The Demarkation between Capitalism and Socialism

I always used to believe that you had capitalism on the one hand in which the means of production were all privately owned and socialism on the other in which the means of production are all publicly owned and in between you had a graduated progression between one and the other.

However, after reading the first part of chapter 15 of Human Action ("The Characteristics of a Market Economy"), Mises has turned that idea on it's head.

He starts by saying: The market economy is the social system of the division of labor under private ownership of the means of production. But then he goes on to say that it is not whether or not the means of production are publicly or privately owned but rather whether production is driven by the market process or whether it is driven by central planners.

He states: The market economy or capitalism, as it is usually called, and the socialist economy preclude one another. There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy., a system that would be in part capitalist and in part socialist. Production is directed by the market or by the decrees of a production tsar or a committee of production tsars.

He goes on to say: If within a society based on private ownership by the means of production some of these means are publicly owned and operated--that is, owned and operated by the government or one of its agencies--this does not make for a mixed system which would combine socialism and capitalism. The fact that the state or municipalities own and operate some plants does not alter the characteristic features of the market economy. The publicly owned and operated enterprises are subject to the sovereignty of the market. They must fit themselves, as buyers of raw materials, equipment, and labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws of the market and thereby depend on the consumers who may or may not patronize them.

In other words, as long as there are consumers who may freely choose to buy or not to buy, as long as the consumers are sovereign, it is a market driven economy and therefore capitalist.Even if some or all of the factors of production are not privately owned.

I suppose this is one of those things by Mises that many Austrians reject. It could be argued that those sectors of the economy are socialist, yet they gain their data from the rest of the economy which is still a market economy (much like the USSR got its data from the outside world.) With the extensive amount of regulation in most Western countries, as well as outright ownership of the means of production, it is difficult to say just how capitalist or socialist they truly are.

Inquisitor:

I suppose this is one of those things by Mises that many Austrians reject. It could be argued that those sectors of the economy are socialist, yet they gain their data from the rest of the economy which is still a market economy (much like the USSR got its data from the outside world.)

I have heard it said that the Soviet planners only borrowed prices from the outside world when setting prices to sell to the outside world. i.e. internally they did not. I do not know the truth or falsehood of this claim but it is perhaps pertinent here.

One could ask whether the USSR was a market or planning driven economy? Were not the state owned producers still subject to the sovereignty of the consumer? Did they still not use money to buy and sell as they chose on the market? Soviet planners were notoriously bad at gauging supply and demand (when compared to capitalist entrepeneurs) but they were still market driven. Indeed, if it is the case that calculation is impossible in the absense of money and the market, abolishion of the market would have led to immediate economic collapse.

 

With the extensive amount of regulation in most Western countries, as well as outright ownership of the means of production, it is difficult to say just how capitalist or socialist they truly are.

Perhaps it would be more accurate to describe them as hampered market economies? They are all capitalist but hampered to greater or lesser degrees.

Fried Egg:

One could ask whether the USSR was a market or planning driven economy? Were not the state owned producers still subject to the sovereignty of the consumer? Did they still not use money to buy and sell as they chose on the market? Soviet planners were notoriously bad at gauging supply and demand (when compared to capitalist entrepeneurs) but they were still market driven. Indeed, if it is the case that calculation is impossible in the absense of money and the market, abolishion of the market would have led to immediate economic collapse.

I do not know if I would agree with you that the consumer was sovereign.  The consumer, in this case the Soviet citizen, wasn't purchasing his daily wares and foodstuffs with money, but with with a scrip currency or punch card: "... to each according to his need."  They went to the market, got their allotted amount of vodka, milk, butter, bread, potatoes, etc., and then went home until the their next visit to the market.

When the consumers 'needs' are forecasted and allotted by the government, s/he is no longer sovereign.

 I stand corrected on that point then.

note that there was an active informal barter market in the ussr. i don't think the soviet crime syndicates had any problem with communism, just that they were poorer, along with everybody else. nor did they have any problem adapting to the new system.

 Hoppe's A Theory of Socialism and Capitalism is perhaps one of the best analyses on the topic.