Hoover Institution (Washington, DC) - The Hoover Institution launched its Human Prosperity Project at its Johnson Center in Washington, DC, with a discussion about the philosophical foundations of socialism and free-market capitalism.
Chaired by senior fellows Scott Atlas and Edward Lazear, the Human Prosperity Project aims at educating Americans about the consequences for human flourishing of the world’s dominant, conflicting, and most fiercely debated economic systems. The Johnson Center discussion featured senior fellows including Atlas, Lazear, Peter Berkowitz, Niall Ferguson, and John B. Taylor.
Ferguson began with an overview of his recently published essay for the project, “Capitalism, Socialism, and Nationalism: Lessons from History,” about the allure of socialism and the political disadvantages for advocates of free-market capitalism.
The central figure in Ferguson’s essay is the early-twentieth-century political economist Joseph Schumpeter, who believed that capitalism was doomed to be unpopular with the people and would eventually be overtaken by socialism.
In the discussion, Ferguson listed four reasons behind Schumpeter’s assumptions: 1) capitalism has a propensity for “creative destruction”; that is, it is constantly driven by rapid innovation that frequently replaces old processes and displaces workers; 2) capitalism trends toward oligopoly and concentrates wealth into the hands of a small group of individuals in the private sector; 3) intellectuals in society have a vested interest in socialism; and 4) it is more politically advantageous for politicians to promote socialism by providing for their citizens’ immediate needs through public funds.
Ferguson said that it appeared that socialism would prevail after the Second World War, because state power had greatly expanded during the global conflict. However, he argued, the Soviet Union, which put the most extreme views of socialism into practice, proved Schumpeter wrong. The Soviet economy never exceeded 44 percent of the United States’ total output and was in shambles by the late 1970s.
Despite this example, Ferguson noted recent polls indicating socialism’s recent surge in popularity, especially among young people. He explained that these attitudes were largely triggered by the financial crisis of 2007–8 and a desire for less volatility and more certainty in the US economy.
Furthermore, Ferguson explained, the younger generation’s attitudes are more reflective of an inclination towards the governance style of Northern European democracies, which feature high-cost health care systems and social safety nets financed with relatively high taxes.
Thus, he concluded, those polls get the definition of socialism wrong. Unlike pure socialist systems, which hold that all property should be publicly owned and administered, these democracies protect the right to private property through a strong rule of law. It is this factor, Ferguson maintained, that proves Schumpeter wrong about capitalism’s demise.
He noted that in Sweden, for example, the expropriation of private companies proved widely unpopular and ultimately failed. Today, Sweden ranks in the top ten of free-market economies in the world.
Taylor, co-author with distinguished fellow George P. Shultz of the newly published book Choose Economic Freedom agreed that an essential ingredient of capitalism is the rule of law.
He added that the American system’s constitutional characteristic of limited government has, when adhered to, led to predictability and stability in its economy.
He argued that socialist governments, in contrast, centrally plan their economies and set prices for the marketplace, without regard to the forces of supply and demand or incentives for individual productivity.
Taylor criticized the US government’s decision to abandon free-market principles in the 1970s and impose wage and price controls. The policy, coupled with the Federal Reserve’s decision to increase the money supply, slowed economic growth and led to higher rates of inflation.
During the panel, Berkowitz also discussed his recently published Human Prosperity Project essay, “Socialism, Capitalism and Freedom,” which compares the theories of John Locke and Karl Marx, whose works provide the philosophical foundations for the systems of free-market capitalism and socialism, respectively.
According to Berkowitz, Locke held that the basis for a government was derived from its recognition that people were free and equal at birth. Furthermore, it is not just good policy, but it is the required function of governments to protect individual rights to property ownership. If a government runs counter to these fundamental principles, then it loses legitimacy.
Berkowitz contended that while Marx shared Locke’s premise about equality and freedom, the two differed on how property relates to these birthrights.
Locke maintained that individual rights to property devolved power into the hands of the many. Marx believed that it protected the prosperity of the privileged and dispossessed the poor and working classes.
Berkowitz said that Marx also held that private property fostered ideas that undermined the authority of the collective, and he condemned religion as the “opiate of the masses,” believing it to blind society’s lower classes and enslave them to the designs of bourgeois capitalists.
Berkowitz concluded that Marx ultimately failed to understand the self-correcting nature of free-market-oriented societies, where the people, by their own free will, have the capacity to cultivate virtues and right injustices, including the exploitative conditions of the working class that Marx deplored.