Author: philbryson@gmail.com

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Communitarian Experiments in America, Part II

The Character of Community Leaders and Followers

Charles Nordhoff studied and visited the communes of his day. Writing before the end of the 19th century, his description of the social aspects of communal life was widely known. He found that those communes were often better organized than individual farms in the overall economy, with a more complete division of labor and a more thorough work plan. Nordhoff expressed surprise at the business and mechanical skill extant in every commune, and the ease and certainty with which the brains came to the top.

His significant conclusion was that the fundamental principle of communal life was that individuals must subordinate their will to the general interest: practically, that requires unquestioning obedience by the members toward the leaders of the society.

Communes were more efficient than the usual farm.

In Nordhoff’s view, the character of the communal leaders affects the development of the society over which they preside. The leader’s force and ability form the habits and even the thought of his followers. The communes of Nordhoff’s era were usually “quite democratic” with no member playing the role of a servant. Often, practicing managers were elected to be in charge of business dealings.

Historians reported that communal life was rewarding for many.

On occasion he saw the democratic aspect of the communes as a liability. Nordhoff referred to the community members as “communists,” for the word had not yet taken on the implications it assumed after communist parties were organized in Europe. He found his communists clean and tidy, if not fashionable. As neighbors, they were honest, reliable and good workers. As one would expect, they were as humane and charitable as their generally religious orientation suggested. Their animals were better cared for than those of many of their neighbors. Communal members enjoyed good longevity, eating well, retiring early, and refraining from alcohol (only Germans used wine and beer). When they were ill or grew old, they were tenderly cared for. They often lived to eighty or ninety years and remained robust and active. Communal life provided greater variety for daily labor, enhancing their versatility and abilities. They enjoyed a wider range of wholesome entertainments and leisure time activities with greater restraints against “debasing pleasures.” Nordhoff praised that life because it gave the participants independence, inculcating prudence and frugality. Self-sacrifice generally restrained selfishness and greed; increasing the happiness which comes from the moral side of human nature. Participants were shielded from the dread of misfortune or exposure in old age.

Nordhoff found the cultural interests and opportunities in the communes unnecessarily restrictive. Communes should own the best books, have music, eloquent lecturers, pleasant landscapes and fine architecture on their grounds. Too many were puritanically sparse with cultural refinements. Nevertheless, he concluded that the communist life was much freer from care and risk, easier, and much better in all material aspects. He sincerely wished the communitarian life would enjoy further development in the United States.

Another important scholar of communitarian life, Arthur Bestor, pointed out that the communitarians themselves, even the religious ones, liked to describe their proposals in terms of experimentation. He cites the view on experimentation of William Maclure, colleague of Robert Owen at New Harmony. According to Maclure, each township might experiment on everything that could enhance their happiness and comfort, so long as it did not interfere with the interests of their neighbors. Thus this great diversity of political, moral, and religious experimentation could add to the facility and utility of their manufactures and useful arts. Any failed experiment could only hurt the designers and implementers of the speculation, nullifying their mistakes and eliminating their errors.

The Marxists also pointed out this distinction, writing about it unfavorably, of course. They contrasted it to their own revolutionary approach, which they saw as superior. Thus Friedrich Engels wrote that the utopians attempted to wrest the solution of social problems arising from economic conditions from the human brain. For Marxists, it seemed necessary to discover a new and more perfect system of social order and to impose this upon society from without by propaganda. Bestor concludes that the communitarian’s faith in social harmony (as opposed to the Marxian class warfare) was obviously the preference of Americans in general. Communitarian emphasis on voluntary action corresponds exactly to the American conception of freedom. The experimental aspect of communitarianism had great appeal for a nation of experimenters, which viewed even itself as an experiment. And sensing no class warfare, American communitarians could fit into organizations with which they could identify with little difficulty.

We must recognize, of course, that successful, small scale experimentation may not transfer seamlessly to success at the national level. The small communal institutions may supply some inspiration, and even some instruction, but would successful leadership at the communal level have the same characteristics as national leadership in a socialistic country? Would the membership, work force, and voting-level citizenry in a successful commune have the same characteristics as those in a socialist nation? Are the financial, social and political characteristics of a successful communal organization identical to those of the socialist state? We sense after a review of the communal utopias of the past that we are better equipped to think about socialism at the national level; we know a lot more than we would have known if the utopias had never existed at all. The major issue remains, of course, the voluntarism of the commune as opposed to the governmental enforcement of national-level socialism. There is certainly a place for experimentation in governance questions.

Why would one invest in a commune?

Some of the experiments began with strong advantages: charismatic leadership, devoted and diligent followers, cultural, ethnic, and lingual unity, and the compelling and uniting force of faith in a benevolent Deity. But the united effort produced initially was difficult to sustain. Experiments without these benefits were difficult even to get started. Thus, the utopias did not prove to be a means for the reshaping of the world or of bringing about a society that might supplant the market system. If that is so and if the task of building a social system is difficult on a small scale, we are constrained to ask how a huge society’s economic experiment with socialism can be perceived to be as simple a task as winning an election and calling the party faithful to action. Asking an entire nation to work to sustain a system that requires huge taxes and sacrifice for one large segment of the social fabric and offers entitlements that ostensibly allow the cessation of personal labor, sacrifice and taxation for another large segment of the population may not be as simple as implementing legislative chicanery to pass a healthcare law.

Conclusions

The United States are a huge country of very diverse population; its religious points of view are divergent, its social unity shattered by the exploitation and magnification of ethnic differences by the very politicians who abhor unity while decrying its absence. Let us conclude by noting some of the more significant differences between local and national socialism, the former being some variant of the communitarian organizations we have been discussing.

Opting out of socialism at the national level would require fleeing the country.

First, socialism of the communitarian type is chosen by the participant, who can opt out. Socialism of the national type is chosen by the voters or the leader of the revolution and imposed on all other citizens. Individual communitarians are permitted to abandon a communal organization, but citizen socialists would have to flee the hosting nation to do so. Second, communitarianism is financed by the participants. If practiced today, the communitarians must pay for their own community, not to mention the taxes paid to fund the financial projects and activities of state and federal governments as well. That is to say that state socialism would be expected to “crowd out” attempts to participate in communitarianism, which is local socialism. Third, communitarians desire to demonstrate a better way for a society to live. Socialists are convinced that they already know the better way and wish to impose it upon their fellow citizens. Fourth, communitarians generally expect to contribute to their living by participating in some kind of work. Socialism has eliminated work requirements for citizens; those citizens who work very productively however, will be heavily taxed in the American model. This contrasts with the Scandinavian model of social welfare capitalism, which holds that all citizens should share in bearing the burden of taxation. Fifth, communitarians may opt for a purely secular lifestyle or a more religious lifestyle, depending on the particular organization they choose to join. Citizens of a socialist nation may only choose to be a part of a secular community. At this juncture, they may still choose to associate with a private religious group of their choice.

Capitalism: Origins, Expansion, Decline, and the Attempted Revival in the United States.
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Communitarian Experiments in America, Part I


An Evaluation of Private Sector Socialism*

Many utopian communities have been established in America since the 18th century. Relatively small groups of people would join together, acquire some land and form a community of people anxious to work and share as a kind of private, socialist family. A number were formed by groups that had fled religious persecution in Europe. They were often based on religious views by groups looking for a better way of life that would lead to personal salvation. Their leaders hoped their religious systems would play an important role in the redemption of mankind. Other utopian communities were viewed as laboratories of social experimentation motivated by secular and social purposes.

Many of the early communitarians were pursuing their religious beliefs.

Whether formed for sectarian or secular purposes, some of these groups were more revolutionary than the larger, working-class movements of European socialists. The communitarians were different from Europe’s working class movements in that they attempted to withdraw completely from mainstream society rather than openly revolt against it. They attempted to build ideal commonwealths so that the world might follow their example. They sometimes tried to eliminate sex or ethnic discrimination, and they sought to abolish private property; they sought to base human relationships upon fair-dealing and respect for their neighbors, as well as upon scrupulous craftsmanship in their business transactions.

Many hundreds of communes dotted the 19th century map of the United States.

