Economic Systems Essay Example
Economic Systems Essay Example

Economic Systems Essay Example

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  • Pages: 16 (4311 words)
  • Published: September 12, 2017
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Socialism, also known as a command economy or planned system, is an economic system in which the government or a central authority makes all economic decisions. In this system, private property rights are nonexistent and the government owns all resources. The study of these theories and practices falls within the field of socialistic economics.

Conjectural and bing socialist economic systems adhere to societal ownership norms. A socialist economic system entails various forms of public ownership and independent co-ops in the means of production, aiming to directly produce use-value, though not always.

Coordinated economic planning and an accounting system based on calculation-in-kind or labor-time are key features of socialist economic systems. The term socialist economic sciences can also be applied to the study of existing and past economic systems that identify as "socialist," including the works of Hungarian economist Janos Kornai. Socialist economic science is connected


to various schools of economic thought, such as Marxian economics and institutional economics.

Evolutionary economic sciences and neoclassical economic sciences influenced early socialism, such as Ricardian socialism, which drew from classical economic sciences. In the twentieth century, proposals and models for planned economic systems and market socialism relied heavily on neoclassical economic sciences or a combination of neoclassical economic sciences with Marxian or institutional economic sciences.


1 Public ownership of resources

All resources are owned and operated by the province or authorities on behalf of society as a whole. This ensures equal opportunity for all citizens, regardless of income. Public ownership also aims to fully utilize the country's resources.

2 Central planning authority

The central authority has the responsibility of making economic decisions for society.

The authorization

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programs and allocates resources between current ingestion and investing for the hereafter.

3 Price mechanism of lesser importance

Socialism diminishes the significance of market forces. The authorities sets fixed prices, rather than allowing them to be determined by demand and supply. Private profits are prohibited, and public involvement is emphasized in the command economy.

In socialism, the government has complete control and ownership of all economic activity, including the production, consumption, and distribution of goods and services.

Advantages of Socialism

1 Production focused on basic needs

In socialism, the primary goal of production is to fulfill the fundamental needs of the population, such as food.

In a socialist economic system, the acquisition of clothing and housing materials is not tied to an individual's wealth, thus eliminating the phenomenon of increasing inequality.

2. Income and wealth are evenly distributed in this system.

There is no differentiation between wealthy individuals and those with less wealth as everyone has an equal chance to earn money.

Wealth is equally distributed as private endeavor is limited. The planning authority in the socialist system allocates resources between current consumption and future investment. The government typically manages the unemployment rate and inflation to ensure economic stability in the country. In a socialist system, the economy experiences rapid development.

The rapid economic growth can be attributed to the effective utilization of resources, strategic planning, and prompt decision-making. Additionally, social welfare plays a significant role as the government ensures that all citizens receive comprehensive benefits, including pensions and accident coverage. Moreover, in a socialist system, concerns regarding labor disputes and resource wastage are typically minimized due to the government's involvement.

Economic Decisions in a Socialistic System

In a socialistic system, the planning government determines

what to produce. The Central Planning Authority collects detailed statistics on the availability of resources in the country and aligns it with national priorities. If the planning authority has to choose between producing computers using more labor or more machinery, they make the decision.

How does the Central Planning Authority decide on the production techniques for different goods and services? They have to choose between traditional and modern methods, such as using more labor or more machinery to produce computers, for example.

The Central Planning Authority decides who receives the national merchandise. Citizens receive a distribution of various trade goods through a specific set of administered procedures. Basic necessities are priced lower while luxury goods are priced higher in order to reduce income inequalities in the distribution.

Demerits of Socialism

1 Lacks of inducements and initative by persons

Persons have no net income motivation. This will take to economic inefficiency since occupations are provided by the authorities and persons are non motivated to work harder.

2 Loss of economic freedom and consumer sovereignty

Under a socialist economic system, the cardinal planning authorization or the authorities directs all economic activity.

In a socialist economic system, the government provides goods and services which the consumer must accept without choice. The range of products available is limited with restricted availability. Private businesses are few in this economy, leading to a lack of competition and fewer research and development activities.

This leads to low quality products as there is no competition. In theory, Robin Hahnel and Michael Albert categorize five economic models under the title of socialist economics:

  • * Public Enterprise Centrally Planned Economy in which all property is owned by the State and

all key economic decisions are made centrally by the State, like in the former Soviet Union.

