Economic systems refer to means by which governments or societies organize and distribute resources, goods, and services across the country. Factors of production are regulated by market systems. The factors include physical resources, capital, labor and land. Therefore, an economic system is a network of agencies, institutions and many other developments that shape patterns of production, distribution and consumption. There are four types of economic systems; traditional economic system, command economic system, market economic system and mixed economic system. The traditional economic system is ancient and quite linear in nature. It is characterized by limited division of labor and overreliance on people to engage in the process of production.
The command economic system is characterized by a dominant centralized source of power or authority. In most cases, the government serves as the source of authority and controls most elements of the economic system. Communism is good example of a command economic system. The market economic system is characterized by presence of free markets. Instead of the government over-indulging in the operations of the market, market forces are allowed to regulate themselves. The forces of supply and demand determine how the market shapes up. Capitalism is a market economic system mainly driven by forces of demand and supply. Mixed economic systems integrate elements of free markets as covered in the market economic system and command economic system. In such a scenario, the government regulates the market but ensures that its involvement does not discourage or detour the course taken by the forces of demand and supply.
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United States is a mixed economy. The country exhibits qualities of a socialism and capitalism economy. Some people tend to use communism and socialism interchangeably. However, in terms of economic systems, socialism tends to lie between capitalism and communism. To address the question: “are market systems and policies efficient?”, it is important exploring how the market and economic systems have succeeded or failed in the last 19 th , 20 th and 21 st centuries. Karl Marx, one of the greatest critics of capitalism viewed capitalism as a self-destructive economic system that advanced classism in the society. Delanty (2019) argues that the ‘systemic crises of capitalism’ should be addressed if capitalism will survive in the future. The assertion means that capitalism has been associated with a number of challenges but it remains a viable economic system that can be improved using economic policies to serve various intended purposes.
According to Lasslett (2014), Karl Marx’s work which was unpublished when he died, The State at the Heart of Capitalism, highlights how capitalism is used to control state power by maintaining a gap between the rich and the poor. Therefore, based on Karl Marx’s views, capitalism can be viewed as a non-efficient economic system. The fact that it relies almost absolutely on forces of demand and supply often promote inequality. In post-Keynesian economic theory, there were attempts to improve on capitalism by introducing the concept of effective demand as the key to determine economic performance. In post-Keynesian era, investment emerged as a major determinant of output, demand and employment. The ideas floated here should not be used to qualify alternative market and economic systems as absolutely perfect. Although capitalism has its limitations, it has proven to be good for democratic nations since it allows markets to shape themselves with little interference from the state.
Communism, as a command economic system involves excessive government involvement in the process of production and allocation of resources. Frederick Engels and Karl Marx were among the initial proponents of the communism theory. Since they viewed capitalism as exploitative, they proposed an alternative economic theory or system to eliminate class distinctions. The main focus was on labor and income. In a communism system, the government owns means of production. However, communist economies are not efficient due to over indulgence by political forces. Political systems are closely associated with economic systems. The four major types include democracies, monarchies, and totalitarian/authoritarian political systems. Capitalism is associated with democracies while communism and socialism are associated with monarchies and totalitarian political systems. United States is a democracy that has elements of capitalism and socialism in its economic system. Although it promotes free markets, it allows significant levels of government involvement to ensure that the limitations of capitalism do not manifest. China is an authoritarian country that uses communism as its economic system. Russia which was initially a communist state is evolving towards a parliamentary democracy.
I lean towards capitalism as the most ideal economic system that promotes democracy. Capitalism promotes efficiency of the private sector. If well regulated, the private sector can fuel an economy to unimaginable magnitudes. Capitalism has been working in the United States. While other countries were struggling with issues such as unemployment, United States created a highly dynamic private sector and used labor policies to ensure that exploitation was eliminated. Therefore, market systems can be efficient if supported by the right economic policies. Capitalism allows efficient allocation of resources. Although it can lead to class distinctions and inequality, capitalism allows efficient allocation of resources in the presence of right policies and laws. Furthermore, capitalism has proven to be more efficient in production as compared to communism and socialism. Dynamic efficiency is needed to achieve optimal production levels. As a democracy, United States promotes political freedom. Political freedom is best achieved when there is economic freedom. Economic freedom is achieved best in a capitalistic economic system. In conclusion, capitalism can work efficiently if supported by the right policies. Responding to the prompt, market systems are not sufficient. They should always be supported by policies to address the challenges presenting in each society based on their needs.
References
Delanty, G. (2019). The future of capitalism: Trends, scenarios and prospects for the future. Journal of Classical Sociology, 19 (1), 10–26. https://doi.org/10.1177/1468795x18810569
Lasslett, K. (2014). The State at the Heart of Capitalism: Marxist Theory and Foucault’s Lectures on Governmentality. Critical Sociology, 41 (4-5), 641–658. https://doi.org/10.1177/0896920513518948
