Economic Systems


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Definitions and Basics

    Capitalism, from the Concise Encyclopedia of Economics
    Capitalism, a term of disparagement coined by socialists in the midnineteenth century, is a misnomer for "economic individualism," which Adam Smith earlier called "the obvious and simple system of natural liberty." Economic individualism's basic premise is that the pursuit of self-interest and the right to own private property are morally defensible and legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals (alone or with others) are free to decide where to invest, what to produce or sell, and what prices to charge, and there is no natural limit to the range of their efforts in terms of assets, sales and profits, or the number of customers, employees, and investors, or whether they operate in local, regional, national, or international markets....
    Socialism, from the Concise Encyclopedia of Economics
    Socialism—defined as a centrally planned economy in which the government controls all means of production—was the tragic failure of the twentieth century. Born of a commitment to remedy the economic and moral defects of capitalism, it has far surpassed capitalism in both economic malfunction and moral cruelty. Yet the idea and the ideal of socialism linger on. Whether socialism in some form will eventually return as a major organizing force in human affairs is unknown, but no one can accurately appraise its prospects who has not taken into account the dramatic story of its rise and fall....
    Free Market, from the Concise Encyclopedia of Economics
    Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services....
    Communism, from the Concise Encyclopedia of Economics
    Before the Russian Revolution of 1917, "socialism" and "communism" were synonyms. Both referred to economic systems in which the government owns the means of production. The two terms diverged in meaning largely as a result of the political theory and practice of Vladimir Lenin (1870-1924)....
    Marxism, from the Concise Encyclopedia of Economics
    The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx's masterpiece, Capital (1867). Its basic claim is simple: the value of a commodity can be objectively measured by the average amount of labor hours that are required to produce that commodity....
    Fascism, from the Concise Encyclopedia of Economics
    As an economic system, fascism is socialism with a capitalist veneer. The word derives from fasces, the Roman symbol of collectivism and power: a tied bundle of rods with a protruding ax. In its day (the 1920s and 1930s), fascism was seen as the happy medium between boom-and-bust-prone liberal capitalism, with its alleged class conflict, wasteful competition, and profit-oriented egoism, and revolutionary Marxism, with its violent and socially divisive persecution of the bourgeoisie. Fascism substituted the particularity of nationalism and racialism--"blood and soil"--for the internationalism of both classical liberalism and Marxism....
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In the News and Examples

    Russ Roberts on the Least Pleasant Jobs. Podcast on EconTalk, April 21, 2008.
    EconTalk host Russ Roberts talks about the claim that for capitalism to succeed there have to be people at the bottom to do the unpleasant tasks and that the rich thrive because of the suffering of those at the bottom. He critiques the idea that capitalism is a zero sum game where to get ahead, someone has to fall back. He also looks at the evolution of the least pleasant jobs over time and how technology interacts with rising productivity to make the least pleasant jobs more pleasant....
    Karol Boudreaux on Wildlife, Property, and Poverty in Africa. Podcast on EconTalk, Sept. 22, 2008.
    Karol Boudreaux, Senior Research Fellow at the Mercatus Center at George Mason University, talks with EconTalk host Russ Roberts about wildlife management in Africa. Their conversation focuses on community-based wildlife management in Namibia, a policy to give communities the incentives to protect wildlife and avoid the tragedy of the commons.
    Futuristic economic systems: Patri Friedman on Seasteading. Podcast on EconTalk, Oct. 13, 2008.
    Patri Friedman, Executive Director of the Seasteading Institute, talks with EconTalk host Russ Roberts about seasteading, the creation of autonomous ocean communities as an alternative to existing political and cultural forms. Topics discussed include the political and economic viability of seasteading, risks of piracy, the aesthetics of living on the ocean, and the potential impact of seasteading on conventional governments.
    Economics in democracy: Bryan Caplan on the Myth of the Rational Voter. EconTalk podcast, June 25, 2007.
    Bryan Caplan, of George Mason University and blogger at EconLog, talks about his book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Caplan argues that democracies work well in giving voters what they want but unfortunately, what voters want isn't particularly wise, especially when it comes to economic policy. He outlines a series of systematic biases we often have on economic topics and explains why we have little or no incentive to improve our understanding of the world and vote wisely. So, it's not special interests that are messing things up but the very incentives that lie at the heart of a vote-based system....
    Alternative systems for writing an encyclopedia: Jimmy Wales on Wikipedia. EconTalk podcast, March 9, 2009.
    Jimmy Wales, founder of Wikipedia, talks with EconTalk host Russ Roberts about the birth and growth of Wikipedia. He talks about the role of Hayek's insights into the design of Wikipedia, how Wikipedia deals with controversy, the reliability of Wikipedia relative to traditional reference sources and the future possibilities for projects that rely on voluntary contributions of time and creativity.
    May Day Mourning at EconLog.
    This May Day, the able bloggers of Catallarchy have once again assembled a great line-up of short essays on the dark history of Communism. Highlights include a moving vignette by Polish deportee Romuald Lipinsky on his time in Siberia; Clara Magram on Solzhenitsyn's The First Circle; and Matt McIntosh on quack Soviet biologist Trofim Lysenko. And don't miss my humble contribution on the moral equivalence of Nazism and Communism....

