Betwixt and Between

"It is well known that the more a man speaks, the less he's understood."
--Abraham Lincoln (The Blue and the Gray)

The are two 'pure' ways of economic organization. One is capitalism, also known as a market economy. A capitalistic economy is a form of social cooperation based private ownership of the means of production. Decisions about what to produce and how to distribute output rest in private hands. In a market economy, the state's role is limited to the protection of property of its citizens against force or fraud.

The other alternative is socialism, also known as as state capitalism or authoritarian economy. A socialistic economy is a form of social cooperation based on public ownership of the means of production. Production and distribution decisions rest in government hands. In a socialistic economy, the state's scope is virtually unlimited.

Most would agree that, as defined, both of these economic forms are currrently more theoretical than practical. That is to say that neither of these pure forms exist in today's world on a sovereign scale. Instead, all national economies operate somewhere between the two extremes.

Mises (1998) referred to this middle ground as interventionism, also known as managed capitalism or hampered market economy. In an intervenionist economy, markets still exist, but the state seeks to interfere with behavior by use of coercive power, usally expressed through restrictive measures or price controls.

Visualize a grid that looks something like this:

|capitalism<-------------------------------->socialism|

Depending on the degree of intervention, you could plot any economy somewhere on this continuum.

A unidimensional scale might be the extent to which the economy is managed by the state:

|0% managed<---------------------->100% managed|

The most pressing issue on my mind (ouch) concerns the dynamics associated with the interventionist condition, i.e., can interventionist economy operate at a single point on the grid? Or is there a 'gravitational pull' that tugs an economy to one of the extremes over time? My reading thus far suggests a theoretical bias toward interventionism migrating toward socialism (Hayek, 1944; Marx, 1867; Schumpeter, 1942).

However, I wonder whether alternative cases are reasonable. Hope to explore these in future work.

Reference

Hayek, F. 1944. The road to serfdom. Chicago: The University of Chicago.

Marx, K. 1867. Das kapital, Vol. 1. Hamburg: O. Meissner.

Mises, L. 1998. Interventionism: An economic analysis. Irving-on-the-Hudson, NY: The Foundation for Economic Education, Inc.

Schumpeter, J.A. 1942. Capitalism, socialism, and democracy. New York: Harper & Brothers.