Economic Systems | List, Type and Explanation

Economic Systems | List, Type and Explanation

List of Economic Systems

Economic systems are a social organization scheme for the production, distribution to consumption of goods and services. The economic systems can influence both politic and economic which make the standard of living of the inhabitants, on the level of inequalities, on relations with countries, on economic power.

What is the most popular economic system? The two predominant economic systems today are capitalism and socialism. Here below are 21 type of economic system:

1. Capitalism

As individuals seek to maximize their own wealth, society as a whole is said to benefit. Goods get produced, services are rendered, people pay for the goods and services they need and desire, and the economy and society as a whole prosper.
Capitalism can be defined by two main characteristics: private ownership of the means of production; a dynamic based on the accumulation of productive capital guided by the search for profit.

In capitalist economic systems, 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.

Economists, sociologists and historians have taken different perspectives in their analyzes of capitalism and have recognized various forms in practice. These include: laissez-faire capitalism, free market capitalism, social market economy or state capitalism. The different forms of capitalism exhibit varying degrees of free market, private property, barriers to free competition, and state involvement through social policies and fall under the purview of policy and law. Most of the existing capitalist economies are mixed economies, which combine free market elements with state intervention and, in some cases, economic planning.

The capitalist system is the most popular among the economic systems and it has grown in popularity since the industrial revolution and is currently the economic system of most countries on the planet.

2. Socialism (socialist economic systems)

The word socialism covers a very diverse set of currents of thought and political movements, the common point of which is to seek a more just social and economic organization. The original goal of socialism is to achieve social equality, or at least a reduction in inequalities and, especially for currents of Marxist inspiration, to establish a society without social classes. More broadly, socialism can be defined as a political tendency, historically marked on the left, whose basic principle is the aspiration for a better world, based on a harmonious social organization and on the fight against injustices. Depending on the context, the word socialism or the adjective socialist can qualify an ideology, a political party, a political regime or a social organization.

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.

The word socialism entered everyday language from the 1820s, in the context of the industrial revolution and the urbanization that accompanied it: it then designates a set of demands and ideas aimed at improving the lot of workers, and more generally of the population, via the replacement of capitalism by a supposedly fairer society. The socialist idea, in many forms, developed throughout the nineteenth century and gave birth throughout the world to political parties claiming under various denominations (socialist, but also social-democratic, labor, etc.).

2. Communism

Communism (from Latin communis – common, universal) is initially a set of political doctrines, stemming from socialism and, for the most part, from Marxism, opposing capitalism and aiming at the establishment of a society without social classes, without wage labor and the establishment of a total economic and democratic socialization of the means of production.

More broadly, this term is associated with the international communist movement born after the First World War, the fruit of a split from the Second International caused by the Bolsheviks. It also refers, in the context of the Cold War, to a geopolitical alliance (Communist Bloc) dominated by the Soviet Union, as well as to a form of political regime, dictatorial or totalitarian, characterized by the exclusive position of the Communist Party, the monitoring and constant pressure of political police on all institutional, social and economic structures as well as on ordinary citizens as well as by a planned economy instituted by collectivization.

In its original sense, communism is a form of social organization without classes, without state and without currency, where material goods are shared.

4. Feudalism

Feudalism is a political and exonomic systems, having notably existed in Europe between the tenth century and the twelfth century, in which the central authority associates with the local lords and these with their population, according to a complete system of obligations and services.

Feudal society is a military hierarchy in which a ruler or lord offers mounted fighters a fief (medieval beneficium), a unit of land to control in exchange for a military service. The individual who accepted this land became a vassal, and the man who granted the land become known as his liege or his lord. The deal was often sealed by swearing oaths on the Bible or on the relics of saints.

Read also ? Economic Depreciation As A Concept

5. Distributism

In economic systems “Distributism, or distributionism or even distributivism”, is a “third way” economic philosophy between state socialism and capitalism, formulated by Catholic thinkers Gilbert Keith Chesterton and Hilaire Belloc as an attempt to apply the principles of justice of the social doctrine of the Roman Catholic Church, in particular those established in the encyclical Rerum Novarum of Pope Leo XIII, developed in the encyclical Quadragesimo Anno of Pope Pius XI and the encyclical Centesimus Annus of Pope John Paul II.

Philosophy not to be confused with the concept of a distributive economy, also called “distributism”.

