accessible at https://www.econlib.org/library/Enc/GermanEconomicMiracle.html

[9] For more on the Berlin Wall see Frederick Taylor’s The Berlin Wall: A World Divided, 1961-1989 (New York: Harper Perennial, 2008).

[10] These images were caught on film and are part of CNN’s documentary The Cold War. The specific images I detail can be found https://www.youtube.com/watch?v=1uapVCH6hjU

[11] For how the world has improved since the end of the Cold War see Hans Rosling’s Factfulness: Ten Reasons We’re Wrong About the World—and Why Things are Better Than You Think (New York: Flatiron Books, 2018) and Steven Pinker’s Enlightenment Now: The Case for Reason, Science, Humanism, and Progress (New York: Viking, 2018).

[12] The most persuasive argument against centralized control of the economy was made by F.A. Hayek his 1945 article “The Use of Knowledge in Society.” https://www.cato.org/sites/cato.org/files/articles/hayek-use-knowledge-society.pdf

[13] For more on how European countries, including Sweden and Finland embraced markets, see Nima Sanandaji’s works: Debunking Utopia: Exposing the Myth of Nordic Socialism (WND Books, 2016) and Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-Way Socialism (Institute for Economic Affairs, 2001).

[14] Hans Rosling, Factfulness: Ten Reasons We’re Wrong About the World—and Why Things are Better Than You Think (New York: Flatiron Books, 2018).

[15] Frank Newport, “Americans’ View of Socialism, Capitalism Are Little Changed,” May 6, 2016. Accessed at: https://news.gallup.com/poll/191354/americans-views-socialism-capitalism-little-changed.aspx