Monday, May 23, 2011

Economic Systems are Best Conceptualized on a Continuum

Of the various ways of organizing economic systems, one can see two extremes: anarcho-capitalism and communist command economies. Anarcho-capitalism would privatise everything and abolish the state. A communist command economy would abolish most private property and plan production of commodities centrally. In the middle, we have the modern mixed economy, where there is a very large space for private production of commodities and private property, but where regulation restricts production and property rights, and where the state intervenes with monetary and fiscal policy, as well as social security and other public goods.

The modern neoliberal/neoclassical system we have had since the early 1980s would be to the left of centre. I would put the neoclassical synthesis Keynesian system many countries had from 1945–1979 in the middle. A Post Keynesian system would probably be slightly right of centre.

Some nations like Japan, South Korea and Taiwan after 1945 had a higher degree of planning than even mixed economies, through their highly successful industrial policy, and would be even more to the right of the centre on the line below.


  1. No, the continuum does not make sense.

    "Mixed" economies are not halfway points between communism and free markets.

    They are simply capitalist economies.

    What does a government need in order to run its programs? Capital. From where does that capital come? From capital markets and from taxes from people's income.

    How does a government find people to staff its programs? By offering vacancies and recruiting people from the labour market, and thus having to compete with businesses and households in offering salaries to the people they want. It can not simply pick up and allocate human resources to government use.

    Where does a government go to buy pens, pencils, and papers for its offices, or the coal and aluminium for its railways? From the markets for those goods.

    Can a government ever allocate as many resources to its activities as it wishes? No, it is limited by a budget, and by high prices in the market due to its bidding along with the private sector.

    Even in a mixed economy, the government merely operates according to the rules of capitalism. It can't bend them. In short, nothing changes. Scope of government activities is limited to the rise in amount of private capital and real resources produced by such capital.

    The government might try to abridge existing law for contracts and private property, by saying that it has the right to forfeit and keep principal raised from bondholders. But then the bondholders will not fund the government. The government might try to raise marginal tax rates to 90%, but when it is one of the buyers of goods in the market, it will only end up bearing the cost of it in higher prices. If it tries to control those prices, it will bear the cost in terms of fewer goods available.

    Besides, where does the Economia Corporativa of Mussolini and Hitler fall in to the continuum? Those were not mixed economies, or free markets, or communism. They simply do not exist on that continuum.

    Besides, not one of the Communist countries had a remotely similar policy. A world of difference exists between Cambodia, China, Russia, Vietnam, North Korea, Cuba,.etc.

    It should not be a continuum. It should be a web. Each economic system should occupy a unique spot in that web. It's futile to say that Cuba is 30% Communism, 40% Mixed, 30% Capitalist, because it does nothing to describe the Cuban system.

  2. "Besides, where does the Economia Corporativa of Mussolini and Hitler fall in to
    the continuum?"

    They would would over towards communism, quite frankly, since they had were economies with private enterprise, but run in the war years as a type of command eocnomy, with a greater degree of planning than the normal Western mixed economy.

  3. "Anarcho-capitalism would privatise everything and abolish the state."

    No, they would not. They would privatise the state. Property owners need someone to keep their wage-slaves in-line so "anarcho"-capitalism argues for private cops/states:

    Section F.6 of An Anarchist FAQ

    I should also note they keep hierarchical authority so, in effect, the state is replaced by the property owner. The obvious similarities between the state and private property (as genuine anarchists and libertarians have argued since 1840) gets Rothbard into knots:

    An Anarchist Critique of Anarcho-Statism

    You don't need to be an anarchist to see the obvious flaw in "anarcho"-capitalism. Here is Rousseau:

    "That a rich and powerful man, having acquired immense possessions in land, should impose laws on those who want to establish themselves there, and that he should only allow them to do so on condition that they accept his supreme authority and obey all his wishes; that, I can still conceive . . . Would not this tyrannical act contain a double usurpation: that on the ownership of the land and that on the liberty of the inhabitants?"

    Ironically, Rothbard recognised the power of the owner -- he just was not bothered by it. Unlike genuine anarchists/libertarians.

    An Anarchist FAQ

  4. I don't believe this is an accurate way of classifying different political regimes. I've been thinking about how to do this lately. The best that I can think of (still unsatisfactory for me) is a triangle with the vertices being labor, government and capital. The closer you are to one vertex the more important it is in relation to the other two. Corporatism would be centrally located, socialism close to the middle of the line connecting labor and government, etc.

  5. @Prateek: What does a government need in order to run its programs? Capital. From where does that capital come? From capital markets and from taxes from people's income.

    No, the government does not "need" capital (financial capital). In no sense do governments get capital from capital markets, which are a favor some governments bestow on the private sector, nor from taxes (directly). Government get (real) "capital" and anything else, from its purchases, just like anyone else. The difference is that the government has an infinite amount of money, financial capital, the demand for which it creates by taxation, and by which it may appropriate up to 100% of the resources of its economy, at any price it chooses to pay. Governments always win in a real competition for resources with the private sector.

    Governments can only be said to compete with firms for hiring when there is full employment. Right now, with the titanic waste of high unemployment, a WPA would be a complete free lunch to the economy, increasing production for essentially no real cost. Governments are in no way limited by their "budget" - they need not even add up their expenditures and receipts.

    Governments are older than monetary economies and markets, which were historically created by government action. So they are only constrained by the rules of monetary economies, which are described by Modern Monetary Theory / Functional Finance / Chartalism. Capitalism, best identified as modern banking, is much more recent, only a few centuries old.

  6. Economic systems are not best conceptualized on a continuum. The economic universe is not between "capitalist private property" and "centralized command economy". For instance, mutualism and syndicalism don't fit at all there. Besides, one can imagine several degrees and types of government intervention in the economy, such as a free market with social security (but without central banks or interest rates or monetary intervention) or a "mixed economy" where most services are privately owned and social security doesn't exist.