Is The American Economy Capitalist Or Socialist?

Is the American Economy Capitalist or Socialist?

I know that the title to this Hub is going to agitate many people because of that "dirty" little word in our lexicon which is socialism. Why is this and is it justified and accurate? I decided to write on this topic because of Senator Bernie Sanders' candidacy for President.

The Senator has always described himself as a socialist or a democratic socialist and has not changed that for this campaign. He has only now run as a Democrat and that is probably for the purposes of having a reasonable chance to win the Presidency. Another reason is most certainly to adjust the economic policies of the Democratic party and help shape the country's future.

Many people believe that Senator Sanders has no chance of winning the general election because most Americans relate socialism to communism. It is generally felt that the Republicans will have a very easy time of placing demonizing labels on Sanders rendering him virtually unelectable.

My purpose in writing this article is to examine the actual nature of our economy to determine if it is capitalist, socialist, or some mixture of both. Hopefully this will help to clarify these definitions and cut down on the fear that socialism often brings to the fore.

I will begin this Hub by examining how capitalism developed from almost the very beginning of our republic. Then I will turn to how socialistic elements developed in our economy and why this occurred. Finally I will examine where our nation is today regarding these elements and where we are trending. I will conclude by explaining where I stand on this subject and where our economy should evolve from here.

The early period of American colonialism through the creation of the United States was largely one of economic mercantilism and subsistence agriculture. There certainly were capitalist elements but it was not the main driver of the economy. Oddly mercantilism is an economic theory that stresses promoting wealth through the maximization of trade often through protectionism. Protectionism is usually anathema to pure capitalists.

Furthermore, capitalism is never mentioned in the Declaration of Independence or the United States Constitution. Personal liberty and the avoidance of tyranny are major themes but economic policies are absent from these texts. Constitutional law developed in later years allowing for free enterprise especially from governmental intervention. It is one of the hallmarks of capitalism. This was hardly clear at the beginnings of our nation.

The post Civil War period of our country clearly marks the rapid development of capitalism in the United States. The industrial North had won the war in large part due to their much greater accumulated industrial wealth.

The northern Republicans who were largely in charge during this period recognized the advantages of developing this wealth and helped facilitate its growth. Federal and state governments as well as the Supreme Court advanced policies and decisions that gave industry free reign to do as they wished to maximize their profits. This national economic atmosphere is the essential basis for the growth of capitalism in the U.S.

The United States Supreme Court used the Fourteenth Amendment predominantly to advance the judicial doctrine of blocking governmental interference into business affairs during the second half of 1800's. This is the basic premise of capitalism. Federal and state governments advanced tax and regulatory policies that gave businesses a virtual blank check to advance themselves no matter the consequences to the public.

American wealth certainly soared throughout the second half of the nineteenth century but the wealth and income gaps within the U.S. exploded also. Workplace conditions and product qualities suffered greatly in the midst of this regulatory void. The American people became increasingly disenchanted and they steadily voiced their displeasure with these economic conditions. Something needed to change even if it was to simply save the American capitalist system.

Changes began to be imposed upon American businesses during the late 1800's. Small unions began to spring up in the 1860's. It was not until the American Federation of Labor (AFL) was formed by Samuel Gompers in 1886 that unions began to fully take hold and become a serious counterbalance to business.

Anti-trust legislation began to impact the American business landscape in 1890 with the passing of the Sherman Anti-Trust Act. This piece of legislation put the first brakes on the massive trend of consolidation of competition within industries which often created monopolies. It was a rather weak first action but it was still groundbreaking. The Clayton Anti-Trust Act of 1914 put real teeth into the Sherman Act and monopolies were steadily broken up. Both the Theodore Roosevelt and Woodrow Wilson administrations championed this bill.

The first significant legislative regulations that were imposed upon business occurred in New York after the 1911 Triangle Shirtwaist Factory fire. This tragedy killed 146 women who were trapped in this small factory with unsafe fire conditions and no proper fire exits.

Prominent hearings took place in the New York legislature led by Alfred Smith who later became Governor and then the Democratic nominee for President. These hearings led to the first significant reforms to make work conditions safer. Social activists such as Frances Perkins were prominent in sponsoring these reforms. She would later become Secretary of Labor in the FDR Administration.

