March 20th, 2012 // 11:19 am @ Oliver DeMille
An Essential Debate for the Future of Freedom
Within these two branches there are a number of subtypes, including various command-style economies such as socialism, communism, fascism, collectivism, authoritarianism and totalitarianism.
The market-economy subgroups are sometimes more confusing to people from free societies, because most of us have been trained to evaluate politico-economic issues in binary mode where we narrow any debate down to only two sides (e.g. socialist or capitalist, democratic or totalitarian, good or evil, free or not free, etc.).
That said, we live in an era where the various subtypes of market economics are in conflict.
During the Cold War the world was divided between two great camps, with market economies of all types firmly allied against all command economies, but in the post Cold War and post 9/11 world this has dramatically changed.
There are forces supporting each of the various subtypes of market economy, and often these are pitted against each other in ways unthinkable before 1989.
Differentiating between these subtypes is important for anyone who wants to accurately understand what it happening in today’s world:
- Mercantilism: the law gives preference and special benefits to the sector of the economy owned by the government.
- Corporatism: the law gives preference and special benefits to the sector of the economy owned by big corporations within the nation (sometimes referred to simply as “Big Business”).
- Capitalism: the law gives preference and special benefits to the sector of the economy owned by big capital (including big corporations like in Corporatism, but also wealthy foreign and multinational corporations and non-corporate institutions, wealthy foundations, wealthy trusts, non-profit entities, wealthy families, moneyed foreign investors, and others with mass amounts of capital).
- Keynesianism: the law gives preference and special benefits to companies and institutions (corporate but especially non-corporate) that are so big that they care more about their public image for societal responsibility and promoting social justice than about profit(s), market share or stock value.
- Free Enterprise: the law gives no special preference; it protects equal rights for all individuals and entities and leaves initiative and enterprise to private individuals, groups, businesses and organizations that are all treated equally and with minimal legislation by the legal code.
All of these subtypes are market-based, though according to Keynes himself Keynesianism “seeks the goals of socialism through market means.”
For the last three generations these five subtypes of market economics have all been lumped together under the label of “capitalism.”
While this is technically inaccurate—because capitalism is a subtype rather than the whole of market economics—it is the way the word “capitalism” has been used by most people.
By this definition, capitalism is synonymous with “market economics” and is a label for the entire market-style model.
So we have two definitions of “capitalism” in the current usage: one a title for the whole market field of economics (we’ll call it capitalism Type 1), and the other a specific type of market economics where preference is given to those with large amounts of capital (capitalism Type 2).
These are frequently confused in our contemporary language.
Supporters of freedom get understandably frustrated when anyone questions the superiority of Type 1 over command economies, but it is vital to understand how Type 2 differs from free enterprise.
Adding to this confusion, corporatism is not the same as Type 2 capitalism.
Corporatism doesn’t include capitalism Type 2 at all, but capitalism Type 2 always includes corporatism as part of what it calls “capitalism.” (Corporatism is to Type-2-capitalism what apple is to fruit.)
In short, Type 2 capitalism is much broader than corporatism, as shown in the definition above.
Again, this is confusing to most people, but understanding the details and nuances of how these words are used is extremely important.
Note that the American founders dealt with many similar language challenges, such as when Madison spent Federalist papers 10 and 14 explaining the important differences between democracies and republics, or when he used papers 18, 19 and 20 to elucidate the differences between federations, confederations, national and federal government.
Without such clarity, the Constitution would have been confusing to many Americans who were deciding whether or not to ratify it.
There are numerous similar examples, and part of being a free people is taking the time to understand the nuances of economic and political freedom.
Note that few things are more essential for free people than clearly understanding what type of economic system they want.
Based on the definitions above, consider these three conclusions:
- All of the market subtypes are better than all types of command economies. Even the market approaches with the least freedom (Keynesianism and mercantilism) are significantly better (with more freedom, opportunity and prosperity for more people) than the command system with the most freedom (collectivism).
- On the subject of the five subtypes of market economy, free enterprise is significantly better (with more freedom, opportunity and prosperity for all), than mercantilism, corporatism, capitalism Type 2, and/or Keynesianism.
- The United States today has far too much mercantilism, corporatism, Type 2 capitalism, and Keynesianism and not enough free enterprise.
Many moderns say we are a “capitalist” nation or vote for the “capitalist” candidate and conclude that all is well, when in fact free enterprise is under attack from socialism but also just as strongly from mercantilists, corporatists, Keynesians and Type 2 capitalists.
Voters and citizens must know what to look for when a policy or candidate claims to promote “capitalism.”
He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.