Chapter 1: Introduction

The following study on the economics, politics and morals of socialism and capitalism is a systematic treatise on political theory. Interdisciplinary in scope, it will discuss the central problems of political economy and political philosophy: how to organize society so as to promote the production of wealth and eradicate poverty, and how to arrange it so as to make it a just social order.

But in doing this I will also constantly touch upon and illuminate social and political problems in the narrower, more common sense of these terms. In fact, it is one of the major goals of this treatise to develop and explain the conceptual and argumentative tools, economic and moral, needed to analyze and evaluate any kind of empirical social or political system, to understand or appraise any process of social change, and to explain or interpret similarities as well as differences in the social structure of any two or more different societies.

At the end of the treatise it should be clear that only by means of a theory, economic or moral, which is not itself derived from experience but rather starts from a logically incontestable statement (which is something very different from an “arbitrarily postulated axiom”) and proceeds in a purely deductive way (perhaps using some explicitly introduced empirical and empirically testable assumption, in addition) to results which are themselves logically unassailable (and thus require no empirical testing whatsoever), will it become possible to organize or interpret an otherwise chaotic, overly complex array of unconnected, isolated facts or opinions about social reality to form a true, coherent economic or moral conceptual system. Hopefully it will be demonstrated that without such a theory, political economy and philosophy can be considered nothing other than groping in the dark, producing, at best, arbitrary opinions on what might have caused this or that, or what is better or worse than something else: opinions, that is, whose opposites can generally be defended as easily as the original positions themselves (which is to say that they cannot be defended in any strict sense at all!).

Specifically, a theory of property and property rights will be developed. It will be demonstrated that socialism, by no means an invention of nineteenth century Marxism but much older, must be conceptualized as an institutionalized interference with or aggression against private property and private property claims. Capitalism, on the other hand, is a social system based on the explicit recognition of private property and of nonaggressive, contractual exchanges between private property owners. Implied in this remark, as will become clear in the course of this treatise, is the belief that there must then exist varying types and degrees of socialism and capitalism, i.e., varying degrees to which private property rights are respected or ignored. Societies are not simply capitalist or socialist. Indeed, all existing societies are socialist to some extent. (Even the United States, certainly a society that is relatively more capitalist than most others, is, as will become apparent, amazingly socialist and has gradually become more so over time.)

One goal then, is to demonstrate that the overall degree of socialism, i.e., the overall degree of interference with property rights that exists in a given country, explains its overall wealth. The more socialist a country, the more hampered will be the process of production of new and the upkeep of old, existing wealth, and the poorer the country will remain or become.¹ The fact that the United States is, by and large, richer than Western Europe, and West Germany much richer than East Germany can be explained by their lesser degree of socialism, as can the fact that Switzerland is more prosperous than Austria, or that England, in the nineteenth century the richest country in the world, has now fallen to what is aptly called an underdeveloping country.

But the concern here will not be exclusively with the overall wealth effects, nor with the economic side of the problem alone. For one thing, in analyzing different types of socialism for which there exist real, historical examples (examples which, to be sure, very often are not called socialism, but are given a more appealing name²), it is important to explain why, and in what way, everyintervention anywhere, big or small, here or there, produces a particular disruptive effect on the social structure which a superficial, theoretically untrained observer, blinded by an immediate “positive” consequence of a particular intervention, might not perceive. Yet this negative effect nonetheless exists, and with some delay will cause problems at a different place in the social fabric more numerous or severe than the ones originally solved by the initial act of intervening. Thus, for instance, highly visible positive effects of socialist policies such as “cheap food prices,” “low rents,” “free” this and “free” that, are not just positive things hanging in midair, unconnected to everything else, but rather are phenomena that have to be paid for somehow: by less and lower quality food, by housing shortages, decay and slums, by queuing up and corruption, and, further, by lower living standards, reduced capital-formation, and/or increased capital consumption. And a much less conspicuous but almost always “positively” mentioned fact—a greater feeling of solidarity among the people, the greater value attached to things like family, relatives, or friends, which is found to exist between, for instance, the East Germans as compared to their more “individualistic,” egoistic West/German counterparts—is again not a simple, isolated, unanalyzable fact. Such feelings are the result of a social system of constant shortages and of continually repressed opportunities to improve one’s situation by one’s own means. In East Germany, in order to accomplish the most simple routine tasks, such as a house repair which in other countries requires no more than a telephone call, you simply must rely more heavily on “personal” relations (as compared to impersonal business relations); and where someone’s “public” life is under constant observation by “society,” you simply have to go private.

