There are so many people, on both sides of the political aisle, that have little to no understanding of even basic economic terms. Much of this misunderstanding is the result of progressive propaganda and critical theory “reeducation” since the late 19th Century. If there’s any chance of a civil political discourse at all, it’s critical for conservatives and progressives to be on the same page as far as the definitions of the very terms we are debating.

Before we can talk about political and economic market theories, however, we need to define the political ideologies from which market theories are derived: individualist ideology and collectivist ideology.

Individualist
Philosophy where maximizing the well being of members of society is best achieved through the efficient utilization of capital resources and securing individual natural rights, especially freedom of action and private property rights, even if inequality is created.

Collectivist
Philosophy where maximizing the well being of members of society is best achieved through the fair distribution of capital resources and imposing public material equality, especially access to welfare services and social property rights, even if freedom of action is curtailed.

In brief, the individualist believes that the individual right usurps any collective need, even if there is inequality, so long as political and economic activity is uncoerced. The collectivist believes that the collective need usurps any individual right, even if freedom of action is curtailed, so long as political and economic equality is maintained. From these two fundamental political ideologies come the two operational motives for economic activity within their ideological frameworks: the private profit motive and the public good motive.

Private Profit Motive
Operational model where the primary purpose of productive activity is providing an income in excess of costs (profit) to a firm’s private stakeholders, consisting of the business’s owner(s) and investors.

Public Good Motive
Operational model where the primary purpose of productive activity is maximizing the public good for society at large and providing workers with income and benefits, as society and workers are presumed stakeholders in all transactions.

It must be understood that, in general, the private profit motive and the public good motive are not necessarily mutually exclusive. After all, individualist ideology assumes that the millions of individual transactions executed every day between moral actors must at least appear to improve the situation of both participants for them to commit to the transaction in the first place. In this way, the overall well being of society is continuously and noncoercively improved one transaction at a time. However, in practice, the private profit motive and the public good motive often lead to vastly different economic decisions, and require different perceptions of value.

For example, a firm considering a contract for a city government may reject the contract under a private profit motive, because the city’s offered price may be below their desired return on investment, but the same or similar firm considering exactly the same contract may choose to accept the contract under a public good motive, so long as the city, state, or federal government will cover any unexpected expenses. The United States Postal Service, Fannie Mae, and Freddie Mac are examples of such governmental and semi-private firms that work in this way.

This brings us, at long last, to the four main modern economic market models (excluding older models, such as feudalism, mercantilism, imperialism, etc.) that are at the heart of American political debate. With one exception (“Mixed Economy“), each of these market models are distinct and mutually exclusive in theory and operation. I’ll touch on the exception after providing definitions for the four modern market models: capitalism, mixed economy, socialism, and communism.

Capitalism
An individualist socio-economic and political market model wherein capital resources (land, machinery, raw materials, financial capital, etc.) are almost exclusively owned by private stakeholders, and market decisions are motivated by the private profit motive, with few (if any) restrictions imposed on the conduct of stakeholders and the market by society via government regulation.

Mixed Economy
A collectivist socio-economic and political market model wherein capital resources (land, machinery, raw materials, financial capital, etc.) are owned by private stakeholders or, to varying degrees, by state agencies, and market decisions are motivated by the private profit motive and, in many circumstances, the public good motive, with significant restrictions imposed on the conduct of stakeholders and the market by society via government regulation and direct influence (eg: wage standards, hiring standards, benefits requirements, etc.).

Socialism
A collectivist socio-economic and political market model wherein capital resources (land, machinery, raw materials, financial capital, etc.) can either be owned by private stakeholders or, to varying degrees, by state agencies, and market decisions are motivated by both the private profit motive and the public good motive, with significant restrictions imposed on the conduct of stakeholders and the market by society via government regulation and direct influence (eg: wage standards, hiring standards, benefits requirements, etc.).

Communism
A theoretical collectivist socio-economic and political market model only ever implemented on a small scale wherein capital resources (land, machinery, raw materials, financial capital, etc.) are owned communally, and all market decisions are motivated strictly by the public good motive, with significant restrictions imposed on the conduct of stakeholders and the market by a stateless society via universally shared moral standards.

Now, of the four economic models, only three have ever been implemented at a national level: capitalism, mixed economy, and socialism. No national society has yet achieved the statelessness necessary to (Marxist) communism, and it has only ever been partially successful at the community level (see: free rider problem), so, in terms of practical political debate, communism is a non-issue, as its proponents will largely admit that it remains unproven on a large scale. This leaves us with capitalism, mixed economy, and socialism.

However, as I mentioned before, mixed economy isn’t really functionally mutually exclusive. I acknowledge that some economists consider the mixed economy model a variant of Capitalism, mainly due to the prevalence of the private profit motive, but this ignores the aspects shared exclusively with socialism. First, general de facto ownership by state agencies is only possible and under mixed economies and socialism, and firms under the auspices of state ownership always operate according to the public good motive. Government firms, such as the United States Postal Service, fail to cover their expenses year after year by billions of dollars.

Second, extensive government regulation and direct influence of society imposing public good motive can only occur in mixed economy and socialism models. Regulatory and direct influence (such as how Freddie Mac and Fannie Mae interact with the housing market specifically to expand housing availability for low income markets). Policies such as subsidies of certain markets and regulation of labor prices are only consistent with mixed economy and socialism, because they explicitly impose the public good motive onto the market.

“When government – in pursuit of good intentions – tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom.”
–Milton Friedman

I assert that there is clearly more justification in calling a mixed economy a variant of socialism than to claim that it is somehow a variant of capitalism, and I will close on this final point. The fundamental reasoning for “mixing” market models in a mixed economy at all is to inject the public good motive of collectivist ideology, into the market, and this is accomplished specifically by more government regulation, more government oversight, and more government control, and these ideas fly in the face of the principle reason capital resources are almost exclusively owned by private stakeholders in the first place.

Only under capitalism is the individualist ideology fully expressed, because under both the mixed economy model and the socialism model, freedom of action is specifically and explicitly curtailed. Agree? Disagree? I’d love to hear your feedback.

 

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Liberty is For The Win!