Types of Capitalism
July 7th, 2012 // 8:52 pm @ Oliver DeMille
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, monied 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.
And 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:
1. 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).
2. 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.
3. The United States today has far too much mercantilism, corporatism, Type 2 capitalism, and Keynesianism and not enough free enterprise.
Keith
12 years ago
Agreed that free enterprise is the best, but it is losing the battle to the statist controllers who use positive mental exertions like social justice, equality, and service to the poor to combat free enterprise. The problem they have with free enterprise is the use of “private individuals, groups, businesses and organizations.” They literally see this as selfish in their eyes. Obviously we do not see what they see, so something is amiss that continues to draw a great divide in our culture. In other words, free enterprise is not being properly communicated. It lacks the same promise, hope and lift that the statist uses in their rhetoric to gain favor with command economies. So what is the solution? Include the word public and deemphasize private. Include “communities” to the list. Use “individuals, groups, communities, businesses, organizations and local governments.” Emphasize local responsibility over social justice and show how state and federal command economies destroy local volunteerism, local responsibility and vision. We have to break up the central control by talking about free enterprise in more impacting ways. We have to talk about free responsibility that is part of free enterprise. Better yet, free social responsibility. Command and control economies are nothing but smoke screens to get control of all social responsibilities. This is where the real battle is and we need to emphasize this more. This means an entirely new rhetoric of meaning shedding light on classical forms of autonomy, sovereignty and the conservation of responsibility within closed systems. The statist (command economists) will continue to win the battle because they win the hearts with their words of centralizing control while freedom lovers try to win minds with reason emphasizing de-central control for personal freedom. We need to increase our skill in the words we use that lift the heart and the mind at the same time. This would completely dissolve the argument of the command economies because this is how they operate. They steel from the rich to solve for the poor (not literally but rhetorically). They come off sounding like Robin Hood and this is how they get more control into the state and into more command structures. I am not saying we play their game. I am saying we win it. The fog is starting to lift and the time is coming when we can. Sadly, there are not enough statesman ready for it.
Ammon Nelson
12 years ago
My 4 year old son loves to tell us that he can call something whatever he wants and I am trying to teach him that, though this is true, if he wants people to understand him he should use the terms and words that people understand.
It is important that, when we use words, we make sure we are using them in a way that people understand, not just re-defining them. If we want to avoid confusion, we must do as this article does and explain how we understand specific words.
Excellent explanation of the different terms used for different types of economies. I have often been confused with the use of Capitalism and my own understanding of the term. I now have a better understanding of where the confusion is coming from and how to avoid it in the future.
Donna Thinker
10 years ago
Keith,
Free enterprise does not give license to ravage the environment for profit, amass gross profit to the detriment of the workers who earn that profit by their production of product, or self-protectionism by control of legislative decisions via lobby and agenda. It is not the word, but the action of corporate control that defines what “capitalist” has come to mean. Something is definitely amiss, and it is not the “statist controllers”.