The table below summarizes the major differences between the two systems, as well as how they have been modified in order to put them into practice. You can select any characteristic to jump to a more detailed explanation further down on the page. The question of which system, modified socialism or modified capitalism, is more "conducive" to a democratic political system is dealt with elsewhere.

     Who creates all of the things that a society requires?

     In earlier discussions of "means of production," one would strictly be referring to factories - Who owned the factories? But as we have left the Industrial Revolution and entered the Information and Space Age, we discovered that the things that cause a society to thrive economically are not necessarily tied to industrialization and assembly lines. There are many other kinds of jobs which are not tied to factories. Mainly, service jobs such as restaurants, personal services, business services, and management; and technical jobs such as research, computer work, repair personnel, and medicine.

     So, in a modern discussion of "means of production" we must include not only the obvious creation of physical things needed for people to survive and thrive, but also all of the non-material things which make a post-industrial society possible. Non-material products of a post-industrial society would include such things as: [1] Information from physical research, social research, and the multitude of other tasks geared toward learning more about our universe and ourselves; [2] Knowledge ("information in people") which would include all endeavors geared toward education, training and socializing; [3] Media which would include movies, books and literature, music, computer software, photography, etc.; [4] Transportation which includes all jobs involving moving people and things to where they are needed, whether that be a few miles to the next town or thousands of miles to the next planet, and the creation of infrastructure to make that possible; [5] Communication (which is closely tied to media) such as phone lines, networking, satellites, newspapers, and broadcasting.

     With that said, in a socialist economy, the government (meaning either "the people" in a democratic government, or a few individuals in a tyrannical form of government) owns all forms of production. One can see how the nature of this ownership completely changes based on the form of government. In a democratic form of government, everyone is part owner of all means of production, but change the government to a tyrannical one, like a communist government, and all forms of production become the property of the party leaders.

     In a pure capitalist economy, the "private sector" owns all means of production. This even includes production of those things necessary to live, such as food, clothing and shelter. The U.S. eventually learned that putting control of the essentials of life into the hands of a few people was more dangerous to a stable free society than any threat of communism could ever be. Though with the big push to privatize everything the government does, one wonders if people ever learn anything.

     In the U.S., many of the essentials to life are government owned or heavily regulated and managed. The government owns the production of water for city dwellers. Government is also responsible for the production of electricity and other utilities. Yet, with the pressures to privatize, some local governments have opted to "buy" their power from a private entity rather than generate it themselves. Because of this, everyone suffers the cost of paying for a "middle man" so that a few individuals can become rich.

     I live in a unique location where two very different cities are pushed up against each other. One city chose to purchase their power from the "private sector" rather than create a power plant, the other generates its own power. The city that generates its own power has substantially less expensive utility costs. Those who agree with the concept of privatization should closely examine how those who initiate the argument would benefit from that privatization.

     U.S. government ownership of the means of transportation is also very substantial. Almost every road one drives on is the result of government activity. And, even though traveling by rail is losing popularity, passenger rail (Amtrak) is a government entity. Inner-city rail and busing is also mostly government owned. And government ownership of space transportation is almost total.

     When it comes to other necessities of life, such as food and housing, the U.S. government, rather than becoming involved in the production of these things, opted to wrap several layers of bureaucracy around the market to protect the people from unhindered capitalism. One could argue that, with all of the farm subsidies, the constant eye on the Consumer Price Index (largely based on grocery prices), and everything that the Department of Agriculture does, that government employees are doing everything but plowing the fields.

     The same is true for housing, whether it be Housing and Urban Development (HUD) guaranteeing the opportunity of housing to the poor, equal housing protection under civil rights, zoning, or regulations of landlords about leasing limitations and quality of housing, the government is heavily involved.

     These are just some of the ways that the U.S. has created a "modified capitalism" when it comes to ownership of the means of production.

     A modified socialism also allows for a limited number of things to be produced in the "private sector." Some private ownership of production is necessary for the health of the people. When individuals become involved in the production process, this is usually the source of innovation, new management techniques, and put simply, a sense of accomplishment.

     To have the government completely own all means of production has a profound impact on a society's psyche - it psychologically becomes an overwhelming burden and overshadows the potential contributions of the individual. Everyone is just a cog in the machine. On the other hand, to have everything privately owned yields a few individuals with the power to effectively enslave a people for the things they need. Thus, both socialism and capitalism are destructive in their pure form.

     If we examine the question of ownership of means of production, there is really no need for the government to produce those things that don't "really matter." For example, there is no need for government to produce childrens' toys, consumer electronics, soda and candy, or almost anything you find in a department store. Those things which are not essential to life and which people can honestly choose not to buy, these are areas prime for private ownership. But those things which people must have, either to survive or to be a contributing member of society, these things are important enough to warrant government involvement.

     Should individuals be allowed to have as much wealth as they want? According to pure capitalism, yes, there should be no limit on how much private property an individual can own. According to pure socialism everyone has economic equality, so no one can have more than anyone else has.

     What should be asked is if either of these approaches are sound, and what are the assumptions behind them? People have a tendency to answer according to what has been socialized into them without asking why. In reality, both pure capitalism and pure socialism have been modified on this point.

     Few people approve of the idea of economic equality. When people complain about the economic system, it is usually in terms of equal OPPORTUNITY, people should be on a "level playing field" when it comes to rewards for labor. Unfortunately, the more money one has in a capitalist economy, the easier it is to get more - the relationship is almost exponential in nature. So the rich have a much easier time accumulating wealth than the poor do. The rich can start up an entire enterprise and double or triple their investment, while the poor are stuck getting 2% interest on their savings accounts.