According to distributism, the ownership of the means of production should be as widespread as possible among the population rather than being centralized under the control of a few bureaucrats (in state socialism) or a few wealthy individuals (in capitalism) . This idea is condensed in a quote from Chesterton: “Too much capitalism does not mean too many capitalists, but not enough”.

6. Statism

Statism, derived from the term State can take several meanings depending on the context, it can designate at the same time:

  • A current or political doctrine according to which the State must intervene systematically, in a more or less direct way, by the means of its territorial monopoly, in the principal social fields and economic activity.
  • The exercise of state powers, and the expansion of its field of intervention in society.
  • The means by which the State exercises and holds a more or less important monopoly on economic sectors (companies controlled directly or indirectly by the State), social and medico-social, cultural and communication (public television).

7. Fascist socialization

The Congress of Verona is a congress of the Italian Republican Fascist Party, assembled in 1943 with the aim of drawing up the government program of the Italian Social Republic.

Historians and other scholars disagree on the question of whether a specifically fascist type of economic policy can be said to exist. David Baker argues that there is an identifiable economic system in fascism that is distinct from those advocated by other ideologies, comprising essential characteristics that fascist nations shared. Payne, Paxton, Sternhell et al. argue that while fascist economies share some similarities, there is no distinctive form of fascist economic organization. Gerald Feldman and Timothy Mason argue that fascism is distinguished by an absence of coherent economic ideology and an absence of serious economic thinking. They state that the decisions taken by fascist leaders cannot be explained within a logical economic framework.

Fascist movements tended to support pragmatic responses to varying economic circumstances, and did not have any fixed economic principles other than a general desire that the economy should help build a strong nation. As such, scholars argue that fascists had no economic ideology, but they did follow popular opinion, the interests of their donors and the necessities of World War II. In general, fascist governments exercised control over private property, but they did not nationalize it. Scholars also noted that big business developed an increasingly close partnership with the Italian Fascist and German fascist governments. Business leaders supported the government’s political and military goals. In exchange, the government pursued economic policies that maximized the profits of its business allies.

While other Western capitalist countries strove for increased state ownership of industry during the same period, Nazi Germany transferred public ownership and public services into the private sector. Fascist regimes have been described as being authoritarian or totalitarian capitalist.

Fascism had complicated relations with capitalism, which changed over time and differed between fascist states. Fascists have commonly sought to eliminate the autonomy of large-scale capitalism and relegate it to the state. However, fascism does support private property rights and the existence of a market economy and very wealthy individuals. Thus, fascist ideology included both pro-capitalist and anti-capitalist elements. In practice, the economic policies of fascist governments were largely based on pragmatic goals rather than ideological principles, and they were mainly concerned with building a strong national economy, promoting autarky, and being able to support a major war effort.

8. Hydraulic despotism

According to the sociologist Karl A. Wittfogel, a hydraulic society is a culture and society whose (agricultural) economic and political continuity and development potential is decisive from a successful networked hydraulic – United technique (especially by dyke construction, sewage systems, Flooding regulations, locks).

For this purpose, centralized typical forms of rule (” hydraulic empire “, ” water monopoly empire “, “hydraulic despotism”) with a planned economy that are more powerful and technically based on hydraulic engineering, including geodesy and mathematics, have historically and religiously supported by a state cult (often with a powerful priesthood) specialized bureaucracy (in the sense of Max Weber) and high legal security. It explains e.g. B. the special character of a god-kingship with an early writing culture, urbanization, advanced division of labor ( social differentiation ) and high development of mathematics, astronomy and engineering.

9. Inclusive democracy

Inclusive democracy is a theory and a political project aiming at a direct and economic democracy in a society without state, without currency or market economy, self-managed and ecological.

This system was defined by Fotopoulos himself as “a new conception of democracy, which, using its classical definition as a starting point, expresses democracy in terms of direct political democracy, economic democracy (beyond the borders of the economy of market and state planning ), as well as social democracy and ecological democracy. In short, inclusive democracy is a form of social organization which reintegrates society with economy , politics and nature.

The concept of inclusive democracy is derived from a synthesis of two major historical traditions, the classical democratic and the socialist one, although it also includes radical ecological, feminist, and liberation movements in the South”.

10. Market economy

The term market economy designates for the economic systems where decisions to produce, exchange and allocate scarce goods and services are determined mainly with the help of information resulting from the confrontation of supply and demand. demand as established by the free play of the market. Confrontation which determines the information of price, but also of quality, availability. For other authors, such as the economist Jacques Sapir, this term “does not belong to the economic tradition, but indeed to the political vocabulary the term” market economy”does not therefore refer to anything scientifically accurate”.