But history demonstrated more failures than successes among such communities. Only a small number of them lasted longer than a hundred years. Many vanished within a few months of their founding.  These communes were early considered a “communitarian” movement because the community was at the heart of their plans. Communitarianism was seen as collectivistic, not individualistic; it was resolutely opposed to revolution, and was impatient with gradualism. The experimental communities aspired to be capable of accomplishing an immediate, thoroughgoing reform, and they hoped society at large would be capable of adopting the discoveries of successful experiments.

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*This blog is a summary of a long chapter on communitarian organizations in the history of the United States. I refer here to important studies of the communitarian societies. For the references and the details of such studies, see my book, Socialism: Origins, Expansion, Decline, and the Attempted Revival in the United States, Chapter 7, “Utopian Socialism in Communitarian America.”

The book Socialism reviewed a number of the most frequently reported examples of communitarianism in a substantial chapter on the topic. The reader is invited to learn more about Ephrata; the Shakers; the German Inspirationists at Amana, Economy, and Zoar; George Rapp at Economy, at Zoar; Amana; Robert Owen in America; Mormons and the “United Order;” Brook Farm, prelude to the phalanx; Fourier; Oneida; the Bishop Hill Commune, Cabet and the Icarians; the Hutterites; Cyrus Reed Teed; Henry George; and Roosevelt’s New Deal Communities as reported in my book. The communitarian groups are of abundant diversity, so a great deal can be learned from each case about how groups have functioned historically in various situations. Obviously, one can hardly make sweeping generalizations about how the experiences of those groups might provide insights into the functioning of socialist nations.

Many communitarians lived on the land.

We can observe, however, that socialism at the federal level requires the coercion that can overcome the opposition to income redistribution, to the confiscation of private property and businesses in nationalization schemes, to the elimination of various liberties associated with market economies, and so on. The communitarian schemes were important because they were seeking a way to permit individuals and groups to live communally without forcing an entire nation to adopt a sweeping form of collectivism. As already mentioned, however, the histories of the communitarian experiments seemed to demonstrate more failures than successes, for most groups failed to last more than a few months.

Karl Marx, spiritual father of socialism at the national level

One must keep in mind the huge differences between local and national socialism. The desire of communitarians is to demonstrate a better way for a society to live. Socialists are convinced that they already know the better way and hope to recruit by any possible means sufficient voters or revolutionaries to impose their desired way of life upon their fellow citizens. (Historically, they have often been willing to impose their views at the point of a gun.) Members of communitarian groups can opt out, but if the socialists can achieve a successful revolution or conquer via the ballot box, they can impose their will on society as a whole, except for those who can flee the country.

For more than a couple centuries the United States was almost uniformly convinced that market freedoms and individual liberties would best serve human happiness and prosperity. If a socialist regime had come to power only to demonstrate the standard liabilities of socialism, voters would have thrown that government out of office with dispatch.

Brutal oppression is necessary to avoid protests and riots once socialists are in power.

Today, given the numbers of those who seek entitlements, subsidies, and the fruits of social activism, the power to impose the will of minority groups upon the majority appears to be increasing. That growth may be enough to place in doubt the political viability of those who prefer individual liberties and an environment that provides the reward of prosperity for learning and labor. In the past, individual communities could withdraw from society to organize according to their own preferences. But under any future socialism under contemporary conditions of global economic integration it would not be possible for groups of other persuasion to withdraw from a socialist society to form a small, independent market community.

Scholars have rather arbitrarily agreed that a communitarian organization (such as a commune) can be considered a success if it lasts at least 25 years. From a sociological perspective, the survival of a commune depends on a value system shared by the members, as well as a number of other factors, especially the organizational leadership and the transmission of the society’s culture to children and converts.

In the United States, the driving motivations for communal organization have been religion, social reform, and escapism. If communes are to endure, they must retain shared values and must demonstrate economic adaptability to maintain effective, organized governance. One study observed that In Danish communes, where there is considerably less social opposition, failure of communes is much more frequently due to internal communal factors, e.g., the personal motives of individual members, their internal personal conflicts, their excessive individualism, the lack of effective communal organization and poor planning.  

Another study analyzed communal success in the United States in 281 cases from 1683 to 1937 as being functionally dependent on (i) being a pietist religious sect, (ii) leadership that successfully induces commitment, (iii) allowing some private property, and (iv) with some qualification, having anarchic governance. Political anarchism involves voluntary association of cooperative groups rather than normal, centralized governmental institutions. It is generally felt among scholars that success in communal endeavors depends on the commitment of the participants. Additionally, the likelihood of success is enhanced when leaders make some concessions to egoistic concerns of participants.  It was found that when continuance, cohesion, and control strategies are applied to solidify commitment, personalities are bound to social systems and their functions. When those strategies were employed, 19th century American utopian communities were generally successful, i.e., enduring.

When members of a communal organization are asked to sacrifice, i.e., to give up something as a price of membership, their motivation to remain will increase. Membership becomes more “sacred,” more valuable and meaningful if such sacrifice is made. Communion is defined as becoming an integral part of the self with the group. Homogeneity was also achieved through the general acceptance by the participants of the same communal conditions and the leadership’s demands for sacrifice over a period of time. Factors likely to produce homogeneity included, for example, common religious background; similar economic, educational status; common ethnic background; prior acquaintance of members; communistic sharing; property signed over at admission; signed-over property received while a member; the community as a whole owned land; the community as a whole owned buildings; the community as a whole owned furniture, tools, equipment; the community as a whole owned clothing, personal effects; communistic labor; no compensation for labor; no charge for community services; no skills requirement for admission. These are only part of the factors that can structure communal life in such a way as to enhance the feelings of commitment participants have for their communal situation.

With these considerations it becomes more readily apparent why achieving long-term success in such organizations is difficult and rather rare. But where communities did succeed by surviving for an extended period, observers found much therein to admire and hope to preserve for the diversity of social life.

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Corporations and Their Stakeholders: The U.S. Business School Contribution to Socialist Indoctrination

One hears frequently of the leftist indoctrination of college students in the United States, whose recruitment to the ranks of progressives and, more recently, socialists is apparent. Opinion polls show the approval of socialism among millennials at just over 50% in 2019. 

I presume that in the liberal arts and humanities this indoctrination occurs in history, political science and related classes somewhat systematically, and in other courses by random observations of socialist professors. In the case of business students, I am fully aware of the indoctrination process, having taught for many years in business schools.

For many years I assumed that the exposure to economics in college and having been the victims of regulatory measures once they begin careers in business, businessmen would be natural advocates of laissez-faire capitalism and the market system. With the introduction of systematic indoctrination in business schools, however, one can find all sorts of indoctrinated socialists in business and, perhaps especially, in financial firms. This essay will address the nature of the indoctrination of business students.


Universities endow students with access to business careers. First, they seek to indoctrinate them.

The corporation has always been vilified by its socialist detractors – those who ignore the fact that corporations are the producers of the goods we consume and the provider of jobs. They are the institution that develops and applies new technologies, and gives us investment opportunities for our 401K plans. But according to “stakeholder theorists,”  who provide systematic indoctrination of our future business leaders, the corporation has the potential for doing some good, but only if academics train students to overcome the corporation’s history of evils and abuses.

Future managers must be coached to be ethical, which means to be socially minded. Serve the corporate stakeholder!

Stakeholder advocates teach that those in society who understand ethics and proper managerial behavior, must transform corporations into socially responsible institutions which do not just show concern for the stock-holding owners of corporations and their profits. No, they must consider and respond to the needs and desires of all the groups and organizations which are negatively affected by the functioning of corporations.  All such groups who have a stake in the outcomes of corporate activity – corporate “stakeholders” – must be part of corporate leaders’ concerns.

Competent and ethical students take a “social” view of the firm and its “abuses.” Social is sometimes a code word for socialism.

Moderate stakeholder theorists, if I may use a distinction made by a stakeholder theorist among my business school colleagues, are simply individuals who wish to teach ethics to prospective managers. The more radical among business school faculty, however, advocate more forceful methods of imposing stakeholder principles on corporations. This more radical type of stakeholder advocate hopes to impact the functioning of corporations by applying “social controls” to corporate management. Some might be willing to be satisfied with teaching corporate leaders their corporate social responsibility (CSR), but others would like to take further, more extreme measures to make sure that CEOs rigorously apply the stakeholder principles they learned as undergraduates.