These were the first steps that the United States took to put the brakes upon unbridled and almost pure capitalism. They were initiated because of the real damages that capitalism was inflicting upon American citizens and damaging the economy as a whole. The benefits of capitalism to our nation were vast and clear but it also left a majority of losers within the population. This could not be left to stand in our democratic society.

The event that ushered in the most significant socialistic changes to our capitalist economic system was the stock market crash of 1929. This event helped start the Great Depression of the 1930's.

Governments had previously passed only small curbs on certain bad business practices that were harmful to the citizenry. The Great Depression posed a threat to the entire economic structure of the United States. A revolution was no longer a concept that was out of the question for our formerly stable country.

Traditional laissez-faire capitalism economists and political leaders argued that the economics of the Great Depression would work themselves out in time. The problem was that this economic downturn was proving to be much longer and much deeper than any we had previously experienced.

The American people were desperately suffering and the unemployment rate rose to an unprecedented rate of almost 25%. The public was fed up and searching for hope and drastic changes. The 1932 Presidential election was almost perfectly set up to argue the issue of how best to address the Great Depression.

President Herbert Hoover was a traditional and very competent conservative capitalist. He had been successful in all endeavors that he engaged in both public and private. The Great Depression had him stymied. He did attempt some small scale job creation programs but nothing he tried could place a dent in this economic depression. The American people wanted much broader changes.

They elected Franklin Roosevelt to the Presidency in a landslide. President Roosevelt knew that the U.S. was at a critical juncture in its history. Many were calling for extreme economic changes. Revolution was still far away but no longer out of the question if dramatic improvements were not made.

The Roosevelt Administration instituted a large group of jobs programs in the first hundred days of its first term but did not stop there. Most of the jobs programs faded out after the depression ended but the regulatory and social welfare programs that were created to fortify the American economic structure have remained as the underpinning of our system. Some of these major programs are the Social Security system, Federal Deposit Insurance Corporation (FDIC), the Securities Exchange (SEC), the Federal Housing Administration (FHA), the Federal Crop Insurance Corporation, and many others.

The Glass-Steagall Act was passed during this period to separate banks from investment firms. This was done to drastically cut down the risk within the banking industry. It worked very well but the Bill Clinton Administration and Congress repealed the teeth of the bill in 1998. Their rationale was to make the American banking industry more competitive with international banks. It ultimately proved to be the first step towards the financial meltdown of 2008.

The Great Society plans of the President Lyndon Johnson administration in the 1960's further enhanced our social safety net by enacting a large amount of programs highlighted by Medicare and Medicaid. President Barack Obama continued this process by helping to pass the Affordable Healthcare Act in 2010.

All of this historical background brings us to the question of what type of economy the United States currently operates. Many believe that we have always been a capitalist economy. The fact is we developed into a capitalist society and then mutated into a capitalist-socialist mix.

Capitalism helped the U.S. develop into the top economic power in the world. It also helped to create a society of very wealthy people as well as many very poor people. Business was also allowed to pay scant attention to product and worker safety. Too many people were forced into poverty and or into horrible working conditions for this situation to continue.

Socialistic programs were needed to moderate the excesses of pure capitalism. The results would have been, especially during the Great Depression, a possible revolution or at least draconian economic changes if the New Deal had not been implemented.

These socialistic actions have continued up through modern times because American society has realized that the programs have worked and continue to be sorely needed. Yes, at times some of these programs have swung too far left and have had to be reined in but they have never been reversed. This is because the citizenry has and will always have the need for remedies to capitalism's excesses.

There is currently extreme opposition to these socialistic components in our economy especially from the Republican party. There is also strong support for expanding these elements within the Democratic party. These diametrically opposed views are being highlighted in both of the parties' primary elections. The enthusiasm and high voter turnouts illustrate this point well. This Presidential election will be pivotal in regards to the direction the United States takes economically.

What economic direction will we take after this election? Of course, this direction will greatly depend on who wins the Presidential election. There are also other very important short and long term factors.

The Republicans will most certainly try to repeal the Affordable Healthcare Act as well as sharply cutting back on Social Security, Medicaid, and maybe even Medicare as well as other social programs. The Democrats would retain these programs and probably even attempt to expand them.

Senator Bernie Sanders will probably try to greatly expand all of these programs and transform others into more all encompassing systems such as universal healthcare. Sanders is a self described social democrat but has described himself as a socialist in the past. Social democrat is probably a more accurate label for his politics because he is fully aligned with the evolution of our economic system as I have described so far in this Hub.

