Preface
One of the more startling developments of recent years has been a renewed enthusiasm for socialism, especially among millennials and Generation Z. Indeed, opinion polls show that American millennials and Generation Zers have a highly favorable attitude toward socialism. Polls indicate that upwards of 70 percent of people in these age groups favor socialism. Th ey perceive that socialism provides more economic security, a greater sense of togetherness, and more equality of wealth and income. Adding to the popularity of socialism is an underlying notion that, under socialism, the things we want—college education, health care, and housing—would be free of charge. Th ere’s very little realization that these things require costly resources and must, at the end of the day, be paid for. In other words, to get these things for free, ultimately, we have to give up other things—indeed, a lot of these other things—that we also value.
Very seldom do you hear proponents of socialism addressing the other side of the coin: What the average person must give up to get these “freebies.” And how, in the end, it will be impossible to satisfy everybody’s wants. Invariably, there will be some type of unpopular rationing procedure to determine who the lucky ones are who get the scarce items being provided for free. Moreover, these rationing procedures inevitably pose an irresistible temptation for corruption. Those deciding who actually gets the scarce item can line their pockets with surreptitious payments from those most wanting it. It happens all the time.
Overlooked, too, is the tendency for such centrally directed economic systems to override personal freedom. When the government makes choices for us, we have ceded our right to make those choices ourselves. And the more choices that we’ve turned over to the government, the more our personal freedom has been curtailed.
Also playing a role is an attitude that has developed— aided by the media and Hollywood—that our market-based (capitalistic) system is based on greed, exploitation, and abuse. It’s a rigged system in which the average person doesn’t have a chance.
In addition to being unfair and drawing out the worst in people, inherent in capitalism are financial crises and major economic disruptions. Indeed, the financial crisis and Great Recession of 2008 and 2009 played an indisputable role in fostering these attitudes. Capitalism is portrayed as a dog-eatdog system in which only the fittest and craftiest survive. This can be pretty scary, especially for those who have always gotten a shiny trophy for participating in competitive events, regardless of where they finished. The popularity of Bernie Sanders and, more recently, Alexandria Ocasio-Cortez (AOC) epitomizes the attraction of millennials and Gen Z to socialism.
Meanwhile, Che Guevara, associated with Marxist revolutionary movements in the Western Hemisphere, is lionized as a champion of the downtrodden. Che is commonly found on tee shirts of the young. Lost in all of this is the historical record of the real Che. The real Che was ruthless in his dealings with anyone who opposed him. He was responsible for the murder of thousands and he fiercely beat thousands more.
The popularity of socialism seems ironic in light of the long trail of failures of socialism in its various forms, including pervasive corruption and brutal suppression of opponents. Moreover, we can watch a real-time example in Venezuela, which has been disintegrating before our very eyes—empty shelves, ongoing electrical blackouts, vanishing health care, historic hyperinflation, government repression, widespread corruption, and murders of families seeking to escape across its borders. Or contrast North and South Korea—the former a communist (socialist) system and the latter a capitalist (or market-based) system. The people who live in these countries share the same cultural heritage and inhabit the same corner of the earth. Yet one group perpetually lives at the edge of starvation and is subjugated by a vicious regime while the other—which may have produced your car, TV, or smart phone—thrives.
These examples reveal a huge chasm between the utopian ideals of socialist thinkers and actual performance. Interestingly, those countries that had been socialist in Eastern Europe have embraced market principles and have no desire to return. Nonetheless, Bernie’s views on the desirability of socialism have changed little over the decades, even in the face of the lengthy string of failures. The examples also reveal a widespread jaundiced view of the contributions of market (capitalist) systems, which have done more to raise standards of living around the world and lift people out of poverty than any other economic system in history.
This fascination with socialism by millennials and Gen Z is another example of the validity of George Santayana’s statement that “Those who don’t remember the past are condemned to repeat it.”
Yet many have argued that socialism is most consistent with biblical teachings. Frequently mentioned is the early church in Jerusalem described in Acts 2:42-47. Believers were selling their possessions and sharing with others, so that the needs of each member of that community were being met. Also, other biblical references to caring for the poor and the curse of being rich are viewed as supporting a system in which government performs the role of the leveler—redistributing wealth from the rich to the poor.
This book addresses the fundamental features of all major economic systems, including capitalist and socialist systems. Communism is a variety of a socialist system, and fascist systems—most notably those of Nazi Germany and Fascist Italy—have their origins in socialism. These are contrasted with the basic features of a capitalist or market-based system. The Bible doesn’t prescribe any specific economic system but is fairly clear about the underpinnings—or pillars—of these economic systems.
