During his trip to Argentina in March 2016, President Barack Obama participated in an exchange of ideas with a group of young Argentinian men and women. At one point in the discussion, President Obama explained how he sees that great rivalry in ideas and economic policy between “capitalism” and “socialism” over the last one hundred years.

In a nutshell, he asserted that it had all been an unnecessary and stupid ideological fight between “extremists” who had dogmatically insisted on having either one or the other economic and political system, rather than pragmatically picking and choosing from the grab bag of economic policies and institutions that seems to work to make a mixture of the two in a combination that both “delivers the goods” (capitalism) and assure “fairness” and “social justice” for all (socialism).

Obama’s call for political and economic pragmatism

Obama said,

So often in the past there’s been a sharp division between left and right, between capitalist and communist or socialist. And especially in the Americas, that’s been a big debate, right? Oh, you know, you’re a capitalist Yankee dog, and oh, you know, you’re some crazy communist that’s going to take away everybody’s property.

And I mean, those are interesting intellectual arguments, but I think for your generation, you should be practical and just choose from what works. You don’t have to worry about whether it neatly fits into socialist theory or capitalist theory — you should just decide what works.

And I said this to President Castro in Cuba. I said, look, you’ve made great progress in educating young people. Every child in Cuba gets a basic education — that’s a huge improvement from where it was. Medical care — the life expectancy of Cubans is equivalent to the United States, despite it being a very poor country, because they have access to health care. That’s a huge achievement. They should be congratulated.

But the Cuban economy is not working, Obama went on, so you have to be practical in asking yourself how can you achieve the goals of equality and inclusion, but also recognize that the market system produces a lot of wealth and goods and services.”

The president admitted that while those “social” policies are working in Cuba, the Cuban “economy there is still failing, and so you have to be practical in asking yourself how can you achieve the goals of equality and inclusion, but also recognize that the market system produces a lot of wealth and goods and services.” Thus, Cuba should be open to market-based economic reforms.

But Obama went on to his Argentinian audience, “A market does not work by itself. It has to have a social and moral and ethical and community basis, and there has to be inclusion. Otherwise it’s not stable. And it’s up to you — whether you’re in business or in academia or the nonprofit sector, whatever you’re doing — to create new forms that are adapted to the new conditions that we live in today.”

The dream of the “democratic left” in both America and Europe for well over a half a century has been to find a way to combine “capitalism” and ‘socialism,” to have some middle or “third way” between the two that might combine “the best” of both while eliminating “harsh” aspects of each.

But the reality of all such attempts is not a third system that is different from the two, but an abandonment of individual freedom and market choice in favor of government control and regulation in various corners of human life.

To begin with, the idea that capitalism fails in areas of “social safety nets” and “social justice” is itself based upon the Marxian critique of capitalist society that presumes that “the workers” are exploited by the employing businessmen and that profit-making is inconsistent with serving the “needs” of the general population.

Capitalism: the liberator of mankind from servitude and poverty

Competitive capitalism, as it emerged out of the prior government command-and-control system known in the 18th and 19th centuries as “mercantilism,” abolished state-bestowed monopolies, eliminated restrictions on the free movement of peasants and workers who previously had been tied to the land as serfs serving the lords of the manors, repealed anti-competitive rules and regulations that prevented a freer market upon which innovation and capital-creating entrepreneurship could emerge and develop, and ended unequal systems of privileges and favors and replaced it with, increasingly over time, equal rights for all citizens under an impartial rule of law.

A competitive free market in the manufacture of goods and services was matched with a free market in the supply of labor. Employers had to compete to obtain the workers they needed for their factories and industries, placing an upward pressure on the wages paid. At the same time, profit-earning firms plowed their net revenues into more and better capital equipment that increased the productivity of an hour of a worker’s labor, thus making each worker more valuable in terms of his resulting output, which also, over time, brought about a rise in wages.

The abject poverty that enveloped most of society in that earlier age did not disappear in a day, and not in every country at the same time or to the same degree. However, slowly but surely the vast majority of the working populations of Europe and North America were lifted out of those poor conditions of life that we still today associate with living conditions in too many parts of Asia and Africa or Latin America.

