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Aneconomic system, oreconomic order,[1] is asystem ofproduction,resource allocation anddistribution ofgoods and services within aneconomy. It includes the combination of the variousinstitutions, agencies, entities, decision-making processes, and patterns ofconsumption that comprise the economic structure of a given community.
An economic system is a type ofsocial system. Themode of production is a related concept.[2] All economic systems must confront and solve the four fundamentaleconomic problems:
The study of economic systems includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (includingproperty rights and the structure of management). The analysis of economic systems traditionally focused on the dichotomies and comparisons betweenmarket economies andplanned economies and on the distinctions betweencapitalism andsocialism.[4] Subsequently, the categorization of economic systems expanded to include other topics and models that do not conform to the traditional dichotomy.
Today the dominant form of economic organization at the world level is based on market-orientedmixed economies.[5] An economic system can be considered a part of thesocial system and hierarchically equal to thelaw system,political system,cultural and so on. There is often a strong correlation between certainideologies,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.
Emerging conceptual models posit future economic systems driven by synthetic cognition, where artificial agents generate value autonomously rather than relying on traditional human labour.[6]
Economic systems is the category in theJournal of Economic Literatureclassification codes that includes the study of such systems. One field that cuts across them iscomparative economic systems, which includes the study of the following aspects of different systems:
Capitalism generally features the private ownership of the means of production (capital) and amarket economy for coordination.Corporate capitalism refers to a capitalist marketplace characterized by the dominance ofhierarchical,bureaucraticcorporations.
Mercantilism was the dominant model in Western Europe from the 16th to 18th century. This encouragedimperialism andcolonialism until economic and political changes resulted in globaldecolonization. Modern capitalism has favoredfree trade to take advantage of increased efficiency due to nationalcomparative advantage andeconomies of scale in a larger, more universal market. Some critics[who?] have applied the termneo-colonialism to the power imbalance between multi-national corporations operating in afree market vs. seemingly impoverished people indeveloping countries.
There is no precise definition of a "mixed economy". Theoretically, it may refer to an economic system that combines one of three characteristics: public and private ownership of industry, market-based allocation with economic planning, or free markets with state interventionism.
In practice, "mixed economy" generally refers to market economies with substantial state interventionism and/or sizablepublic sector alongside a dominantprivate sector. Actually, mixed economies gravitate more heavily to one end of the spectrum. Notable economic models and theories that have been described as a "mixed economy" include the following:
Socialist economic systems (all of which featuresocial ownership of themeans of production) can be subdivided by their coordinating mechanism (planning and markets) intoplanned socialist andmarket socialist systems. Additionally,socialism can be divided based on their property structures between those that are based onpublic ownership, worker or consumercooperatives andcommon ownership (i.e. non-ownership).Communism is a hypothetical stage of socialist development articulated by Karl Marx as "second stage socialism" inCritique of the Gotha Program, whereby the economic output is distributed based on need and not simply on the basis of labor contribution.
The original conception of socialism involved the substitution of money as a unit of calculation and monetary prices as a whole withcalculation in kind (or a valuation based on natural units), with business and financial decisions replaced by engineering and technical criteria for managing the economy. Fundamentally, this meant that socialism would operate under different economic dynamics than those of capitalism and the price system.[8] Later models of socialism developed by neoclassical economists (most notablyOskar Lange andAbba Lerner) were based on the use of notional prices derived from a trial-and-error approach to achieve market clearing prices on the part of a planning agency. These models of socialism were called "market socialism" because they included a role for markets, money, and prices.
The primary emphasis of socialist planned economies is to coordinate production to produce economic output to directly satisfy economic demand as opposed to the indirect mechanism of the profit system where satisfying needs is subordinate to the pursuit of profit; and to advance theproductive forces of the economy in a more efficient manner while being immune to the perceived systemic inefficiencies (cyclical processes) and crisis ofoverproduction so that production would be subject to the needs of society as opposed to being ordered aroundcapital accumulation.[9][10]
In a pure socialist planned economy that involves different processes of resource allocation, production and means of quantifying value, the use of money would be replaced with a different measure of value and accounting tool that would embody more accurate information about an object or resource. In practice, the economic system of the formerSoviet Union andEastern Bloc operated as acommand economy, featuring a combination ofstate-owned enterprises andcentral planning using thematerial balances method. The extent to which these economic systems achieved socialism or represented a viable alternative to capitalism is subject to debate.[11]
Inorthodox Marxism, themode of production is tantamount to the subject of this article,determining with a superstructure of relations the entirety of a given culture or stage of human development.
There are multiple components of an economic system. Decision-making structures of an economy determine the use of economic inputs (thefactors of production), distribution of output, the level of centralization in decision-making and who makes these decisions. Decisions might be carried out byindustrial councils, by a government agency, or by private owners.
