Capitalism vs. Capitalism
March 20th, 2012 // 11:19 am @ Oliver DeMille
An Essential Debate for the Future of Freedom
There are two major types of economies: market and command.
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.”
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Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.
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.
Category : Blog &Business &Economics &Featured &Government &Liberty &Prosperity
Allen L.
12 years ago
two thoughts:
I’ve been interested in the nuance and affect of the Chicago camp, not mentioned above.
I also wonder about recognizing and knowing the terminology and the seemingly more important art of using the terminology. It seems I struggle most using it to good and effective ends. Part of this has to do with my own surface level understanding, but the other part seems to be the actual technique of communicating and interfacing with others who are not aware of the nuance. I’m sure hyper-links can solve some of this problem.
Knowing what others know while maintaining the threads of meaning regarding the impact of what is being said seems to invoke a critical follow-up discussion regarding the use of these core well defined terms.
Keith
12 years ago
Much like the nuances in politician, leader and statesman, where the first (politician) is about seeking position, the second (leader) is about stepping out first, and the later is about making sure all can step out and lead at any time (the statesman), economics is missing a third eye. And where do we get this third eye of wisdom in economics like we have in the true meaning of a statesman? Well, now we are talking a new form that has only existed for brief moments in history while it is prolific in nature. The natural world splits and divide when they get too big in groups, flocks, pods, packs, and colonies. The universe is the same, such that one solar system acts more independently that a galaxy. The smaller you get, the more independent the system and the more free. Market economies do not naturally move in this direction. Centralization of powers (both economic and political) are always trying to reign the market in from its diverse nature. When we have health, education and welfare responsibilities run at greater and greater distances and from central powers, our market economies follow. This is why certain minds need to infiltrate the social justice crowd and teach them about community socialism verses national socialism. They need to be taught that responsibility needs to remain in the hands that ad value and not removed from human incentive. If a great corporation runs well because it grants more autonomy throughout the organization and in all departments, then the same applies to government and market economies. If a local economy wants to use bitcoin (or some other like system) as a means to exchange their own goods and services, a market economy would support it and social justice should get behind it. The more diverse the responsibility, the greater the freedom and protections needed for a market economy.
aharon smith
12 years ago
I got into a discussion about the failure of our economy with two different people. one wa s left minded about politics and the other was right minded. Forgive me for being so stereotypical of their political viewpoints, but it seems in general this strategy works to stay on the same page when taking about the economy. The lefty talked about how capitalism was flawed and would collapse. I said that I agree our current system won’t be abler to sustain itself but a free market economy would. We got into a discussion about the difference between the two and his response was that a free market ev entually goes into capitalism becau with the money control of everything. I then said well we need to do what we can to keep the market free and open through legislation. He agreed.
The other gentleman viewed capitalism as something much more different thanjust assn economy
aharon smith
12 years ago
Sorry, I am responding from my phone and it wigged out on me lol.
Anyways, the other gentleman viewed the word capitalism as something religious our even sacred, he looked at it as God’s way for the economy. I had made a comment about capitalism being a sound economic theory, but flawed like everything else in this worlds and boy was he quick to disagree. By using the definitions that Dr. Demille used above we were able to come into agreeable terms.
What I found interesting in both those discussions is that both of them think that free enterprise is the best way to go. If we hello say things in a way that others understand,I think most people come to similar solutions to the problems we face
aharon smith
12 years ago
I’ve been thinking of what things can be done policy wise to help us get back on track towards a free market system. Get rid of the federal reserve.
Keith
12 years ago
Sharon, better yet, decentralize the money changers. See this blogger out of Los Angeles. She is affecting major changes in at least ten states now considering the adoption of state run banks, much like the one in North Dakota. http://webofdebt.wordpress.com/.
Also, be cautious of the debate over fiat currency verses gold backed currency. Neither one ads value. They both centralize into the wrong hands. When Christ turned over the money changers, his anger for them was revealed when he called them a “den of thieves.” They made everyone exchange their regional currencies for their currency in order to buy and sell in the temple. It was not the buying and selling in the temple, because people from all over came to bring their hard work and products to sell in one place. The problem was that they charged a percentage for the exchange and thus made money without adding value. They made nothing and adding nothing. It was a piece of the action without adding value. This is the essential model we are fighting. The only way to check against this abuse is locally by taxing a tenth of one’s total possessions and not their income. Ignore the federal level and the international bankers. Look at the local level as a micro portrait of the federal.
Up the street from me there is a commercial building. It is for sale, but not the land. The land is owned by another person, who charges $2,100 a month for the lease of the land. The owner of the building (who is selling) then charges about the same plus another $2,000 a month to the tenant to rent the building. The land owner literally ads no value at all, none. The owner of the building is stuck with some upkeep from time to time, but generally he too ads far little compared to the business owner who feeds both, plus his employees, and maybe himself if he is lucky.
There is a far better system coming in the future that will favor entrepreneurs and not capitalists. Those who create local jobs get discounts on paying taxes on their total possession while those with possessions that employ noboby will have an increase in taxes. Income will never be taxed. This flies in the face of many who seek to invest for a gain and thus increase their wealth, but then again I am an entrepreneur and they are not. The difference is so huge I dare not say anymore.