One might notice the asymmetry of stakeholder theory. On one side of the coin, all corporate activity imposes external costs on society. Those thus impacted are thought to have a claim on the corporation for compensating benefits. But note that corporations produce both costs and benefits for society. For example, corporations pay taxes and perform other positive functions and produce positive externalities. On the other side of the coin, perhaps those who benefit from the existence of a given corporation should be considered “beneficiaries”, rather than “stakeholders”, and beneficiaries should provide revenues in some form for their beneficiary social responsibility (BSR), which would be remitted to all socially acceptable corporations. The reader should not expect ever to hear such a proposal in real life, but it is no less unreasonable than the stakeholder notion.

Those corporations performing helpful social functions, such as would bring happiness to any state chosen to be the headquarters of such a corporation, should probably also have an agent serve in the upper echelons of the tax administration of such states, if not in the IRS in Washington, D.C. This tongue-in-cheek proposal, of course, will not attract any positive response from socialists (“stakeholder theorists”) in our business schools.

It is hardly difficult to find persuasive refutation of stakeholder claims from the perspective of economics. According to stakeholder advocates, their objective is to make “values” necessarily and explicitly a part of doing business. Managers are to be indoctrinated and trained to share the wealth the corporation creates with their core stakeholders.

Socially competent managers accept social values and try to appease all stakeholders.

“The Corporate Objective,” the highest stakeholder value, is that “truth and freedom are best served by seeing business and ethics as connected.” The notion of intervening in private commerce to achieve social justice originated, of course, in the public sector. Stakeholder advocacy merely extends the process to the private sector. We are accustomed to perceiving the public sector in terms of politics and political action. Aside from the public corporation, only governments – federal, state, and local – can generate resources on a large scale. In a sense governments also have shareholders, citizens who pay taxes and provide services such as voting and volunteering for public projects. Strictly speaking, we do not separate ownership and non-ownership in governance, since the founders perceived an equal creation of all the governed. Those not in a position to contribute to the generation of wealth, however, are akin to the stakeholders of governments. They are franchised to use the public infrastructure, receive subsidies, enjoy public health services, educational programs, and so on. Legislatures have recognized their entitlement, which is by community agreement separated from ownership.

Stakeholder theory comes along much later and places its focus on the private sector, advocating an expansion of the services received by private stakeholders and demanding increasing private provision for their needs and claims. But those needs and claims are more clearly the business of the public sector. Society as a whole, in the form of representative government, agrees to expand the benefits of legitimate stakeholders – low income recipients, the poorly educated, the physically handicapped or chronically ill, and others unable to provide for themselves. This is done to express the community’s preferences for justice and equity and includes taxation of the private sector to secure the essential welfare funds.

Marx and Lenin were convinced both government and industry should provide welfare and redistribute income.

Market advocates have long held that more efficient and effective care of social stakeholders would occur if the private sector were concerned strictly with taking care of the ownership and allocation of private resources. If returns are maximized and efficiency prevails in the private sector, large amounts of resources are generated for tax purposes and the redistribution of funds through the public sector. Moreover, as we learned from the socialist experience in the Soviet Union and East Europe, the generation of public resources is not unrelated to the state of private incentives. If the provision of resources is taken over completely by the state, the resultant incentive incompatibilities guarantee a much diminished national product, much reduced taxation flows, and a much lower level of living in general.

The socialization of the private sector is not an efficient way to generate resources for the underprivileged. Teaching prospective managers that they may consider themselves the “owners” of the corporation’s resources (because they need no longer feel any responsibility to the shareholders, who are the actual owners of the property) and that those resources should be used for social claims is certainly a poor idea from the standpoint of justice or efficient resource allocation. Although managers may engage in moral hazard (using resources in their personal interest, in this case to enhance the position of stakeholders, far and near, rather than create wealth for the firm’s owners), this diversion from efficient management will lead them into unproductive pursuits that shrink the capacity for wealth creation. This diversion of resources from the owners by the shareholders, imposes upon owners one more set of redistribution demands through a form of private or “quasi” taxation. And this is performed in the name of ethics?

Stakeholdler advocates are apparently unwilling to perceive that business activity already takes place in a world in which there are numerous laws and regulations on corporations to account for social interests. Calling on business leaders to impose additional, self-administered measures to enhance additional income redistribution at the expense of the firm’s owners can only be the result of over-reach. Thus, Milton Friedman, the Nobel prize-winning economist famous for his advocacy of economic freedoms, is quoted as saying that stakeholder advocates are “preaching pure and unadulterated socialism.”

Stakeholder advocates rely on sweeping generalizations about the fiduciary and social obligations of corporations. They promote the notion that any individual or organization that “invests” in corporations has the right to some return on the investment, i.e., to some of the fruits of the firm’s productivity. They do not usually elaborate on the idea of what kind of return they might expect from their “investment,” the nature of which is likewise vague. In the current economy, one may rest assured that if any individual or organization has a claim on any specific firm for any specific “investment,” the demand for such a return will already have been pressed in the courts. In any case, all the stakeholders in American corporations having a legitimate claim on a return are already receiving it.

With monopoly power a firm can restrict output, raise the price, and contribute more to stakeholder causes.

It has occurred to some theorists that stakeholder-oriented companies possessing any monopoly power have lower output and higher prices. Firms in this situation may choose voluntarily to be stakeholder-oriented, because they are in a position to charge higher prices. That benefits stakeholders because higher prices are required for firms of this type to produce greater revenues not only to cover current costs and make a “normal” profit, but also to generate additional revenues for stakeholder causes.

We need not pursue the analysis of a government tax imposed on an imperfectly competitive firm here. The government already taxes such firms to finance the usual social programs. This tax, generally of the excise type, will be passed along to the consumer. Thus, the stakeholder quasi-tax burden combines with the normal tax burden already imposed by the social-welfare state on the consumer. The imposition of higher taxes is not likely to be seen as a disadvantage to the average stakeholder advocate, but it should serve as a warning signal to other citizens and business people.

As bureaucracy usually functions, untruths about the “responsibility of corporate leaders” cover the lie that there is no fiduciary responsibility to the corporate owners, the shareholders.

Finally, the adoption of a thoroughgoing stakeholder model would transform the corporation from its original situation of focusing on the simple matter of maximizing profits. It would have to focus on all the other stakeholder “investors” and their “claims” on the earnings of the corporation. It would become like a government agency, no longer worrying about the bottom line. It would only have to transfer any available funds to the diverse causes célèbre of stakeholders far and near. Becoming a government bureaucracy, it could not be expected to exhibit greater efficiency than the I.R.S. or the V.A. Its effect would be to lead the manager into pursuing his own stakeholder interests rather than the interests of the owners. It would reflect moral hazard on the part of the coached, socially conscious, indoctrinated manager who pursues his own interests rather than those of the owner.

For a more thorough and detailed treatment of these stakeholder issues, I invite the reader to see the much longer and completely documented exposition in two chapters of my book, Socialism.

Capitalism: Origins, Expansion, Decline, and the Attempted Revival in the United States.
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The Corporation in U.S. Capitalism

The Socialists’ Hatred of the Corporation in Capitalism

Early car factory

The formation of the corporation as a business organization began centuries ago. The corporation, like other forms of the firm, was an object of socialist hatred long before it assumed its contemporary form. The objective in this brief essay is to show why corporations have been found contemptible by socialists in spite of the fact that their contemporary versions deliver many well-paid jobs, produce desired goods and services that make the life of the contemporary consumer of higher quality than that of kings and queens of former eras. Corporations also pay taxes that fund governmental social programs, they generate and produce new technologies, and they provide the engine of economic growth for national and world economies.

Modern car factories use robots extensively. This BMW factory in Munich, Germany, is really worth a visit.
Goes faster than King George’s royal carriage.