At the heart of the market economy, the mechanism of supply and demand contributes to discovery and pricing. This mechanism operates by arbitrage for a given horizon and for a given quality between values representative of the good or service concerned: on the one hand the value of its intrinsic cost (cost price) but also on the other hand its value of exchange (relative price, i.e. the price of a product or service in relation to others).

11. Mercantilism

Mercantilism is a current of economic thought contemporary with the colonization of the New World and the triumph of absolute monarchy, from the sixteenth century to the middle of the eighteenth century in Europe.

He considers that “the prince, whose power is based on gold and its collection by taxes, must rely on the merchant class and promote the industrial and commercial development of the Nation so that a trade surplus allows entry of precious metals ”.

This belief is spreading and pleads in favor of a dynamic vision of the politics of the national economy. The proponents of mercantilism advocate economic development by enriching nations through foreign trade suitably organized in order to generate a surplus in the trade balance.

12. Mutualism

Mutualism is a libertarian socialist economic theory resulting from the thought of Pierre-Joseph Proudhon. He advocates economic relations that should be as equal as possible, with prices based on the amount of labor required for production.

Charles Fourier first used the French term mutualisme in 1822, although the reference was not to economic systems. The first use of the noun mutualist was in the New-Harmony Gazette by an American Owenite in 1826. In the early 1830s, a French labor organization in Lyons called themselves the Mutuellists.
In France, this movement had up to two thousand mutual aid funds in 1848.

Libertarian mutualism is not to be confused with cooperation. “Mutuality, according to its etymology, consisting rather in the exchange of good offices and products than in the grouping of forces and the community of work”, wrote Proudhon.

The primary aspects of mutualism are free association, free banking, reciprocity in the form of mutual aid, workplace democracy, workers’ self-management, gradualism and dual power. Mutualism is often described by its proponents as advocating an anti-capitalist free market. Mutualists argue that most of the economic problems associated with capitalism each amount to a violation of the cost principle, or as Josiah Warren interchangeably said, the cost the limit of price. It was inspired by the labor theory of value which was popularized—although not invented—by Adam Smith in 1776 (Proudhon mentioned Smith as an inspiration). The labor theory of value holds that the actual price of a thing (or the true cost) is the amount of labor that was undertaken to produce it. In Warren’s terms of his cost the limit of price theory, cost should be the limit of price, with cost referring to the amount of labor required to produce a good or service. Anyone who sells goods should charge no more than the cost to himself of acquiring these goods.

13. Network economy

The network economy is one of the economic systems which is the emerging economic order within the information society environment arising from the digitization of fast-growing, multilayered, highly interactive, real-time connections among people, devices, and businesses.

The world has seen significant changes in how people and businesses connect to each other. Social networks let billions of people collaborate in a variety of ways. Meanwhile, business networks have enabled new types of frictionless commerce. Now these two trends are converging, catalyzed by the exponential increase in the network of devices connected via the Internet of Things (IoT).

This is in sharp contrast to industrial-era economies, in which ownership of physical or intellectual property stems from its development by a single enterprise. Business models for capturing ownership rights for value embedded in products and services created by social networks are being explored.

The network economy can be seen from several perspectives: transition from the industrial economy , digital and information infrastructure, global scale, value networks and intellectual property rights. Business models for capturing property rights for value embedded in products and services created by social networks are being widely explored today.

For examples: Airbnb, the pioneering lodging-rental service; Google Waze, an app allowing drivers to share local real-time traffic and road information; and Uber, a mobile app that connects people seeking taxicabs or ridesharing services.

14. Non-property system

A non-property system is the name of an economic systems appearing in the futuristic fictional books and short stories by Iain Banks called the Culture series, in which there is no concept of property. No individual or group is given superior rights to control any particular resource. The system is maintained by agreement within the society to encourage normative behaviors governing resource creation and distribution, conflict resolution, and support and protection of the elderly, infirm, and children. Within this system, there is no incentive to own resources aside from personal possessions because owning resources would serve no social function and cannot be sold for money in a market.

The non-property system, while being incompatible with capitalism which is dependent on the idea of property to function, is unlike socialist systems, where there is group ownership by state entities or cooperative enterprises. It is also different from a barter system, where property rights are central to the idea behind barter and exchange. Under the non-property system, there is no property at all, this is most similar to anarcho-communism or pure communism.

