Capitalism, socialism, and "the middle way": a taxonomy.

• Author: Bradley, Robert L., Jr.
• Position: Essay

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. The term unhampered capitalism (Mises 1966, 836) similarly suggests that were restrictions to be introduced, they would "hamper" the economy's ability to bring about such happy outcomes.

The capitalist emphasis on unrestricted economic activity leads many authors to conceptualize the system according to what justifies such a ban on restrictions. For example, the term individualistic capitalism implicitly bases the absence of economic restrictions on a political-ethical theory of individualism and usually of individual rights. "Individualistic capitalism is associated with the writings of John Locke and Adam Smith.... According to Locke, the individual is a fulcrum of society and has certain inalienable rights, including the right to own property" (Langran and Schnitzer 2006, 348). Other authors speak of "competitive capitalism" because they ground the absence of government regulation in the supposed utilitarian benefits of free competition. "For [Adam] Smith, good capitalism was competitive capitalism.... A good government, according to Adam Smith, was a minimal government, providing for the national defense and domestic order" (Almond 2006, 139). (In Marxist analyses, the term competitive capitalism is also used. There, however, it does not to refer to the essential nature of the economic system, but merely to a passing phase, specifically an early phase that later yields to "monopoly capitalism" [Harris 1998, 415].)

Several other terms for classical capitalism are less familiar today. For example, people formerly spoke of "laissez-faire liberalism" (Schumpeter 1991, 435). The term liberalism as used here has not been current in the United States for a long time, referring as it does to a system that emphasizes liberty in the economic arena as well as in the personal and political arenas (Ekirch 1980). Today, the most common American term far such a system would be libertarianism. In Continental Europe, however, the older meaning of "liberalism" still has a strong hold. Thus, Jonah Levy writes: "It should be clear I am using 'liberalism' in the European sense--a belief in limited government, maximum individual liberty, and free markets--as opposed to the U.S. usage, conveying faith in government activism and social programs" (2004, 126 n. 4). As a sign of ever-shifting terminology, however, it should be noted that a book by the president and executive vice president of the Cato Institute, the leading U.S. libertarian think tank, now seeks to distance that organization from the term libertarian because the word is "too closely tied to a particular group of activists." Rather, they suggest, "the perfect word" to characterize the system they have in mind is liberal, but qualified as market liberal in order to insist on the philosophy's link to unhampered capitalism (Boaz and Crane 1993, 8-9).

Another term that has lost currency is Manchesterism (Mises 1966, 723, 730), which gained its meaning from the early-nineteenth-century association of the doctrines of laissez-faire and the city of Manchester, where the Anti-Corn Law League was headquartered. Because the Corn Laws were a protectionist regulation, those who opposed them argued for the benefits of free trade and free markets. The word Manchesterism, however, was coined as a term of abuse by the thunder of German socialism, Ferdinand Lasalle (Raico 2005).

Socialism

Socialism is usually defined as a political-economic system in which government owns the means of production. To be sure, a system is sometimes called "socialist" even though the state owns only the large-scale means of production--what Vladimir Lenin first ([1922] 1971) and the British socialist Aneurin Bevan later (1949) called the economy's "commanding heights." (Introducing confusion, Ian Bremmer recently described state ownership of such sectors as oil, steel, heavy machinery, telecommunications, aviation, and shipping as "state capitalism" [2009, 42].)

Economist Robert Heilbroner, however, describes socialism as "a centrally planned economy in which the government controls all means of production," thereby emphasizing the state's control and its role in planning, rather than its ownership of productive property. (1993, 101). (2) Likewise, F. A. Hayek wrote that "the socialists of all parties have appropriated the term 'planning' for planning of the latter type," to wit, the "central direction and organization of all our activities according to some consciously constructed 'blueprint'" ([1944] 1994, 41). Several synonyms for a socialist system underline this feature of"central economic planning" (Nutter 1976)--for example, "the planned economy" (Mises 1951, 256).

Ludwig yon Mises refers to such schemes disparagingly as "planned chaos" (1961), and the difficulties involved in centrally planning an economy led to a theoretical variant of socialism, "market socialism," which was designed to solve the problems Mises enumerated. This is the partially planned socialism of Oskar Lange, under which a central planning board would control the means of production, but would do so in response to consumer choice at the retail level. (3) However, a number of socialist critics considered Lange's proposed system not to be proper socialism at all (Kowalik 1998, 304), whereas others simply ignored it because it eschewed Marxist terminology (Guinevere Nell, e-mail to the authors, September 6, 2009).

The term socialism has also been applied to certain private experiments, such as Robert Owen's New Lanark textile mills and his New Harmony community in the United States, but these experiments might better be described by the term paternalistic communitarianism because they were privately owned. Yet the term socialism is not totally inapt insofar as Owen himself hoped his schemes would be taken up by paternalistic governments and used to run much of the economy in a socialist fashion (Podmore 1907, 1:227). But if cooperative associations are intended always to operate within a market framework, then they might...