  • * Walrasian / Market Socialist, which defines socialism as public-ownership or cooperative-enterprises in a market economy, with prices for producer goods set through a trial-and-error method by a central planning board. Socialism, in this perspective, is defined in terms of de jure public property rights over major enterprises.
  • * Leninist concept, which involves a form of political governance based on control of the means of production and government by a single political party that claims to act in the interest of the working class. It also has an ideology hostile towards markets and political dissent, with economic activity coordinated through centralized economic planning (a “command economy”).
  • * Social Democratic concept, based on the capitalist mode of production, which defines socialism as a set of values rather than a specific type of social and economic administration.
  • The text describes the principles of Social Democrats, which include support for parliamentary democracy, the gradual establishment of socialism, and advocacy for socially progressive causes. Unlike being against the market or private ownership, Social Democrats seek to improve the effects of capitalism through a welfare state that relies on the market as the central coordinating entity in the economy. They also propose some level of public ownership or provision of public goods in an economy primarily dominated by private enterprise. This aligns with the East Asian model.

    or socialist market economic system, based on a mostly free-market, capital accretion for net income, and

    significant private ownership along with state-ownership of strategic industries monopolized by an individual political party. Janos Kornai finally leaves the categorization of this theoretical account (as either socialist or capitalist) to the reader. [16]
    What are the disadvantages and advantages of socialism? Advantages of Socialism

    • * In environments with plentiful resources.

    Socialism ensures that all members have their basic needs met, creating a stable society. Members who are unable to participate economically due to disabilities, age, or periods of poor health can still contribute wisdom, emotional support, and continuity of experience to the system. Additionally, the freedom from work allows some social members to pursue non-economically-productive endeavors, such as pure science.

    Math and non-popular humanistic disciplines. Disadvantages of Socialism: Since there is no culling and no economic advantage to working harder, socialistic systems provide no built-in inducement to take part, making socialism internally unstable. This is due to a deficiency of inducements.

    Competitiveness is not a characteristic of socialist systems, which consequently makes them externally unstable. Immigrants are particularly attracted to the abundant resources provided by socialist systems during times of prosperity.

    Despite the potential for reduced economic productivity, individuals who do not contribute economically can still negatively impact both society and the economy. Socialism draws its foundations from pre-capitalist institutions found in Medieval Europe, such as spiritual communes, mutual obligations, and communal charity.

    The economic theory of socialism originated as a response to the changes brought about by the breakdown of feudalism and the rise of capitalist social relations. It is considered a movement of the modern era. Many socialists perceive their advocacy as an extension and amplification of the radical humanist ideas

    expressed in Enlightenment philosophy, such as Jean-Jacques Rousseau's Discourse on Inequality, Wilhelm von Humboldt's Limits of State Action, and Immanuel Kant's strong defense of the French Revolution. The development of capitalism can be attributed to the challenges faced in implementing an industrial factory system that required long-term investment and entailed associated risks within a global commercial (mercantilist) framework.

    Speaking historically, the most pressing needs of this new system were a secure supply of the elements of industry - land, productive machinery, and labor - and these imperative desires resulted in the commoditization of these elements.

    According to Karl Polanyi, a renowned socialist economic historian, the forceful transformation of land, money, and especially labor into commodities to be allocated by an independent market mechanism was a foreign and abrupt disruption of the existing social fabric. Similarly, Marx also saw this process as part of the "primitive accumulation" process, in which enough initial capital is gathered to initiate capitalist production.

    According to Polyani and other scholars, the disruption discussed resulted in various efforts to reintegrate the economic system into society. These efforts included natural counter-movements.

    For illustration, the Luddite rebellions are the early socialist movements. Over time, these movements generated or gained various intellectual defenders who sought to elaborate their ideas in theory. According to Polanyi, these opposing movements were mostly reactionary and therefore not fully mature socialist movements.

    Initially, there were certain demands that only aimed to lessen the negative impacts of the capitalist market. However, these demands later evolved into a comprehensive socialist plan, with the objective of bringing about a fundamental transformation of the system.

    Its theoreticians contended that despite attempts to tame markets and private property to prevent excessive

    "exploitation" and effectively mitigate crises, capitalist social relations would continue to be significantly unjust and undemocratic, suppressing universal human needs for fulfillment.

    The text discusses the empowering and creative aspects of socialism, highlighting the importance of diversity and solidarity. It presents four different stages in the development of socialism. In the 19th century, there were utopian ideas associated with socialism, as well as socialist and Communist movements that arose due to corporate expansion and industrialization. The following phase witnessed division within socialism regarding the Soviet Union, leading to eventual acceptance of socialist or social democratic policies. Finally, socialism adapted to tackle challenges posed by the neo-liberal era from 1990 onwards. Alongside its progression, socialism also experienced changes in its economic system.

