Capitalism, Communism, and the Middle Way

Julia Parkinson, Period 3– Capitalism hasn’t been doing too hot in terms of popularity, lately. Younger generations especially find issue with its exploitative nature and tendency to rob people of things often viewed as necessities in the eyes of the people and luxuries in the eyes of corporations. However, it has been difficult to formulate a large-scale fix for this issue. Clearly, this idea of giving people the means to live comfortably for free falls in line with Marxist ideology, but communism—at least in practice—can hardly be counted on to improve people’s wellbeing. As both economic systems hold a body count of millions, nations must seek a third way, or middle ground, if they wish to appease a population that values both their right to private property and their right to the essentials of survival. This middle ground goes by a few different names, as its guiding factors are purposely vague: social market economy, controlled market economy, or social democracy [1]. This system, which I will refer to as a social market economy for ease of reference, is a mix of capitalist and communist ideals, seeking to satisfy the desires of each end of the spectrum.

Austrian philosopher Ludwig von Mises would have his readers believe that capitalism is the saving grace of man. He argues that the market is in the hands of the consumer, and therefore cannot be exploitative. Should the market tip out of favor of “the masses”, people simply need to stop supporting whatever is causing this imbalance and equilibrium will be found again [2]. However, Von Mises’ argument functions under the assumption that all people are both benefited and harmed equally under capitalism, which is not true for marginalized groups. For example, women make up 50.8% of the US population [3], the statistical majority, yet also make up 92.8% of reported sex trafficking victims [4]. Further, women are only involved as suspects in 22.9% of all reported sex trafficking crimes [5]. Clearly, this group has no ability to sway the market in their favor, no matter how large it may be. Von Mises also fails to recognize that it is much easier for a powerful group to remain powerful than it is for a marginalized group to gain power. Under his assertion that spending money will sway the market in one’s favor, it is only logical to assume that people with more money have more influence on the market. While one would assume that “the masses” have far more assets than a few more wealthy entities, this is far from reality in the United States. A survey taken by the Federal Reserve Board in 2014 shows that richest 3% of families own 54% of the nation’s wealth [6]. Following Von Mises’ logic, this 3% is far more likely to reap the benefits of capitalism than the remaining 97% of the nation. Von Mises was right about one thing: capitalism is definitely a leg up from feudalism, in that opportunity is at least existent. This does not mean that people should settle for a system which works only to benefit those who have already obtained wealth and power.

Unfortunately, the Marxist approach to a successful economy proved to be even more dysfunctional than anything Von Mises could have imagined. While communist theory often appeals to people’s morality, in practice the results are disastrous. Marx’s logic appears, at first glance, solid. It is true that the class struggle has driven history, that the proletariat outnumbers the bourgeoisie, and that the bourgeoisie possesses far more wealth than the proletariat [7]. But the communist uprisings that have so far occurred in history have resulted in the opposite of Marx’s predictions. Not only were they directly harmful to the proletariat classes of these nations, but they were certainly not the end of the nations’ history. The experience of the Soviet Union has practically become a fable in the United States, warning against the institution of communism; the reality of an estimated 60 million unnatural deaths in a 30 year period makes the moral of the fable chillingly clear [8]. Those who support Marxist ideology have good intentions—the possibility of supporting everyone’s needs no matter their monetary worth is a wonderful, albeit idealistic, thought—but intention can only go so far. The horrors of a communist reality have been showcased multiple times, in the USSR, the People’s Republic of China, and, most recently, the Democratic People’s Republic of Korea. It would be senseless and immoral to disregard the experiences of these nations and the lives lost to their failed regimes in the hopes of creating a utopic future.