Since even legally organized corporations are still people (they are rarely managed by wildlife, are hardly ever staffed by robots, and mostly do not sell products and services produced by extra-terrestrial aliens), they display both noble and ignoble human proclivities. Corporations, therefore, are capable of performing inconsiderate, immoral, and even illegal activities. Capitalist societies long ago learned how to influence the behavior of the firm and to sanction them in various ways when guilty of such activities.

Capitalism: Origins, Expansion, Decline, and the Attempted Revival in the United States.

Space considerations make it inappropriate to expand on the argumentation of contemporary economists, both of the socialists who decry corporations and their managers and of the more market-oriented economists who defend capitalism’s organizational advantages and possibilities. For those interested, a substantial chapter of the book Socialism: Origins, Expansion, Decline, and the Attempted Revival in the United States provides a translation of the professional discussion among economists regarding the corporation in American capitalism.

Socialist Theories of Corporate Exploitation of the Working Class

Working class exploitation today includes good wages.

Socialists have made the hatred of firms and corporations a central point of their doctrines, ideologies, and theories. Marx developed an economic theory which insisted that the manager’s pursuit of “surplus value” and profit was based on the exploitation of the worker. The firm contracted to engage workers for, say, twelve hours a day, but the workers produced enough in, say, eight hours a day to cover the labor costs of production. The workers were certainly not to be sent home at the end of the time it took to produce that much. They worked on and produced in that 12-hour working day excess product or “surplus value” that the manager pocketed for himself. Voila! There is exploitation. The theory sounded great to the workers who were encouraged to revolt and eliminate the managers who were guilty of the exploitation. But the theory was full of flaws that economists quickly pointed out to Marx and his followers. The interesting story of this theory and its effects are addressed in detail in my book Socialism, so we won’t distract from the narrative here by elaborating on the theoretical flaws.

Competition can be imported.

It is very important to realize also what socialists like to forget, i.e., that the performance of corporations can also be kept within the bounds of acceptability by exposing them to competition. To keep these marvelous organizations producing our prosperity and happiness from the taint of dishonesty or corruption we can create regulations prohibiting unacceptable behaviors, we can produce laws to assure that people are protected from potentially unjust or damaging corporate actions. Importantly, we can subject our domestic producers to the competition that arises from breaking up monopolies, enhance competition by encouraging new entry into domestic markets, and by opening up our borders to foreign competition by importing products and services from abroad.

The Socialist Solution for Controlling Corporate Behavior

None of these solutions for assuring society of the acceptable performance of corporations is acceptable to socialists. They prefer having the government take over all the nation’s businesses. But this socialist alternative has been rejected by free societies. After the socialists took many millions of lives in the process of forcefully taking over the management and ownership of corporations in the Soviet Union and China, societies found this approach unacceptable. It was the approach of the centrally planned economies of the Soviet Union, China, Cuba, India, Venezuela and others. This “nationalization of industry” was the key doctrine of 19th century socialism and the primary element of central planning.

Industry: regulate or nationalize?

Unfortunately, nationalization overburdens the government agencies, which are in charge of the excessively bureaucratic management of state-owned firms. The centralized, command system destroys incentives, productivity, technological change, and efforts to maintain protection of the environment.

Parliaments are rather inept at analyzing short- and long-term benefits and costs of industrial regulation.

In Western Europe the totalitarian system of socialist planning was rejected. Most of those countries did indeed have socialist and communist political parties anxious to win the election that would permit them to construct a socialist economy. But over a century was wasted by those political parties insisting on nationalizing either the entirety of the economy’s firms or at least the “commanding heights” of the economy – the key industrial firms. The nationalized firms would be overseen by committees of parliament and the state’s hired managers would not seek to produce profits and efficiency, but follow instead the bureaucratically produced objectives of the political representatives of the society.

This approach proved to be a large zero in effectiveness. After the Second World War socialist parties came to power, since the memory of capitalism’s “failure” had led to the Great Depression, the misery of which was concluded only by the economic stimulus of the tragic WWII. So people were ready to try socialism when peace came. But economic planning had no perceptible positive effect on those economies and the nationalization scheme, transforming private firms into miniature public bureaucracies, functioned with the usual (negative) effectiveness of socialism. European voters heeded the warning of Friedrich Hayek (author of The Road to Serfdom) that these socialistic planning arrangements would inevitably prove destructive to personal and societal freedoms and prosperity, and they voted the socialists out of office before the latter could establish and impose tyrannical institutions on their citizens.

The Failure of Socialist Central Planning to Solve the Problem of Corporations

Under capitalism, every firm and household has its own plan. Once the economy is taken over by the governmental bureaucracy, all those private plans are eliminated and the government produces one massive, single plan to control all the subtle and complex relationships extant in the free economy. In the countless logical and legislated arrangements, planning gaps result from incompleteness or inconsistencies in the formal plan. Thus, there are openings for individual choices that are counter to the plan. Mostly, these lead to black markets or even a vast “second economy” that produces goods otherwise not obtainable, but also generates mountains of illegality and injustice.

In Soviet economics all was not truth and light.

When the government tried to take over the leading sectors or commanding heights of the economy, not much regulation happened at all. The parliament was not inclined, nor was it capable of providing business correction or effective management of the industrial sectors of the economy.  The result was that inefficiency was rampant and positive regulatory effects were quite invisible. It didn’t take long for the government to see the desirability of getting out of the micro-management of the economy. At that point, advocacy for the restructuring of the private economy was moribund, which is simply to say that socialism disappeared.

Sweden is a charming CAPITALIST economy!

Now, consider again the “democratic socialists” of the United States, as addressed in other posts on this website. These socialists are “democratic” only in that they attach themselves to the Democratic Party. They actually desire to be dictators of any environmental and/or economic activities of the nation if only they can gain control. They may still be the old-time socialists who have otherwise disappeared from the earth, because they mention in various ways their desire to restructure the economy. But they now also say they would be like the Scandinavian socialists of contemporary Europe, without realizing that there are no socialists in Sweden and the other countries alluded to. (For details and evidence on this paragraph, please see below my posts I and II entitled Democratic Socialists: “We Need Swedish and Scandinavian Socialism.”)

Sweden, where all work, all pay taxes, and all favor income redistribution.

Sweden, the most notable of these countries clearly distanced itself from trying to restructure their economy with the programs that failed universally in democratic Europe. Sweden correctly calls itself a capitalist economy. The Scandinavians have retained an egalitarian tradition and maintain significant redistribution of incomes. Finland even tried to implement a universal basic income that proved unsuccessful. But in Sweden’s capitalist economy, everyone works and, unlike the stated objective of the democratic socialists in the United States, who want the rich to pay for all social programs, everyone in Sweden pays their taxes. So there is no kinship between American and Scandinavian “socialists”.

Socialism and the Problem of “Moral Hazard” in Corporate Management

The reader will understand that the modern corporation is run by professional managers who are not the owners of the firm. The corporation’s owners are its stockholders, whose interests should be served by the hired managerial team. It is called “moral hazard” when the management pursues its own interests rather than the interests of the owners. This negative behavior and other negative proclivities require laws and regulations delivered by government, but there is a tendency in the governmental bureaucracies of Western societies continually to increase regulatory activity until the costs of compliance are prohibitive and creativity is stifled.
Because of this tendency, periodic regulatory reforms referred to as deregulation become highly desirable.

The prudent, non-bureaucratic government will find it difficult to ignore regulation of its industries, but over-production of regulations is counterproductive. It is much wiser to expose firms to rigorous competition than to attempt to direct them through micromanagement. Under competitive conditions the corporation must try to attract customers and achieve long-term clientele loyalty by fair pricing and by providing an excellent, competitive product. The competitive effort must also be enhanced by global integration of the economy: borders must be opened to foreign competition.

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The Origins of Socialist Ideas

Early Ideas

Long before the days of Adam Smith idealist philosophers had been seeking an egalitarian economic system that would relieve the plight of the poor. They were seeking for a way to achieve the ideals of what later came to be known as socialism. The search for early socialist ideas goes back to ancient times. In the Bible, Israel’s God, Jehovah, revealed to Moses a law which was designed inter alia to care for the poor. This encouraged a positive response to an inherent, ongoing social problem. Some Christians feel that response was placed in people by their Creator.

