Table of Contents
Jon Miltimore
Jonathan Miltimore is the Editor at Large of FEE.org at the Foundation for Economic Education.
My family got a PlayStation 5 a few years ago. It’s a decision I sometimes regret because my youngest son, who is 7, likes to play it too much. (And that’s when it gets unplugged and stashed away.)
But it’s easy to forget what a modern marvel the PS5 is.
When I started playing video games in the early to mid ’80s, Galaga was the most popular game at the local arcade, which was basically a few gaming machines in the warming house at the ice-skating rink. I went through pockets full of quarters to play a game that looked like this.
When we got an Atari gaming system in 1984, I thought it was the most amazing thing in the world, even though my favorite game, Jungle Hunt, looked much worse than Galaga. Atari used only 128 bytes of RAM, and had a max resolution of 160 pixels in height and 192 pixels in width.
When you compare these games to the experience users get today on the PS5, which can be purchased for less than $400 (game included), it’s a reminder of how good today’s gamers have it. (PS5s have 16 gigabytes of RAM, or 16 billion bytes.)
I bring all of this up partly because a clip going viral on social media reveals that this marvellous invention could only be produced in a capitalist system. The clip, which has amassed five million views on X after being shared by Dylan Allman, features Marxist economist Richard Wolff, who was interviewed by the American live-streamer Destiny in 2022.
In the interview, a listener asks Wolff a provocative question: “Under your system of worker cooperatives, would I still get my PlayStation 5?”
Wolff, a professor emeritus of economics at the University of Massachusetts Amherst, offered this response:
Absolutely. You’d have to struggle a little bit for it. You’d have to talk to your fellow workers. You’d have to talk about the distribution of income. You’d have to compare your desire for PlayStation against all the other interests against all the other people. It wouldn’t be something you worked out on your own with your particular boss, in any way. It would have to be a democratic decision. You’d have to come to terms with that the way you do with democratic decisions now in our society to the extent that we have them.
It’s a long, meandering, virtually incoherent response. Wolff answers yes, you’d absolutely have a PS5 — and then proceeds to illustrate all the reasons a PS5 wouldn’t be created in a socialist system.
Of Prices and Consumers
When Wolff says “You’d have to compare your desire for PlayStation against all the other interests of all the other people,” he’s asking the impossible.
There is no way to measure desire any more than there is to determine something’s innate value.
Value is subjective. Some people couldn’t care less if they had a PS5, while others break down in tears of joy when they receive a PS5 for Christmas. And then there’s the matter of context. I currently value my PS5 a lot more than I value my shoes and the 20 ounce ribeye in my freezer. But if I didn’t have any shoes or had barely eaten in days, that could change real fast.
This is why we have prices. In a free market, entrepreneurs demonstrate their demand for resources — capital, labour, space, on and on — by the price they are willing to pay for them, much like consumers decide whether to buy a product at a given price or use their money elsewhere.
Prices are a pillar of a free-market economy. They are signals that indicate supply and demand to buyers and sellers alike, and the best tool in the universe for allocating scarce resources efficiently.
Wolff makes no mention of prices at all while discussing constructing a PS5, but we’re left to believe that the listener will get his video game console so long as he can convince his fellow workers that his desire for one warrants it when factored against the interests of “all the other people.”
This is backward economic thinking, and it gets at a major point that separates a socialist system and a capitalist one. Traditionally, under socialism, it has not been entrepreneurs and consumers who dictate what is produced, but central planners. This is the opposite of capitalism, where consumers ultimately decide what products fail and succeed. The economist Ludwig von Mises described this as consumer sovereignty:
The capitalists, the enterprisers, and the farmers are instrumental in the conduct of economic affairs. They are at the helm and steer the ship. But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain’s orders. The captain is the consumer.
If you doubt this, we need only look at the history of Atari.
Atari: A Brief History
The Atari 2600 gaming console came on the scene in the late 1970s and early 1980s like a juggernaut. In the space of a few years, annual revenue exploded from $75 million to $2 billion.
Atari was founded in 1972 by Nolan Bushnell and Ted Dabney, who saw the market potential of the emerging technology of video games. In 1979, Atari, which had been purchased by Warner Communications in 1976 for $28 million, sold a million home-console units. By 1982, it was selling 10 million.
Warner Communications, which had pumped tremendous amounts of capital into developing and promoting Atari’s new game console, was reaping the rewards.
“Atari’s revenues comprised a huge 70 percent of Warner’s income,” says Dagogo Altraide in a documentary of Atari at ColdFusion.
All of this success invited competition, however. Everyone wanted in on the video game action.
Soon the Atari 2600 was not just competing against old rivals like the Magnavox Odyssey, Mattel’s Intellivision, and the Bally Astrocade, but a host of other newly developed gaming consoles like the ColecoVision, which launched in August 1982.
Companies were investing massive amounts of capital into their own video game consoles in an attempt to dethrone Atari. What followed was an event that has been labeled the Video Game Crash of 1983, “a large-scale recession in the video game industry that occurred from 1983 to 1985.”
Many would argue that the crash was the result of “market failure,” but this overlooks the next chapter in the history of video games. The “recession” ended with the arrival of a legendary new gaming console: the Nintendo Entertainment System (NES).
‘Incessantly Destroying the Old One, Incessantly Creating a New One’
The rise of the NES marked the end of Atari’s dominance in gaming. Industry statistics show that by 1987, Atari’s market share of video game consoles fell from 80 per cent to 24 percent.
Nintendo, in turn, faced relentless pressure from competitors. It would fend off other challengers, like Sega’s Genesis, by rolling out new-and-improved systems, like the Super Nintendo and Nintendo 64. Eventually Microsoft’s Xbox and Sony’s PlayStation would dethrone Nintendo, though the company would make a comeback in 2017 with its Nintendo Switch (on which you can now play classic Sega Genesis games).
It is this continual process of creation, innovation, and destruction in the pursuit of profits that socialism can never rival. It’s not as if socialist countries can’t produce video games or video game consoles. They can and have.
Many will forget that video games were quite popular in the Soviet Union in the late 1970s and 1980s, and the Soviets even sold their own video game console.
The Turnir was a console released in 1978 by the USSR’s Ministry of the Electronics Industry. It was priced at 150 rubles (about $750 in 2024 USD) and was manufactured until 1982. The Turnir was one of a few game consoles that emerged in the USSR, but what’s notable is the absence of improvement in these models.
Indeed, the lack of innovation was so bad that, in the immediate aftermath of the fall of the Soviet Union, the most popular video game console in Russia and former Soviet states was the Dendy, a cheap knock-off version of Nintendo’s popular NES.
The decades-long competition for primacy in video games that saw the NES replace Atari, and the Xbox replace Nintendo, and the PS5 eventually — but not permanently — replace them all (sorry, Xbox fans) is not a feature of socialism. It’s a feature of capitalism.
The persistent innovation of gaming systems to meet the desires of consumers is a textbook example of what the economist Joseph Schumpeter described as creative destruction, wherein the economic structure is “incessantly revolutionize[d]…from within, incessantly destroying the old one, incessantly creating a new one.”
This process of creative destruction, which Schumpeter rightly saw as the engine of prosperity and commercial innovation, is conspicuously absent in socialist systems, and for good reason: Marx and his disciples loathed it.
Whereas Schumpeter celebrated creative destruction, Marx saw it as “annihilation.”
“…the destruction of capital through crises means the depreciation of values which prevents them from later renewing their reproduction process as capital on the same scale,” Marx ponderously wrote in Das Kapital. He continued:
What one loses, the other gains. Values used as capital are prevented from acting again as capital in the hands of the same person. The old capitalists go bankrupt. … A large part of the nominal capital of the society, i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction. This is also the period during which moneyed interest enriches itself at the cost of industrial interest.
From these words (and others), one can see that the very process Schumpeter recognized as the engine of innovation and dynamism in a market economy Marx saw as an inherent flaw.
Wolff, like Marx, seems completely unaware of what drives market innovation. To believe that a PS5 would emerge from a process of individuals talking to one another about how much they should be paid and weighing one’s interest for a gaming system against the interests of co-workers who desire something else is to ignore both history and the fundamentals of economics.
But perhaps this should not surprise us.
“If socialists understood economics,” the Nobel Prize-winning economist F. A. Hayek once quipped, “they wouldn’t be socialists.”
This article originally appeared in The Daily Economy at AIER.