Emerging middle class and benevolent charity without the State

Relatively free and competitive capitalism did this, not a paternalistic, controlling, or redistributing State. Not only was the free market eliminating poverty and raising up more of “the poor” into a new “middle class,” but it was also creating the wealth and financial ability for more of those in modest circumstances to have the wherewithal to plan for their retirement, have savings accounts for times of misfortune, and to educate their children so their lives could be even better than their own.

In addition, the growing wealth and horn of material plenty being created in the 19th and early 20th centuries by competitive free capitalism also enabled those far better off than many of their fellow citizens to have the financial means to assist them through charity, philanthropy, and other forms of voluntary and private helping hands. That earlier age of competitive capitalism was an amazing age of charitable benevolence and voluntary support for those experiencing “hard times.”

Impatient with pockets of remaining poverty and hardship in increasingly prosperous societies, intellectuals and some of those born into comfort and greater material ease searched for ways to alleviate the societal “blemishes” of uneven improvements among the members of their countries.

Influenced by socialist and Marxist ideas that these human misfortunes were caused by self-interest, the profit-motive, and inescapable imperfections of a capitalist economic system, they turned to political paternalism as the cure for society’s ills.

Socialism with a “human face” also means reduced liberty

At first, many of these proponents of political paternalism were sympathetic with and supporters of the “great socialist experiment” that was imposed on parts of the world following the communist revolution in Russia a century ago in 1917.  But most of them in, say, Great Britain or in the United States, came to found the brutality of a Marxian dictatorship and the violence and mass murder that came with it distressing and distasteful.

After all, it has been estimated that in the Soviet Union, between 1917 and 1986, as many as 64 million people – innocent men, women and children – were killed in one way or another by the communist regime in the name of “building socialism,” while in China under Chairman Mao, between 1949 and 1976, upwards of 80 million people were likewise murdered in the name of the future “worker’s paradise.” The total number of victims under communism and its ideal of the socialist planning of society may have been as many as 200 million in the twentieth century in all parts of the world in which a communist dictatorship came to power.

The pragmatic and “third way” that European social democrats and American progressives – of which President Obama is clearly an outspoken representative – came to advocate a system of regulated capitalism combined with the “social safety nets” of the welfare state.

Every step away from competitive capitalism and towards some element of “socialism” mixed with it has required some reduced degree of liberty for the citizenry of the country introducing such policies.

To say that government is to assure a variety of “social safety nets” means that the political authority rather than the individual citizens themselves now determine and decide what their retirement horizon will financially look like, what medical care and insurance they will receive, and what amount of the income those citizens have honestly earned will be allowed to remain in their pockets after the State has deducted the costs of the welfare state.

This locks out private initiative and competitive market alternatives for covering the expenses of old age; improving the quality and care of health problems; the available forms and content of the education received from kindergarten through a graduate university degree; and the funding and direction of research and development of many medical and scientific areas of interest.

When government taxes away people’s income to cover the costs and related expenses for these and many other “social safety nets,” this by necessity reduces the autonomy and financial ability of people to fund and manage these things for themselves. It also reduces the financial means for private citizens and groups to have the monetary means to offer as many private sector charitable and philanthropic alternatives to solve “social problems” as might otherwise have been possible.

Perpetual children under welfare-state dependency

The more the government follows such a path, the more the people are reduced to permanent dependents on the political powers-that-be and on the social engineering elites who arrogantly presume to know and impose on the rest of the society their conceptions of how people should live, what services they should receive, including their quantity and content, and which imposed rules, regulations and restrictions are the ones individuals will be allowed to live, choose, interact, and direct their own lives.

The population is, in fact, infantilized, that is, made into perpetual children needing a political paternalist to care and provide for them. The free market German economist, Wilhelm Röpke, several decades ago in Welfare, Freedom and Inflation (1964), warned of the danger of the dependency society:

It is all too often forgotten that anyone who is serious about human dignity should measure progress less by what the State does for the masses than by the degree to which the masses can themselves solve the problem of their rainy days out of their own resources and on their own responsibility. This, and only this, is worthy of free and grown-up persons, certainly not constant reliance on the State for assistance, which … can, in the last analysis, come only out of the pockets of the taxpayers themselves….