A social concern for poverty was noticeable among the Greeks; they also disapproved of commerce and the use of usury to “make money with money.” That concern was passed forward through Thomas Aquinas and other Church Fathers, down through the Middle Ages.

Moses’ law provided for the poor.

Thomas More and the Beginnings of Modern Socialism

The more modern history of socialist concerns began in England with the publication of Sir Thomas More’s famous work, Utopia, in 1516. More described a way of life and commerce in an optimal, utopian society. Utopia became the conceptual blueprint of ideal socialism long before Adam Smith’s day. Utopia criticized the inequality that capitalism was alleged to engender.

We sense a form of utopia in nature’s beauties; some search for it in social organization as well.

After Thomas More, socialists concluded that markets and corporations represent little more than social abuse by greedy capitalists. Early on, socialists began to call for the elimination of capitalism because it was tainted with that greed. With equal invalidity one might conclude that religion, politics, education and other social institutions designed to achieve our values should likewise be eliminated, since some people are also willing to abuse these other social institutions in pursuit of their own greedy interests.

Some of the famous, early French philosophers found evil in the institution of private property and in the inequality produced by market activity. Other Frenchmen, such as Voltaire and the èconomistes, Francois Quesnay, Richard Cantillon, and Jacques
Turgot, with whom Adam Smith consulted in Paris, were very positive about what came to be known as capitalism. They were all critical of “mercantilism,” which at that time was one of the forerunners of socialism. It was the attempt to manipulate market activity and, through foreign trade, to attract gold for the king’s coffers.

The French Revolution

Jean Jacques Rousseau (1712-78) was the intellectual father of the radical component of the French Revolution. He stressed the principle of community in The Social Contract, his chief work. His writings on social questions were imbued with a quality of moral fervor. The notion of social equality and the corrupting effects of private property also saturated his writings, which were thus found useful in subjecting his thoughts to a communistic interpretation.

Economics as the “Wealth of Nations”

Adam Smith

           Smith wanted people to understand that the real “wealth of nations” were the goods and services a nation produced to enhance the material lives of its citizens. The competing mercantilism suggested that if a nation would maximize its exports, hotly desired bullion could be drawn into the king’s treasury. People paid for those exports with gold, so the strategy was to cease importing commodities and export as much as possible.

If everybody followed the notions of the Mercantilists, no foreigners would purchase their exports, since the potential customer nations would all be eliminating their imports as well. If instead they followed Adam Smith nations would be engaging enthusiastically in market transactions in the pursuit of their own self-interest, buying and selling to their hearts’ content the growing abundance of goods and services produced by people of free minds and free markets.

Utopian and “Scientific” Socialism

But returning to the development of socialist ideas, we begin with “Utopian” and pre-Marxian socialism, which were both an uncertain collection of dispersed considerations and aspirations inspired by love for mankind and a desire to ameliorate man’s social condition. “Real” socialism historically began when Karl Marx pronounced his brand of socialism, “scientific” socialism. It was not based on wishful thinking, but on a thirst for revenge.

Utopian socialism was the expression of love in economic theory and organization. It offered people the opportunity to become a part of a socialistic organization probably best described as a commune. Communitarian living arrangements were characteristic of the many, many private socialist arrangements proposed. The heroes of the movement were the theoreticians who suggested people should leave the harshness of secular society and live a communal lifestyle with their property held in common, as was the case of early Christians in New Testament times (see Acts, chapter 4).

Theories were propagated in England by Robert Owen, a successful textile factory owner who showed the world that a firm could run profitably without exploitative. long hours, child labor, or unhealthy work conditions. He ultimately went to America to establish and fund a commune of his own.

In France, theories were propagated by Saint-Simon as well as by Charles Fourier. A discussion of these interesting and somewhat strange personalities and their economic and social views is available in the book Socialism for any desiring greater detail. It is important to note here, however, that utopian and communitarian socialism had the virtue of being voluntary. Today’s socialists, either through violence or ballot-box enforcement, would force everyone in society into the socialist tent. If you are on the wrong side of the revolution, or if your views are defeated by socialists at the ballot box, you are forced to submit to the economic, social and political preferences of the socialists. With utopian socialism, the people favoring socialist organization of their particular type go off on their own and establish a small community consisting of those who freely choose to participate. They need no Siberian prison camps to inter the individuals whose preferences differ from their own and are loathe to submit to socialist strictures.

Che Guevara, Cuban Exporter of Revolution

Marx transformed socialism to a movement of hatred. Capitalism was to be punished for every act of greed and exploitation that characterizes every capitalist and enters into every market transaction. It would be punished by a proletarian revolution that would expropriate the expropriators. The dictatorship of the proletariat would consolidate power and prevent any return to power of capitalist sympathizers. After it was no longer necessary for the dictatorship to rule with an iron fist, men would work together to exploit nature, then things would become really utopian and communistic. But of this distant phase of future history, Marx did not write. He only had energy and time to condemn capitalism root and branch, giving the anti-capitalists fodder for their vindictiveness.

Marxian Socialism, the Path to the Communism of the Distant Future

Karl Marx busted!

Marxian socialism did not spring full-blown from the dark mind of Karl Marx. Marx freely borrowed from the many socialist pioneers who preceded him. Just as Adam Smith had pulled together the ideas of many previous political economists to establish a comprehensive theory of markets and capitalism, Marx drew on the thoughts of such people as Pierre-Joseph Proudhon, Charles Hall, William Thompson, John Francis Bray, John Gray, Ferdinand Johann Gottlieb Lassalle, Alexander Herzen, and Johann Karl Rodbertus. It must be observed that Marx was neither as honest nor as generous as Adam Smith in giving credit to those whose ideas were found useful in the construction of a theoretical system destined to endure. Again, the interested reader longing for more of the detailed history of these pre-Marxian theoreticians is invited to consult with the book, Socialism. That source also elaborates, of course, on Marx’s theories, which have also been treated in other blogs of this website.

The Decline of Socialism

           By 1990 socialism was dead in Europe. It had just succumbed in the former Soviet bloc and communist parties were disappearing everywhere in East Europe. In West Europe with nationalization dead, with economic planning expired, the socialist parties had nothing more to offer than social welfare programs and income redistribution, which had from the time of Bismarck developed rapidly in Europe throughout the twentieth century. By 1990 there were still socialist parties and socialists, but socialism was moribund. It was a system without socialist policy initiatives, since by that time it was difficult to find any capitalist or right wing party that did not propose income redistribution policies of its own. In other blogs and in the book I have shown in some detail the disaster that was socialism.

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The “Democratic Socialism” of Bernie Sanders

Of the many definitions of socialism, we will consider here that of Bernie Sanders. He has declared his basic principle to be that of taking on and defeating “a ruling class whose greed is destroying our nation.”  Bernie calls himself a democratic socialist because he is in the spirit of the original “scientific socialist,” Karl Marx. Marx was more formal than Bernie. What Marx said was very similar, however; but Marx would not have said we should “take on” the ruling class, or bourgeoisie.  Marx called for violent revolution and a “defeat” of the ruling class, by which he meant the elimination of the capitalist class.  (For Bernie’s definition see the website http://www.dailykos.com/story/2015/11/22/1453152/-5-Ways-America-is-Already-Socialist.)

Bernie gives his definition of socialism

The young socialists at this website complain that nobody understands socialism, then go on to demonstrate the validity of that statement.  Their formal definition of socialism is good enough: Socialism is: “A political and economic theory of social organization that advocates that the means of production, distribution and exchange should be owned or regulated by the community as a whole.” This is close enough to a Marxian definition to gain the hero’s stamp of approval.

Marx and Lenin

This website declares that there are many types of Socialists, but the main idea is that “the rich and the powerful don’t get to call all the shots when it comes to the economy.” Their thesis is that no one will tell you, but America is already Socialist!  The people on this website call every public sector activity or service “socialism.” Having a public sector does not make a country socialist. Their intent, of course, is not to create a brilliant definition of socialism, but merely to imply that the private sector is bad and the public sector is good.

