It’s difficult to go on Facebook nowadays without seeing various image macros and memes about politics. Many of them seek to define terms, like “socialism”, though they lack sources and typically are skewed towards one direction or another. In discussing the topic of socialism (and good old Bernie), I found myself typing out a whole page about terms and why they matter. It only makes sense to define our terms, after all, if we want to discuss the ideas behind the terms in a meaningful way. It came to me then that it would be useful to create a working document of terms for liberty-minded people to check out and, if need be, use in their own arguments instead of having to do their own repetitive typing themselves. We all know how fast that gets old. It may also be useful to make image macros of our own to combat those currently proliferating online, if only to put actual economic information into a world which so desperately needs it.

Consider, as a starting off point, the whole argument of Denmark and its economy. We are told by supporters of coercion that America must become like a Nordic country that has a powerful welfare state and plenty of regulation. The economic historian Tom Woods has done a lot on this topic, so we don’t need to pummel the now-minced dead horse. See the links below for that. If we don’t know what socialism or communism or capitalism is, how can we talk about Denmark? How can we even talk about America? So with that in mind, let’s discuss the terms and then return to this topic afterwards.

Socialism, in that more classical sense (and how the economist Ludwig von Mises defined it), is typically defined as an economic system where the government owns the means of production. People like Stalin and Marx did not differentiate between socialism and communism; the latter was just the fully realized form of the former. Read, for instance, this passage from Planned Chaos:

In the terminology of Marx and Engels the words communism and socialism are synonymous. They are alternately applied without any distinction between them. [my bold] The same was true for the practice of all Marxian groups and sects until 1917. The political parties of Marxism which considered the Communist Manifesto as the unalterable gospel of their doctrine called themselves socialist parties. The most influential and most numerous of these parties, the German party, adopted the name Social Democratic Party. In Italy, in France and in all other countries in which Marxian parties already played a role in political life before 1917, the term socialist likewise superseded the term communist. No Marxian ever ventured, before 1917, to distinguish between communism and socialism.

In 1875, in his Criticism of the Gotha Program of the German Social Democratic Party, Marx distinguished between a lower (earlier) and a higher (later) phase of the future communist society. But he did not reserve the name of communism to the higher phase, and did not call the lower phase socialism as differentiated from communism.

As for communism, we can read Marx and Engels to define it. Neither one of the two ever seem to give a systematic definition, but we can gleam its meaning from the two quotations below. First we have Engels defining it as:

Communism is the doctrine of the conditions of the liberation of the proletariat. What is the proletariat? The proletariat is that class in society which lives entirely from the sale of its labor and does not draw profit from any kind of capital; whose weal and woe, whose life and death, whose sole existence depends on the demand for labor….

And then we have Marx saying:

In communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.

So if we think about socialism in that way, Denmark and Sweden are not socialist. If communism and socialism are the same thing, then by virtue of having a market economy they cannot be socialist. There is another way to define socialism, which is that socialism is any form of the utilization of law to shape and alter people’s lives and actions that is not in accordance with defence. This is how the economist Frederic Bastiat understood socialism when he argued against it in Marx’s own time. In Book One of Harmonies of Political Economy, he writes:

The radical difference between various Socialist schools (I mean here, those which seek the solution of the social problem in an artificial organization) [my bold] and the Economist school, does not consist in certain views of detail or of governmental combination. We encounter that difference at the starting point, in the preliminary and pressing question: Are human interests, when left to themselves, antagonistic or harmonious? It is evident that the Socialists have set out in quest of an artificial organization only because they judge the natural organization of society bad or insufficient; and they have judged the latter bad and insufficient only because they think they see in men’s interests a radical antagonism, for otherwise they would not have had recourse to Constraint. It is not necessary to constrain into harmony what is in itself harmonious.

From this short discussion, we can already see two definitions of socialism. There is the first definition, the form of socialism that is identical with communism. Then there is the second definition, the form of socialism that is any attempt to use law to artificially organize individuals (or reshape society, on the aggregate level). In this case, nearly every nation in current existence is socialist or has socialist tendencies. This includes America and Denmark. We are all, then, on the road to communism (the system where all property is communally owned or when everyone is a worker-owner due to the fact that private property will have been abolished).

Capitalism, as a word, doesn’t really seem to show up as a term for an economic system until the 19th century. We can understand capitalism by reading Ludwig von Mises’ writing below, from Bureaucracy:

The main issue in present-day political struggles is whether society should be organized on the basis of private ownership of the means of production (capitalism, the market system) [my bold] or on the basis of public control of the means of production (socialism, communism, planned economy). Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems. Contrary to a popular fallacy there is no middle way, no third system possible as a pattern of a permanent social order. The citizens must choose between capitalism and socialism or, as many Americans say, between the American and the Russian way of life.

In this understanding of the word, capitalism is not only when there is private ownership of the mean of production but also when there a state of total Laissezfaire in economic affairs. This tends to be the way that people like Ayn Rand, Ron Paul, and Murray Rothbard use the term. In this sense, I don’t believe that there are any capitalist countries in existence right now. I don’t know if there ever has been, either. This is worth contemplation: Do you truly own your property if others have the power to tell you how to use it and at what price to sell it? But that discussion is for another time.

On the other hand, others define capitalism as just any market economy. If you’ve read enough Mises, you’ll see he occasionally uses it in this manner too and therefore inconsistencies arise. But we cannot really fault him for that, considering that this is the way many people use the word. For instance, if you go to Wikipedia and look up capitalism, you’ll find this definition:

Rosser, Mariana V. and J Barkley Jr. (July 23, 2003).Comparative Economics in a Transforming World Economy. MIT Press. p. 7. In capitalist economies, land and produced means of production (the capital stock) are owned by private individuals or groups of private individuals organized as firms.

In such a definition, there is no discussion of regulation and freedom in economic affairs. There is mention of private ownership but no mention of how those goods or services are actually controlled. In this sense of the word, many countries past and present have had capitalism. In fact, while it is true that nowadays America and Denmark both have capitalist economies in the sense of the second definition, in the past both countries were closer to a fully free market (capitalism in the first definition). Those nearly free markets of olden times were necessary for building the wealth required for the modern welfare states we have today. The difference between America and Denmark is in degrees, not types; both America and Denmark have the same economic system: a “mixed economy”. Or put another way, they have a market economy (capitalism in the second definition) with regulation and artificial reorganization of society (socialism in the second definition).

This is not and cannot be considered a full, exhaustive discussion on the terminology of economics and political philosophy. Austrian economists like Ludwig von Mises and Murray Rothbard have already tackled that challenge for us. But your friends are not going to actually read economic texts, nor can you expect them to do so. You can only expect them to talk about the dismal science as if they know about it. As such, you will need to actually pin them down and have them agree upon a single set of definitions for the purpose of argumentation. Only when two people agree upon the definitions of such terms can actual discussion take place. And whose definitions are better than the actual economists themselves?


Tom Woods’ Various Discussions of So-Called Nordic Socialism: