Rather than use the terms capitalism and socialism, formulate the question by making two statements:
(1) When it comes to X, the market tends to create the problem and government offers the best solution.
(2) When it comes to X, government tends to create the problem and the market offers the best solution.
X could be health care, or poverty, or unfair economic advantages, or environmental sustainability, or banking crises, or what have you. I think that people will tend to align on one side or the other, and you don’t need to define “capitalism” or “socialism” to describe their disagreement.
It’s unfortunate that “capitalism” has come to stand for “free markets based on private property rights.” “Capitalism” carries the baggage of “fat cat coupon clippers,” and such like. The immigrants from Latin America who cut grass and prune foliage in my neighborhood are capitalists, but I doubt that they think of themselves that way.
It’s worse than that. I noticed in the MRU course on Development Economics:The Affect of Geography on Institutions, Alex Tabarrok in comparing the Southern Plantation system with the yeoman farmer in the US called the plantation “capitalist production process” but the private family farm apparently wasn’t. Odd since the yeoman farmer owned the means of production just as the plantation owner did. I expect he meant industrial.
So even economists make the error of considering capitalism only in relation to the “bad” large enterprise.
I believe that malappropriation of the language in intentional, in order to poison the well.
Where does “crony capitalism” fit in?
Under 1. It is the government intervening to correct the market.
I think it is NOT “capitalism” at all but the description of a political relationship.
Manipulating legal, regulatory, and political institutions seems to have become a defining feature of capitalism. So you can say “it’s not capitalism” in theory…but it is in practice. Effective “cronies” continue to amass greater amounts of capitalism with no check on their ability to do so from the free market.
Effem,
What a marvelous moniker!
You are probably quite right that those have become among the relationships that included in forming today’s condition called “capitalism.” There may be more than just “manipulations” involved in the relationships (but, so far they do not include violence at this time, though they may have in the past).
However, in the case of various Socialisms we observe *Control* rather than “manipulations” with resulting privileges and exemptions. This may be due to the fact that the collective “objectives” of those social orders focus on distributions rather than on acquisitions and accumulations of “Capital.”
If you consider capitalism as the liberty to better one’s condition through productive investment, then you have the liberty extended to all as in laissez faire capitalism, crony capitalism is where only or to a greater extent the connected are granted the liberty, and socialism is when the liberty is taken by the state. In each, an increasing share of the profits are taken by the bureaucrats. In crony capitalism through the bureaucrats sponsorship of the crony and directly through bureaucratic power competition under socialism.
JK Brown
You might want to become familiar with the concepts of Open and Limited Access Societies (North, Wallis & Weingast) which considers that a dominant “elite” (which may or may not use the mechanisms of government) may determine the opportunities for relationships, investments and the nature of production for the benefit and cohesion of the elite.
No, but one does have to consider: “What are the functions of governments?”
And – “the question” (previously) called for separate and distinct definitions, not comparatives.
So, begin with “markets” which are forms of relationships. But, what is “government;” the determinations of administrators of an Administrative State; the application of commonalities of objectives of citizens for certain conditions (sanitation, “honesty,” etc.).
Once you define the functions of governments – the rest falls into place.
Agreed. Markets are made up of individual voluntary agreements and cooperation, i.e., markets are a summation of individuals.
Government :
“We call the social apparatus of compulsion and coercion that induces people to abide by the rules of life in society, the state; the rules according to which the state proceeds, law; and the organs charged with the responsibility of administering the apparatus of compulsion, government.”
Mises, Ludwig von, Liberalism (pp. 35-36).
Government is force, compulsion of individuals to act in a manner deemed best for society.
A “State” (pace, Mises) is an embodiment of authority.
Historically that authority has been imposed by physical or ideological force (or combinations). In more “modern” times that authority has been established through active delegations and acquiescences or passive acceptances of those subject to that authority.
A State is not a government. A government is the means of directing or using authority, including that of a State (but regardless of whether it has been embobidied in a State or not). Governments, some with and some without consent, delegation or acquiescence of those subject to authority may use coercions and force.
I like this and your previous post attempting to define this axis of more or less favoring government versus market solutions.
But there’s another axis here that gets lost, which would be nice to capture if possible. And that’s zero sum versus positive sum thinking. Human intuition is generally zero sum, which is why economics is hard. Economics is about understanding (hopefully) positive sum outcomes. What strikes me about the current state of the presidential elections is Bernie Sanders and Donald Trump are both alike in being zero sum, as you know. It strikes me that the difficulty in creating markets that are not corrupt, versus falling back on the innate human tendency to think zero sum, is the constant struggle for an open society. I suppose this is captured in your freedom-coercion libertarian 3 axis model. But I think the zero sum versus positive sum idea in that framework also gets short shrift.
