I’m not sure what point you’re trying to make with your talk about socialist systems and capitalist systems. If you’re talking about a national economy, neither one has ever existed. All national economies are mixed economic systems. No national economy has ever been purely capitalist or purely socialist (or purely communist or purely mercantile or purely guildist).
So it’s not meaningful to say whether the United States has a capitalist system or a socialist system. Because the answer is yes. Some economic organizations in the United States are run as capitalist systems. And some economic organizations in the United States are run as socialist systems.
Well not really. The Wealth of Nations was written the same year as the Declaration of Independence, so in that sense we can say the United States was created the same year as capitalism and they have always existed together.
But the reality is, of course, a little more complicated. Adam Smith didn’t invent capitalism in 1776. He just identified and described economic phenomena that were already in existence. And not everyone immediately jumped on the bandwagon. So capitalism existed before 1776 and mercantilism still existed after 1776. And in a lot of the economy, the distinction between the two was too minimal to be measured. If you were a farmer raising corn and selling it in the town market were you a capitalist or a mercantilist?
As for the definition of capitalism, I’ll go with a pretty basic one. It’s an economic system in which private individuals or organizations conduct business for the sake of generating profits for themselves.
To which I’d add “with a view to accumulating capital, beyond mere subsistence; and in which the socio-legal environment encourages investment of that capital in new enterprises”.
Mercantilism is not a contrasting system to capitalism; it’s an economic policy of striving to achieve a positive trade balance (earn money from exports). Early capitalists loved mercantilism as it was a great complement to the other great capitalist tool of industrialism.
Capitalism isn’t an economy, it’s a theory of ownership in which certain privileged individuals have the “job” of getting paid to own things, a job which historically has been usually gained by inheritance or some other form of privilege.
Capitalism also doesn’t own the term “free markets”. The obsession with free markets is mainly a rhetorical posture that capitalists invoke in order to oppose any state attempt to regulate its exploitation of workers, abuse of the environment, and general disdain for the health and safety of the general public.
I’ve waded into a few threads like this in the past and the core insurmountable problem almost always tends to be that most people don’t want to adhere to any fixed definition of capitalism or socialism. Americans particularly are often not well informed on these terms, and tend to understand them in politicized ways that are out of step with how serious political scientists, economists etc talk about these issues.
@HMS_Irruncible post starts to get into this very issue, and he correctly notes that “free market” and “capitalism” are not the same term. Capitalism essentially requires some form of free market, but free markets can exist outside of capitalism.
@Little_Nemo conflating the publication of Adam Smith’s Wealth of Nation with capitalism shows a layer of common misunderstanding.
The very simplest definition of capitalism is: private ownership of the means of production. There are then many forms of that structure that exist. Americans often believe capitalism means a conflated collection of political ideas, namely: Lower taxes, lower social spending, better environment for business owners, political democracy. While in fact that really just describes a collection of Government policies, none of which are suggestive by themselves of whether a country is operating a capitalist economic system or not. Likewise socialism is often understood as a collection of negative concepts: very high taxes, lack of political freedom, low wages, government control of most ordinary life activities. This second confusion is based on Cold War era scaremongering that basically convinced many Americans that socialism is just a type of Stalinist government.
The core Marxist theory definition is that socialism is a form of economic system in which the means of production are owned by either labor, or the collective society. However a significant wrinkle is over the 20th century “Socialist” political parties in Europe generally migrated to the political ideologies of “Social Democracy” and the term Socialism came to really mean “an economy in which most industries are run by businesses in which private capital owns the means of production, but there is significant state involvement in promoting rules and operations around labor in the economy, significant protections for the rights of labor, significant investments in social welfare.”
So, by old school econ terminology, not a single government in Europe, not Bernie Sanders’ beloved Denmark and Sweden, or tax cheats’ beloved Monaco is actually socialist, all of them are "market economies with significant degrees of private capital ownership of the means of production.
Confused yet? It’s not that it’s hard, it’s that it’s convoluted and it’s difficult to get people on these forums into a spot where there is any consensus on these terms.
