Do We Have Capitalism?

I try so hard not to get upset
Because I know all the trouble I'll get
--Til Tuesday

In a previous missive, we defined the two categorical approaches to economic organizing: market economy (or capitalism) and planned economy (or socialism). We also elaborated the 'in between' condition known as mixed economy (or interventionism).

'Common wisdom' often fingers capitalism as a primary contributor to economic and social malaise. This claim has been around for some time (e.g., Marx & Engels, 1848), and tends to get louder during downturns such as the current one.

Although many people appear to accept this claim as fact, as it stands it is merely a viewpoint. Elevating the claim toward factual status requires that it be reasonably validated. Early steps in the validation process include a) defining capitalism in sensible terms, and b) demonstrating that what we currently have is indeed capitalism. If one or the other can not be done, then what we have is an 'empty claim.' Empty claims get us nowhere if we are to be intellectually honest. Plus, they dramatically increase risk of error should we take remedial action based on them.

Hopefully we have accomplished a) via our previous post. This leaves us with b), demonstrating that what we currently have is capitalism. Because capitalism is defined as private ownership and control of the means of production and exchange, then we can rightly conclude that capitalism indeed exists if there is no interference in production and distribution by government--save for that which preserves individual property rights.

Mises (1998) categorized interference as follows:

Restrictions. The authority forbids production of certain goods (e.g., alcohol during prohibition), application of certain production methods (ban on deep water drilling), or makes manufacture of certain goods more difficult and more expensive (seat belt/air bag mandate in autos).

Price controls. The authority fixes prices (rent controls), wages (minimum wage laws), or interest rates (FOMC monetary policy).

Inflation and credit expansion. The authority expands the supply of money of money and credit (all central banks). Includes manipulation of exchange rates and currency controls.

Confiscation and subsidies. The authority confiscates property (taxes) and subsidizes behavior of interest (housing incentives, ag kickback for growing corn for ethanol).

The evidence is overwhelming that all forms of market interference are present en force today. As such, there can be little doubt that our current economic system is not capitalism.

Instead, because government interferes in some, but not to a total, degree in market activity, the reasonable conclusion is that we operate under mixed economy conditions.

With their present argument filed under the 'empty claim' category, persistent anti-capitalists might try a different argument. "Perhaps we don't have a pure capitalist system, but the system leans more toward capitalism than socialism, and recently we've been moving more in the capatalist direction. We need to move more in the opposite direction in order to fix our growing set of problems."

Getting this claim off the ground requires that we establish the position and general direction of our mixed economy on the capitalism <-------->socialism scale. While establishing the absolute position on the scale can be difficult, it seems easier to establish the general direction of our economy (heading toward capitalism or socialism) by plotting the historic course using longitudinal data.

We'll give this a try in future missives.

References

Marx, K.H. & Engels, F. 1848. The manifest of the Communist Party. London: Burghard.

Mises, L. 1998. Interventionism. Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc.