What Is The Free Market System And What Is Socialism? Some Initial Thoughts.

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The free market continues to be disparaged today, and socialism has become mainstream. Socialism is presented as a real choice for America’s future.

Any rational discussion of capitalism (the free market system is my preferred name) and socialism must begin with definitions for both terms. We must agree on what we are discussing. So, let’s start with definitions.

The free market is a system in which individuals voluntarily exchange goods and services in a competitive business environment, using prices that emerge based on supply and demand for the goods and services.

The ideal free market system is decentralized and is free of all government restrictions and control, except for the State’s enforcement of contracts and protection of private property.

For most of the 20th Century and all of the 21st Century to date, America has never had a pure free-market system.  The State (that is the Federal Government) has steadily expanded its control over all economic and financial activity in the United States.  The two major inflection points in Federal control were President Roosevelt’s New Deal in 1933 and President Johnson’s launch of the Great Society in 1964.  There have been others. 

In the 21st Century, we saw the rise of crony capitalism, which is an egregious corruption of capitalism, and not true capitalism at all. Companies are not allowed to fail when market forces dictate otherwise.  Crony capitalism is a topic for a future post.

Socialism, in simple terms, is the collective or centralized ownership of the means of production and distribution of goods and services, either by a political class or a government.  The collective entity (in most cases, the centralized government) plans and controls the economy, without any involvement of the private sector or private ownership.

Socialism has been tried in many countries and has not worked, guided by its intellectual underpinnings.  The welfare state is a variant of socialism that appears to have a better track record, especially in the Scandanavian countries.  However, even these countries have retreated from being full-blown welfare states. They found extensive social programs to be unsustainable with adverse effects on societal and industrial innovation and creativity. I will discuss this point in future posts.

Perhaps also in future posts, I can fine-tune these two definitions, so that I can add more clarity to the discussion.  

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Andrew J Guinosso

Professional Writer and Published Author of "The Success Playbook for Everyone." Retired Business Executive, Entrepreneur, and Restauranteur