Capitalism and socialism are deeply flawed and need to be eradicated. I speak not of the economic systems sometimes labeled capitalist(ic) or socialist(ic) but rather of the intellectual constructs, which consistently obscure more than they reveal. Capitalism and socialism are to political economy what air and wind are to climatology, much too vague to be of significant analytic value.
Karl Marx and other political economists popularized the terms capitalism and socialism in the nineteenth century. Like many other -isms, neither enjoy a clear, quantifiable definition. Like beauty, capitalism and socialism reside in the eye of the beholder. Like pornography, experts believe that they know it when they see it.
Unsurprisingly, definitions of both terms reproduced rapidly, culminating in 111 discrete definitions of capitalism according to legal historian Edward Purcell. Economists Kate Waldock and Luigi Zingales recently responded to this jargon sprawl with a clever podcast call Capitalisn’t.
Socialism has been similarly fecund, spawning libertarian, religious, and other hyphenated offspring logically possible only by liberally contorting the core concept. “Definitions of socialism,” John Martin noted, “are almost as numerous as the combatants for and against socialism.” (If you have not heard of John Martin, that is probably because he wrote those words in the American Economic Review in 1911!)
Many on the Left use the term capitalism as a sneer or a schmear, as a sort of trump card whenever their logic or knowledge of economics flags or falters. In their view, everything wrong in the world, including problems clearly caused by governments, stems from capitalism, which controls all in a vain attempt to satiate its inherent greed and bloodlust.
Many on the Right have deified and reified the term capitalism, essentially reducing it to competition or economic freedom so they can use it to bludgeon sundry apostates who dare question the Citizens’ United decision or the corporate governance status quo. For many conservatives, capitalism can do no wrong, even when the financial system implodes and CEOs get big bucks for bankrupting their own companies.
Conversely, conservatives have recently conflated socialism with hyperinflation in Venezuela. Milton Friedman, who famously said that inflation is always and everywhere a monetary phenomenon, must be spinning! At the same time, many liberals seem to think that socialism, their version of it anyway, would be a panacea for all our socioeconomic ills.
If they are ever to understand America’s economic system thoroughly enough to aid its functioning, scholars, pundits, and policymakers need to be more specific than X-ism. If prices seem too high, they should investigate market power (monopoly; monopsony), not capitalism. If income seems maldistributed, they should not blame capitalism, but look instead at tax incidence and the redistributional effects of Social Security. If corporate welfare waxes in importance, they should invoke concepts like rent-seeking and regulatory capture, not banalisms like capitalism.
And conservatives need to understand that capitalism does not make nations wealthy, good institutions that create incentives for individuals to work harder and smarter do. Regulations do not hurt capitalism, they hurt some economic entities while benefiting others. Competitive markets, not the financial well-being of wealthy capitalists, drive efficiency gains.
Economic policymaking cannot improve if members of this nation’s reputed intelligensia continue to discuss crucial economic policy issues using only hackneyed, vague concepts like capitalism and socialism, any more than analysis of the climate could improve if scientists only spoke of air, instead of its constituent gases and their many, complex interactions. So the next time you hear Bernie or Sarah Sanders invoke capitalism or socialism, ask them to specify precisely what they mean. If they cannot, consider instead the policy advice of someone with a more nuanced grasp of our nation’s economic and policy landscape.