Economic Systems: Notes on My Conversation with My 13 year-old Granddaughter

Last evening, my granddaughter, Eva (who’s about to celebrate her 14th birthday) and I had a remarkable hour-long conversation about economic systems. The topic was the focus of one of the classes she’s taking here in Spain, where the government is run by a coalition of socialists and rechristened communists (in a party called “Podemos” (“Yes, We Can!”). Whereas in the United States one can hardly use the word “socialism” without suffering opprobrium, I’ve learned that it’s the opposite here in Spain. Discussing socialism in clear and objective ways is de rigueur in school.,

Since Eva’s classes are in Spanish (and she’s only been here a couple of months), she had a hard time understanding the thrust of her teacher’s remarks and of observations by her fellow students.

So, Eva asked me about the differences between capitalism and socialism — a topic I’ve taught about and have tried to simplify or years and years.

She was very attentive as I shared what I know. Afterwards, we promised to continue the discussion. And to that end, I made up the following notes on the similarities and differences between capitalism, socialism, mixed economies, Marxism, communism, and fascism. I promised Eva that if she just understood and memorized what appears below in bold, she’d be streets ahead of most college students (and many professors!).

I sent her the notes with the following message:

Dearest Eva,

Really enjoyed our discussion last evening. It drove me to compose the attached summary for you. Please study it. Bring your questions the next time we get together for a chat. Learn as much of it as you can. THERE WILL BE A QUIZ!  I’ll expect ready answers to my questions. 

Love,

Baba

Economic Systems

Key Terms

Means of production = what produces consumer goods, viz., land, mines, forests, factories, oceans

Markets: Places where goods are sold and bought

Free Markets: No regulation. Anything (including people) can be bought and sold

Open Markets: Anyone can be a buyer or seller regardless of age or other restrictions

Earnings: Profit, income, wages. . ..

I

Capitalism

(An Economic System comprising the following elements)

1.Private ownership of the means of production

2. Free and open markets

3. Unlimited earnings

[In its pure form, this type of “free market capitalism” exists only in the illegal black market, where the Mafia, for example, sells anything (or anyone) without regulation or paying taxes. Note also that the three points indicated above summarize the ENTIRE economic program of the U.S. Republican Party that always seeks PRIVATIZATION, DEREGULATION OF MARKETS, AND LOWER TAXES.]

II

Socialism

(The opposite of capitalism. It is an economic system comprising the following elements)

1. Public ownership of the means of production
2. Controlled or regulated markets
3. Capped or otherwise limited earnings (e.g., by income taxes).

[In its pure form, socialism does not and never has existed. That’s because ALL economies represent mixtures of capitalism and socialism. That is, they are “mixed economies.” The question is, “mixed in favor or whom — the rich or the poor?”]

III

Mixed Economies

(Economic systems embodying some elements of free market capitalism and some of socialism featuring the following elements)

1. Private ownership of some enterprises and public ownership of others [e.g., in the U.S. the government (i.e., the public through their elected representatives) is the country’s biggest landowner (through its national park system); it also owns the U.S. postal system, and the rail system. In many other “capitalist” countries, governments also own electrical grids, energy sources (such as oil), water supplies, and transportation systems (like airlines).
2. Some free and open markets and some that are regulated. [For instance, in the U.S., regulations insist that minors cannot buy tobacco products or alcoholic drinks. Restaurants must maintain standards of cleanliness or risk being closed by government authorities. The same with food factories.]
3. Limited earnings usually by a “progressive” income tax (meaning that those with larger incomes pay in taxes a higher percentage of their income).

Economies can be mixed in favor of entrepreneurs as in the United States (offering them government subsidies, tax breaks, and deregulation) or in favor of workers as for example in Cuba or China (offering them free healthcare, education, subsidized food and housing, etc.)

IV

Marxism

(The philosophy of Karl Marx, who was a socialist and a communist — see below.) His analysis held that

1. Capitalism necessarily exploits workers and the environment [“Necessarily” because the market system has workers competing with one another for scarce jobs. They therefore bid one another down as they seek employment until they end up working for the lowest wage possible. Also, few entrepreneurs seeking to maximize profits will ever voluntarily add costs to their production by protecting the environment (e.g., by adding scrubbers to their smokestacks or filters cleansing any effluents pouring into nearby rivers). Those who do protect the environment voluntarily drive up their costs of production and will be undersold and driven out of business by competitors lacking environmental consciences.]
2. The workers will inevitably rebel against such exploitation, replacing capitalism with socialism.
3. Socialism will eventually evolve into communism.

V

Communism

(A vision of the future embraced by some socialists.) All communists are socialists; some socialists are communists, most are Marxists who envision a future with

1. No classes (rich or poor)
2. No state (because they see the state as enforcing dictatorships – either the “dictatorship of the capitalists” (whereby a small body on boards of directors decide unilaterally on what is produced, where it is produced, and what to do with the profits) or the “dictatorship of the proletariat” (Marx’s term for the working class). Under the envisioned proletariat’s dictatorship, workers, e.g., through their labor unions, and as co-op owners of the means of production decide what to produce, where to produce it, and what to do with the profits.
3. Abundance for all

VI

Fascism

Police state capitalism. It is the form capitalism (or more accurately an economy mixed in favor of entrepreneurs rather than workers) tends to assume when it is threatened by socialist movements or by other malfunctions such as falling profits, widespread unemployment, high inflation, etc. It is:

1. Capitalism in crisis
2. Enforced on workers by police and military forces
3. Blaming “the usual suspects” for capitalism’s malfunctions (e.g., Jews, Muslims, terrorists, socialists, labor unions, communists, immigrants, asylum seekers, non-whites, women, the disabled . . ..)

Remember: THERE WILL BE A TEST!!