An economic ideology distinguishes itself from economic theory in being normative rather than just explanatory in its approach. Economic ideologies express perspectives on the way an economy should run and to what end, whereas the aim of economic theories is to create accurate explanatory models to describe how an economy currently functions. However, the two are closely interrelated, as underlying economic ideology influences the methodology and theory employed in analysis. The diverse ideology and methodology of the 74 Nobel laureates in economics speaks to such interrelation.
A good way of discerning whether an ideology can be classified an economic ideology is to ask if it inherently takes a specific and detailed economic standpoint.
Furthermore, economic ideology is distinct from an economic system that it supports, such as capitalism, to the extent that explaining an economic system (positive economics) is distinct from advocating it (normative economics). The theory of economic ideology explains its occurrence, evolution, and relation to an economy
Capitalism is a broad economic system where the means of production are largely or entirely privately owned and operated for profit, where the allocation of capital goods is determined by capital markets and financial markets.
There are several implementations of capitalism that are loosely based around how much government involvement or public enterprise exists. The main ones that exist today are mixed economies, where the state intervenes in market activity and provides some services; laissez faire, where the state only supplies a court, a military, and police; and state capitalism, where the state engages in commercial business activity itself.
Laissez-faire, or free market capitalism, is an ideology that prescribes minimal public enterprise and government regulation in a capitalist economy. This ideology advocates for a type of capitalism based on open competition to determine the price, production and consumption of goods through the invisible hand of supply and demand reaching efficient market equilibrium. In such a system, capital, property and enterprise are entirely privately owned and new enterprises may freely gain market entry without restriction. Employment and wages are determined by a labour market that will result in some unemployment. Government and judicial intervention are employed at times to change the economic incentives for people for various reasons. The capitalist economy will likely follow economic growth along with a steady business cycle of small booms and busts.
The social market economy (also known as Rhine capitalism) is advocated by the ideology of ordoliberalism and social liberalism. This ideology supports a free-market economy where supply and demand determine the price of goods and services, and where markets are free from regulation. However, this economic ideology calls for state action in the form of social policy favoring social insurance, unemployment benefits and recognition of labor rights.
Casino capitalism is the high risk-taking and financial instability associated with financial institutions becoming very large and mostly self-regulated, while also taking on high-risk financial investment dealings. This has been a driving motive by investors in the quest for profits without production; it provides a speculation aspect that offers prospects for a quicker and more speculator returns for people, wealth, and inside assumptions of the factors likely to affect asset price movements. Typically, this does not add to the collective wealth of an economy, as it can instead create economic instability. Casino capitalism falls alongside the idea of a speculation-based economy where entrepreneurial activities turn to more paper games of speculative trading than actually producing economic goods and services.
It is believed by people such as economists Frank Stilwell that casino capitalism was one of the leading causes of the global financial crisis in 2008. Investors sought out a get-rich-quick motive they found through speculative activities that offered a particular individual gain or loss depending on the assets’ future movements. Other economists like Hans-Werner Sinn, have written books on casino capitalism with commentary outside the Anglo-Saxon bubble.
Neo-capitalism is an economic ideology that blends elements of capitalism with other systems and emphasizes government intervention in the economy to save and reconstruct companies that are deemed a risk to the nation. The ideology’s prime years are considered by some economists to be the 10 years leading up to 1964 after the Great Depression and World War II. After World War II, countries were destroyed and needed to rebuild and since capitalism thrives in industrializing countries. These countries most affected by the war saw a growth in capitalism. Neo-capitalism differs from regular capitalism in that while capitalism highlights private owners, Neo-capitalism emphasizes the role of the state in sustaining the country as a provider and a producer and condemns private companies for lacking in their role as a provider and producer for their country.
Critics of neo-capitalism claim that it tends to suppress the reserve army of labor which may lead to full employment, as this can undermine one of the main basics that make capitalism work. Other critics state that if neo-capitalism was put into place, it would become immediately corrupt.
Fascism as an economic system takes the middle ground between capitalism and socialism. It promotes the pursuit of individual profit while promoting corporations through government subsidies as the primary tool of economic progress as long as their activities are in line with the goals of the state. In fascist economies, profits or gains are individualized while losses are socialized; these economies are often compared to the third way due to being heavily corporatized. Fascist economies of the mid 20th century such as Italy and Germany often used bilateral trade agreements, with heavy tariffs on imports and government subsidized exports to developing nations around the world. While economically fascism is oriented towards self-sufficiency, politically fascist countries of the mid-20th century were oriented to war and expansion; two seemingly contradictory motives. The goal of fascist nations was to create a closed economic system, self-reliant, but also ready to make war and expand. Fascist economies can then be seen as a sort of capitalist economy, with little state intervention usually in the form of business subsidies.
Socialism is any of the various ideologies of economic organization based on some form of social ownership of the means of production and cooperative management of the allocation of resources. Socialist systems can be distinguished by the dominant coordination mechanism employed (economic planning or markets) and by the type of ownership employed (Public ownership or cooperatives).
In some models of socialism (often called market socialism), the state approves of the prices and products produced in the economy, subjecting the market system to direct external regulations. Alternatively, the state may produce the goods but then sell them in competitive markets.
