by Charles Misak

Some terms we use to discuss various economic and political systems mean different things to different people. What I’ll try to do in this paper is provide a basic or classical definition of these different systems, as they were described by their originators or by practice in different nations. This discussion will be limited and will not discuss all the systems that exist, or all the variations that have been practiced. For that, it can be rightfully charged as being simplistic. But hopefully, it will serve to clarify more precisely what is meant by some of the more common terms we use today in our discussions.


SOCIALISM. Socialism is an economic system where the means of production are owned by the state or a cooperative of people. The state determines the allocation of capital resources, the allocation of labor, the products to be produced, the prices, and the wages and salaries. Personal economic freedom does not exist. Central planning is obviously a requirement. Socialism’s record is dismal and there are many reasons for that, which I won’t get into, some of which should be self apparent (just think about personal motivation and what happens when our federal govt tries to plan/run anything). The colossal demise of the USSR—the world’s largest experiment in socialism-- should have silenced the proponents of socialism forever, but it’s not looking that way. And, there are reasons for that too.

In terms of a likely political system to be married to this type economic model, F.A. Hayek, noted Austrian economist, believed that any movement toward socialism would run a huge risk of developing in to a totalitarian government. Jean Revel, the French journalist and philosopher who has extensively studied socialism, stated that the very essence of socialism is totalitarianism. They’re both probably correct about nations that are completely socialistic, but perhaps not regarding “mixed” systems.

What are some example of socialist countries? The former USSR, most former Eastern bloc countries, North Korea, Cuba, Vietnam, Maoist China, and some others.

Although socialistic thoughts and writings had been around for years, it was Karl Marx and Friedrich Engels who developed this concept to a high degree. Their argument was that the proletariat (the worker bees) had long been exploited by the bourgeois (capitalists) and they should rise up, in armed revolution if necessary; seize control of the government and all forms of capital, to include all the land. (More on this later as Marx moves from socialism to communism). It was their view that socialism would be a specific historical place that would displace capitalism and would precede communism. Thus, as outlined by Marx, socialism was an economic system, a political system (the proletariat is in charge of the government), and a social system.

What socialism is not? Some nations are mostly capitalistic, have parliamentary democracies, and support a robust welfare system. Thus countries like Norway, Denmark, are not socialist countries. That terms applies only to nations where private individuals/companies do not own the majority of the means of production

A distinction could be made between nations based upon their degree of welfare programs, from nations with cradle to grave social support to those with little social support. This would be a comparison of social welfare programs and not economic systems, per se.

Another distinction or variant worthwhile of discussion is a system where all companies, capital assets are owned by private companies but whose operations and decisions are tightly controlled or set by the state. Such was the case in Nazi German, where all publicly owned companies/industries were privatized by the Nazis, but very tightly controlled, managed by the Nazi party.

A final note on socialism, from George Bernard Shaw about the simple mindset of the Fabian Socialist Society: “Under socialism you would not be allowed to be poor. You would be forcibly fed, clothed, lodged, taught, and employed whether you liked it or not. If it were discovered that you hadn't character and industry enough to be worth all this trouble, you might possibly be executed in a kindly manner, but whilst you were permitted to live, you would have to live well.”

CAPITALISM. Think we all know about this fine friend. First described in extensive writings by Adam Smith in 1776. Capitalism is characterized by private ownership of the means of production (capital assets). The profit motive drives entrepreneurs to produce products the customer desires and sell them in a free and open market (no price fixing, no government interference). Prices, as well as wages, are determined by supply and demand. Financial rewards to entrepreneur and investors depend upon correctly ascertaining the customer’s desires and needs and providing the product at attractive prices. The system is based upon profit and loss, with the loss as an important factor in efficient capitalism. Losses weed out inefficient or mismanaged companies and result in survival of the fittest. What this means, at the end of the day, the customer is going to get the biggest bang for his bucks. Note that government interference (in terms of bailouts and subsidies) directly interfere with the important capitalistic process of weeding out losers—and thus providing the cheapest and best products for the consumer.

Historical record of capitalism vs. socialism: Milton Friedman, the most renowned American economist of the 20th century, has stated that the only cases in recorded history where the masses have escaped grinding poverty is by unleashing the productive forces of capitalism and free trade. And there are plenty of recent examples to prove that point: Think of impoverished conditions in the USSR, leading to the disintegration of the union; think of Cuba; think of North Korea’s and old East Germany’s economic plights; and compare these to economic conditions to capitalist South Korea and West Germany. How neo-socialists can ignore these facts is a matter for psychologists to explain.

Prominent economists such as Milton Friedman, F.A. Hayek, and even John Maynard Keynes all agreed that capitalism is vital for freedom to survive and thrive. It has, however, worked in countries with less than sterling human rights records, such as Singapore and lately the mixed economy that China has become.

Hayek agreed with Adam Smith that there is an unquestioned role for government in a capitalistic system, such as developing laws to ensure fair and open competition, prevent price fixing, fraud, and the like. In addition they agreed they have a duty to look after public welfare in areas such as working conditions, safety of products, etc.