Senator Sanders would most certainly have been a distant also ran in any of the other earlier Presidential elections. Socialism has usually been associated with communism in the minds of most Americans. People often got fired earlier in the twentieth century if they ever had any association with the Communist party.

Times have changed remarkably and Sanders has been drawing huge crowds and support. He has posed a real challenge to Hillary Clinton. This begs a question. Why has this aversion to the term socialism changed?

My belief is that the huge and ever expanding wealth and income gaps have left the American public disgusted and seeking drastic changes. This bears similarities to the Great Depression era though not nearly as starkly. Senator Sanders and other liberals fit the bill perfectly to directly address these issues.

People are beginning to understand that the socialistic elements of our economy, which we have utilized for years, are necessary and need to be expanded in this dangerous and growing era of the expanding wealth gap.

Our economy is growing but far too slowly. This is because the lower and middle classes are being starved of wealth. They are the engines of our and any economy. These people need to be fortified economically because they are the people who will and must spend their wealth. It is also the very fair and humane thing to do.

American politics is at loggerheads right now. The Tea Party faction is a very large part of the Republican party and possibly a majority. They were spawned early in President Obama's administration as a loud voice opposing new government programs and an ever widening budget deficit.

The Senator Sanders backers and the Tea Party have one very important thing in common. They are fed up with the political status quo and want major changes. Unfortunately their goals are at the opposite ends of the economic spectrum. The Tea Party has gained a large amount of momentum and power since its inception in 2009 but the economic condition of the U.S. has changed markedly since then.

The socialistic tendencies of the nation during polarizing economic conditions are rising to prominence again. These are the situations where social and economic justice move to regulate capitalistic excesses. These trends tend to bubble up slowly and come to fruition after fits and starts.

I do not believe the time has quite come yet for the Sanders wing of the Democratic party to come to power. They have come a long way and fought the good fight. Senator Sanders has planted the seeds for their economic ideas to flourish in coming elections. Furthermore, they have dragged Hillary Clinton to the left in her economic leanings and showed her it was not a dangerous move to make after all.

The American public has finally become more comfortable with the term social democrat and its implications. They no longer see socialism as a threat but a necessary curb and remediation to capitalism's excesses. I believe this trend will steadily continue. The United States will be better off if I am correct about this prediction.

The health and stability of our country will suffer greatly if the regressive policies of the Tea Party wing of the Republican party win out. Economic growth will stagnate and probably fall back into recession. Social unrest will become the norm and grow. America is quickly coming to the realization that economic and social injustice must be corrected. I certainly hope this trend wins the day this November and I think it will. The alternative could be devastating for the future of our republic.

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Comments 12 comments

Dr Billy Kidd profile image

Dr Billy Kidd 8 months ago from Sydney, Australia

Nice background research! I like the way you showed how the U.S. economy got where it is today.

One problem in responding to this current Oligarchic status of the U.S. is that the average voter cannot understand any of this.

So people fall for simplistic bullet points that do no face the real issues. That's what sells. It is the reason the major media will not discuss the things you speak of. It's sad. You're such a good writer.


HSchneider 8 months ago from Parsippany, New Jersey Author

Thank you very much for your comments and compliments, Dr. Kidd. I totally agree with you that the media glosses over these and other issues. Everything is driven nowadays by ratings. That explains all the media coverage of Donald Trump from the beginning of his campaign. His outlandish statements draw viewers. It is a sad state of affairs. Our country needs to understand what and who they are voting on. Instead we get nonsense and people vote accordingly.


Doug Cutler profile image

Doug Cutler 8 months ago from Temperance. Mich

If we would go back to a time when the average income had the most bang for the dollars earned, it would solve much. I remember the fifties growing up.

Only one parent worked and that income bought everything required. And their was some left over for education and vacations.

The top executives got 40 times average wage. Now it is more like 200 times.

Minimum wage was 60% of average hour wage in the 60's. This is where Obama likely got his $10.10 an hour figure a couple years back. By the end of the 70's it went down to about 30%. Now the talk is $15 an hr. due to the fact that the minimum wage worker puts in only about 30 hrs. a week now.