Well, a market system as defined, evaluated and praised by the great teacher of market systems, Adam Smith, involves both public and private sectors in an appropriate balance.   In his view, the public sector didn’t need to provide an exceptional number of services; rather, it must be the referee and the enforcer of the laws and provide for the public defense. Where necessary, it regulates the private or commercial sector appropriately, so as to protect property, life, and justice.  But it does not strive to regulate people, depriving them of guaranteed freedoms, as socialism has always done whenever an implementation of that system was attempted in whatever nation. The American definition of socialism today is redefining freedom of speech so that everything they dislike is classified as “hate speech” and forbidden.  So much for the first amendment.

This site shows a video of Bernie Sanders defining “democratic socialism,” which concludes:  “Democratic socialism means we have an economy that works for all, not just for the very wealthy.”  That means the economy must supply free-tuition education, a “living wage” minimum wage,  and it must not allow the fossil fuel industry to destroy our environment and our planet. The wealthiest corporations and people must pay their fair share of taxes;  and healthcare should be a right of all people, not a privilege.” That is a good, but incomplete sampling of his proposals for government programs.

Socialism: Origins, Expansion, Decline, and the Attempted Revival in the United States.

In other posts I have discussed the nature of Democratic Socialism and addressed the taxation and expenditure issues involved. My book, Socialism, also discusses these things in depth in Part III, which addresses the attempt to revive socialism in the Obama administration’s eight years in power. There is not space here to discuss in depth those developments, but there is space for a bold, bottom-line summary of what has been happening.

Whenever the government has attempted to take over the provision of the goods and services necessary for the people’s “rights,” they have developed subsidy programs funded by very high, but nevertheless insufficient taxation. Not only have they attempted to provide for the poor, but have (in Bismark fashion) also provided the same services and goods for the middle class, although the middle class could afford to pay their own way. The doctrine is that the 1% of very wealthy people at the top of the income scale, could pay the way for everybody. Unfortunately, although the very wealthy have continued to fare well and even better recently than in the past, there are not enough very wealthy people to pay the bills for everyone.

Sweden, capital of European welfare.

In Europe, where most countries have had the inclination, governments have funded social programs generously. They could do so because they had no defense bills to pay. There has been peace among Europeans since the devastation of World War II, and the Cold War that followed was mostly funded by the United States.  While we paid for Europe’s defense, Europe put almost all their resources into social welfare. But even without any serious military sector, some of those countries became ever more generous with their pensions and public goods. They have since been struggling to stay afloat financially.  You can’t have a few productive people working and paying for everybody else to have a free ride through life.

Although the United States put a huge share of its resources into national security rather than free education, free health care, and other such programs, its market-oriented economy remained the engine of the free world’s market systems. Americans struggled to educate themselves, scrimped and saved to educate their children, innovated and created new products, services, and technologies, and led the world economy.  Creativity was not dramatic in the other more healthy national economies. The emphasis there was not on growing the national economic pie, but on its division – in other words, on the redistribution of incomes.  In recent years as socialist inclinations have become more prevalent in the United States, we have been in a rush to pursue consumption, welfare programs, and to avoiding the hard tasks and sacrifice of provident economic management. That brand of economic activity immediately makes clear a lot of our country’s current issues as they developed under the fiscal disaster of the Obama administration..

Socialism today and in the United  States is certainly not what it was in the Soviet Union, or in India, or in France at various times in the past. My book gives an easily understood picture of socialism in those places and in general, showing why its false appeal presents a real hazard for America’s future. I invite you to check out the “Order a Copy” link at the top of the page.

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Economic Policy in American Socialism

Socialism is an economic order based on the nationalization of all private industries, or at least those industries described by Lenin as the “commanding heights” of the economy. But there is more to socialist theory than having the state simply take over the private sector.  A second essential is to install an economic plan to direct all economic activity centrally. These first two principles are combined with an extensive redistribution of incomes and the pursuit of all-encompassing social welfare policies.

The first socialist President of the United States, Barak Obama, came to office after genuine socialism had been abandoned in most parts of the world. It is not known what kind of “socialist” President Obama is, since he has never admitted his credentials, training, or complete preferences. But he did announce his intention to install a “complete transformation” of the American economy and we know how ardently he promoted social welfare programs. In other countries, that would be enough to label him a “socialist.”

Lawrence H. Summers

After the onset of the Great Recession, which occurred just before the election of Obama, severe economic problems demanded robust economic policies to overcome the global fiscal crisis. The financial freeze had basically been overcome by President Bush and Henry Paulson, but the Dodd-Frank recession that followed in its wake was left for President Obama to address. Obama and Larry Summers promoted a large stimulus spending package of nearly a trillion dollars. Unfortunately, the funds congress made available were not spent to rebuild, for example, the country’s infrastructure.  The President later complained that no “shovel-ready” infrastructure projects could be found. Essentially, much of the massive stimulus fund was, therefore, frittered away in support of failing local governments which had overspent (often on pension programs). Other funds were essentially wasted on temporary green jobs, political payoffs, and several varieties of pork. This is all addressed in some detail in my book, Socialism; the bottom line was that there was no useful effect from the massive expenditures, since unemployment across the country continued to climb.

The normal pattern for business cycles is that the phase of recession is followed by a recovery. Normally the upturn is sharp as everyone is anxious to satisfy pent-up demands from the downturn and restored confidence drives a period of rapid expansion. The Obama administration, however, pursued anti-economic policies—requiring actions and expenditures that thwarted economic growth in what became history’s slowest recovery. These policies included 1) a war on coal and carbon for environmental purposes, 2) the Obamacare dictum that businesses must provide health care for all full-time workers (so firms basically only hired part-time workers), 3) new Dodd-Frank financial restrictions that stifled banking activity which would have financed a post-recession, small-business boom, and so on.

The recovery was extremely slow and painful.  Socialists are sufficiently skilled to stifle and slay the private sector of an economy, but are rather clueless when it comes to managing a market economy’s health and development. The objective is merely to tax heavily and spend even more heavily on social welfare programs. The latter are especially needed when their economic policy pushes up unemployment.

In President Obama’s case, the labor-force participation rate plummeted as discouraged workers simply stopped looking for work and dropped out of the labor force; the food-stamp rolls, the ranks of the disabled, and the numbers in poverty all increased dramatically. The incomes of the middle class, however, did not do so; nor have they increased in decades. In my book on socialism I wrote that “it was an insult to the intelligence of the voter when President Obama repeated incessantly that the economy was moving in the right direction, but there was still work to do. That’s like a coach of a 0-16 NFL football team insisting that ‘our last loss was 73-3, but the field goal we made was great and we’re going in the right direction, but there’s more work to do.’” (See the footnote on p. 740.)

A thing of beauty

The problem with socialism is that it can do no more than put its hopes on Keynesian expenditures to stimulate a depressed economy. In the aftermath of 2007 and 2008 the Obama-Summers stimulus was a waste.  So there was no socialist economic solution for the Great Recession.  One can rail continuously that Reaganesque solutions are “trickle-down policies” that only help the rich, but there is no solution in this Democratic talking points criticism. Progressives who favor massive deficit finance to solve all problems also favor a continuous flow of commercial regulations which thwart business growth. Sponsoring continual tax increases to finance wasteful projects provides no effective solutions for the macro economy. The Obama economy left the country stagnant, indebted and disillusioned.

Socialism: Origins, Expansion, Decline, and the Attempted Revival in the United States.

Friends, as you can see from the top menu, this website has a link to “Order a Copy” of the book.  I turned down a prestigious publisher’s offer to publish Socialism, because that publisher intended to sell the three volume set for $360 ($120 per volume).  So, I published all three volumes as one massive book with Xlibris so you could buy an electronic copy at a very low price ($3.99), or as a paperback ($15.67 at Amazon) or hardbound copy ($23.88) at a very reasonable price. Check it out.  If you buy, your friends may think you are a genius!

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Demographic Winter and the Future of Socialism

From Population Growth to Declining Birth Rates. 

The Population Bomb, a 1968 blockbuster book by Paul Ehrlich, presented the view that society’s biggest threat and harm was the geometric growth rate of the population. According to Ehrlich there were too many births – too many people – for the good of the environment and the economy.  The modern era, beginning somewhere around the 1950s has been one of limiting family size. Many believe, like Ehrlich, that the population is too large. Today, although population growth continues for the time being, a long-standing trend of declining birth rates brings new concerns for humanity.

