economic system

economic system

Set of principles and techniques by which a society decides and organizes the ownership and allocation of economic resources. At one extreme, usually called a free-enterprise system, all resources are privately owned. This system, following Adam Smith, is based on the belief that the common good is maximized when all members of society are allowed to pursue their rational self-interest. At the other extreme, usually called a pure-communist system, all resources are publicly owned. This system, following Karl Marx and Vladimir Ilich Lenin, is based on the belief that public ownership of the means of production and government control of every aspect of the economy are necessary to minimize inequalities of wealth and achieve other agreed-upon social objectives. No nation exemplifies either extreme. As one moves from capitalism through socialism to communism, a greater share of a nation's productive resources is publicly owned and a greater reliance is placed on economic planning. Fascism, more a political than an economic system, is a hybrid; privately owned resources are combined into syndicates and placed at the disposal of a centrally planned state.

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An economic system is a system that involves the production, distribution and consumption of goods and services between the entities in a particular society. The economic system is composed of people and institutions, including their relationships to productive resources, such as through the convention of property. In a given economy, it is the systemic means by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources. Examples of contemporary economic systems include capitalist systems, socialist systems, and mixed economies. Economic systems is the economics category that includes the study of respective systems.

Overview

An economic system is a set of methods and standards brought by which a society decides and organizes the ownership and allocation of economic resources. At one extreme, production is carried in a private-enterprise system such that all resources are privately owned. It was described by Adam Smith as frequently promoting a social interest, although only a private interest was intended. At the other extreme, following Karl Marx and Vladimir Lenin is what is commonly called a pure-communist system, such that all resources are publicly owned with an intent of minimizing inequalities of wealth among other social objectives.

Alternatively, 'economic system' refers to the organizational arrangements and process through which a society makes its production and consumption decisions. In creating and modifying its economic system, each society chooses among alternative objectives and alternative decision modes. Many objectives may be seen as desirable, like efficiency, growth, liberty, and equality.Part of a social system An economic system can be considered a part of the social system and hierarchically equal to the law system, political system, cultural system, etc. There is often a strong correlation between a certain ideologies, political systems and certain economic systems (for example, consider the meanings of the term "communism"). Many economic systems overlap each other in various areas (for example, the term "mixed economy" can be argued to include elements from various systems). There are also various mutually exclusive hierarchical categorizations.Basic types Economic systems The basic and general economic systems are:

There are several basic and unfinished questions that must be answered in order to resolve the problems of economics satisfactorily. The scarcity problem, for example, requires answers to basic questions, such as: what to produce, how to produce it, and who gets what is produced. An economic system is a way of answering these basic questions, and different economic systems answer them differently.

Division of economic systems

Typically, "hands-on" economic systems involve a greater role for society and/or the government to determine what gets produced, how it gets produced, and who gets the produced goods and services, with the stated aim of ensuring social justice and a more equitable distribution of wealth (see welfare state). Meanwhile, "hands-off" economic systems give more power to private individuals (and perhaps corporations) to make those decisions, rather than leaving them up to society as a whole, and often limit government involvement in the economy.

Oftentimes the primary concern of "hands-on" economic systems is usually egalitarianism, while the primary concern of "hands-off" economic systems is usually private property. Libertarians target individual economic freedom as a primary goal of their "hands-off" policies, though in general, most types of economic systems claim that their system of economic organization is either most efficient or socially effective.

The following list divides the main economic systems into "hands-on" and "hands-off," it attempts to structure the systems in a given section by alphabetical order and in a vertical hierarchy where possible.

"Hands-on" State-oriented Systems

Economic systems in which the state directs or controls economic activity.

"Hands-on" Private-oriented Systems

A system in which large privately-owned entities control or direct the economy in their favor, or in which private shareholders invest in and own enterprises that are operated by the state or by employee cooperatives.

"Hands-on" Communal-oriented Systems

Economic systems in which a collective, such as a commune or cooperative directs or plans large-scale economic activity.

"Hands-off" Private-oriented Systems

Economic systems in which the economy is controlled by privately in a usually decentralized fashion and operated based on market principles.

"Hands-off" State-oriented Systems

Economic systems in which the state runs, owns and/or manages its own resources and businesses in a free-market economy with minimal regulation.

  • Socialist market economy
  • Various socialist proposals in which the means of production are owned and operated by the state in a free-market system with no government regulation
  • Various forms of Mixed economies

"Hands-off" Communal-oriented Systems

Economic systems that are characterized by decentralized cooperative or collective ownership that operate in market economies or decentralized, collectively-planned economies.

"Compromise" Mixed systems

Economic systems that contain substantial state, private and sometimes cooperative ownership and operated in mixed economies - i.e, ones that contain substantial amounts of both market activity and economic planning.

List of economic systems by Name

An etymologist's approach to economic systems, this list attempts to sort all possible economic systems in alphabetical order, without any division or hierarchization.

See also

References

Further reading

  • Richard Bonney (1995), Economic Systems and State Finance, 680 pp.
  • David W. Conklin (1991), Comparative Economic Systems, Cambridge University Press, 427 pp.
  • George Sylvester Counts (1970), Bolshevism, Fascism, and Capitalism: An Account of the Three Economic Systems.
  • Robert L. Heilbroner and Peter J. Boettke (2007). "Economic Systems". The New Encyclopædia Britannica, v. 17, pp. 908-15.
  • Harold Glenn Moulton, Financial Organization and the Economic System, 515 pp.
  • Jacques Jacobus Polak (2003), An International Economic System, 179 pp.
  • Frederic L. Pryor (1996), ''Economic Evolution and Structure: 384 pp.
  • Frederic L. Pryor (2005), Economic Systems of Foraging, Agricultural, and Industrial Societies, 332 pp.
  • Graeme Donald Snooks, Global Transition: A General Theory, PalgraveMacmillan, 1999, 395 pp.

External links

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