Every head of household should be brought up to a livable wage in the area they live. This should have been done with the trillions spent on bail outs the banks and big businesses horded. Prices of goods and services should drop as the electronics and fuel prices have done recently. If this where to happen then there would be no need for continually increase in wages. There even may be a gradual decrease as long as a certain level of living conditions where maintained.


HSchneider 8 months ago from Parsippany, New Jersey Author

Incomes have been going up at a much slower pace than inflation for a long time. Industrial jobs that paid well have been lost to a great extent also. This has been going on since the 70's and explains your initial point. Minimum wage has has been raised very little since then which explains why it's percentage against the average wage has been severely lagging. A significant rise in the minimum wage would go a huge way in jumpstarting our economy and would be very fair. I wish it could be tied to the inflation rate also. The argument against it is that it would kill jobs. This is bogus because these jobs cannot be exported since they are mostly service jobs. Prices would rise but not too significantly. Thank you for your comments, Doug. You made some very illuminating points.


tirelesstraveler profile image

tirelesstraveler 8 months ago from California

Curious, I believe the Pilgrims, all of whom were not religious but wanted to go to the free world tried sharing everything for the first year. They discovered some people would work their fingers to the nubs and some would do nothing with their. When every family got their own land there was a significant change.

I was surprised your dirty little word was socialism. We are a far more socialistic country than capitalist. The word Socialism in my neck of the woods is way more acceptable than capitalism. Ask Mark Zurkerburg how many hours a week he worked to get FB off the ground, or Meg Whitman (EBay). Even the wealthy have bought into socialism for the most part.

Have you ever done a group project where one person dragged the whole group down? You decide whether that leans toward socialism or capitalism.


William F. Torpey profile image

William F. Torpey 8 months ago from South Valley Stream, N.Y.

Well said, HSchneider. While your description of our country's economic condition is certainly accurate I must say that the more direct reason for much of our economic disparity is the fact that virtually all of our country's largest corporations could fairly be described as monopolies (which virtually nobody mentions these days -- even Senator Sanders.) As you know, monopolies are created largely through mergers and acquisitions in which (often) smaller businesses are absorbed resulting in greatly reduced competition. This reduction in competition is largely responsible for the disparity in wealth (the so-called One Percent and the rest of us -- especially the poor, unemployed and underemployed. We truly have developed into two Americas: the rich and the poor. The upcoming presidential election will decide which direction the United States will go.


HSchneider 8 months ago from Parsippany, New Jersey Author

Thank you for your comments, TirelessTraveler. I stated that socialism was a dirty little word because many Republicans use that word to excite their base and strike fear into those who do not know better. You are correct that it is now ingrained in many ways into our economy but I do not believe that it predominates. One person can drag a whole group down but I do not believe that socialism or socialistic elements do that. I believe they are put in place to help those who have been left out in the midst of capitalism. There are cheats who exploit the system but the system at its base is the only humane response to capitalism's evils.


HSchneider 8 months ago from Parsippany, New Jersey Author

There are many reasons for the wealth and income gaps in our country, William. The consolidation of industries certainly have made a major contribution. I believe that our current tax rates and loopholes for the rich have also contributed greatly. Also the fact that the rich now easily manipulate our government leaders with their unlimited contributions. They have now rigged the system in their favor. Thank you for your comments.


William F. Torpey profile image

William F. Torpey 8 months ago from South Valley Stream, N.Y.

Just a final word, HSchneider: The tax loopholes and manipulation of our elected leaders have been made possible by the huge accumulation of wealth and influence gained by the rich (who obtained their fortunes through "investments" in the monopolies.) The role of tax rates and loopholes is merely a distraction from the real problem -- which leaves the rest of us without adequate funds and in the lurch.


HSchneider 8 months ago from Parsippany, New Jersey Author

Our government leaders have exasperated the problem of accumulated wealth by giving them the privileges of more through very favorable legislation aka "corporate welfare". This has certainly been a decades long problem but was sent into overdrive first by the Bush Tax Cuts in 2001 and then the Supreme Court's Citizens United decision. There are now no controls and the rich have all the money and power. Thank you for your additional comments, William.


tirelesstraveler profile image

tirelesstraveler 8 months ago from California

You are so correct about the rich and power. The ladies of the senate from California are rich because of the corporate priviliges they have given to their husbands. But then they were rich before they went into the senate.


HSchneider 8 months ago from Parsippany, New Jersey Author

They probably are, Tirelesstraveler. Thanks for your further comments.

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