The attacks on capitalism, by the socialists, have been on two fronts: It results in an unfair distribution of wealth and is subject to periods of mass unemployment and financial crises. Milton Friedman believes that government is responsible for most, if not all recessions and depressions. He places the blame for the Great Depression on Federal Reserve gross mismanagement of the money supply. And many lay the worldwide financial crisis primarily at the feet of the US Govt for directing or intimidating banks to lower their traditional mortgage lending standards, then incentivizing Freddie and Fannie (quasi government companies) to buy sub-prime loans from the financial institutions who made the loans. (In fairness, a lot of major financial institutions followed suit and bought a lot of risky mortgages, packaged them as CDOs and sold them worldwide). Add to that a lot of cheap money available and walla, a bubble is created, which burst in a big way.

COMMUNISM/MARXISM. Communism, as defined by Karl Marx and Engels, was the final transformation of a society and followed the socialist phase of the dictatorship of the proletariat. Marx’s defining description of communism was: The abolition of private property. (And he meant ALL private property—my cousin in then Czechoslovakia had his business confiscated, his farm land confiscated, and the family home that had been used since the early 1700s confiscated). In this final stage, there would be a classless egalitarian society, one without need for a government—i.e. the proletariat would have abolished its own supremacy. Countries and nationalities would disappear. As Marx stated: “The working man has no country.” The division of products would be “from each according to his ability, to each according to his need.”

Further, Marxism abolished eternal truths, all religion (he stated “religion is the opium of the people”), and all morality. What a neat system, eh?

How any thinking man could buy into such gibberish renders me incredulous. Marx never held a job, never was in the real world—very much like Obama. He went from a drunken college student to radical magazine and newspaper writer and was ran out of three countries. As we see next, though, he did provide an ideology for despots to use to advance their lust for power… Kind of like Islamic radicalism today. Just go to the Koran and you find the rationale you need to murder people.

NOTE: A Communist economic/political/social system as prescribed by Marx has never existed—or even close to it. That should not be surprising. It’s an abject illogical concept. Countries that call themselves Communist do so to provide some degree of legitimacy to their government, or so they think.

LENINISM/STALINISM. Marxism was used by Lenin and more strongly by Stalin to legitimize the totalitarian socialist state of the Soviet Union. Leninism/Stalinism has been described as a masterly achievement in transforming Marxism into the official ideology of a rigid, totalitarian state. To force compliance with Stalinism and keep the people “in line”, Stalin had millions murdered. The same thing is true with all totalitarian regimes. The “Black Book of Communism” by Stephen Courtois, made a macabre inventory of eighty million deaths due to Marxism/Leninism/Stalinism—and Maoism.

MIXED ECONOMIES. These economies have a blend of state owned enterprises and private industries and free markets. There are several examples of this; the most recent notable has been China, which has grown exponentially since introducing private businesses and markets in to their economies. Other variations exist, such as state ran capitalism (state owned enterprises, operated to make a profit, normally from worldwide sales) and a system called market socialism. And there is a term used to describe state intervention in the economy to provide favors to certain companies—called crony capitalism. We have a few doozies in that area—Freddie and Fannie, Solyndra and several others. The tab for the losses these companies have racked up is picked up by the taxpayer.


DEMOCRACY. A democracy is simply rule by the majority. The minority only have the rights given to them by the majority. This is frequently characterized as “mob rule” or a dictatorship of the majority. Our Founders were very familiar with this system and wanted no part of it. Fareed Zakaria, in his book “The Future of Freedom” describes illiberal democracies where authoritarian leaders are elected in free elections-which then proceed to deny citizens basic rights and commit crimes against their own citizens. Hitler, for example, became the Chancellor of Germany via free elections. Suffice it to say: Elections are no guarantee of freedom and liberty for citizens.

CONSTITUTIONAL REPUBLIC. America's fine system, we know well (or we used to). This system is guided by a written constitution which establishes the branches of government, outlines responsibilities, and limits of authority. The citizen remains the sovereign and minority rights are fully protected by law.

TOTALITARIAN/OLIGARCHY. Rule is by one individual or a small group. Citizens have only the rights, privileges given them by the present government—subject to change on a moment’s notice. Examples are Nazism, Fascism, Stalinism, Maoism, and like type totalitarian regimes. Freedom and liberty are but a wishful dream.

Many of these systems simply take no account of the nature of man—his aspirations, his motivation, his desire for freedom and liberty. To the group I am addressing there is only one system that meets our needs and desires: A capitalistic economic system and a constitutional republic. To us, liberty is THE highest political end. Nothing should be allowed to come between liberty and us.

Then we ask, why do some people keep bringing up socialism, communism when the record is PERFECTLY clear. I can only tell you what Jean Revel states in his book: There is a totalitarian impulse in man, who makes him want to rule—or for some strange reason, to be ruled. Next, many will accept a socialist system if they do not want to compete, and do not want to be held accountable. They can “hide” in a socialist system. To me, anyone who supports these type philosophies is simply a loser.

Suggested postings: What type systems do we presently have in the US today… (maybe it’s Obamaism?). 

Note: I am fortunate to have many friends and associates who have not only intense interest in but profound knowledge of politics, economics and governance and how our American system as a Constitutional Republic is both misunderstood and challenged. I am pleased that they are willing to share their knowledge. I am especially gratified that Chuck Misak is one of those


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