What is the Difference between state capitalism and free market capitalism?

Answer 1

The definition of State Capitalism is "an economic system that is primarily capitalistic, but there is some degree of government ownership of the means of production" (http://www.wordnetweb.Princeton.edu/perl/webn) or a capitalist system where the government runs businesses. A popular example of state capitalism is the economy of China, where the state owns thousands of companies.

A free market is a theoretical term that economists use to describe a market which is free from governenment intervention, such as no regulation, and minimal government ownership. Examples of this form would be Somalia or Afghanistan.

Most capitalist economies fit inbetween these two extremes. The economy of the United States is a free-market economy but also favors a small degree of state enterprise and public goods provided by the state.

Answer 2

A "free market" refers to the basic system used to exchange goods or services - that is, it is really a micro-economicterm. In a Free Market, you have buyers and sellers coming together, and mutually agreeing on a fair price without external dictation of that price.

A "free market economy" cover the entire economic system of the area, and, as such, takes into account not only private buyer/sellers, but government interaction. As such, it is a macro-economic term. A FME uses the FM system as its basic building block, but can add varying degrees of government regulation on allowable economic activity. That is, price in FM exchanges are not dictated by the government in a FME, but which economic activities are allowable can be. Thus, in a FME, the government cannot dictate the price of anything, but it can dictate certain activities, such as allowable pollution, forbid certain contracts (e.g. slavery), etc.

Once a government's involvement in a FME goes beyond mere regulation, into ownership of industry or infrastructure (which includes designation of allowed monopolies, even if they are private-owned) or establishment of programs of wealth transfer (generally, social welfare programs), the economy is now generally no longer considered a Free Market Economy, but is now a Mixed Market Economy.