Academic journal article Independent Review

Capitalism, Socialism, and "The Middle Way": A Taxonomy

Academic journal article Independent Review

Capitalism, Socialism, and "The Middle Way": A Taxonomy

Article excerpt

Although a wide range of institutions and social customs have been associated with the economic activities of society, only a very small number of basic modes of provisioning can be discovered beneath this variety. Indeed, history has produced but three such kinds of economic systems: those based on the principle of tradition, those organized according to command, and the rather small number, historically speaking, in which the central organizing form is the market.

--Robert L. Heilbroner and Peter J. Boettke, "Economic Systems"

During the twentieth century, the oldest type of economic system, the traditional economy, became virtually extinct, and the only significant economies left were of either the command type or the market type. As a result, the world's dominant command system (bureaucratically planned socialism) and its dominant market system (industrial capitalism) came to be seen as the thesis and antithesis--the A and the not-A--of contemporary political-economic systems. It was certainly not an untenable classification: Frederic Pryor (2005) divided modern economic systems into "advanced market" economics and "Marxist economic systems."

Yet although the political-economic systems that Western nations actually employed involved little state ownership of the means of production (the classic definition of socialism), they did involve levels of government regulation that were incompatible with the classic definition of capitalism. (1) For that reason, political scientists felt compelled to coin a variety of terms to conceptualize this "middle way." Unfortunately, such neologizing was often idiosyncratic and even tendentious. Authors either ignored the terms others had used to describe the same phenomenon or positively attacked the terms as ideologically motivated. In this article, we attempt to stand apart from such contentions, accepting the Heilbroner-Boettke framework of market-versus-command economies and then categorizing in neutral fashion several dozen terms that have been used to describe "the middle way."

Capitalism

The American political-economic system has conventionally been described as capitalism. "The United States is a capitalist nation," writes Carl Kaysen, "one of the few in which capitalism is not controversial" (1996, 430). The term American capitalism is often used to distinguish the U.S. system from the less capitalistic systems in Europe and Japan (Boyer 1997, 74). Anglo-American capitalism is sometimes used to distinguish the more open market systems of the United Kingdom and the United States from the more regulated systems of continental Europe and Asia (Gray 1993, 36). Pryor lumps together the United Kingdom, the United States, Canada, Ireland, Australia, New Zealand, Switzerland, and Japan in his "Anglo-Saxon-plus" division of "advanced market economies" (2005, 172).

The idealized model of this system, best approximated in the early-nineteenth-century United States, has been described with the terms free-market capitalism (Rothbard 2006, 301) and laissez-faire capitalism (Skousen 2001, 46). The first of these terms assumes that economic transactions take place in a market that may be restricted in various degrees. Market capitalism, in its pure type, is thought to be free of such restrictions and thus to be a "free-market" or "free-enterprise" system (Conklin 1991, 8). In this view, the protection of property rights and the enforcement of contracts are obviously not looked on as market restrictions, but as the rules that allow the market to operate (Mises 1966, 282). The concept of "laissez-faire capitalism" (originally "laissez-nous faire" [Skousen 2001, 46], meaning "let us do" or "leave us be") likewise suggests a lack of restrictions on activitY. "Invisible-hand economy" (Knoke 1996, 5) adds the connotation that this absence of restrictions brings about certain happy but unintended outcomes, which Adam Smith described as the products of an invisible hand. …

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