    Utopian socialism, also known as "socialism," emerged in the late 18th century and was officially recognized as such in the early 19th century. Its main principles focused on the exploitation of workers by capitalists and landowners, resulting in severe poverty, deprivation, and illness among the working class. Consequently, multiple ideologies advocating for a society without hierarchical authority arose.

    Also known as "capitalists," these individuals comprised the working class who were pushed to live on meager wages. Socialist ideas gained popularity through Utopian movements, often resulting in the creation of agricultural communes that aimed to achieve self-sufficiency.

    These spiritual movements, like the Shakers in America, encompassed various beliefs and practices. However, Utopian socialism lacked a comprehensive economic theory to address various economic issues. Theoretically, a Utopian society that surpassed material scarcity would eliminate economic problems.

    In pattern, small communities with a shared spirit sometimes had the ability to collectively determine the distribution of tasks. The first formal theories of socialist

    economics were greatly influenced by classical economic theories, incorporating ideas from Adam Smith, Robert Malthus, and David Ricardo. Smith introduced the concept of a public benefit that is not fulfilled by the market.

    A category analysis, expressing concerns about the dehumanizing aspects of the mill system and the concept of unproductive rent. Ricardo contended that the category of leasing was parasitic.

    This is the possibility of a "general glut", which refers to an excessive accumulation of capital that leads to the production of goods primarily for sale rather than for consumption. This idea has sparked a growing reassessment of the belief that free markets with competition alone can effectively prevent severe economic downturns.

    One of the key questions is whether the need for expansion would lead to war, as well as the nature of the political economic system. Before Charles Fourier and Marx, there was a socialist movement in France. Pierre-Joseph Proudhon was a prominent early socialist theorist in political economy and known as the first to identify himself as an anarchist. Other notable figures included Henri de Saint Simon, a technocrat, and Thomas Spence, representing agricultural groups.

    The proponents of socialism include figures like William Ogilvie, William Cobbett, Thomas Hodgskin, Robert Owen, William Thompson, Charles Fourier, John Gray, John Francis Bray, William Batchelder Greene, as well as the theorists of the Chartist movement and early advocates of syndicalism. These individuals promoted social stratification to create a meritocratic or technocratic society based on individual talent. Count Henri de Saint-Simon, who coined the term "socialism," was particularly intrigued by the enormous potential of science and technology. This fascination led him to propose a socialist society that would eliminate the chaotic

    aspects of capitalism and provide equal opportunities.

    Simon promoted a society where individuals were ranked and rewarded based on their abilities and work. He also wanted to establish a well-organized economic system that focused on planning and aimed at significant scientific and material progress. This desire for a semi-planned economy was shared by other early socialist thinkers who were influenced by classical economists.

    The Ricardian socialists, including Thomas Hodgskin and Charles Hall, were influenced by David Ricardo's ideas. They believed that the value of trade goods in a free market would be similar to the monetary values of the manufacturers, especially when those goods were easily available. These monetary values were seen as representing the labor invested in the goods. In addition, the Ricardian socialists considered net income, profit, and rent as deductions from this exchange value.

    Das Kapital, written by Karl Marx, utilized systematic analysis to elucidate the contradictory laws of motion within capitalism and reveal the mechanisms through which it exploits and alienates. Marx made significant modifications to classical political economic theories, notably transforming the labor theory of value, previously developed by Adam Smith and David Ricardo, into his characteristic "law of value." This transformation aimed to uncover how commodity fetishism obfuscates the true nature of capitalist society.

    His attack, referred to as "scientific socialism" by Engels, marked a crucial turning point in economic theory. On one hand, there were those who rejected the capitalist system as fundamentally anti-social. They argued that it could never be utilized to fully unleash human potential, where the prerequisite for the freedom of all is the free development of each individual.

    "Das Kapital" is an unfinished work in economic theory, which

    was planned by Marx to have four volumes. However, he only completed two volumes and left the third volume to be finished by his associate, Engels. The work is heavily influenced by Adam Smith's "Wealth of Nations" and aims to provide a comprehensive and logical description of production.

    The text discusses the relationship between ingestion and finance and their connection to morality and the province. It states that the text is a work that combines doctrine, anthropology, sociology, and economic science. It makes several important arguments, including the concept of the Law of Value, which defines capitalist production as the production of a wide variety of commodities.

