Types of Economic systems


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Types of Economic systems

 

The economic organization is one of the basic pillars of any social grouping. Over the centuries, human beings have been organizing their resources in different ways, until they reached the systems that best adapt to each society; all these ways of organizing a society can be included to a greater or lesser extent in one system or another. The most important classifications of economic systems are:

 

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Economic Systems According To Whether Or Not Private Property Exists

 

  • Capitalist Economy: also called free or market economy. They are economies in which individuals and companies carry out the production and exchange of goods and services through transactions in which prices and markets intervene

 

 

  • Socialist or Planned Economy: they defend the intervention of the State in the economy. In their purest state, they demand the substitution of private property for collective property in the means of production, change, and distribution; in the same way, it asks for the equal distribution of wealth and the elimination of social classes, Socialism is usually associated with a planned economy, although there are exceptions

 

Economic Systems According To the Mechanism of Coordination Or Decision Making

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Traditional Economy: They are simple economies whose decisions are based on tradition. They are characterized to solve the basic problems of the economy, (what, how and for whom to produce) they make decisions that were successful in the past, that is, that their survival will depend on whether the decisions of the past were correct

 

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They have a reduced economic surplus so they will not be able to invest in improvements in the production process. They are societies of a low level of income and will depend on the aid and loans of rich nations

 

Authorization Economy: Are those in which economic decisions are taken by a central authority

 

  • Decisions about what, how and for whom to produce are taken by the central authority (director and king)

 

  • The price is set by the authority.
  • It interferes with the freedoms of citizens
  • The state possesses almost all of the means of production
  • It is an economy typical of communist countries

 

 

Market Economy: It is one in which most economic decisions are made by citizens. These are the so-called capitalist economies. In which we can highlight:

 

  • There is private ownership of both capital and the means of production.
  • Free enterprise individuals are free to form and dissolve their business.
  • They are competitive markets, in which the price is fixed by supply and demand
  • Individuals can choose between the different alternatives offered by the market

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Currently, economies tend to be mixed economies, that the part of the decisions are made by citizens and others by the government, this allows us to correct the market failures that exist

 

Keynesianism, for example, defends a capitalist system in which companies are privately owned and there is a free market economy. However, it defends the interventionism of the government in the markets to avoid economic cycles and promote a more stable economy


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