There are several main reasons why birth rates have begun to decline.  Families had been large in the previous, largely agricultural era, since children could be farm laborers and were viewed as a positive.  In the new era, children began to be viewed as a negative; they had to be entertained, cared for, and educated.  The arrival of feminism taught that children were a hindrance to the personal development of mothers, who should really express their talents and gifts as part of the labor force. 

The availability of prophylactics meant that for the first time in history, couples could avoid having unwanted children, and many did just that.  The sexual revolution had similar causes and effects.  Sexual satisfaction became decoupled from both marriage and human reproduction.  Cohabitation and promiscuity were no longer inhibited by the potential hazard of the arrival of an unwanted child.

For the child still arriving unexpectedly, the later phenomenon of mass legal abortions has been seen as a means of constraining population growth.  But now the birth rate has fallen below the rate required to maintain the population at the current level. We have come to the recent recognition of demographers and social scientists that populations not only grow with geometrical rapidity, but once society stops growing the population, its decline is in the same manner — with geometrical rapidity. Today, the advanced countries have birth rates too low to offset deaths and national populations are teetering on the brink of decline or actually declining.

I can remember forty years ago teaching that in a century from that time, the German nation will have declined from about 80 million to 10 or 15 million, all of whom would be descendants of the Turkish people who had come as guest workers to Germany. On March 17, 2017, Turkish president Recep Tayyip Erdoğan called on Turkey’s European citizens to increase their rates of procreation and have five children each. He insisted that a booming Turkish population would be the best answer to the EU’s “vulgarism, antagonism, and injustice” (so reported the UK’s Telegraph). He is convinced that within a few decades Europe will belong to the Turks.

The Economic Problems of Demographic Winter

Consider just a couple of problems that will arise with falling populations.  The housing market can accommodate families considerably larger than the one or two children standard of the recent past.  Houses have been built for a substantial population, but what will happen when the baby boomers of the post-World War II era and the declining population to follow them want to downsize and put their larger than convenient homes on the housing market? In the future there will be a large glut of such homes on the market as there will be increasingly smaller cohorts of buyers to purchase them.

Real Estate Glut

When social security was introduced there were about sixteen people in the labor force to provide the goods and services for one retired person. Social security is not an insurance program in which one’s continual contributions are set aside as savings for that person’s retirement.  It is simply a transfer program in which the money people pay in (if not confiscated by politicians for other purposes) is transferred directly to people currently retired.  With a declining population we will discover that we now have only three or four people contributing to the retirement of each retiree. In the future we will see yet fewer contributors for each retiree. Ever fewer workers will not be able to sustain the growing number of retired persons they would need to support.

Other Problems of Declining Populations

Abandoned cities?

The economic problems won’t be the worst of societal difficulties once an increasingly rapid population decline begins to bite within few decades. According to social scientists, children who do not enjoy the benefits of the nuclear family are subject to developmental issues.  They do not gain the concern for others, the normal development of skills valued in the market place, or the cognitive stimulation and development that occurs in families. Many different kinds of statistics describe serious problems that children without siblings encounter in their development.  When they fail to gain the social and developmental skills needed, many are unable to contribute productively to society and become candidates for welfare statism.  One of my recent blogs on the increasing death rate of whites over 25 years of age indicates the issues already arising for much of the American middle class.

Jesus Christ prophesied of our time when He said “the love of many shall wax cold” (Matthew 24:12). Those who use their sexuality only for personal gratification and who live only for their own personal goals and aspirations can easily be alienated from other people.  Siblings of families learn to care for others; even if they sometimes don’t get along as well as their parents would hope, they later become parents and care for their own children.  Cold hearts will mean loneliness for many children.  Those who develop poorly view governments only as institutions to provide for their personal needs.

Socialism is the personal philosophy growing out of the economic and cultural conditions developing in Western society.  It gives lip service to the welfare of everyone, but hearts of people are locked on their own incomes and future prospects for sufficient income .  Socialism is mostly self-concern for personal security. In the United States, socialist policies have promoted many of the activities and attitudes that have resulted in declining birth rates.  Promotion of abortion, of denigration of women choosing motherhood rather than labor force participation, and promotion of the idea that environmental damage is a function of excessive population are common ideas for socialists.

Many who understand the implications of declining birth rates feel that the answer is simply to invite into our country new citizens from the populous countries of Central and Latin America. These nations, however, are experiencing the phenomenon of falling birth rates as well, and immigration will not continue indefinitely, unless we get enough socialist countries in those areas of the world to drive increasingly greater shares of their populations north.

It appears that the majority of people adopt an attitude that does not favor the perpetuation of the old-fashioned family. From school and home they develop an attitude that it might be all right to have a single child, but they cannot understand how anyone would want two or more children. Such people in the old-fashioned group appear to be those who love children and want to experience family relationships. These are often people associated with some kind of religious practice. The anti-population group who feel it anti-social to have children seem to be winning the battle now, since they have driven down the birth rate and made abortion a thriving business. But their victory will result in the demographic winter we have been discussing. In the long term, the only human survivors will be the ones who are not averse to bearing and rearing children.

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The Seventy Per Cent Marginal Income Tax of Alexandria Ocasio-Cortez

The contemporary spending habits of congress in our day are fairly well known to most of those who follow the news. There are some conservatives who have not completely accepted unlimited and unrestrained governmental spending. And it is true that Democrats do tend to advocate new spending ideas earlier than Republicans, who will reliably resist such spending for around, say, 14 minutes. But spending in Washington D.C. is generally viewed as being out of control.

In its current budget, the federal government is to spend $4.407 trillion. About 62 percent of all expenditures, by far the greatest part pays for mandated benefits such as Social Security, Medicare, and Medicaid. A huge obligation is the interest on the U.S. debt, which is currently $363 billion. The U.S. Treasury must pay the interest to avoid a default on U.S. debt. Total debt has reached the level of c. $21 trillion and yearly interest on the debt is the fastest growing federal expense.

Government spending, 2019

The rest of the budget, 38 percent of the total, must pay for all other expenditures. This share of the total budget is called discretionary spending. The U.S. Congress changes this amount each year when it allocates funds for all other purposes. The president’s budget is the starting point and additional moneys reflect the preferences of the congress for government activity. Too many senators and congressional representatives give serious consideration to what spending they desire, but seem to pay precious little attention to the revenues that should support the spending.

When AOC began recently to advocate vociferously a 70% tax on the wealthy, people started to think again about some of the  better known principles of taxation.  Some Democrats would possibly have the imaginative powers to anticipate some unintended consequences of taxing the rich at a 100% tax rate (e.g., ultimate starvation for those so taxed), so it is not likely that they will ever really try to implement such a tax. Thus AOC advocates “only” a 70% tax. Let us consider a couple of ideas that she has either failed to consider, or failed to understand (it is difficult to believe and will not be suggested here that she would deliberately wish to destroy our economy and our lives out of animosity toward her fellow Americans.  (Sorry, but the thought arises from a review of a previous essay on open borders, which leads us to believe that there are Democrat politicians who would be happy to destroy our society if in doing so they could embarrass the President of the United States.)

Congressional leaders play a key role in government’s annual spending.

Jeff Stein asks in the article cited above “How much revenue could new taxes on the rich really raise?”  He writes: “We looked at the numbers, enlisting the help of a number of tax experts, including Mark Mazur, a former Treasury Department official now at the Tax Policy Center, a centrist think tank; Joel Slemrod, a tax expert at the University of Michigan; and Ernie Tedeschi, an economist who served in President Obama’s Treasury Department.

In 2016, this richest 0.9 percent earned about $1.7 trillion in taxable income and paid about $530 billion in taxes. These Americans would have to pay an additional $320 billion every year in taxes if the top tax rate went up to 70 percent, according to calculations based on IRS data. Mazur, the former Treasury official, noted this estimate was probably high because the wealthy would probably find ways to shelter themselves from higher taxation, such as by buying tax-exempt bonds.  “If this entire pool was taxed at 70 percent instead of the 39.6 percent they paid in 2016, the federal government would bring in an additional $72 billion annually or about $720 billion in ten years”, which would hardly pay for a noteworthy fraction of what the socialists wish to spend.