    A trade good has two essential qualities. Firstly, they are useful as they satisfy some human want.

    The nature of these wants may vary, depending on the case.

    Whether they originate from the stomach or from imagination, it does not matter. What is important is that they are sold or traded. The crucial point is that the value of a commodity is not determined by the amount of labor needed to make it useful.

    The capitalist profit does not rely on cheating or stealing, but rather on the total amount of socially necessary labor needed to produce it. All goods are sold at their true value. This profit arises from the cost of reproducing labor power, which is the worker's wage.

    During their time at work, the capitalists are able to create a greater value than is earned by the workers, allowing them to generate excess value or net income on their investments. This historical capitalist economy resulted in significant social upheaval, as it involved forcibly separating rural populations from their land and

    means of production. This separation created a sense of want and lack.

    There is a need for the proper and legal utilization of urban labor, which is dependent on the presence of wage-labor. Additionally, the capitalist ownership relationships have worsened the artificial divide between the city and state.

    The metabolic rift between human beings in capitalist economy and their natural environment is a crucial factor in accounting for our current ecological predicament. This rift, which lies at the root of our dilemma, can be understood through Marx's concept of commodity fetishism. Marx demonstrated that in capitalist economy, phenomena related to the value system, such as markets, competition, supply, and demand, create a powerful ideology that obscures the underlying social relations of capitalist society. "Commodity fetishism" is a term used to describe this distortion of appearance.

    The economic development of society is driven by the underlying world of economic exploitation. Workers, who are the main source of new value, are subjected to property relations that grant capitalists the right to control and benefit from the surplus value created by the workers in the workplace. Capitalism, as an inherent feature, constantly pushes for accumulation in response to competitive forces affecting all capitalists. In this context, the wealth accumulated by capitalists serves as the foundation for their societal power and is generated through the continuous cycle of Money– ; gt ; Commodity– ; gt ; Money’, where capitalists receive a surplus value higher than their initial investment.

    As soon as possible, capitalist economy seeks rapid expansion on a global level. Additionally, Marx identified various types of crises that are natural and historically specific, meaning they are interconnected and overlapping barriers to accumulation.

    These crises occur during times when different structural obstacles intersect.

    Realization crises and overrun crises are both manifestations of capitalism's inability to effectively overcome these obstacles. Additionally, these crises lead to increased centralization and the expropriation of the many capitalists by a select few. The centralization is a result of the interacting forces of competition.

    Endemic crises, intensive and extended enlargement of production scale, and growing interdependence with the state apparatus all contribute to a strong tendency towards the centralization of capital.

    Material Development is driven by the constant goal of increasing productivity through technological advancements and innovative production techniques. This leads to a reduction in the need for labor, allowing for new forms of work and more leisure time. Additionally, socialization plays a role in this process.

    By socializing the labor process and concentrating workers in urban areas for large-scale production, Marx believed that capitalism was simultaneously creating the preconditions for revolution and its own transformation.

    However, despite the fact that the objective conditions for change are created by the capitalist system, the subjective conditions for social revolution can only occur through the awareness of these objective circumstances by the agents themselves and the transformation of this understanding into a successful revolutionary plan. Anarchist economics encompasses the theories and practices of economics and economic activity within the political ideology of anarchism. Pierre Joseph Proudhon was associated with the Lyons mutualists and later adopted the term to describe his own teachings.

    Mutualism is an anarchist ideology that traces its roots to the writings of Pierre-Joseph Proudhon. Proudhon envisioned a society in which every person could own and control the means of production, either individually or collectively. In this society, trade would

    be based on the equal exchange of labor in a free market.

    Central to the strategy was the establishment of a mutual-credit bank that would provide manufacturers with a low interest rate specifically covering borrowing expenses. Mutualism is rooted in the belief that the value of labor or its products should be compensated with goods or services representing the exact amount of labor required to produce an item with equivalent usefulness.

    Receiving anything less would be seen as development, theft of labor, or vigorish. Collectivist anarchism, also known as anarcho-collectivism, is a radical philosophy that promotes the elimination of the government and private ownership of the means of production.

    Alternatively, collectivist anarchism visualizes the idea of production agencies being jointly owned and controlled by the manufacturers themselves. The process of collectivization would result in workers' wages being determined through democratic organizations, based on the amount of time they contributed to production. These wages would then be utilized to purchase goods in a communal market. Mikhail Bakunin is commonly linked with collectivist anarchism.

