An economic system (also economic order) is
a system of production, resource allocation
and distribution of goods and services within
a society or a given geographic area.
It includes the combination of the various
institutions, agencies, entities, decision-making
processes and patterns of consumption that
comprise the economic structure of a given
community.
As such, an economic system is a type of social
system.
The mode of production is a related concept.
All economic systems have three basic questions
to ask: what to produce, how to produce and
in what quantities and who receives the output
of production.
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 (including property rights and
the structure of management).
The analysis of economic systems traditionally
focused on the dichotomies and comparisons
between market economies and planned economies
and on the distinctions between capitalism
and socialism.
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-oriented
mixed economies.
== Overview ==
Economic systems is the category in the Journal
of Economic Literature classification codes
that includes the study of such systems.
One field that cuts across them is comparative
economic systems, which include the following
subcategories of different systems:
Planning, coordination and reform.
Productive enterprises; factor and product
markets; prices; population.
Public economics; financial economics.
National income, product and expenditure;
money; inflation.
International trade, finance, investment and
aid.
Consumer economics; welfare and poverty.
Performance and prospects.
Natural resources; energy; environment; regional
studies.
Political economy; legal institutions; property
rights.
== Components ==
There are multiple components to economic
system.
Decision-making structures of an economy determine
the use of economic inputs (the factors of
production), distribution of output, the level
of centralization in decision-making and who
makes these decisions.
Decisions might be carried out by industrial
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:
What goods and services shall be produced
and in what quantities?
How shall goods and services be produced?
That is, by whom and with what resources and
technologies?
For whom shall goods and services be produced?
That is, who is to enjoy the benefits of the
goods and services and how is the total product
to be distributed among individuals and groups
in the society?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.
An economic system possesses the following
institutions:
Methods of control over the factors or means
of production: this may include ownership
of, or property rights to, the means of production
and therefore may give rise to claims to the
proceeds from production.
The means of production may be owned privately,
by the state, by those who use them, or be
held in common.
A decision-making system: this determines
who is eligible to make decisions over economic
activities.
Economic agents with decision-making powers
can enter into binding contracts with one
another.
A coordination mechanism: this determines
how information is obtained and used in decision-making.
The two dominant forms of coordination are
planning and markets; planning can be either
decentralized or centralized, and the two
coordination mechanisms are not mutually exclusive
and often co-exist.
An incentive system: this induces and motivates
economic agents to engage in productive activities.
It can be based on either material reward
(compensation or self-interest) or moral suasion
(for instance, social prestige or through
a democratic decision-making process that
binds those involved).
The incentive system may encourage specialization
and the division of labor.
Organizational form: there are two basic forms
of organization: actors and regulators.
Economic actors include households, work gangs
and production teams, firms, joint-ventures
and cartels.
Economically regulative organizations are
represented by the state and market authorities;
the latter may be private or public entities.
A distribution system: this allocates the
proceeds from productive activity, which is
distributed as income among the economic organizations,
individuals and groups within society, such
as property owners, workers and non-workers,
or the state (from taxes).
A public choice mechanism for law-making,
establishing rules, norms and standards and
levying taxes.
Usually, this is the responsibility of the
state, but other means of collective decision-making
are possible, such as chambers of commerce
or workers’ councils.
== Typology ==
There are several basic questions that must
be answered in order for an economy to run
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.
Many different objectives may be seen as desirable
for an economy, like efficiency, growth, liberty
and equality.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" or dirigisme.
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".
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 as
state 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.In a capitalist
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 in capital markets.
Capitalist systems range from laissez-faire,
with minimal government regulation and state
enterprise, to regulated and social market
systems, with the aims of ameliorating market
failures (see economic intervention) or supplementing
the private marketplace with social policies
to promote equal opportunities (see welfare
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 of public ownership
by all of the society, or ownership cooperatively
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.
=== By resource allocation mechanism ===
The basic and general "modern" economic systems
segmented by the criterium of resource allocation
mechanism are:
Market economy ("hands off" systems, such
as laissez-faire capitalism)
Mixed economy (a hybrid that blends some aspects
of both market and planned economies)
Planned economy ("hands on" systems, such
as state socialism, also known as "command
economy" when referring to the Soviet model)Other
related types:
Traditional economy (a generic term for older
economic systems, opposed to modern economic
systems)
Non-monetary economy (without the use of money,
opposed to monetary economy)
Subsistence economy (without surplus, exchange
or market trade)
Gift economy (where an exchange is made without
any explicit agreement for immediate or future
rewards and profits)
Barter economy (where goods and services are
directly exchanged for other goods or services)
Participatory economics (a decentralized economic
planning system where the production and distribution
of goods is guided by public participation)
Post-scarcity economy (a hypothetical form
where resources aren't scarce, such as Karl
Marx's concept of a communist society)
=== By ownership of the means of production
===
Capitalism (private ownership of the means
of production)
Mixed economy
Socialist economy (social ownership of the
means of production)
=== By political ideologies ===
Various strains of anarchism and libertarianism
advocate different economic systems, all of
which have very small or no government involvement.