Because of the failure of these two widely accepted economic systems, it is necessary to institute a new system. Capitalism favors only a few and allows the existence of privileged social groups and the exploitation of those who are marginalized. On the other side of the coin, communism is not sustainable and prone to its own brand of corruption, often ending in the loss of tens of millions of lives. Neither is wholly evil, however, and it is through the combination of the positive traits of each that a balance can be found. This combination is a social market economy—an economy tailored to fit the social needs of people while still allowing for free trade, private ownership, and democracy [9]. This system does limit some personal freedom in the interest of benefitting marginalized classes. For example, in a social market economy, people give up some portion of their right to private property in taxes to support socialized healthcare [10]. A social market economy requires that the citizens of a nation support not only themselves, but to some extent the entire population. While this concept has varying levels of popularity among the different political groups of the United States, it is important to remember that, under capitalism, it is extremely difficult for non-privileged groups to sway the market in their favor, meaning they have far less opportunity than privileged groups.  The people who need social support are rarely at fault for their own poverty, creating a moral obligation for privileged groups to “even the playing field”, so to speak.

The concept of the social market economy was borne of the panic following Germany’s socio-political crises in the 20th century [11]. People, still recovering from the economic shock of the great depression, and the moral shock of the Third Reich, were desperate for an economy that provided social insurance without the totalitarianism of Nazi Germany. So, in 1949, Chancellor Konrad Adenauer introduced the first social market economy [12]. Since then, Germany’s economy has grown to be the fifth largest in the world by PPP standards, and the largest in Europe.  Germany’s healthcare system is ranked as the 25th best in the world, with the United States falling behind as the 37th [13]. Further, Germany is ranked as the 15th freest country in the world by the Index of Economic Freedom [14]. Although it does fall behind the United States, its ranking is still impressive and proves that a controlled economy does not necessarily mean the loss of the freedom, at least not in any major way. In fact, Denmark, considered to have more socialist characteristics than many other nations (and possessing a mixed economy), has a higher freedom rating than the United States [15]. Social market economies in practice have never shown the catastrophic effects of a communist society, and work towards rectifying the inequalities created by capitalism.

There is no perfect system, but to look at the current state of affairs and decide that it’s “good enough” is simply against human nature. To strive for something better, something even more successful is much more in line with the path of history. While the inequalities created by capitalism cannot be ignored, neither can the disastrous attempts at creating successfully communist nations. For those who believe that it is the duty of citizens to support each other, at least in things essential for survival, but believe also in the ownership of private property, a social market economy is the perfect middle ground. With this economic system, it is possible to preserve freedom, equality, and justice for all.

[1] Schöningh, Ferdinand. “Social Market Economy History, Principles and Implementation – From A to Z.” Konrad-Adenauer-Stiftung. January 1, 2002. Accessed May 5, 2015.

[2] Mises, Ludwig. Toward Liberty; Essays in Honor of Ludwig Von Mises on the Occasion of His 90th Birthday, September 29, 1971. Menlo Park, Calif.: Institute for Humane Studies, 1971.

[3] “United States Census 2010.” Census. January 1, 2010. Accessed May 5, 2015.

[4] Kyckelhahn, Tracey, Allen Beck, and Thomas Cohen. “Characteristics of Suspected Human Trafficking Incidents, 2007-08.” U.S. Department of Justice. January 1, 2009. Accessed May 5, 2015.

[5] Ibid.

[6] “Wealth Inequality.” Inequality: A Project of the Institute for Policy Studies. January 1, 2014. Accessed May 5, 2015.

[7] Marx, Karl, and Friedrich Engels. Manifesto of the Communist Party,. New York: International Publishers, 1948.

[8] Augustin, Donald Joseph. Unnatural Deaths in the U.S.S.R. and Russia, 20th Century, 1904-1989: Major Research Paper.

[9] Schöningh, Ferdinand. “Social Market Economy History, Principles and Implementation – From A to Z.” Konrad-Adenauer-Stiftung. January 1, 2002. Accessed May 5, 2015.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] Ridic, Goran, Suzanne Gleason, and Ognjen Ridic. “Comparisons of Health Care Systems in the United States, Germany and Canada.” Materia Socio-Medica. Accessed May 5, 2015.

[14] “Country Rankings.” World & Global Economy Rankings on Economic Freedom. Accessed May 5, 2015.

[15] Ibid.


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