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Capitalism & Socialism: Two Old Economic Visions

Theories, we are often told, are merely abstractions with no real practical impact, but hardly anything has impacted modern history more profoundly than capitalism and socialism. ~ Riane Eisler, The Real Wealth of Nations

For most of recorded history, whether Eastern or Western, the vast majority of people were poor, and, as they had been taught to do, accepted poverty as their inevitable lot. But as the industrial revolution gained steam in Europe, so did the possibility that the world can change. By the middle 1700s, the vision of progress through human intervention was applied to economics. If people could improve the means of production, perhaps they could also improve the economic system. With a better understanding of how economic systems function, we could make them work for the greater good of all.

Out of this new probing of economic patterns, two economic theories emerged. The first theory described what we today call capitalism. The second theory is what its proponents called socialism.

Theories, we are often told, are merely abstractions with no real practical impact, but hardly anything has impacted modern history more profoundly than capitalism and socialism. Understanding these theories and the times out of which they came is key to recognizing the dominator assumptions embedded in them, and to building a new economic theory called partnerism – one that really works for the greater good of all.

The Capitalist Vision

Adam Smith (born in Scotland in 1723) wrote his famous Inquiry into the Nature and Cases of the Wealth of Nations in 1776, the same year the United States was born. Smith's book, better known simply as The Wealth of Nations, became the “bible” of capitalist theory. Smith’s  was an optimistic vision of the future. He basically accepted the dominator belief that people are inherently selfish. But in his view, this selfishness could work for the common good – if only the market was left to regulate production and commerce without government interference.

Smith wrote in a time of massive social and economic dislocation. The gentry had appropriated most of the lands that were commons, and hordes of dispossessed farmers reduced to paupers were roaming the countryside. There were also already signs of what was to come with the advent of full-fledged 19th century industrialization. In some places, young children worked in mines 12 hours a day as did women, including pregnant women, who sometimes gave birth in mine shafts. Conditions in some manufacturing towns weren’t much better, with children tending machines round the clock for twelve to fourteen hours at a stretch.

Yet the government –  which was entirely in the hands of the landed and merchant classes –  did nothing to change any of this. Instead, it often exacerbated matters with short-sighted policies designed to further the narrow economic interests of those in power.

When Smith argued against government interference, he was indirectly challenging the economic control of the upper classes. He would have shuddered at the thought that his economic theory was to be used to justify rapacity and greed.

He believed the forces of the market would counter selfishness through competition. As he put it, the “invisible hand of the market” would ensure that the public isn’t cheated and that living standards rise.

Smith did not say that government has no role, nor did he advocate privatization of government services. He stated that government has the duty of an “exact administration of justice” for all citizens. He also wrote that governments must erect and maintain “those public institutions and those public works which may be in the highest degree advantageous to a great society” – noting that these “are of such a nature that the profit could never repay the expense to any individual or small number of individuals.” And he warned that the rising industrialists “generally have an interest to deceive and even to oppress the public.”

Nonetheless, at the center of Smith’s thinking was the belief that the primary engine for building a better society is the market –  that is, the production and exchange of goods for profit through commercial transactions.  He believed the forces of the market would counter selfishness through competition. As he put it, the “invisible hand of the market” would ensure that the public isn’t cheated and that living standards rise.

This argument, which he expounded in the 900 pages of The Wealth of Nations, became the underlying rationale for capitalism.

The Socialist Vision

However, capitalism emphasized individual acquisitiveness and greed (the profit motive), relied on rankings (the class structure), continued traditions of violence (colonial conquests and wars), and failed to recognize the economic importance of the “women’s work” of caring and caregiving.

In important respects, capitalism was a step forward in the move from a dominator to a partnership way of life. It gave impetus to more socially accountable political forms, such as constitutional monarchies and republics, and was a major factor in the creation of a middle class. Certainly capitalism was preferable to the earlier feudal and mercantile economic systems in which nobles and kings owned most economic resources.

However, capitalism emphasized individual acquisitiveness and greed (the profit motive), relied on rankings (the class structure), continued traditions of violence (colonial conquests and wars), and failed to recognize the economic importance of the “women’s work” of caring and caregiving. In these and other ways, capitalism retained significant dominator elements.

By the 19th century, when it was clear that capitalism was not fulfilling Smith’s vision of an economics that works for the common good, Karl Marx and Friedrich Engels proposed a very different  theory. Theirs was to be known as scientific socialism, and it challenged just about everything Smith had believed – particularly his faith in the forces of the market.

