The different types of economic systems, which determine what to produce, how to produce, and for whom, vary from a command or centrally economic system, on one end of the spectrum, to a pure market economy (“laissez-faire“) on the other end. 

In reality, most economic systems have the characteristics of command and market systems, and they are called mixed economic systems

The best economic systems for investors are like finely tuned machines. In other words, the system fosters high productivity, a culture of entrepreneurialism, buoyant consumption, and there is relative social harmony. 

Economic Systems
Mixed economic systems

“In reality, most economic systems have the characteristics of command and market systems, and they are called mixed economic systems”

WEALTH TRAINING COMPANY

In a command or central economic system, almost the entire economic system is controlled by a centralized power

For example, in the USSR most decisions were made by the central government. This type of economy was the core of communist philosophy.

The government plays a leading role in the economy, which includes planning and deciding how resources will be allocated. So, it is the political ideology of the ruling government rather than the free-market price mechanism which decides how scarce resources are used and for what purpose. 

Centralized planning has its problems. An amusing example of falling chandeliers in the USSR comes to mind. Chandeliers manufacturers were required to comply with strict annual quotas based on weight rather than unit output. So, factory managers made chandeliers heavier than usual, as they feared they would fail to meet quotas unless otherwise.

USSR

“in the USSR most decisions were made by the central government. This type of economy was the core of communist philosophy”

WEALTH TRAINING COMPANY

Command economic systems can force change and exploit technologies

Collective farms in the soviet union between 1928 and 1940 resulted in the forced mechanization of agricultural farming which increased agricultural output. But the transition from private farmland to state-owned came at a huge cost to private farm landowners. The collectivization era saw several famines with a death toll ranging from 7 million to 14 million. 

Command economic systems are prone to be mismanaged which can lead to disastrous consequences.  

However, during periods of great change, for example in the industrial revolution collectivization of private farms into collective farms in the soviet union between 1928 and 1940 resulted in the forced mechanization of agricultural farming which increased agricultural output. 

North Korea and, to a seller extent, China are examples of command economies. 

China has some aspects of a market economy (free market).

“Even, the US with its massive fiscal spending, monetary easing, and anti-monopoly laws underscores the fact that the economy has aspects of central government, central bank intervention” – Wealth Training Company

A pure market economic system is where firms and households act in self-interest

They determine how resources get allocated, what goods get produced, and who buys the goods. This is opposite to how a planned economy works, where the central government gets to keep the profits. There is no government intervention in a pure market economy (“laissez-faire“). 

In reality, a pure market economy doesn’t exist

Even, the US with its massive fiscal spending, monetary easing, and anti-monopoly laws underscores the fact that the economy has aspects of central government, central bank intervention. 

The most common type of economic systems found today are mixed economic systems

It can either be where the government partnerships with the private sector, in a public-private initiative, or it can take the form of State Capitalism, a political system where the state has control of production and use of capital. China and (to a lesser extent) the EU are examples of State Capitalism.

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