A much better paradigm for talking about these uses the terminology that many professional economists, political scientists and economic writers today use: Liberal market economies (LME) and coordinated market economies (CME). The seminal work on this topic is by Peter Hall and David Soskice, and is a very good read on the topic (I think there are cheaper ebook versions out there):
Broadly speaking a Liberal market economy (LME), the organization of firms and labor is done through a free and competitive market, with only moderate at most government involvement. Generally speaking, LMEs often developed organically, while CMEs usually only exist with significant government involvement in structuring the economy.
Note that both types of economy are free market economies with significant capitalist elements (i.e. private business ownership.)
Some comparative elements of these systems:
Wages - In a CME wages are generally negotiated by trade unions, which outside of temporary work and some of the professional class, much of the economy is associated with trade unionism. This means when you interview for a job and are hired on, you do not negotiate a wage, your wage is based on the rules, governing your entire sector, negotiated by your trade union. In LME wages will usually be based on a negotiation between employer and employee, with a small percentage of the economy perhaps having a unionized workforce with collectively bargained wages.
Corporate Governance - In LMEs, corporations are run by a Board of Directors that is elected by shareholders and who hire the Chief Executive Officer. There is very little regulation beyond this, this means that an “activist” investor can buy up lots of shares and lean heavily on the board to push for various things, like short term profit activities. In a CME, firms typically afford much less power to shareholders to control the company (this is often structured through legislation), “works councils” are common, in which business decisions at a high level require a negotiation between representations of the workers and management. Due to this, investment in companies in CME is much more often “patient capital” or “long term capital”, due to the insulation of management from direct shareholder advocacy, management is much less responsive to shareholders.
Government - Government in CMEs is often highly interventionist. Government still avoids picking “winners and losers”, but there are usually significant elements of government industrial policy, financing and banking laws are often structured to assist companies in their operations, government is also likely to expend non-trivial resources in what must be called subsidies to keep domestic industry operating (note that due to WTO rules and such, some forms of subsidy are disallowed, but many forms still are permitted.) Governments in LME may intervene in exremis – see the auto bailouts and some of the financial bailouts from the 2008/9 financial crisis, but in regular operation mostly leaves business to sink or swim on its own.
Examples of LMEs: United States, United Kingdom, Canada, Australia, New Zealand, Ireland (note how all of these are part of the anglosphere, this isn’t really viewed as accidental.)
Examples of CMEs: Germany, Japan, Sweden
But wait you say, the United Kingdom has the NHS and free healthcare, and these other LMEs have much more robust social welfare than we have in the United States, how can they be said to have the same economy as us?
Because how you choose to spend government tax dollars, in and of itself, is not a definitional aspect of “capitalism” or “socialism” or LME or CME. This is part and parcel of the “Great Confusion” around this terminology in the United States. In much of the rest of the world, where there has not been deliberate propagandizing about this, it is broadly understood that how the government spends tax dollars doesn’t determine if one is a “socialist” country or not, in fact many European countries started to develop social welfare states in the late 19th century specifically because nascent Socialist and Communist parties were making promises about basic needs guarantees that was attracting them significant political support (and in this sense I’m talking about Socialists/Communists from 120+ years ago, back when the term unambiguously meant a society with no private ownership of means of production.) The European Welfare State was seen as a direct counter to this, by showing that a free market economy can offer many of the same benefits by simply applying taxes to incomes and wealth and funneling some portion of the revenue into social welfare programs. Such programs were seen as a reasonable bargain to maintain the primacy of market economics and decrease appetite for any emergence of “True Marxism.”
In the United States we avoided any similar moves until the Great Depression, and from the very moment such programs started people were screaming about Sovietization of the country. This has created a culture in which people cannot easily talk about economics because we conflate domestic spending policies with economic systems, and economic systems are frequently defined by scaremongering that have little bearing to modern scholarship on these topics.
Note that LME / CME are not terms intended to encompass all economies on earth. They are intended to be a categorization of market economies. There can be blended market economies that have elements of both (the “Mediterranean” countries in Europe are often highlighted as an example of this.) There are also significant non-market economies still, and there are other forms of economy that fall into different categories. The Middle Eastern petrostates operate forms of “State capitalism” with high social welfare spending. China operates a mixed-economy etc.
Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion
… These findings suggest a need for a more nuanced view of what the neoliberal agenda is likely to be able to achieve. The IMF, which oversees the international monetary system, has been at the forefront of this reconsideration. … Policymakers, and institutions like the IMF that advise them, must be guided not by faith, but by evidence of what has worked.
