A Discussion of Thomas D. Simpson’s Capitalism versus Socialism “Preface”
Some years ago the author of the next book I am going to discuss, Thomas D. Simpson, was asked to give a talk about the different economic systems and which were most compatible with biblical teaching. Out of the research for that talk, comes this book, “Capitalism versus Socialism: What Does the Bible Have to Say?”
As I researched the topic, it became clearer to me that the market-based systems are most consistent with the teachings of the Bible. Nonetheless the Bible doesn’t condone excesses that can develop in a market economy (or any other economy), and each of us has a responsibility to care for those unable to care for themselves and to resist the temptation for wealth to become an obsession in our lives and stand above God. (p. xiv)
He said he was not raised to think that way but came to the conclusion over time. Raised by parents who lived through the Great Depression, he was distrustful of markets and thought government was virtuous. These commonly held biases were explored by Peter Foster in his book, “Why We Bite the Invisible Hand,” which I have covered previously.
However, as he grew up and studied economics his views evolved.
I began developing a realization that market-based systems are complex ecosystems that work in harmony to deliver impressive results. Alas, I came to realize that people pursuing self-interest in the marketplace isn’t much different than pursuing self-interest by eating when feeling hungry. We are wired this way to preserve life by an intelligent designer. (p. xv)
Even so, he realizes the limitations of any system.
The vibrancy of economic life in well-functioning market systems is palpable. Moreover, these systems, perhaps ironically, treat individuals with more basic dignity, and are more compatible with democratic political systems than the others…But they’re not perfect and come with a list of well-known market failures…This is to say that all economic systems, including market-based systems, come short of delivering perfection — which is the human condition in a fallen world. (p. xvi)
Defining the Systems
I first found this book because it may be useful for a future class. However, I am generally interested in understanding our society’s hostility to the market-based system that has created immense wealth for billions of people in the last couple of centuries. Prior to that, most people lived at a subsistence level.
Simpson is examining these four economic systems.
- Free Market
- Socialism/Communism
- Fascism
- Welfare State
This book addresses the fundamental features of all major economic systems, including capitalist and socialist systems. Communism is a variety of a socialist system, and fascist systems — most notably those of Nazi Germany and Fascist Italy — have their origins in socialism. These are contrasted with the basic features of a capitalist or market-based system. (p. x)
Although Simpson used “capitalism” in the title of the book, he says he prefers the term market-based system because he considers capitalism an inflammatory and misleading term. (p. x) Deirdre McCloskey is another economist who made a similar point and prefers the term system of trade-tested betterments.
Karl Marx coined the term capitalism as a pejorative against the market-based system. He focused on the manufacturing sector in his day which was the beginning of the industrial revolution to posit his simple view of an adversarial relationship between the worker and the capitalist, or owner.
Even in his day that did not characterize the experience of people working in agriculture, retail, or other service jobs. Many jobs in those sectors were family businesses, sole proprietorships, or partnerships. (p. xi)
For those people, the Marxist characteristic of worker versus owner largely did not exist. Either because the worker and the owner were often the same person, or the number of employees were few and were not the interchangeable cogs in Marx’s story.
Today, the majority of workers are in non-factory jobs so Marx’s story still does not fit.
So while Simpson and the rest of us often use the term capitalism when we mean market-based system, he notes that can cast a negative sense on it.
For these reasons, the term “market-based” is used instead of the term “capitalist” to refer to a system in which people…respond to market incentives as they pursue their self-interest. In this setting, economic outcomes result from the interactions of these numerous parties, each pursuing their self-interest — and not from central plans and direction. (p. xi)
In contrast, socialism means all property is owned collectively and the state directs all production and allocation of the goods produced.
This highlights another confusion. While that is the definition of socialism as an economic system, it is often not what people mean when they say socialism.
Socialists today focus more on using the state to redistribute income and wealth and to make widely available certain goods and services to the public, such as health care and higher education, at no out-of-pocket cost. Some see production being undertaken by the government while others see a role for private suppliers. (p. xiv)
What most people today mean when they say socialism is really a welfare state — a market-based system with a lot of income redistribution.
Simpson points out three issues with a true socialist economic system that are seldom addressed.
- Rationing of the goods provided (housing, education, health care) is needed because there is no price signal to allocate goods.
- Corruption is a natural outgrowth of a rationing system. The USSR’s blat is a well known example.
- Centrally planned systems have to override personal freedom as the government makes the choices for the people.
Simpson starts his book asserting that polling data shows 70% of people in the Millennial and Gen Z age groups feel favorably towards socialism, although no defintion is given so it is likely at least some are thinking of a welfare state. (p. vii) He did not cite any polls nor did I find anything that exactly matched.
Gallup poll breaks out the data by generation and you can see that while all groups view capitalism more favorably than socialism, the gap is narrowest for the Millennials and Gen Z’ers and has narrowed considerably since 2016.
If you are interested, Pew Research Center has a lot of good information on the topic. It shows the generational divide, but it is possible much of that is due to the income effect. Those with lower incomes tend to prefer socialism, and of course, younger people tend to be in the lower income brackets.
Another divide is the political divide. Not surprisingly, Democrats are more favorable towards socialism and Republicans towards capitalism.
The poll shows that this is likely due to what each group is most concerned about. Democrats are more concerned that the system provides for everyone’s needs while Republicans are more concerned that the system does not restrict personal freedom.
Simpson notes the idea that our needs would be met at low or no cost is a big attraction of socialism or the welfare state, however, that lacks a consideration of what is given up to provide these needs.
Very seldom do you hear proponents of socialism addressing the other side of the coin: What the average person must give up to get these “freebies.” And how, in the end, it will be impossible to satisfy everybody’s wants. (p. viii)
We live in a world of scarcity, which means our resources are finite and when they are used one way, they are not available for another.
We can decide as a society to provide “free” health care to all, but someone is paying for it. Whatever amount someone has to pay in taxes to cover these costs is then not available to buy any other goods or services they would have bought or investments they would have funded. Whoever would have provided those goods or services has lost income or whoever would have used the investment has lost that opportunity.
We see this idea of ignoring the value of what is not seen captured in Frederic Bastiat’s fallacy of the broken window.
As we continue into Chapter 1, we will define the economic systems more clearly. Then he will cover each system in a chapter of its own and offer his answer to what the Bible has to say about each economic system
Reference: Simpson, Thomas. D., 2020. Preface of Capitalism versus Socialism, Thomasdsimpson.com
