Book Review: A Theory of Socialism and Capitalism by Hans Herman Hoppe

The first few chapters of Hoppe’s “A Theory of Capitalism and Socialism” were absolute gold – some of the clearest political philosophy I’ve read. The explanation of the spectrum between conservative and revolutionary socialists was particularly enlightening and has changed the way I think about political parties. I now appreciate that most socialists are actually conservative because they spend energies trying to protect their voting constituency through trade barriers, labour unions, fiscal policies, etc. Truly liberal policies promote such rapid economic and social mobility that it threatens the longevity of mainstream political parties. The insidious way in which conservatism is disguised masked in modern politicians is perhaps a much greater threat to social and economic progress than revolutionary communism.

Theory of Socialism and Capitalism_2nd Edition_Hoppe_20130612

Dismissal of property rights leads to physical human atrocities

I love the way Hoppe starts from first principles, explaining the most basic existence of property rights. Property arises through scarcity of resources because scarcity implies a conflict between individuals for those resources. Ownership rights are required in order to distinguish ownership and reduce conflict for those resources. If there is no scarcity (abundance) then property rights are less important because less conflict arises. Even under the utopian case of resource abundance our own body and the time we have in any day are scarce. At a minimum property rights are required to protect an individual from being physically violated by another individual through aggression. In other words, at our core, we are all advocates of property rights. Those who advocate the erosion of property rights should be wary of the implications and should be unsurprised by the human violations that emerge under these systems of governance.

Socialism encourages capital consumption, reducing economic potential

Hoppe argues there are three clear ways in which socialism inhibits economic development. 1) A restriction on property rights through socialisation of resources reduces the investment in human capital, favouring consumption over investment decisions. 2) When people know that socialised resources are available they derive less satisfaction from their own action without invading others, which creates a greater bias towards aggression to gain personal satisfaction. 3) Socialism reduces the incentive to invest in and protect capital relative to capitalism. A private owner of capital will stop producing if the marginal product is less than the depreciation of capital and would prefer to either sell the capital or wait for the marginal product to increase. Under socialism, people become caretakers of property, which implies they cannot sell the capital. The result of which is a significant reduction in the incentive to stop producing when the marginal product falls below the depreciation of capital. Rather the caretaker has the incentive to increase his/her own personal income at the expense of the capital, which depletes the capital stock. Looking closely at current western democracies we witness capital depletion and over-consumption as these nations veer away from their capitalist roots towards more socialist systems of governance.

Socialism promotes politics

Under a system of private property, differences of opinion or ownership are arbitrated by original appropriation and contracts. Whereas in socialism, disputes are solved through social means because private ownership structures are less clear. Social decision making structures superimposes the will of the group regardless of the prior ownership and are the key element politicising society. Politics and politicians become a major focal point in socialist systems because it is the primary tool through which people can distribute resources. Societies appear to broadly agree that politics and politicians are less desirable but yet fail to recognise that a reduction in socialism is the best cure for this evil.

Respect from private property challenges egalitarianism

Socialism is avowedly egalitarian, while private property implies differences. For me to own resource A, then you do not own it. Supporters of strict egalitarianism should be careful of the consequences. In socialism, egalitarianism is usually targeted in three forms: 1) equal wages, 2) minimum wages and 3) equalisation of opportunity. Throughout history, the options 1 & 2 have failed to bring about the desired outcomes so we’ve seen a greater focus on option 3 over time. The problem with this approach is that it creates very subjective questions like, “what the difference between luck and opportunity? What cannot be equalised? What actually requires rectifying?” The answers to all these questions are subjective and lead to a whole new arena for politicians to decide on the distribution of scarce resources. Increasingly these matters are dominated by “have-nots” who have less grasp of history and political philosophy, which creates politics that lacks intellectual sophistication.