This book uses the term “market-based” system instead of “capitalist” system. The latter has more emotive content and is misleading. Karl Marx, author of the Communist Manifesto and Das Kapital, favored the term “capitalist,” and the term is widely used today by critics of market-based systems. Marx saw the population as divided into two opposing groups—workers and capitalists. Capitalists were the owners of the businesses that employed the workers and of the capital or machines used by workers in the production process. Marx described workeremployer relationships in the context of the manufacturing sector, in which employers were factory owners.
In his view, a highly adversarial relationship existed between workers and capitalists, one in which capitalists had the upper hand and routinely exploited their workers in their pursuit of greed. Capitalists expropriated for themselves some of the value created by workers during the production process—value that legitimately belonged to workers. Moreover, one’s economic and social position was passed along to the next generation; thus, your economic and social plight was determined by your birth. The offspring of capitalists became the next generation of owners and managers of factories while the offspring of workers became the next generation of exploited workers. For the workers, there were no avenues of upward mobility for their children—their children, too, were stuck in the misery foisted on them by greedy and uncaring capitalists. Furthermore, workers and capitalists formed the primary social classes, and tension between the two also represented a grave social clash.
This was a highly simplified characterization of economic reality, even in Marx’s day. It didn’t describe agricultural, retail, and other service workers who were around in large numbers at the time of Marx’s writings. In these sectors of the economy, family operations, sole proprietorships, and partnerships were common. In these situations, relationships between owners and those providing labor were typically much different.
Today, we live in an economy that’s largely a service economy, in which more than two-thirds of total output takes the form of services instead of manufactured, tangible goods. More importantly, modern employers—be they in the service sector or manufacturing—realize that satisfied employees are more productive and more valuable to the company than disgruntled workers. Furthermore, in a competitive labor market, discontented workers can leave and are prone to search for greener pastures. When this occurs, employers must undertake costly searches for replacements and costly training programs for new hires, not to mention disruptions to the production process while this is taking place. In response, we see employers luring new workers and seeking to retain existing workers by offering flex-hours, work-from-home, and other amenities that cater to changing lifestyles, along with competitive compensation. In these circumstances, workers in the private sector today see very little need for labor unions to represent them in dealing with conflicts with their employers, as witnessed by a paltry 6% of the private sector labor force being unionized.
Consequently, the differences between workers and employers have become blurred. Workers own corporations through their 401(k) plans and through their savings placed in mutual funds. In that sense, they’re capitalists. And managers of many successful businesses place their desks out with their employees, dress like them, and mingle with them throughout the working day. Business managers do have some ownership in the businesses they manage, but this typically is required by the board of directors chosen by the shareholders and to whom managers are accountable. The board wants its managers to have “skin in the game” to better align the managers’ interests with those of the other shareholders, so that their actions will be in the best interest of shareholders generally.
Moreover, those with the greatest holdings of wealth today haven’t acquired that wealth through inheritance. The wealthiest today are self-made entrepreneurs. In other words, the wealthiest Americans have created their own wealth and haven’t had it passed down to them. The top ten wealthiest Americans have names such as Gates, Zuckerberg, Bloomberg, Koch, and Brin—one of these is barely into his thirties. They’re all multi-billionaires. Some made their fortune by translating a novel idea into a product used widely around the globe, while others used keen judgment to find established businesses that were languishing and needed help to turn their fortunes around.
For these reasons, the term “market-based” is used instead of the term “capitalist” to refer to a system in which people—be they employees or employers, consumers or businesses—respond to market incentives as they pursue their self-interest. In this setting, economic outcomes result from the interactions of these numerous parties, each pursuing their self-interest—and not from central plans and direction. Property is privately owned, and large numbers of workers also have an ownership stake in corporate businesses, often indirectly through 401(k)s and other retirement plans. In the appendix, we’ll examine the conditions that are required for such an economic system to perform at a high level and get the most out of the resources available.
It’s worth noting that many of the proponents of socialism today appear to have a somewhat different version in mind than the types of socialism that have described the past. Under standard forms of socialism, property is owned collectively— and not privately. Production takes place through state- or collectively owned enterprises, not through private businesses. Socialists today focus more on using the state to redistribute income and wealth and to make widely available certain goods and services to the public, such as health care and higher education, at no out-of-pocket cost. Some see production being undertaken by government while others see a role for private suppliers. In any event, the government would be applying a heavy hand in regulating and controlling the economy, as in more traditional socialist and fascist systems. As a consequence, the scope for corruption and abuse is magnified, as in those other non-market systems.