Democratic socialism (sometimes referred to as economic democracy) is an economic ideology that calls for democratic institutions in the economy. These may take the form of cooperatives, workplace democracy or ad hoc approach to the management and ownership of the means of production. Democratic Socialism is a blending of socialistic and democratic ideas to create a political and economic Structure.
Marxism–Leninism is a political ideology that calls for centralized planning of the economy. This ideology formed the economic basis of all existing Communist states.
A socialist state will primarily concern itself with the welfare of its citizens. Socialist doctrines essentially promote the collectivist idea that an economy’s resources should be used in the interest of all participants, and not simply for private gain. This ideology historically opposed the market economy, and tended to favor central planning.
As Friedrich Engels described it (in Anti-Dühring), communism is the evolved result of socialism so that the central role of the state has ‘withered away’ and is no longer necessary for the functioning of a planned economy. All property and capital are collectively owned and managed in a communal, classless and egalitarian society. Currency is no longer needed, and all economic activity, enterprise, labour, production and consumption is freely exchanged “from each according to his ability, to each according to his needs”.
Communism is also a political system as much an economic one—with various models in how it is implemented—the well known being the Marxist Leninist model, which argues for the use of a vanguard party to bring about a workers state to be used as a transitional tool to bring about stateless communism, the economic arrangement described above. Other models to bring about communism include anarcho-communism, which argues similarly to Marxist schools for a revolutionary transformation to the above economic arrangement, but does not use a transitional period or vanguard party.
Anarcho-primitivism strives to return humans to a pre-industrialized and pre-civilization state. From an economic standpoint, advocates of this model argue the non-necessity of economic systems for human existence. Proponents of this ideology believe that the entire history of human civilization took a wrong turn from hunter-gatherer systems into an agricultural system and has led to human dependence on technology to support increasing populations, government control, and culture. Population growth and the institutions created to support and control it are exploitative of the not only humans but also the environment. They argue that the more people live in a society, the more resources they will need. These resources must be taken from the Earth and therefore lead to environmental exploitation. However, they claim that materialist exploitation can be seen throughout almost every society in the world today. This materialism creates inequalities and exploitation such as class structure, the exploitation of humans in the name of labor and profit, and most importantly environmental destruction and deterioration. This exploitation has led to the increase in human population growth, activity, and development which they argue is destroying the Earth’s ecosystems. They emphasize coexisting with the natural world instead of destroying it, “a world order on our planet where human civilization is brought into harmony with nature”. Where they differ from other anarchist and green ideologies is that they oppose technological and industrial advancement as it further propagates the exploitation of humans. “Technology is not a simple tool which can be used in any way we like. It is a form of social organization, a set of social relations. It has its own laws. If we are to engage in its use, we must accept its authority. The enormous size, complex interconnections and stratification of tasks which make up modern technological systems make authoritarian command necessary and independent, individual decision-making impossible”. Anarcho-primitivist seek to revert the economic and government institutions of civilization which they argue are authoritarian, exploitative, and abstract and return humanity to a way of living which is harmonious with the natural world in which technology used mostly individually to create tools for survival much like in primitive cultures and tribes where they argue there is little need for abstract things such as an economy or government.
- Karl Brunner, 1996. Economic Analysis and Political Ideology: The Selected Essays of Karl Brunner, v. 1, Thomas Ly, ed. Chapter: preview links via scroll down.
- Klappholz, Kurt (1987). “ideology”. The New Palgrave: A Dictionary of Economics. 2: 716–18.
- From The New Palgrave Dictionary of Economics. 2008, 2nd Edition:
“capitalism” by Robert L. Heilbroner. Abstract.
“contemporary capitalism” by William Lazonick. Abstract.
“Maoist economics” by Wei Li. Abstract.
“social democracy” by Ben Jackson. Abstract.
“welfare state” by Assar Lindbeck. Abstract.
“American exceptionalism” by Louise C. Keely.Abstract.
“laissez-faire, economists and” by Roger E. Backhouse and Steven G. Medema. Abstract.
- Julie A. Nelson and Steven M. Sheffrin, 1991. “Economic Literacy or Economic Ideology?” Journal of Economic Perspectives, 5(3), pp. 157–65 (press +).
- Joseph A. Schumpeter, 1942. Capitalism, Socialism and Democracy.
- _____, 1949. “Science and Ideology,” American Economic Review, 39(2), pp. 346–59. Reprinted in Daniel M. Hausman, 1994, 2nd rev. ed., The Philosophy of Economics: An Anthology, Cambridge University Press, pp. 224–38.
- Robert M. Solow, 1971. “Science and Economic Ideology,” The Public Interest, 23(1) pp. 94–107. Reprinted in Daniel M. Hausman, 1994, 2nd rev. ed., The Philosophy of Economics: An Anthology, Cambridge University Press, pp. 239–51.
- Karl Marx, 1857–58. “Ideology and Method in Political Economy,” in Grundrisse: Foundation of the Critique of Political Economy, tr. 1973. Reprinted in Daniel M. Hausman, 1994, 2nd rev. ed., The Philosophy of Economics: An Anthology, Cambridge University Press, pp. 119–42.
- Earl A. Thompson and Charles Robert Hickson, 2000. Ideology and the Evolution of Vital Economic Institutions. Springer.Descrip;tion and chapter preview links, pp. vii–x
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.