Misconceptions of Socialism and Central Planning


Is nationalized healthcare socialism? Is a progressive income tax socialism? What about the Nordic countries? Are they socialist, or capitalist? Is America a capitalist country?

Unfortunately, opponents of socialism and advocates of capitalism (which, granted, is a very broad collection of groups rather than single worldviews) cannot seem to decide.

As is typically the case, the truth is somewhere in the middle. Though capitalism and socialism are opposites, economic systems fall on a spectrum, rather than being a strict boolean binary.

Nordic countries lean towards relatively free market economies, but have large welfare states. Such a system is neither “true” capitalism nor “true” socialism, but mix between the two.

Being caught in this binary thinking gives the appearance of hypocrisy. Some countries are wealthy because they are capitalist, but suddenly are labeled socialist when discussing the negatives.

This is not to make the case for any form of “third wayism”, but instead to remind us that attempts to label a mixed economy or specific policy simply “capitalist” or “socialist” is unfair.

Why is Venezuela in such bad shape? Is it because of “socialism” or is it because of central planning? Both are true, but the latter is more specific and more clearly defined. Socialism requires central planning, but not all acts of central planning count as socialism. To refute central planning is to also refute socialism.

And there lies the problem of terminology: Socialism sounds like a potential looming threat. Western countries today are clearly not socialist, and calling any form of central planning “socialist” is not convincing.

The enemy, therefore, is not simply socialism but central planning. Arguments against central planning are much clearer and more easily argued. Central planning is more specific, meaning policies and programs can be clearly defined as central planning. Is central banking socialist? That case could be argued. It is, however, without a doubt, an instance of central planning.

What about the United States and the Nordic countries? They are clearly mixed economies; capitalist economies under interventionist states, which means to attribute their success or failure to abstract “capitalism” or “socialism” is missing the point. Is it decentralized trade through voluntary associations that create the world we want, or is it the government institutions that manage society in a top-down manner? That is a debate with parameters much more clearly defined than simply “capitalism vs. socialism.” Both voluntary trade and centralized institutions exist in most societies, but never do we consider a society to be simultaneously capitalist and socialist simultaneously.

The goal, if it is to be effective, must shift from a critique of socialism to a critique of central planning. The arguments themselves will remain mostly the same, but the change in terminology will likely make these same arguments much more effective.

Socialism is certainly a threat, though central planning is a widespread contemporary problem that many opponents of socialism are content to use when achieving their own goals. It is loose terminology that makes it appear that “the right” (for lack of a better term) is labeling everything socialist and capitalist depending on when it is convenient.

Clearly defined terms are necessary for effective arguments. Without the proper use of terms, people will continue to talk past one another.

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Nathan A. Kreider is author of the Misconceptions column for Being Libertarian, and has written for the Austrian Economics Center, the Foundation for Economic Education, and the Liberalists. He also occasionally publishes a blog and video content, including short book reviews, which can be found on his website, nkreider.com. He can be contacted by email via [email protected]