Meanwhile, the rich pay more than their fair share of federal income taxes. The latest federal income tax data reported by the IRS shows that the top 1 percent of income earners pay 39.5 percent of all federal income taxes, nearly twice the 20.6 percent share of national income they earn.  The bottom 45% of U.S. income earners pay no taxes at all.

Energy and the “Green New Deal”

So far, the only concrete step Ocasio-Cortez describes to enact the Green New Deal is the formation of a House select committee to formulate specific goals. On the environmental side, Environmental expenditures for the AOC “Green New Deal” would include, among other things, expanding renewable-energy sources until they provide 100 percent of the nation’s power; building an energy-efficient “smart grid;” upgrading every residence and industrial building in the U.S. for energy efficiency, comfort, and safety; eliminating greenhouse-gas emissions for industry and agriculture; funding “massive” investments to draw down greenhouse-gas levels; and making the United States a leader in the use and export of green technology.

As a conclusion to this brief review of the fiscal impacts of socialist spending plans, let us consider the unintended consequences of the 70% tax of AOC. They are well summarized in an editorial by Edward Conard, (“The Crippling Cost of 70% Tax Rates,” The Wall Street Journal, January 22, 2019, p. A19). He points out two basic facts that devastate the tax and spend arguments.

Eating the Seed Corn

I. Advocates of confiscatory tax rates for the highest income earners generally ignore the tax’s long-term effects on economic growth. The basic problem is simple: the government’s redistribution of income through taxing and subsidizing programs redistributes and consumes income that would have been invested in the economy. When the economy consumes all the surplus it can produce, there is nothing left to put back into the economy for growth.

Big spending legislators tend to ignore the effects of incentives

II. Spending progressives admit that new taxes on high earnings would decrease work effort. But they also fail to take into account the reduced supply of talent that would restrict investment’s impact over time.  The big spenders likewise assume confiscatory tax rates won’t diminish workers’ willingness to pursue difficult training and tedious work efforts in fields that are critical for economic growth, such as computer programming, engineering and technology, and accounting.

The Google/Silicon Valley culture involves more than cycling.

There is a cultural effect associated with economic growth that confiscatory tax rates would inhibit. As investment, risk-taking, training and work effort declines, the economy ceases to build what Conard calls “productivity-compounding institutions” currently found thriving in Silicon Valley. Institutions like Google speed up innovation by bringing ambitious workers into environments that generate cutting-edge ideas and opportunities.

Silicon Valley, California

The greater payoffs for individual and collective economic success available in the United States encourages workers to work longer and harder, taking more entrepreneurial risks than their European counterparts. Since the early 1990s advent of internet commerce, Americans have innovated significantly faster than in Western Europe. The value of privately held American startups in excess of $1 billion (referred to as “unicorns”) is seven times greater in the United States than in Europe.

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Socialist Spending Plans and Alexandria Ocasio-Cortez (AOC)

Alexandria Ocasio-Cortez, Democratic Socialist and advocate of 70% Marginal Tax

Alexandria Ocasio-Cortez (AOC), a newly elected congresswoman from New York and avowed Democratic Socialist, has recently attracted attention by vociferously advocating that the top one per cent of income earners in the United States be taxed at a marginal rate of 70%. The IRS reports that Americans earning in excess of $600,000 per year compose the top 0.9 percent of income-earning families. Let that be the proxy for the 1 percent AOC wishes to tax. In 2016, this richest 0.9 percent earned c. $1.7 trillion in taxable income and paid about $530 billion in taxes. 

IRS Building

I have read on several occasions that if the richest one per cent were taxed at a 100% rate there would not be enough revenue to take care of the spending and subsidizing plans of the socialists. If true, that means that the cornucopia of socialist “goodies” promised could not come simply by making the rich pay “their fair share” of taxes.

Let us assume, therefore, that the entire $1.7 trillion were taxed.  Would that cover the expenditures AOC wants to make for her “Green New Deal”? (See Jeff Stein’s January 5, 2019, article “Ocasio-Cortez wants higher taxes on very rich Americans” in a Washington Post online article).  Let us review Jeff Stein’s “back-of-the-envelope” estimates for socialist programs. To fund the single category of “Medicare for all” revenues would have to increase by an estimated $30 trillion over a decade, or $3 trillion a year.  Voila! That exceeds the $1.7 trillion of income for the top 1% income earners.

Free Medical Care, a “human right” according to socialists.

But of course no self-respecting  socialist like Alexandria Ocasio-Cortez would want to leave it at that. Socialists believe the government should be obligated to take care of people as governments do in Europe, which would include at least the following expenditures. Bernie Sanders’s free college tuition plan of $800 billion would cost roughly $47 billion/yr.  To forgive more than half the student debt in America ($1.4 trillion) would cost about $82 billion.  To pay for Democratic leaders’ plan for boosting teacher pay and school funding  ($100 billion) expenses would rise again. Nor would all these expenditures cover funding for a $1 trillion infrastructure plan. According to an editorial for Investor’s Business Daily, Stein reports that moving the economy away from fossil fuels to 100 percent renewable energy will come “at a cost of about $5.2 trillion over 20 years” or about $260 billion/Yr.

“Free education” a human right demanding government pay off student debts.

Looking at the most important of these AOC programs the total cost per year, at least for about two decades would be

Medicare for all                                 $3 trillion

Free College Tuition                        $47 billion

Forgive ½ Student Debt                 $82 billion

Infrastructure                                    $59 billion

Renewable energy                          $260 billion

Annually, that comes to $448 billion per year for the next nearly two decades.  That, of course, is  greater than the $1.7 trillion of income of the AOC 1% target. Of course, these estimates are rough and simplistic; projected costs often leave out as yet unknown considerations that will tend to make reality look different as the spending begins. Quite often, however, cost estimates end up being inaccurate because of “cost overruns,” which can often demonstrate the cost estimates were overly optimistic or even deliberately, unrealistically low.

“Back-of-the-envelope” calculation

Environmental expenditures for the AOC Green New Deal would include, among other things, expanding renewable-energy sources until they provide 100 percent of the nation’s power; building an energy-efficient “smart grid;” upgrading every residence and industrial building in the U.S. for energy efficiency, comfort, and safety; eliminating greenhouse-gas emissions for industry and agriculture; funding “massive” investments to draw down greenhouse-gas levels; and making the United States a leader in the use and export of green technology. These costs, listed above as “renewable energy” would assuredly greatly exceed the $260 billion listed.

These estimates focus on annual spending amounts for the various programs currently being promoted by Democrats. Other estimates are made for the total costs of the individual programs over a decade. It has been estimated, for example, that the Green New Deal would cost about $93 trillion over a decade. $32.6 trillion is the estimated cost of “Medicare for all” for that same period.

Legislation securing this spending program is not likely to be forthcoming even from the typical Democrat and Republican congresses of recent U.S. financial history. Both parties have accepted the basic doctrine of  tax < SPEND over many past decades, having rather completely lost the notion of a budget constraint.  But there is no financial methodology that could make this kind of spending viable. It would represent the end of the U.S. economy.

It may be said that socialism is dead in the Western world because socialism’s only policy advocacy is income redistribution, and that policy is accepted and promoted by non-socialists as well.  So what is it that the socialists have to advocate?  It’s not complex. They attempt to justify their position by advocating far more spending than the political right does and before the right can even think of additional spending programs.  This financial analysis of current socialist advocacy in the United States does not even include all the spending ideas of socialists. It does not include, for example, the guaranteed universal income the government would give to every U.S. citizen. Whether sooner or later, this universal, personal income (independent of any employment) will be in the public discussion. And what if expenditures exceed revenues? Socialists will simply say, “so what?” That’s nothing new!”  We won’t go here into fiscal consequences, but we will be learning about them once again in the news at the next European fiscal crisis. Until then, quite a bit is being said about the fiscal situation currently prevailing in Venezuela.

Paris, scene of ongoing tax riots in 2019.