Front Page Titles (by Subject) Three Kinds of Capitalism - Literature of Liberty, Winter 1980, vol. 3, No. 4
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Three Kinds of “Capitalism” - Leonard P. Liggio, Literature of Liberty, Winter 1980, vol. 3, No. 4 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Three Kinds of “Capitalism”
“Will Capitalism Survive?” The Wilson Quarterly 4(Spring 1980):108–116.
Though challenged by crises, modern western “capitalism” is not a “sick man” about to expire. We need, however, to carefully distinguish various meanings of “capitalism.”
Capitalism is not a newcomer. We may debate its origins and biography, but its essential spirit—going back to the dawn of history—is its creative entrepreneurship, the ability to discover profitable possibilities in changing conditions. The secret behind capitalism's vitality is the freedom to choose and to be open to adaptive change.
Capitalism is not simply an “economic system” but is immeshed in its total society, interacting with government and culture. “State and capital—or at least that of the massive firms, the big companies, and the monopolies—make good bedfellows...” Corporate state capitalism “lives shamelessly off the subsidies of the state.”
The longevity of capitalism earns its tradition's stamp of approval, despite its inequalities and privileges. Rival systems, such as socialist economies, have failed to do the job better: removing economic hierarchies, socialism has not created a society of equality, liberty, or abundance. It is difficult to see how any anticapitalist revolution could preserve what needs to be preserved in capitalism: rights, “a truly free market,” and a sense of fraternity.
In socio-political terms and in terms of economic management we can discern three markedly distinct kinds of “capitalism.” In common usage “capitalism” refers to corporate state capitalism, large monopoly businesses, in working alliances with the state. A second distinct level, under monopoly capitalism, is the “market economy,” small or medium-sized business which avoids state subsidies and thrives on competition and innovation. A third, or basement, tier (amounting to 30–40% of activity in industrial economies) is the “underground economy.” Outside the legal market and the control of the state, this underground economy consists of “evasion, smuggling, barter for goods and services, moonlighting ‘off the books,’ and above all work performed at home.” All three levels of “capitalism” interact. The top tier of corporate state capitalism needs the smaller, more competitive units of the real “market economy” to survive. During severe economic crises the market economy my provides a “safety net” and innovation for monopoly capitalism.