Split between communists and socialists

Socialism can be advanced through revolutionary overthrow or a gradualist/revisionist approach. Historically the gradualist approach was favoured by the intellectuals leading the ideological debate but the Russian revolution changed this relationship. Socialist parties tried to distance themselves from communist Russia due to the extreme loss of human life and the quick emergence of low-quality politicians. Thereafter a distinction emerged between the more revolutionary communist parties and the socialist parties that targeted change through democratic parliaments due to the fact that the underlying ideologies were both socialist. The democratic socialists tried to focus more on income tax, equalisation of resources and egalitarianism rather than the outright ownership of the means of production. Social democracies confine outright ownership to industries like education, traffic, communication, central banking, policy and courts but often veer into healthcare, electricity and water provision too. It is always interesting that the moral argument provided for the socialisation of these resources is the degree of societal importance of education, for example, but yet food provision is left to the market.

Moral-suasion of socialism

Interestingly, support for democratic socialism is very low in Eastern Europe where the people had first-hand experience with full-blown socialism and are probably wiser to both the socialist undertones and the implications of socialised resources. By contrast, the further we move away from Eastern Europe the more popular social democracy has become. The global social democracy movement is even supported by many who do not or would not associate with socialism at all just because it is regarded as the “well informed” or “well-intentioned” positioning. I.E. It has captured the hearts and minds of people despite the weak philosophical underpinnings. The West’s war on communism during the Cold War also led to many sympathisers.

Conservatism as the air to feudalism, “aristocratic socialism”

During the late 18th and early 19th centuries, the sudden spread of liberal philosophical ideas through writers like Hobbes, Locke and Adam Smith seriously challenged feudalism. People started to realise that liberal contractual agreements were more conducive to economic and human progress than coercion and aggression under the feudal system. Marxism and democratic socialism are the progressive socialist answers to feudalism. These schools of thought actually praised the destruction of feudalism by liberalism but believe socialism will build on the achievements of liberalism by supplanting capitalism. Rather than have the social uncertainty and unrest in the social fabric that capitalism and liberalism causes, socialism prefers a rationally coordinated, planned and centralised economy that tries to prevent uncertainty.

By contrast, conservatism is the anti-egalitarian, reactionary answer to the dynamic changes set in motion by liberalism, glorifying the old as orderly and stable. The elites in power, who are afraid of losing the grip on the economy, use their power to implement policies which favour the maintenance of the status quo.  Conservatism is the ideological heir of feudalism and can be described as “aristocratic socialism” where the property is socialised and then used to maintain the position of the aristocracy. Social conservatism favours the “haves” and democratic socialism the “have-nots” but the underlying philosophy is the same. When the have-nots successfully extract wealth from the rest of society they usually use their power to implement conservative policies in order to maintain their new found position. The African National Congress (ANC), for example, has become a highly conservative organisation since coming to power in 1994 making use of restrictive industrial policy, protection of certain labour unions and creating close ties between big business and senior political leaders, which all favour the new elite rather than rapid economic and social mobility which would truly support the millions of unemployed.

Of course, democratic socialism and conservative socialism have their differences but are much more similar than we’re led to believe. Modern political parties walk a close line between the two. Viewing US and UK politics through this lens, labour and the Tories (UK), as well as Republicans and Democrats (US), are conservative socialist organisations with slight differentiating characteristics. Tories and Republicans tend to conserve the rights of business through protectionism and favourable redistribution of public income. They selectively bias towards “free-market” policies to assist business but aren’t truly economically liberal because they use their power to protect the rights of their constituency and remain committed to large government. Labour and Democrats tend to conserve the rights of unions, labour organisations and various arms of the state. They also make use of protectionism and redistribution of public income to favour their constituency. They selectively bias towards marxist ideology for differentiation but avoid full-blown adoption due to its destructive consequences whenever implemented.

Viewing socialism through this lens highlights the intense battle ahead of most societies. A government doesn’t need to espouse marxist rhetoric in order to be socialist. The mere appearance of large states around the globe is evidence of socialist creep, which has had dire consequences on socioeconomic development and capital formation.


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