    Within the text below, the anti-authoritarian subdivisions of the First International and the early Spanish nihilist motion are discussed. Additionally, we explore The Conquest of Bread by Peter Kropotkin, an influential work that presents the economic vision of anarcho-communism. Anarchist communism is a theory of anarchism that advocates for the abolishment of the province, private belongings, and capitalism in favor of common ownership of the agencies of production.

    Direct democracy and a horizontal web of voluntary associations and workers' councils with production and ingestion based on the steering rule: "from each harmonizing to ability, to each harmonizing to need". Unlike symbiosis, collectivized anarchism and Marxism, anarcho-communism, as defended

    by Peter Kropotkin and Errico Malatesta, wholly rejected the labour theory of value. Instead, it recommended a gift economic system and establishing distribution on demand.

    Anarchist communism emerged as a unified and modern economic-political doctrine within the Italian subdivision of the First International. Its formulation was primarily led by Carlo Cafiero, Emilio Covelli, Errico Malatesta, Andrea Costa, and other former Republicans associated with Mazzini.

    The acknowledgement of Mikhail Bakunin influenced their decision to wait until after his death to make their disagreements with collectivized anarchism known. By the early 1880s, the majority of the European nihilist movement had embraced an anarchist communist stance. They advocated for the elimination of wage labor and distribution based on demand. Interestingly enough,

    The term "collectivist" became primarily associated with Marxist province socialists who supported maintaining a form of payment system during the transition to full communism. Marx's work emphasized the contrasting beliefs between radical and non-revolutionary socialists. Non-revolutionary socialists drew inspiration from the ideas of John Stuart Mill and later Keynes and the Keynesians, who provided theoretical justification for government involvement in an existing market economy.

    According to Keynesians, if the business cycle could be solved through national ownership of key industries and state control of their investments, class conflict would be effectively controlled and a compromise could be reached between labor and capitalists. This would eliminate the need for revolution. Keynes also envisioned a future where the "euthanasia of the rentier" would occur. Joan Robinson and Michael Kalecki used Keynesian ideas to develop a critical post-Keynesian economics that sometimes went beyond moderate reformism. Additionally, many socialist economic ideas originated from the labor movement following Marx's teachings.

    "Marxist" economists developed numerous, occasionally conflicting

    tendencies, some stemming from internal disagreements on the importance of certain ideas of Marx, such as the 'Law of Value' and his crisis theory. Other variations were expansions made by subsequent theorists in response to real-world events.

    The monopoly capitalist school, exemplified by the work of Paul A. Baran and Paul Sweezy, aimed to revise Marx's theory of capitalist development. This theory was built on the idea of competition based on monetary value. The goal of the revision was to account for a new phase in which both the economy and the state were subject to the dominant power of large corporations. This approach is known as world-systems analysis.

    Immanuel Wallerstein, writing in 1979, argued that there is only one world-system, which he described as a world-economy. He also highlighted the global division of labor and the progression of capitalism throughout history. According to Wallerstein, this means that there are no longer any socialist or feudal systems in existence.

    Socialism is a new form of world-system that is not a redistributive world-empire or a capitalist world-economy, but rather a socialist world-government. I do not consider this projection to be utopian, but I also do not believe its establishment is imminent. It will be the outcome of a lengthy societal struggle, possibly in a few familiar forms.

    The occurrence of such events is expected to happen in all nations of the global economy. At the same time, other significant branches of reformist and radical socialist economics emerged that were loosely connected to Marxism or completely independent. Thorsten Veblen is widely recognized as the founder of critical institutionalism. His unique theorizing included harsh critiques of the inefficiency of capitalism, monopolies, and


    The text discusses the issues of conspicuous consumption and the role of public-service corporations. Some institutionalists have examined the problems associated with incentives in the Soviet Union. Critical institutionalists have focused on defining establishments that are compatible with incentives, often based on forms of participatory democracy, rather than relying on an independent market mechanism. Another important aspect is a socialist perspective.

    Piero Sraffa, who closely studied Marx, Keynes, and Gramsci, delved into the classical political economic system.

    Peculiarly, Ricardo aimed to develop a value theory that served as both an explanation of the regular distribution of prices in an economy and the distribution of income and economic growth. He discovered that the net output or surplus in the field of production depended on the bargaining power equilibrium between workers and capitalists, which was further influenced by non-economic factors.

    Presumably, there are societal and political factors.

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