In practice, most economies today are, in varying degrees, welfare states, relying on market forces for the bulk of the production of goods and services and the government to provide a safety net to those at the lower end of the income spectrum. The resources for the safety net come from disproportionately high taxes on those at the upper end. The United States has introduced a moderate welfare state, while Northern European countries have gone considerably further.
As noted, the Bible doesn’t specifically prescribe any of the economic systems addressed here, those that have characterized the past century. However, each of these systems is built on four pillars, and the Bible does have something to say on these. Perhaps, not too surprisingly, the Bible is most consistent with the system that the nation’s founders established, one based on freedom and individual choice.
This book is an outgrowth of an invitation that I received to speak on alternative economic systems—communism, socialism, and capitalism—including which is most compatible with biblical teachings at an annual Ratio Christi Symposium. As I researched the topic, it became clearer to me that marketbased systems are most consistent with the teachings of the Bible.
Nonetheless, the Bible doesn’t condone excesses that can develop in a market economy (or any other economy), and each of us has a responsibility to care for those unable to care for themselves and to resist the temptation for wealth to become an obsession in our lives and stand above God.
By way of background, my appreciation for the basic workings of market-based economic systems has grown over a lifetime of being a student of economics and economic systems. I was raised the son of parents who struggled to make ends meet during the Depression of the 1930s, and who regarded government and labor unions to be a necessary protector of workers and consumers. Indeed, my father served as president of a labor union for a number of years. Needless to say, my parents were skeptical of free and open markets. Growing up, I also had the view that private business activity—working for businesses or buying from some businesses—was tainted. There was something morally questionable about doing so. Government and nonprofit organizations were more virtuous.
However, once I began studying economics in college, my views started to change. I began developing a realization that market-based systems are complex ecosystems that work in harmony to deliver impressive results. Also, I came to realize that people pursuing self-interest in the marketplace isn’t much different than pursuing self-interest by eating when feeling hungry. We are wired this way to preserve life by an intelligent designer. This appreciation for market systems grew as a Ph.D. student in economics at the University of Chicago. The contrast between economic performance under market-based and socialist and communist regimes took on new meaning during my career as a central banker at the Federal Reserve Board in Washington, D.C. In that capacity, I was privileged to be able to provide technical assistance to central banks in former socialist and communist systems. These nations had lived with the widespread shortcomings of centrally directed economies and wanted to emulate the performance of the United States and other market economies. Moreover, at the same time, most also were turning to democracy as a way of enabling their citizens to choose their political leaders and how they would be governed, in keeping with their new freedom to choose what to buy in the marketplace and where to work.
The vibrancy of economic life in well-functioning market systems is palpable. Moreover, these systems, perhaps ironically, treat individuals with more basic dignity, and are more compatible with democratic political systems than the others. They provide more transparency and less scope for corruption than other systems. But they’re not perfect and come with a list of well-known market failures. In those circumstances, they provide opportunities for humans to use their God-given abilities to develop public policy to achieve better outcomes, although it needs to be noted that the cure for the shortcomings can sometimes be worse than the disease. This is to say that all economic systems, including market-based systems, come short of delivering perfection—which is the human condition in a fallen world. It will continue to be the human condition until, as the Bible assures us, Christ returns.
This book is written for all persons interested in the issue of capitalism versus socialism and wanting an authoritative and even-handed treatment of the topic. It’s written for an audience having no background in economics. It’s especially of value to parents who want their children to be well informed on this critical issue. Indeed, each chapter has some questions to stimulate good discussion around the dinner table. They’re intended to launch a constructive back and forth discussion and not necessarily to come up with definitive answers.
A few biblical propositions underlie the arguments presented in this book:
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The Bible from Genesis through Revelation is the revealed word of God and is to be relied upon and trusted in making decisions and forming judgments.
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God created humans in His image, including giving us the ability to reason and the opportunity to make our own decisions (Genesis 2). This implies that all humans have immense value, and that no one person is any more important than any other. It also implies that individuals are competent to make important decisions.
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In exercising our freedom to make decisions, we have repeatedly chosen to put our will ahead of God’s (Genesis 3—committed sin). The consequence has been a fallen (imperfect) world. A just God cannot tolerate sin and relegates all of us sinners to an eternity apart from Him—hell.
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But God is also a loving God who has provided a plan for redemption, through His son, Jesus. Jesus ushered in a new era (kingdom of God) for those who accept Him and his sacrifice. He will return at some undisclosed time in the future to restore creation (Daniel and Revelation). Perfection won’t come until then. In the meantime, we’ll remain consigned to a fallen world, but one that we can and are obligated to make better.
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