Types of Economic Systems
Societies have organized their resources in many ways through history, deciding how to use available means to achieve individual and common ends.
Primitivism
In primitive agrarian societies, people tend to self-produce all of their needs and wants at the level of the household or tribe. Families and tribes would build their own dwellings, grow their own crops, hunt their own game, fashion their own clothes, bake their own bread, etc. This economic system is defined by very little division of labor and resulting low productivity, a high degree of vertical integration of production processes within the household or village for what goods are produced, and relationship-based reciprocal exchange within and between families or tribes rather than market transactions. In such a primitive society, the concepts of private property and decision-making over resources often apply at a more collective level of familial or tribal ownership of productive resources and wealth in common.
Feudalism
Later, as civilizations developed, economies based on production by social class emerged, such as slavery and feudalism. Slavery involved production by enslaved individuals who lacked personal freedom or rights and were treated as the property of their owners. Feudalism was a system where a class of nobility, known as lords, owned all the lands and leased out small parcels to peasants to farm, with peasants handing over much of their production to the lord. In return, the lord offered the peasants relative safety and security, including a place to live and food to eat.
Capitalism
Capitalism emerged with the advent of industrialization. Capitalism is defined as a system of production whereby business owners (entrepreneurs or capitalists) organize productive resources including tools, workers, and raw materials to produce goods for sale in order to make a profit and not-for-personal consumption. In capitalism, workers are hired in return for wages, owners of land and natural resources are paid rents or royalties for the use of the resources, and the owners of previously-created wealth are paid interest to forgo the use of some of their wealth so that the entrepreneurs can borrow it to pay wages and rents and purchase tools for hired workers to use. Entrepreneurs apply their best judgment of future economic conditions to decide what goods to produce and earn a profit if they decide well or suffer losses if they judge poorly. This system of market prices, profit, and loss as the selection mechanism as to who will decide how resources are allocated for production is what defines a capitalist economy
These roles (workers, resource owners, capitalists, and entrepreneurs) represent functions in the capitalist economy and not separate or mutually exclusive classes of people. Individuals typically fulfill different roles with respect to different economic transactions, relationships, organizations, and contracts which they are party to. This may even occur within a single context, such as an employee-owned co-op where the workers are also the entrepreneurs or a small business owner-operator who self-finances his firm out of personal savings and operates out of a home office, and thus acts as simultaneously as entrepreneur, capitalist, landowner, and worker.
The United States and much of the developed world today can be described as broadly capitalist market economies.
Socialism
Socialism is a form of a cooperative production economy. Economic socialism is a system of production where there is limited or hybrid private ownership of the means of production (or other types of productive property) and a system of prices, profits, and losses is not the sole determinant used to establish who engages in production, what to produce and how to produce it. Segments of society band together to share these functions
Production decisions are made through a collective decision-making process, and within the economy, some, but not all, economic functions are shared by all. These might include any strategic economic functions that affect all citizens. These would include public safety (police, fire, and EMS), national defense, resource allocation (utilities like water and electric), education, and more. These are often paid for through income or use taxes levied on the remaining tactically independent economic functions of individual citizens, independent businesses, foreign trade partners, etc.
Modern socialism contains certain elements of capitalism, such as a market mechanism, and also some centralized control over some resources. If more of the economic control is centralized in ever-increasing ways, it may eventually become more akin to communism. Note that socialism as an economic system can and does occur under various forms of government, from the democratic socialism of the Nordic countries to more authoritarian strands found elsewhere.
Communism
Communism is a form of a command economy, whereby nearly all economic activity is centralized, and through the coordination of state-sponsored central planners. A society's theoretical economic strength can be marshaled to the benefit of the society at large. Executing this in reality is far more difficult than in theory, in that it requires no conflicting or competing entities within the society to challenge the allocation of resources. Note that instances of economic communism in the modern era have also been coupled with an authoritarian form of government, although this need not be the case in theory.
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