These include:
Left-wing
Anarcho-communism
Anarcho-syndicalism
Anarcho-socialism
Right-wing
Anarcho-capitalism
Libertarianism
Libertarian communism
Libertarian socialism
Syndicalism
=== By other criteria ===
Corporatism refers to economic tripartite
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:
Circular economy
Collectivist economy
Digital economy
Green economy
Information economy
Internet economy
Knowledge economy
Natural economy
Virtual economyOthers emphasize a particular
religion:
Arthashastra – Hindu economics
Buddhist economics
Distributism – Catholic ideal of a "third
way" economy, featuring more distributed ownership
in a mixed economy
Islamic economicsThe type of labour power:
Slave- and serf-based economy
Wage labour-based economyOr the means of production:
Agrarian economy
Industrial economy
Information economy
== 
Main types ==
=== 
Capitalism ===
Capitalism generally features the private
ownership of the means of production (capital)
and a market economy for coordination.
Corporate capitalism refers to a capitalist
marketplace characterized by the dominance
of hierarchical, bureaucratic corporations.
Mercantilism was the dominant model in Western
Europe from the 16th to 18th century.
This encouraged imperialism and colonialism
until economic and political changes resulted
in global decolonization.
Modern capitalism has favored free trade to
take advantages of increased efficiency due
to national comparative advantage and economies
of scale in a larger, more universal market.
Some critics have applied the term neo-colonialism
to the power imbalance between multi-national
corporations operating in a free market vs.
seemingly impoverished people in developing
countries.
=== Mixed economy ===
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 sizable public sector
alongside a dominant private 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:
Georgism – socialized rents on land
Mixed economy
American School
Dirigisme
Indicative planning, also known as a planned
market economy
Japanese system
Nordic model
Progressive utilization theory
Social corporatism
Social market economy, also known as Soziale
Marktwirtschaft
Socialist market economy
State capitalism
=== 
Socialism ===
Socialist economic systems (all of which feature
social ownership of the means of production)
can be subdivided by their coordinating mechanism
(planning and markets) into planned socialist
and market socialist systems.
Additionally, socialism can be divided based
on their property structures between those
that are based on public ownership, worker
or consumer cooperatives and common ownership
(i.e. non-ownership).
Communism is a hypothetical stage of socialist
development articulated by Karl Marx as "second
stage socialism" in Critique 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 with calculation
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.
Later models of socialism developed by neoclassical
economists (most notably Oskar Lange and Abba
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 the productive forces of the economy
in a more efficient manner while being immune
to the perceived systemic inefficiencies (cyclical
processes) and crisis of overproduction so
that production would be subject to the needs
of society as opposed to being ordered around
capital accumulation.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 former
Soviet Union and Eastern Bloc operated as
a command economy, featuring a combination
of state-owned enterprises and central planning
using the material balances method.
The extent to which these economic systems
achieved socialism or represented a viable
alternative to capitalism is subject to debate.In
orthodox Marxism, the mode 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.
== Evolutionary economics ==
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" and "inefficiencies" that
make them "impossible" to survive over the
long term.
In Marx's scheme, feudalism was replaced by
capitalism, which would eventually be superseded
by socialism.
Joseph Schumpeter had an evolutionary conception
of economic development, but unlike Marx he
de-emphasized the role of class struggle in
contributing to qualitative change in the
economic mode of production.
In subsequent world history, communist states
run according to Marxist–Leninist ideologies
have either collapsed or gradually reformed
their centrally-planned economies toward market-based
economies, for example with perestroika and
the dissolution of the Soviet Union, Chinese
economic reform and Đổi Mới in Vietnam.
Mainstream evolutionary 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 of complexity economics.
== Context in society ==
An economic system can be considered a part
of the social system and hierarchically equal
to the law system, political system, cultural
and so on.
There is often a strong correlation between
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.
== List of economic systems ==
Capitalism
Communism
Distributism
Fascist socialization
Feudalism
Hydraulic despotism
Inclusive democracy
Market economy
Mercantilism
Mutualism
Network economy
Non-property system
Palace economy
Participatory economy
Potlatch
Progressive utilization theory (PROUTist economy)
Proprietism
Social Credit
Socialism
Workers' self-management
== 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.
908–915.
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 Snooks (1999), Global Transition: A
General Theory, PalgraveMacmillan, 395 pp.
== External links ==
"Video Overview of Economic Systems" by Thinkwell.
"Social Studies VSC Glossary".
Glossary-Cultural "Anthropology".
"Economic Systems", a refereed journal for
the analysis of market and non-market solution
by Elsevier since 2001.
"Economic Systems" by WebEc, 2007.