Socialism…and capitalism…are economic systems. Command verse market based. There is more to it than that of course, but at its root, that’s the definition of both systems. You are correct, no nation is ‘pure’…the US has state run companies, and China has a number of market (for them) based corporations. But the US doesn’t have a command economy…it’s a market economy at it’s core. China is a hybrid…it has some market based and some command economy based systems, but China has more state run companies than they do market based ones, which puts then on the socialist scale (with Chinese characteristics).
What isn’t meaningful is that you and others in this thread are using definitions of capitalism and socialism that are basically cherry picking parts you THINK are either socialism or capitalist and then trying to use those cherry picked examples to prove…whatever it is you are trying to prove (I guess that capitalism is evil and socialism is good, or that they are both viable and have had failures and successes in kind or whatever it is you all think you are proving). The problem is, you are cherry picking things that pre-date either socialism or capitalism by hundreds, in some cases 1000’s of years. The ancient Romans had police and fire, and other ancient peoples had state sponsored medical care (the Egyptians for instance during several periods of their history). This didn’t make them socialists, however, as those things aren’t what makes socialism socialism. Socialist (and others) adopted those thing, but this isn’t the definition of socialism and they don’t have exclusive ownership of those things, and anyone using them immediately is a socialist. On the other side, you are wanting to put slavery down as capitalism, presumably because people made money, and if you made money it was capitalism…or something. IOW, you are cherry picking good things or bad things, attributing those to your definition of what is or isn’t capitalism/socialism and then using that to put forth whatever you are attempting to prove. So, no reasonable discussion can be had here, because that isn’t what capitalism or socialism actually is.
A comparison of what those two things actually are can, of course, be made. As economic systems they can be compared and contrasted to see which was more successful, which made their countries more prosperous, etc etc. But that’s not what you and others are doing. So, I think I’ll bow out, as this sort of cherry picked discussion isn’t really that interesting to me.
I, in turn, feel that you are confusing terms. For example, a free market economy and a capitalist economy are not the same thing. John D. Rockefeller and Bill Gates were capitalist par excellence and one of the primary ways they demonstrated that was by working very hard to eliminate any taint of a free market in their fields.
(Emphasis mine) This is wrong. Socialism vs capitalism are about who owns the means of production in the economic system. Command vs Market based is a related idea (it is easier to have a command economy if the state owns the means of production) but by no means is it a 1 to 1 relationship. You can have command economies that are not socialist and you can have market economies that are.
Yes, that’s what capitalism is. You conduct a business in order to make money. The business may just be selling your labor to an employer but your goal is still to make money (this is what I did). Other people may own and run a business and make money by selling products. Or maybe they invest in businesses that other people run and collect a share of the profits the business makes. The profit incentive - making money - is the central pillar of capitalism.
YOU are the one who claims that Capitalism = free market while Socialism = Command Economy. By that definition - which, I repeat, is not mine but the one you provided - slavery in the slave states was indeed an industry governed by a market relatively free from government intervention. Private people owned the means of production (in this case human beings rather than machinery but the underlying economics does not change, reprehensible as it is).
Compare that to a command economy for human capital, such as Feudalism, where the government (in the form of the king) ultimately “owns” everything but distributes his holdings among vassals.
We can see that your definition fails because under it we would have to classify US Slavery as Capitalism (fair enough) and European Feudalism as Socialism (yeah, not at all).
Look at it through the lens of ownership instead, and suddenly Feudalism is not Socialism, and neither are regulations, taxes, social programs, etc
Several people have now explained to you that capitalism is not an economic system, it is an arrangement of social relations in which the means of production (farms, factories) and its fruits are owned by people other than those who work those resources.
Socialism is… basically the inverse of that, but with some complications. The main complication is that if there is no profit-based motivation to produce, then the explanatory power of markets is dramatically weakened as a source of scarcity. That means the state has to step in and command the allocation of resources, forecasting and prioritizing as necessary to command part or all of the economy.
This is why many socialist systems failed in the mid-20th century. It’s hard to command an economy of any complexity using a 5-year plan, even harder for peasants using 1940’s technology. Fast forward to the 21st century and look at a country like China… using 21st-century technology, and more flexibility toward mixed ownership and planning models, and it can be seen that socialism is about to create the world’s largest economy (if it has not already).
