What is an economy?

In any society there is an economy. It is not possible to have a society without an economy. So what does that mean? What is an economy?

In any society there are people who make things — producers. And there are people who consume things — consumers. Finally, there is some way that the stuff the producers make finds its way into the hands of consumers — allocation.

That’s what an economy is: producers, consumers, and the allocation mechanism by which consumers get the stuff produced.

What is capitalism?

Capitalism is an economic system where producers are privately owned, and allocation occurs via competitive markets.

Private ownership means, for example, that Jeff Bezos owns Amazon. Bill Gates own Microsoft. A few people meaningfully own General Motors.

Market allocation means that prices are determined competitively: Producers want to sell a little for a lot, and consumers want to buy a lot for a little.

What is socialism?

Socialism is an economic system where producers are publicly owned, and allocation occurs via either markets (as in capitalism) or via central planning.

If the United States had public ownership, for example, it would mean that the government would own Amazon, Microsoft, and GM.

Centrally-planned allocation means that prices are determined by a small group of planners who decide everything the economy will produce.

We may refer to these two forms of socialism as “centrally-planned socialism” and “market socialism.” The former Soviet Union was an example of the first. The former Yugoslavia was an example of the second.

Who benefits most from capitalism?

The people who benefit most from capitalism are, unsurprisingly, the capitalists — the people who own society’s productive resources. They are the ruling class in any capitalist economy, as is generally well understood.

We might say that capitalism is the “liberating theory” of the capitalist class.

Who benefits most from socialism?

Who benefits most from socialism is generally not well understood. What I mean is not that it can’t be understood — rather, that it just isn’t.

To understand who benefits most from socialism, we first need to accurately understand the economic classes that exist in a modern economy.

Consider Amazon. Everyone understands that its owner, Jeff Bezos, is a member of the capitalist, or owning, class.

Everyone understands that the various people who, say, package the orders in Amazon’s warehouses are members of the working class.

But Amazon is too big for Bezos to run by himself. So he has hired a group of managers to oversee the day-to-day operations for him. While Bezos has ultimate authority over all his workplaces, his managers have considerable power.

These managers are members of what we might usefully term the “coordinator class.” Whereas capitalists have ultimate power over the economy and workers have essentially no power, coordinators have considerable power — though they ultimately answer to the owners.

However, in socialist economies, there are no owners. So if Amazon were to exist in a socialist economy, its managers would be the ultimate authority in the workplaces.

Whereas in capitalism the owners are the ruling class, in socialism the coordinators are the ruling class. This is true in both centrally-planned as well as market socialism.

Whereas capitalism is the liberating theory of the owning class, socialism is the liberating theory of the coordinator class: In capitalism, capitalists rule. In socialism, managers rule.

What is participatory economics?

Participatory economics (parecon) is an economic model completely different from both capitalism as well as all forms of socialism. Parecon is the liberating theory of the working class: In a parecon, workers rule (there is neither a capitalist class nor a coordinator class).

In a parecon, workers run their own workplaces through councils. Consumption decisions are made through councils. Workplace tasks are “divvied up” fairly, with no group of people monopolizing managerial functions, and no group of people permanently taking orders and doing “grunt work.”

People are paid for how hard they work. No one receives extra money for being smart, talented, well-educated, or just plain lucky. The only way to get ahead is by expending effort.

And allocation is not done by either markets or central planning (both of which have well-documented ills), but by producers and consumers “negotiating” with each other to arrive at fair plans.

In this system of horizontal (or participatory) planning, prices are not determined competitively or by edict, but by exchanges of information to arrive at socially optimal ends.

Yes, it sounds fanciful. But participatory economics has an actual mathematical model behind it proving both its viability as well as its superiority to capitalism and all forms of socialism.

Why have I never heard of parecon?

You have never heard of parecon because people who are smart, educated, talented, or just lucky tend not to like it. It doesn’t resonate with them, because it doesn’t confer any of the class privileges they are used to.

Parecon’s formal mathematical model has been around since 1991, with the beginnings of general pareconish theory dating back to at least 1977.¹

The only way to get ahead in a parecon is through hard work. Nothing else is rewarded. For people with class privileges under the present system, this is a horrible thought. Not only would Jeff Bezos have to do his fair share of work, so too would the managers and executives he presently employs.  And workers would no longer be helplessly subjected to the dehumanizing and disrespectful treatment they routinely are under capitalism and socialism.

So no one has any interest in telling the working class about it.

What if I want to learn more about parecon?

If you want to learn more about parecon, I recommend either Michael Albert and Robin Hahnel’s The Political Economy of Participatory Economics (Princeton University Press, 1991),² or Albert’s Parecon: Life After Capitalism (Verso Press, 2003).³

The first book contains parecon’s formal mathematical model. The second book is more descriptive and rebuts several common criticisms made against parecon. Both books, however, contain full treatments of the theory.