Analyzed in some detail are the particular disruptive effects that are produced: (1) by a traditional Marxist policy of nationalizing or socializing the means of production, or rather, by the expropriation of private owners of means of production; (2) by a revisionist, social-democratic policy of egalitarian income redistribution; (3) by a conservatively minded policy of attempting to preserve the status quo through economic and behavioral regulations and price controls; and (4) by a technocratically minded system of pragmatic, piecemeal social and economic engineering and intervention.

These policy types, which will be analyzed sequentially, are not completely homogeneous and mutually exclusive. Each one can be carried through to varying degrees, there are different ways of doing things under each of these categories of policy and the different policy schemes can be combined to a certain extent. In fact, every given society is a mixture of all of them as it is the result of diverse political forces which have varied at different times in strength and influence. The reason for analyzing them separately (apart from the obvious one that not all problems can be discussed at once) is that they constitute policy schemes associated with clearly distinguishable social groups, movements, parties, etc., and that each policy scheme affects overall wealth in a somewhat different way.

And socialism will by no means be analyzed solely from an economic point of view. Of course, socialism, especially its Marxist or so-called “scientific” brand, has always pretended to be an economically superior organization of society (apart from all of its other alleged qualities) compared to the so-called “anarchy of production” of capitalism³. But socialism does not collapse once it is demonstrated that in fact the opposite is true and it brings impoverishment, not wealth. Certainly, socialism loses much of its attractiveness for most people once this is understood. However, it is definitely not at its argumentative end so long as it can claim—whatever its economic performance may be—that it represents a higher morality, that it is more just, that it has an ethically superior foundation.

Hopefully however, by a close analysis of the theory of property implicit in the different versions of socialism, this treatise will make clear that nothing could be farther from the truth. It will be demonstrated that the property theory implicit in socialism does not normally pass even the first decisive test (the necessary if not sufficient condition) required of rules of human conduct which claim to be morally justified or justifiable. This test, as formulated in the so-called golden rule or, similarly, in the Kantian categorical imperative, requires that in order to be just, a rule must be a general one applicable to every single person in the same way. The rule cannot specify different rights or obligations for different categories of people (one for the red-headed, and one for others, or one for women and a different one for men), as such a “particularistic” rule, naturally, could never, not even in principle, be accepted as a fair rule by everyone. Particularistic rules, however, of the type “I can hit you, but you are not allowed to hit me,” are, as will become clear in the course of this treatise, at the very base of all practiced forms of socialism. Not only economically but in the field of morals, too, socialism turns out to be an ill-conceived system of social organization. Again, in spite of its bad public reputation, it is capitalism, a social system based squarely on the recognition of private property and of contractual relations between owners of private property, that wins outright. It will be demonstrated that the property theory implicit in capitalism not only passes the first test of “universalization” but it turns out to be the logical precondition (die Bedingung der Moeglichkeit) of any kind of argumentative justification: Whoever argues in favor of anything, and in particular in favor of certain norms as being fair, must, implicitly at least, presuppose the validity of the property norms implicit in capitalism. To deny their validity as norms of universal acceptability and argue in favor of socialism is thus self-contradictory.

The reconstruction of the morals of private property and its ethical justification then leads to a reevaluation of socialism and, as it turns out, the institution of the state, depending as it does for its very existence on taxation and forced membership (citizenship), as the very incorporation of socialist ideas on property. Without any solid economic or moral reasons for their existence, socialism and the state are then reduced to and will be explained as phenomena of merely socio-psychological relevance.

Led by such considerations, the discussion finally returns to economics. The concluding chapters deal with the constructive task of explaining the workings of a pure capitalist social order as the morally and economically required alternative to socialism. More specifically, they will be devoted to an analysis of how a social system based on a private property ethics would come to grips with the problem of monopoly and the production of so-called “public goods,” and in particular with the production of security, i.e., of police and judicial services. It will be argued that, contrary to much that has been written in the economics literature on monopoly and public goods, neither problem exists or, if they did exist, would still not suffice in any meaningful sense to prove any economic deficiency in a pure market system. Rather, a capitalist order always, without exception and necessarily so, provides in the most efficient way for the most urgent wants of voluntary consumers, including the areas of police and the courts. With this constructive task completed, the argument will have been brought full circle, and the demolition of the intellectual credibility of socialism, morally and economically, should be complete.