Capitalism Through most of the twentieth century, the nations of the world have been divided, and some of their conflict was over their different economic systems. Since the fall of the Soviet-type, or "Communist," governments in eastern Europe, this division may seem to be a thing of the past. It might be hasty to draw that conclusion, though. In the 1930's, it seemed to many observers that capitalism had failed, and that the future belonged to one or another of the non-capitalist systems. A little more time proved that that impression was wrong -- capitalism came back to a dominant position, but it was a somewhat different form of capitalism. In early 1997, it seemed as if the non-capitalist systems have failed, and the future belonged to capitalism. But just as the perception of things in the 1930's was wrong, the perception of things in the 1990's may also be wrong. Indeed, by late 1998, problems for capitalist countries had mounted to the point that a major American newsmagazine could run as a headline the question "Who Lost Capitalism?"
Certainly, there is something to be learned from the collapse of the Soviet-type systems, but what? Is the debate over economic systems over, or has it entered a new phase? Only time will tell. What we can do in this chapter is look back over the debates in the 20th century, and review a bit of what economists have learned from them and taught about them. The point of view will be that of neoclassical economics. (The Marxist view of capitalism is discussed in another appendix).
Discussions of economic systems have usually focused on the ideal conceptions of the different systems and on the extent to which the ideal might be realized in the actual systems of the different countries. One fallacy we want to avoid is that of comparing the ideal in one case with the actual performance of another. That's not fair and can only lead to confusion. But ideals can be deceptive -- it is quite possible that one system might be preferable to another, as an ideal, but so difficult to realize in practice that in actual examples, it is worse. We shall have to look both at the ideal, and at the obstacles to realizing that ideal in practice. It is here that we may learn something from the failure of the Soviet-type systems in the 1990's (and perhaps also about the failure of the capitalist systems in the 1930's).
The ideal economic systems have played a part in different ideologies and social movements, but the ideal systems are not the same thing as the ideologies and social movements. As economists have conceived them, the ideal systems of the twentieth century have been market capitalism, government-managed capitalism, central planning, market socialism, and labor-management. The last three of these have played some part in socialist thinking, in different times and places, while central planning has also played some part in fascism and, in some countries, capitalism.
This chapter will focus mainly on the ideal systems and the problems and difficulties of putting them into practice. Accordingly, we will first quickly summarize market capitalism as an economic system, largely drawing on ideas in other chapters of this text. We will say a little about different kinds of capitalism, including government-managed capitalism, and about the difficulties of putting market capitalism into actual practice, and about the social movements that challenged capitalism. We will then talk about ideal central planning, the difficulties of putting it into practice, and about two other non-capitalist ideal systems, market socialism and labor-management, and the difficulties they, too, face in practice. Finally we will try to draw some lessons from the collapse of the Eastern European Communist countries.
Capitalism 