A Little History: Primary Sources and References

    Alan Wolfe on Liberalism. Podcast on EconTalk, May 11, 2009.
    Alan Wolfe, Professor of Political Science at Boston College and author of The Future of Liberalism, talks with EconTalk host Russ Roberts about liberalism. Wolfe argues that the essence of liberalism is giving as many people as possible control over their own lives. Wolfe traces the evolution of liberalism through Western civilization. He rejects the distinction between modern liberalism and classical liberalism seeing Adam Smith as a liberal but not F. A. Hayek. The conversation closes with a discussion of the role of competition in encouraging religiosity in the United States.
    Brink Lindsey on the Age of Abundance. Podcast on EconTalk, March 30, 2009.
    Brink Lindsey, of the Cato Institute and author of The Age of Abundance: How Prosperity Transformed America's Politics and Culture, talks with EconTalk host Russ Roberts about the interaction between culture and politics and prosperity. Lindsey outlines the nature of prosperity in America in the 20th century, then focuses on the last half of the century when cultural change was perhaps as dramatic as economic change. The conversation concludes with a discussion of Lindsey's essay, "Paul Krugman's Nostalgianomics," a look at the longing for a return of the economic policy of the 1950's. Lindsey argues that the policies that led to a more egalitarian distribution of income in the 1950s had other much less attractive characteristics.
    Capital: A Critique of Political Economy (Das Kapital), by Karl Marx. In three volumes.
    The wealth of those societies in which the capitalist mode of production prevails, presents itself as "an immense accumulation of commodities," its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity....
    Socialism, by Ludwig von Mises.
    It is a matter of dispute whether, prior to the middle of the nineteenth century, there existed any clear conception of the socialist idea—by which is understood the socialization of the means of production with its corollary, the centralized control of the whole of production by one social or, more accurately, state organ. The answer depends primarily upon whether we regard the demand for a centralized administration of the means of production throughout the world as an essential feature in a considered socialist plan. The older socialists looked upon the autarky of small territories as 'natural' and on any exchange of goods beyond their frontiers as at once 'artificial' and harmful.... [from the Preface to the Second Edition]
    Fabian Essays in Socialism George Bernard Shaw, editor.
    ALL economic analyses begin with the cultivation of the earth. To the mind's eye of the astronomer the earth is a ball spinning in space without ulterior motives. To the bodily eye of the primitive cultivator it is a vast green plain, from which, by sticking a spade into it, wheat and other edible matters can be made to spring. To the eye of the sophisticated city man this vast green plain appears rather as a great gaming table, your chances in the game depending chiefly on the place where you deposit your stakes.....

Advanced Resources

    Is economics a science? Henderson on Disagreeable Economists. EconTalk podcast, July 30, 2007.
    David Henderson, editor of the Concise Encyclopedia of Economics and a research fellow at Stanford's Hoover Institution, talks with EconTalk host Russ Roberts about when and why economists disagree. Harry Truman longed for a one-armed economist, one willing to go out on a limb and take an unequivocal position without adding "on the other hand...". Truman's view is often reflected in the public's view that economic knowledge is inherently ambiguous and that economists never agree on anything. Henderson claims that this view is wrong--that there is substantial agreement among economists on many scientific questions--while Roberts wonders whether this consensus is getting a bit frayed around the edges. The conversation highlights the challenges the everyday person faces in trying to know when and what to believe when economists take policy positions based on research. Is it biased or science?
    The Nature and Significance of Marx's: Capital: A Critique of Political Economy, at Econlib
    There are not two Smiths (the economist and the moral philosopher). There's one. And the same holds for Marx. His efforts in Capital are best understood in light of his 1844 Manuscripts....

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