     So let's start with this. People should be rewarded for their labor proportionate to the skills and qualifications required to perform that labor. A brain surgeon should be rewarded more than a paper boy. There is nothing wrong with the surgeon having more wealth than the paper boy, the surgeon's labor has a "greater value" than the paper boy's. This principle encourages people to try to be more than they are - the more skills and responsibilities an individual acquires, the more wealth they will obtain. Appropriate rewards for labor and innovation is one of the major strengths of a capitalist economy.

     However, when does the rewards to an individual become too much? How about when the pay given to a CEO requires doubling the cost of the company's products? The rewards given to an individual because of his talents must be weighted against the wages of other laborers to retain perspective. This question is posed elsewhere, but just how much more valuable is someone's services compared to someone else's services? Should there ever be a case where one person earns in a day what someone else only earns by laboring a year. Is that person's one day of service honestly THAT much more valuable?

     Now what about this principle, those who do no work should not be rewarded. Unfortunately, this is where capitalism "falls flat on its face." This argument is presented often by those who wish to dismantle welfare, but they refuse to apply the argument where it needs to be placed - on the richest of the rich. The most extreme cases of wealth are not the results of labor at all, but are the results of investment, inheritance, or what I would term just sitting around "playing with money." People who use their wealth to generate more wealth, without making a single contribution to the society from which they are siphoning the wealth.

     In short, their should not be economic equality as pure socialism demands, for that contradicts the principle of rewards for labor. It also yields no rewards for innovation and risk-taking. On the other hand, the rewards for labor should be measured in contrast to the rewards others are receiving for their labor. And economic rewards for anything other than labor should be highly scrutinized.

     I won't dwell long on the characteristics shared between modified capitalism and modified socialism. This is basically a question of whether the government passes any kind of laws (regulations) in regards to the economy. Pure capitalism does not allow for government interference of any kind in economic activities. The theory rests on the assumption that if left alone, everything will run smoothly: the best approach is to leave the economy to unregulated competition.

     However, so long as it is profitable to pollute the environment, to ignore consumer protection, to ignore the safety of workers, and to pay workers the barest of wages, regulation of the economy is a must. If it were not for the regulation of capitalism, the US would still be stuck in the grime from the industrial revolution, unable to breath while our children worked for pennies a day in hazardous conditions. Those with all the wealth who had a monopoly on some industry would eat and live well, but the rest of humanity would have to worry about their unlabeled, uninspected food, and a house full of devices which may or may not burn down their home in the middle of the night.

     That exaggeration covers many of the main concepts under regulation of the economy. Environmental protection, consumer protection, worker safety, fair work practices, minimum wage, etc. would all fall under this concept.

     After the Great Depression, it was obvious that government had to do something to prevent the economy from ever getting into such a condition again - laissez faire was not a realistic policy for dealing with the economy. Economists theorize that the "world economy" goes through cycles of boom and bust over a period of decades. If it were not for efforts to manage the highs and lows of the economic system, every generation would have to deal with an economic depression sometime in their life.

     In the United States, these management efforts take many forms. The first is the immense size of the federal budget; when the government controls roughly a quarter of the GNP, its actions have a huge impact upon the economy. One economic theory, which the U.S. government has only partially heeded, states that in times of a depressed economy, the government should go into debt and spend more money to "keep the economy going" and to prevent a depression. Then, when the economy is doing well, the government is supposed to build up a surplus of money, to pay off debts and to spend when the next recession comes. (Politicians conveniently ignore the second half of this mandate.)

     A second management strategy is similar in concept. When the Federal Reserve sets the interest rate, this is an attempt to regulate the amount of money cycling through the economy. Raising the interest rate reduces the amount of money in the economy, and lowering the interest rate encourages people to borrow money and increase the amount of money in the economy. The theory is that when there is "too much" money in the economy, inflation results (because capitalists can be more greedy) and when there is "not enough money," depression results (because no one is buying anything to keep the capitalists in business).

     The Federal Reserve has been very successful in monitoring economic measures (like the Consumer Price Index) that help it maintain a balancing act between inflation and depression when setting an interest rate. The fact that the US has not had any true economic crisis since the Depression is greatly due to this government agency.

     Now if you are on you toes, you might be thinking to yourself, what about the outrageous inflation that happened during the Carter administration. This was largely the result of the oil embargo by OPEC. Whenever one "entity" has a monopoly on some essential item, that "entity" has a death grip on that nation's economy.

     This brings me to a third method of economic management, the prevention of monopolies. The Federal Trade Commission, at least in the past, has been very effective in preventing monopolies. By ensuring that there is no "unfair competition" between businesses, by placing obstacles in the way of businesses wanting to merge together, and by monitoring the behavior of the stock market, the FTC has the necessary tools to make sure no "American OPEC" ever arises. Political motives to expand domestic oil, to stock-pile oil for times of need, and to use military action (whether right or wrong) to prevent foreign oil monopolies (a.k.a. "operation desert storm") has essentially neutralized the threat of another foreign oil crisis.

     There are probably other means in which a government manages its economy. But these three items provide sufficient example of what the concept of "managing the economy" means.

     This would be a "micro management" approach to macroeconomics. Pure socialism contains the concept of the government answering questions like how many apples will be grown this year, who will do it, where do they need to be distributed to, how much are they worth, and how many should be allocated per individual.

"Socialists wanted to replace the market mechanism for allocating resources with central planning. But they encountered two further problems. First, the bureaucrats did not have the requisite information to know how to allocate resources efficiently...Second, planners could not perfectly monitor the various firms in the economy, to ensure that resources were used in the way intended." - Stiglitz, Joseph E. Principles of Macro-Economics, 1993, pp 684-685.

     The attempt to micro manage millions of products/services and their distribution to billions of people makes the planning of an economy, not impossible, but overwhelming enough to make it impractical. That is why no one fully does it, and why there is always an element of chance and chaos in all economic systems.

7/21/97