What We Really Mean By Socialism (and Capitalism)

According to a recent Gallup poll, a shrinking proportion of Americans expressed support for capitalism:

However, based on their answers, I suspect that they really prefer capitalism. The poll’s participants just need to know what it really means.

Socialism and Capitalism

Looking at polls about socialism and capitalism, first we should ask how people perceive each economic system. We can start with what we mean by socialism.

Socialism

A traditional definition of socialism takes us to central planning. It is a top-down system for producing and distributing goods and services. It means that government controls a country’s land, labor, and capital–the means of production. And then with those resources, it supplies the goods and services that people want and need.

In a Hill HarrisX survey from May 2019 (the most recent I could find), 19 percent could not define socialism. Instead, people had a gut reaction. They felt something positive or negative. But only 13 percent had an accurate definition that related to government ownership of the parts of the economy. Meanwhile, believing that socialism “ends poverty and provides basic things,” one third of the respondents had a much more appealing impression:

Gallup also asked about socialism:

From there, Gallup tells us that people who associate socialism with equality vary considerably. Some refer to equal incomes and wealth while others cite equal opportunity. Then we have the 19% who think of the benefits and services that government could provide. I assume here they mean “Medicare-for-all” (which again needs further definition).

Capitalism

Equating capitalism with the market, we can use what Adam Smith described in his thousand plus page masterpiece, The Wealth of Nations (1776):

• Playing a minimal “laissez-faire” role, government should leave the economy alone.
• Production requires a division of labor that facilitates mass production.
• Through mass production, regions can specialize and trade.
• On the supply and demand sides of the market, incentives propel the consumers that want low prices and the businesses looking for profits.
• Markets are composed of many small businesses and many consumers that determine prices and quantities and satisfy each others’ needs when they interact.
• Together, we wind up with the wealth of nations.

Gallup

Opinion of Big Business

I wonder if we can conclude that Americans’ negative image of big businesses influenced their rating of capitalism:

However, many of us said in a 2024 Bentley University Gallup survey of that we have a positive opinion of businesses’ impact on us:

Our Bottom Line: Economic Systems

As economists, we can conclude with the menu of economic systems through which we have produced our goods and services.

Three Economic Systems

Economists like to tell us that there are three basic systems for producing and distributing our goods and services. In traditional economies, the past determines the future because children tend to select their parents’ roles and occupations. A second possibility is command. Then, central planning from one person or group determines how we answer the basic economic questions: “what, how, and to whom.” With government’s decision-making power over land, labor, and capital, a purely socialist system would be classified as a command system.

However, rather than three separate systems, in many ways, we combine them.

Mixed Economic Systems

Looking back through history, we can see the affluence that capitalism produced…with the help of government:

Capitalism

The “Western” countries had a capitalism foundation:

Help of government

The governments of many of those “Western” countries became more active economically through increased spending:

Indeed, seeing how socialism and capitalism have been friends, we can take the next step.

We have capitalism as bottom-up and socialism as top-down. Rather than focusing on which one we prefer, I suspect our debate should focus on how to combine the two.