There’s no hand-waving here, if that’s what you’re insinuating. If capitalism is defined as non-workers owning the means of production, then we see that slavery is the most radically pure form of capitalism there is… the workers own nothing, and capital owns everything including the workers, with the blessing of the state! This is capitalism’s ultimate goal… a command market in labor, owned entirely by capital, with neither de facto nor de jure obligations or protections to the people who are actually doing the work of economic production.
Let’s keep this paragraph in mind when the discussion reaches the point of “if socialism is so great, what about Stalin and Pol Pot and those poor Uighurs”.
I mean… these are official definitions we’re giving you here. There are books on this, right? Founding texts of the theory and all? Nobody’s trying to outflank you here. We’re just helping you out by providing the reading that you clearly haven’t done.
You put a lot of effort into making fine distinctions with your post, most of which seem underappreciated here.
But this part in particular is a hard distinction to maintain.
In most honest contexts, the notion of a “free market” is generally going to have to include the usual ownership of self and typical freedoms to contract. “Come to my place to do the nine-to-five, Monday through Friday, and I’ll pay you more than you currently earn” is a fairly basic form of voluntary exchange. It takes some kind of organized coercion to prevent mutually beneficial arrangements of that kind from being freely offered or freely accepted.
These sorts of exchanges are “free market” interactions, but many can be called “capitalist” as well. If markets are actually free, by the usual non-perverse definitions of that phrase, then there will be some form of capitalism operating.
It is possible to try to define things differently.
But every attempt of that sort I’ve seen eventually falls prey to self-serving exceptions. Markets are said to be “free”, with exceptions carved out for what are obviously ideological grounds.
I think most discussions about “free markets” are inherently fraught.
I wanted to say that the US probably had “free markets” in about the early 1770s, but – truthfully – the Tea Tax was a distortive influence (with … er … revolutionary results).
Governmental fiscal policy, the labyrinthine and leviathan US Tax Code, an incalculable percentage of rules, regulations, and laws, etc., etc. all act as market distortions.
As do lobbyists, and the fundamental impetus behind them – to wit: make my product mandatory and the competition’s product illegal (or the ‘service industry equivalent’).
To me, the best we can do – even in academic discussions – is to try to evaluate where a country is on a continuum. I think this same issue applies – and for similar reasons – to discussions about Socialism vs. Capitalism (as others have already offered), and for the same reason.
And the crass and craven efforts by evil, cynical players (read: politicians and their propagandist allies) to threaten us with imminent and disastrous slippage to a particular abyssal endpoint add exactly nothing to the debate but contribute impressively to the demagoguery, polarization and increasing societal angst.
If markets are actually free, competitors who are on the scene early will do whatever they can to enact barriers to entry and eliminate competition until they are a monopoly. For example, in a free market it is very logical to sell at a loss long enough that your competitors go out of business, then up your prices.
Government intervention is absolutely necessary to prevent this. You can’t have capitalism in a totally free market.
It’s possible, but your cite doesn’t support the claim, and most economists give fine semantic distinctions almost zero thought. They spend their time doing math instead. In fact, a current trend in many modern textbooks is actually just not discussing such terminology at all. Mankiw’s Macroeconomics, to pick a popular example, doesn’t discuss “capitalism” at all. It’s not an issue in the book.
I disagree with other economists on plenty of topics, and I would disagree on this topic, too, for the reasons I already gave, if there happened to be a genuine survey showing what a majority believed.
This is certainly one understandable opinion about how the world works.
So you disagree? Do you disagree based on evidence (for example, the way that companies have behaved in the past, or maybe some basic game theory) or based on something else?
Capitalism at its core must allow for investor enterprises of some sort. These started to develop in the late middle ages / early Renaissance in Europe, at least in any form we’d recognize today. Now business had been going on for millennia, and free markets operated organically and with light to moderate to severe state interference for those same millennia. I don’t believe any form of capitalism most mainstream economists would recognize as such existed before the 1400-1500s, and even as it existed then it’d likely be classified as a “proto capitalism” or such.
In today’s present world I’m not familiar with any significant existence of non-capitalist free markets, although there may be examples I can’t immediately remember, but that is because the globe is interconnected and capitalism is the overwhelmingly dominant economic system associated with market economies.