No to sound too George Orwell here but “capitalism” has become a dirty word. Anyone who cares about liberty should rename it “free markets.”
Frank Luntz, can you here me?
Would “self-regulating markets and well-defined property rights” fit on a bumper sticker?
That is certainly true if the particular relationships are truly markets (exchanges,there are others) and if (and to the extent) they occur in those specific circumstances (which are seldom unqualified).
There are four distinct ways to solve problems in the domain of the creation and supply of general goods and services.
1). Do it on your own. (Extremely ineffective in countless ways)
2). Take it from those who have created, grown, built it (extremely prone to negative sum games, thus broadly ineffective)
3). Do it coordinated in a top down, planned way. This tends to lead to centralized monopoly in goals, processes, with extensive order imposed. Political systems are then used to determine the goals and directions which are imposed.
4). Do it in a decentralized, emergent way, by agreeing on a system of property and contract conventions. This leads to an adaptive, multiple-goal system with extensive use of competition and variety where even the goals are discovered via the process of voluntary action and interaction.
Notes:
1) There are other domains not covered by imposed vs decentralized order (science is an obvious example where the domain is explanations of natural phenomena. Science is another kind of problem solving system in another domain)
2). Both imposed and decentralized orders have their pros and cons, costs and benefits, times and places. Every society blends the two. They are two complementary, but overlapping, problem-solving systems
3). A society can be considered more free market if it uses the decentralized system extensively. It can be labeled more socialist if it extensively leans toward the imposed order system.
You missed:
(3) When it comes to X, the market tends to create the problem and the market offers the best solution.
and
(4) When it comes to X, government tends to create the problem and government offers the best solution.
I suppose “war” would be the archetypal example from category 4. Perhaps most problems in the world fall into category 3.
What is property, who owns it, what are they allowed to do with it, and who can settle disputes, are essential to markets and preconditions to them which is why government rules are often necessary for market solutions even when the rules are determined ex post.
The concept of Property is a relationship of individuals to physical and intellectual matter. A right to property is the concomitant obligation of (or constraint on) other not to interfere with that relationship.
The “rules” don’t have to be “government rules”; and as noted by Coase are often best left to the participants.
Coase is more an explanation why leaving them to participants doesn’t work. Contracts that can’t be enforced are worthless. Might makes right is hardly a market.
Lord,
Please expand on your reading of Coase, with references.
There is a meme that is very popular on Twitter that goes:
Capitalism=selfishness Bad
Socialism=sharing Good
Good luck with getting a more sophisticated definition through to the average low information voter.
It’s a good question. It seems to depend a lot on the sector of the economy we are discussing. Let me take a try using three different sectors.
In the schools, there’s a bona fide socialism debate going on the U.S. The socialists have largely won, and the government does own the K-12 level schools that the vast majority of students go to. I say debate, although the socialists have largely won. Nobody calls them that, but technically speaking wouldn’t it be accurate?
In medicine, there’s more of a market, but the government has heavily distorted it to achieve social aims. I’m not sure what you call that, but it’s where the debate is. Examples:
– Licensing scope creap that makes more things require a licensed “doctor”.
– Requirements to have medical insurance.
– Requirements for that insurance to cover certain procedures, including ones that are biologically impossible for the person holding the policy.
– Restrictions on access to drugs, both medical and recreational.
For intellectual property, especially for software and for video footage, the activity of the government is more in defining and enforcing what counts as a legal market. This debate doesn’t seem to cleanly fall into the socialism versus capitalism debate. When you look at the FBI raiding a teenager’s house, or the FBI taking down DNS sites for days or weeks with questionable due process, or at foreign police forces arresting their own citizens and sending them over to American courts, the thing you worry about is more the market-defining activity of the government. Somehow it feels like a market is poorly defined if you have to do these kinds of things to enforce it.
More accurately, what you describe is interventionism, which seems to have been dropped rather the public become aware of it as the threat it is.
“Finally, we still have to speak of interventionism. According to a widespread opinion, there is, midway between socialism and capitalism, a third possibility of social organization: the system of private property regulated, controlled, and guided by isolated authoritarian decrees (acts of intervention).”
–Mises, Ludwig von (2010-12-10). Liberalism (p. 63). Ludwig von Mises Institute. Kindle Edition.
The ownership of capital is less important than who controls it. Although ownership remains with private owners, increasingly, government controls the means of production, through regulation and dictates. See the recent case of the government, through the courts, ordering Apple to use Apple’s capital to develop a means to break security on their iphones.
How about:
Socialists think that there are many ways that more Government action can improve our lives in the short and long run.
Capitalists believe that due to human nature, the incentives that come with economic freedom, will in the long run will improve out lives greatly and Government slows that downs and so should stick to the provision of goods where there is a strong case that they are public goods that will not be supplied sufficiently by non-government actors.