Debates about the proper shape of economic institutions are at least as old as the effort to understand economic life. For most of the past 150 years, this debate has been largely understood as a contest between “capitalism” and “socialism,” but it has been characterized more by the force of conviction of the adversaries than by any efforts to understand the opponents' positions.

One classic example of the misrepresentation of the debate over capitalism and socialism has been the treatment of the issue in the vast majority of introductory economics textbooks. Quite typical is the assertion that there are fundamentally two ways to organize an economy: by free markets or by central planning, often with the United States and the former Soviet Union as the classic examples provided. This argument badly misconstrues the real debate between capitalism and socialism, as it ignores the fact that the socialist parties of the industrialized nations of the West have for decades rejected the central planning model dominant in the Soviet Union. The real economic debates in which orthodox economists have been engaged in their home countries have not been with Soviet-style central planners but largely with political forces only somewhat further to the left than they, usually “liberals,” “progressives,” or democratic socialists.

Not only have introductory economics textbooks misdescribed the debate, but the prevalent political interpretation of the end of the Soviet Union exemplifies the same error.