top of page

Clearer Definitions of Economic Theories

Updated: Jun 23, 2021

Clearer Definitions of Economic Theories:

In public and even academic debates, everyone seems to be using different definitions of terms like capitalism, socialism, democratic socialism, crony capitalism, communism, government intervention, etc. This confusion of terms makes any reasonable discussion frustrating and unproductive and it doesn’t help to know that these confusions when applied in the real world by governments and institutions can and does affect peoples lives so this isn’t a trivial matter but one of grave importance to the general welfare of nations and people.

To start we should figure out how to best categorize these theories and systems of economics. I made two main categories, the first being systems that differ solely on the ownership of the means of production and the second being differences of government intervention.

Solely Owning the Means of Production

Socialism is the idea that the workers of a given means of production, means of production just means the company, should be given ownership of that company. So those who contribute labor should share ownership of the company. That’s all there is to socialism, nothing about government planned economies, or regulations, or taxation, or quotas, but just worker ownership. It is the case that many socialists also support government intervention which is why this term is associated with Big Government, but socialism is fundamentally just worker co-ops.

Capitalism has also been affected by a miss association of ideas. Capitalism is simply ownership of the means of production belonging to those that contribute capital, either money or equipment, to the business. That’s all there is to capitalism, nothing about free market economies, or deregulation, or lower taxation, or consumerism, but just capitalist ownership. It is the case that many capitalists also support fewer government intervention which is why this term is associated with Small Government, but capitalism is fundamentally just those who have capital owning the means of production.

The reason why it is important to separate socialism from big government and capitalism from free market is that it is more realistic. There are many modern examples of capitalists supporting government intervention like when businesses want subsidies from the government or when one capitalist business lobbies the government to put regulation or higher taxes on another capitalist business. Just look at the US government now, there is more government intervention now than there were 100 years ago but we are still a capitalist economy which shows that the two ideas are separate.

Socialism, on the other hand, doesn’t need government intervention. In the early stages of the Soviet Union, Soviets were formed that were separate from the government and these Soviets were formed by the workers in a local area and not the government. One of the Soviets, the one in Saint Petersburg lead by Lenin actually became more powerful and influential than the actual provincial government. The provincial government tried to limit the Saint Petersburg Soviet with military force which sparked a conflict and the Petersburg Soviet won becoming the new government and united all Soviets creating the Soviet Union. It was later hijacked by the dictator Stalin and now whenever people think of socialism or communism they think of Stalin instead of actual socialism or actual communism. It would be like looking at the fall of the Roman republic and thinking all republics are just preludes to monarchy which simply is not true and ignores all of the history and reasons why the Roman republic fell while misrepresenting what republics are.

Government Intervention

Communism is when a democratic government manages the economy. Democracy is necessary for communism to exist which is why we should not refer to the Soviet Union or modern China as communist because they are not democratic, at least not democratic in any meaningful way.

A dictatorial Economy is when a military dictator or aggressive political party organizes the economy. They usually do this in order to maintain power and are only looking after themselves or their party while trying to limit or wipe out any opposition. This is what the Soviet Union was under Stalin but the Soviet Union did maintain a Politburo for those under Stalin which is why some people would argue that the Soviet Union was democratic. This would be true if Stalin did not exist or at least did not control the country, it is Stalin that makes the Soviet Union undemocratic which is why there is lots of confusion about the nature of the country since the difference between two different systems is just one person.

Feudalism is when the economy is managed by a caste system of lords and kings. Where land and the means of production and even people are owned by a system of heirs and social hierarchy. There is often a religious aspect to feudalism so theocracy can be lumped into feudalism.

Each of these systems uses the government to control the economy and each of these systems is determined by what kind of government exists. If the government is democratic and manages the economy it is communism, if the government is dictatorial by a military leader or political party and manages the economy it is a dictatorial economy, if the government is monarchical and manages the economy it is feudalistic.


The free-market, conceptually, is no government intervention in the economy. There are people who believe in absolutely no government intervention and they are called ancaps (Anarcho Capitalists). However, many people consider the US economy to be a free-market, which is simply not true given how much government intervention there is. So free-market is an inappropriate term; I suggest we just use the term market-based instead of free-market since a market-based economy can have some government intervention but the economy as a whole has to be free in order for it to be market-based, if there is too much government intervention then it becomes one of the government economic systems described above.

More Confusion

Another issue arises when we consider the fact that all of these systems can and often do overlap with each other. An example would be the US economy. The US is undoubtedly capitalistic since those who own the capital of a business are those who own the business. But, we have a democratic government that often times interferes with or manages the economy and so at the same time the US is Capitalistic and Communistic. That’s right! banning weed is Communism (Kind of). However, it is important to find out the reason why specific actions are taken by the government. So if Americans want weed to be banned and the government bans weed that is communism. But if Americans don’t want to ban weed and the government bans it anyway then that specific action could be classified as dictatorial even though the overall system is democratic. The same can be said about how much government intervention there is on the whole; if the government only intervenes on the issue of weed and nothing else then the overall system is a “free-market” one just not when it comes to weed. If the people want weed to be banned but the government doesn’t ban it then that is a free-market action. If your head is hurting from all this then you are not alone.


There are systems that describe the different types of ownership of the means of production and there are systems that describe the different types of governments and how that affects intervention. There is also the variable of how much government intervention there is so if there is a monarchy with little intervention then that is both market-based and feudalistic.  There is also the fact that these systems can and often do overlap with each other. England is an example of almost all of these systems combined since it is a Theocratic-Monarchical-Democratic-Capitalistic-Market-Based system. They have a monarch that is the head of the national religion with a democraticish parliament that interferes with the market while the means of production is owned by those who own the capital of the business. But if the government interferes with the economy more than it is now then you can switch the market-based term with communistic which will look even more complicated. It helps to think of these different systems as blurry clouds of influence as opposed to distinct and separate entities.


The point of all this is to show the complexity of systems of economies and governments and how they can overlap with each other. I think it is important to separate these ideas into their appropriate definitions to get a better view of the system as a whole, even when that view seems to be blurry as shown by the example of England. It does show that there are fewer differences between economic systems and nations than what people tend to think.

8 views0 comments

Related Posts

See All

President's Pardon

The President's pardon is a political tool the chief executive has in their arsenal which allows them to check the power of the judiciary. If an innocent defendant goes through the judicial system and


Obtuvo 0 de 5 estrellas.
Aún no hay calificaciones

Agrega una calificación

Support the Cause: Donate Once or Contribute Frequently. 

By donating, you are agreeing to an unrestricted donation. Unrestricted donations are a very powerful form of private support because they allow the charity to use them as it sees fit, often where needs are greatest.


One time














Comment (optional)

bottom of page