Marx’s and Engels’ scientific socialism was an alternative to what they dismissed as the utopian socialism of theorists such as Robert Owen and Charles Fourier. Marx and Engels believed that class conflicts are historically inevitable, and that the victory of the bourgeoisie or merchant class over the feudal landed aristocracy would inevitably be followed by the victory of the working class or proletariat. But they were not only committed to constructing a new economic theory; they were also committed to seeing it put into action.

In time, Marx’s and Engels’ dream of a successful communist revolution was realized. But not in an industrialized capitalist nation, as they had predicted.  Instead, revolution came in a agricultural semi-feudal society: the Russia of autocratic tsars and nobles.

Part of the problem lay in communist theory itself.  Not only did it dictate the abolition of private property and class warfare; it also failed to abandon the dominator tenet that violence is the means to power, as in the well-known adage "The end justifies the means."

Although socialist policies ended mass hunger and destitution and vastly improved healthcare and education, traditions of domination in both the family and state did not change. What Marx called the dictatorship of the proletariat turned into just that – another violent and despotic regime.

The central planners created a top-down form of state capitalism where resources were controlled by a small group of men from the top. In Moscow, government apparatniks got perks such as seaside villas and sumptuous banquets, while the mass of people lived in overcrowded flats and often lacked staple foods. In the provinces, warlords became communist commissars and continued to terrorize their people.

Part of the problem lay in communist theory itself.  Not only did it dictate the abolition of private property and class warfare; it also failed to abandon the dominator tenet that violence is the means to power, as in the well-known adage "The end justifies the means." But an even bigger part of the problem was the rigid dominator nature of the culture that preceded the Soviet Union.

The Russian tzars were despotic autocrats in a largely feudal society. Serfs were not freed until the 19th century. And then this freedom, like that of freed slaves in the American South, was largely illusory since the power structure did not really change.  Moreover, the Soviet Union took over a culture that was rigidly male-dominated.  This domination of one half of humanity over the other, buttressed by traditions of wife beating and other forms of violence, provided a basic model for inequality and exploitation.

Gender, Politics, and Economics

This connection between gender, politics, and economics is one of the most instructive lessons of modem history. We see it vividly in Stalin’s brutally autocratic regime.  When Stalin came to power, he repealed Soviet policies enacted under Lenin to shift to more equal relations between women and men. At the same time, the Soviet Union regressed to even more violence and top-down economic control, including the killing of millions of small landowning peasants and the purging of anyone Stalin viewed as a threat to his absolute control.

In this return to a more rigid dominator configuration, the totalitarian Stalinist regime was no different from the totalitarian fascist regime of Hitler in Germany. For Hitler, as for the famous German philosopher Friedrich Nietzsche, equality, democracy, humanitarianism, and women's emancipation were "degenerate" and "effeminate" ideas. For him, as for Stalin, control was an obsession: just as "socially pure" men must rule over the rest of mankind, men must rule over women.

Through economic and military assistance, conquest, and propaganda, the Soviet Union spread socialism worldwide. For a few decades, half the world was socialist, including Eastern Europe, parts of Africa, China and other Asian nations, and even a few countries in the Americas.

Capitalism was declared the winner in the ideological struggle between it and socialism.

Then, following the fall of the Berlin Wall in 1989, the Soviet Union’s communist regime collapsed. Capitalism became the new economic system for Russia and Eastern Europe. China too turned to private enterprise, and was soon (still under communist party control) on its way to becoming a major capitalist power.

Globalizing Capitalism Led to More Poverty

Capitalism was declared the winner in the ideological struggle between it and socialism. But while this was hailed as a great boon for economic prosperity, it soon became evident that it was a hollow victory – at least for the vast majority of the world’s people.  As stock markets rose, corporate profits soared, and CEO salaries reached astronomical sums, report after report showed that conditions were getting worse for a huge part of the population.

  • In 2005, the United Nations reported that the globalization of an unregulated market system was actually a major factor in the creation of poverty.
  • Infant and maternal deaths were rising in some regions.
  • In the prosperous United States 1/5 of children were living in poverty.
  • In 2003, the United Nations Human Development Report found that compared to 1990, 54 countries had become poorer, and in 21 countries the number of poor people increased rather than decreased.

The much hailed globalization of a “free market” was producing more poverty rather than less. As for the effects of capitalism and socialism on the natural environment, see The Conquest of Nature.

RWON Book CoverExcerpted from The Real Wealth of Nations: Creating a Caring Economics (2007) by Riane Eisler

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