An economic system is a system of production, resource allocation, exchange and distribution of goods and services in a society or a given geographic area. In one view, every economic system represents an attempt to solve three fundamental and interdependent problems:
Every economy is thus a system that allocates resources for exchange, production, distribution and consumption. The system is stabilized through a combination of threat and trust, which are the outcome of institutional arrangements.[13]
An economic system possesses the following institutions:
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There are several basic questions that must be answered in order for an economy to run satisfactorily. Thescarcity 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. Many different objectives may be seen as desirable for an economy, likeefficiency,growth,liberty andequality.[16]
Economic systems are commonly segmented by their property rights regime for the means of production and by their dominant resource allocation mechanism. Economies that combine private ownership with market allocation are called "market capitalism" and economies that combine private ownership with economic planning are labelled "command capitalism" ordirigisme. Likewise, systems that mix public or cooperative ownership of the means of production with economic planning are called "socialist planned economies" and systems that combine public or cooperative ownership with markets are called "market socialism".[17] Some perspectives build upon this basic nomenclature to take other variables into account, such as class processes within an economy. This leads some economists to categorize, for example, the Soviet Union's economy asstate capitalism based on the analysis that the working class was exploited by the party leadership. Instead of looking at nominal ownership, this perspective takes into account the organizational form within economic enterprises.[18]
In acapitalist economic system, production is carried out for private profit and decisions regarding investment and allocation of factor inputs are determined by business owners in factor markets. The means of production are primarily owned by private enterprises and decisions regarding production and investment are determined by private owners incapital markets. Capitalist systems range fromlaissez-faire, with minimal government regulation and state enterprise, to regulated and social market systems, with the aims of ameliorating market failures (seeeconomic intervention) or supplementing the private marketplace with social policies to promote equal opportunities (seewelfare state), respectively.
In socialist economic systems (socialism),production for use is carried out; decisions regarding the use of the means of production are adjusted to satisfy economic demand; and investment is determined through economic planning procedures. There is a wide range of proposed planning procedures and ownership structures for socialist systems, with the common feature among them being the social ownership of the means of production. This might take the form ofpublic ownership by all of the society, or ownershipcooperatively by their employees. A socialist economic system that features social ownership, but that it is based on the process of capital accumulation and utilization of capital markets for the allocation of capital goods between socially owned enterprises falls under the subcategory of market socialism.
The basic and general "modern" economic systems segmented by the criterium ofresource allocation mechanism are:
Other types:
Various strains ofanarchism andlibertarianism advocate different economic systems, all of which have very small or no government involvement. These include:
Corporatism refers to economictripartite involving negotiations between business, labor and state interest groups to establish economic policy, or more generally to assigning people to political groups based on their occupational affiliation.
Certain subsets of an economy, or the particular goods, services, techniques of production, or moral rules can also be described as an "economy". For example, some terms emphasize specific sectors or externalizes:
Others emphasize a particular religion:
The type oflabour power:
Or themeans of production:
Karl Marx's theory of economic development was based on the premise of evolving economic systems. Specifically, in his view over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions andinefficiencies that would make it impossible for them to survive long-term. In Marx's scheme,feudalism was replaced bycapitalism, which would eventually be superseded bysocialism.[21]Joseph Schumpeter had an evolutionary conception of economic development, but unlike Marx he de-emphasized the role ofclass struggle in contributing to qualitative change in the economic mode of production. In subsequent world history, manycommunist states run according toMarxist–Leninist ideologies arose during the 20th century, but by the 1990s they had either ceased to exist or gradually reformed their centrally planned economies towardmarket-based economies, for example withperestroika and thedissolution of the Soviet Union,Chinese economic reform andĐổi Mới in Vietnam.
Mainstreamevolutionary economics continues to study economic change in modern times. There has also been renewed interest in understanding economic systems as evolutionary systems in the emerging field ofcomplexity economics.
Economic system – A set of institutions for decision making and for the implementation of decisions concerning production, income, and consumption within a given geographic area.
Chapter 1 presents definitions and basic examples of the categories used in this book: tradition, market, and command for allocative mechanisms and capitalism and socialism for ownership systems.
According to nineteenth-century socialist views, socialism would function without capitalist economic categories – such as money, prices, interest, profits and rent – and thus would function according to laws other than those described by current economic science. While some socialists recognized the need for money and prices at least during the transition from capitalism to socialism, socialists more commonly believed that the socialist economy would soon administratively mobilize the economy in physical units without the use of prices or money.
The ultimate end of socialism was the 'end of history', in which perfect social harmony would permanently be established. Social harmony was to be achieved by the abolition of exploitation, the transcendence of alienation, and above all, the transformation of society from the 'kingdom of necessity' to the 'kingdom of freedom.' How would such a world be achieved? The socialists informed us that by rationalizing production and thus advancing material production beyond the bounds reachable under capitalism, socialism would usher mankind into a post-scarcity world.
This leads us to describe two extreme categories: market capitalism and command socialism. But this simple dichotomization raises the possibility of "cross forms,", namely, market socialism and command capitalism. Although less common than the previous two, both have existed.
Indeed, aside from the variation of ownership forms, some follow certain ideas in Marx, saying that how one class relates to another is the crucial matter rather than specifically who owns what, with true socialism involving a lack of exploitation of one class by another. This kind of argument can lead to the position that the Soviet Union was not really socialist but a form of state capitalism in which the government leaders exploited the workers.
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