Alternatively, is it really progress if we classify more and more people as economic wards to be looked after by that colossal guardian, “The State”? Would it not be much more progressive if more and more members of the broad masses were permitted to reach the status of economic ‘grown-ups’, thanks to rising incomes resulting from their own labor?”

The welfare state shifts the decision-making for such things from the hands of the people themselves and into the hands of those in political power and the bureaucracies established to run the programs and activities of the redistributive state. And, invariably, there also arise the temptations and tools for corruption and special interest manipulation as the direction and form of the vast spending on such programs and activities promise huge sums of money and political power to those who work for the government either directly or as indirect private sector providers of what the State has promised to do for “the people.”

At the same time, the growing and heavy-handed regulations on private enterprise by the paternalistic state diminishes and retards the ability of enterprises to be formed, grow, and employ many who otherwise may never have a chance to escape from an even lower paying job, or leave them in perpetual dependency on the State for everyday necessities and desires of life.

Every step “left” means less liberty

Long ago, an American president once said that a great nation cannot long remain half free and half slave. That is the dilemma and danger into which America again has fallen because of those like President Obama who believe that it is a simple matter of pragmatically picking and choosing those parts of “capitalism” and “socialism” considered useful and desirable to try to combine, like items off different columns of a restaurant menu.

Socialism, whether of the extreme Soviet form or in the seemingly more “moderate” form of regulation and redistribution all add up to one essential thing: more and greater government control and planning over people’s lives. It is not combined with capitalism, it supersedes and suffocates capitalism under more and more government responsibility for human existence.

You are not a free man if the government plans your retirement, health care, education, employment opportunities, and your permitted, demanded, or prohibited forms of human association and interaction.

You are not a free man if the government tells you for whom you may work, at what wages and work conditions. You are not a free man if the government manipulates or controls the “politically correct” words you may speak or express.

You are not a free man if the government determines under what circumstances and with what requirements you may or may not start up a new business and undertake production to peacefully and honestly go about earning a living. You are not a free man if the government limits or manipulates the conditions and terms under which you may trade and exchange with others in other lands.

You are not a free man if the government determines and restricts the requirements under which you may peacefully leave your own country or enter into another for purposes of honest and peaceful employment, trade, or travel.

You are not a free man if you may not keep the income you have earned or the wealth you have peacefully and honestly accumulated, because the government taxes it away to redistribute to others for either “social welfare” or “national interest” reasons having nothing or little to do with the proper and appropriate functions of a constitutionally limited government devoted to the protection of its citizens’ life, liberty, and property.

The danger from the seemingly reasonable pragmatism that President Obama proposes as the norm and ideal for a middle or “third way” between capitalism and socialism is that is constantly moves society away from the competitive market economy and individual liberty and more and more in the direction of greater and more government planning and control over facets and corners of our lives.

Contrary to Obama’s proposal, it is essential to stand foursquare for a principled defense of individual liberty, free markets, and narrowly confined government.  Austrian economist, Friedrich A. Hayek, explained why such a principled defense of liberty was so important in Law, Legislation, and Liberty (1973):

The preservation of a free system is so difficult precisely because it requires a constant rejection of measures which appear to be required to secure particular results, on no stronger grounds than they conflict with a general rule [for liberty], and frequently without our knowing what will be the cost of not observing the rule in the particular instance.

A successful defense of freedom must therefore be dogmatic and make no concessions to expediency, even where it is not possible to show that, besides the known beneficial effects, some particular harmful result would also follow from its infringement. Freedom will prevail only if it is accepted as a general principle whose application to particular instances requires no justification.

Such a principled, even “dogmatic” defense and argument for “capitalism” over any and all compromises and combinations with elements of “socialism” may be difficult and demanding. But it is essential in a political environment in which the loss of freedom that comes from the introduction of any aspect or element of socialism is discounted and downplayed as an acceptable price to pay for an illusionary amount of “security” supplied by a paternalistic State.

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Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

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