Within the division of economic systems from hands-on (coordinated and state controlled) to hands-off (autonomous enterprises), this system has characteristics that appear on both ends of the spectrum. Without property, the ideal of individual freedom is paramount, but coupled with traditions of compassion. The Non-property system also has the distinct characteristic of complete autonomy of society members to form voluntary groups and determine what gets produced.

15. Palace economy (redistribution economy)

A palace economy or redistribution economy is a system of economic organization in which a substantial share of the wealth flows into the control of a centralized administration, the palace, and out from there to the general population, which may be allowed its own sources of income but relies heavily on the wealth redistributed by the palace. It was traditionally justified on the principle that the palace was most capable of distributing wealth efficiently for the benefit of society. The temple economy or temple-state economy are similar concepts.

A palace economy is a specific type of redistribution system in which the economic activities of the civilization are conducted on or near the premises of central administration complexes, the palaces of absolute monarchs, or a group of priests in temple-led versions. It is the function of the palace administration to supply the producers with the capital goods for the production of further goods and services, which are regarded as the property of the monarch. Typically this is not an altruistic undertaking. The palace is primarily interested in the creation of capital, which may then be disposed of as the king pleases. Some may become merchandising capital, to be sold or bartered for a profit, or some may be reinvested in further centers, including additional production facilities, wars (economic activities from which a profit is expected to be extracted), favorable alliances, fleets, and mastery of the seas.

In ancient palace systems, the producers were typically part of the working capital. From highest to lowest, they were bound to the palace economy by indissoluble bonds of involuntary servitude or patronage. Any investment in a war would be expected to bring a return of plunder and prisoners, which became part of the endowment of the palace complex. The palace was responsible for meeting the expenses of the producers. It had to provide food, clothing and shelter, which it often did on the premises, as in the case of female cloth manufacturers.

16. Participatory economy

Participatory economics, often abbreviated Parecon, is type economic systems whic are based on participatory decision making as the primary economic mechanism for allocation in society. In the system, the say in decision-making is proportional to the impact on a person or group of people. Participatory economics is a form of socialist decentralized planned economy involving the common ownership of the means of production. It is a proposed alternative to contemporary capitalism and centralized planning. This economic model is primarily associated with political theorist Michael Albert and economist Robin Hahnel, who describe participatory economics as an anarchist economic vision.

The fundamental values that parecon seeks to implement are equity, solidarity, diversity, workers’ self-management, efficiency (defined as accomplishing goals without wasting valued assets) and sustainability. The main institutions for achieving these goals are the councils of workers and consumers who would use self-management methods to make decisions, pay for effort and sacrifice, and participatory planning.

17. Potlatch

The potlatch is a cultural behavior, often in the form of a more or less formal ceremony, based on the gift. More precisely, it is a system of donations / counter-donations within the framework of symbolic shares. A person offers an object to another according to the importance he attaches to this object (importance assessed personally); the other person, will offer in return another object belonging to him whose importance will be estimated as equivalent to that of the first object offered.

Originally, the culture of the potlatch was practiced as much in the tribes of the Amerindian world (the Americas) as in many ethnic groups of the Pacific Ocean, as far as India. This is why the first European colonists were able to considerably despoil the natives who practiced the potlatch, because they exchanged gold for trinkets; the Indians believing in the “potlatch” value of these exchanges thought that these barterings were balanced.

In present-day Western culture, the phrase “shine or fade” is also used, which reflects a potlatch-like dynamic, in the following contexts and ceremonies:

Contribution to community meals, where everyone spontaneously brings a dish or a drink for all (salad, dessert …) This type of meal is also called “Canadian meal” in French-speaking Switzerland, in reference to the North American Indians who practiced this form of potlatch. The word potluck is widely used nowadays and is translated as potluck.

Obtaining legitimacy and a more important hierarchical position, depending on the quality and quantity of contributions made in a group dynamic (for example, in associative circles, the people who are most committed as volunteers will have priority access to collective resources, such as the bus or computer equipment of the association to which they contribute).

Obtaining moderation rights in a virtual community, as is the case with Wikipedia, based on previous contributions.

18. Progressive utilization theory (PROUTist economy)

Progressive utilization theory (PROUT) is a socioeconomic and political theory created by the Indian philosopher and spiritual leader Prabhat Ranjan Sarkar. Sarkar conceived of PROUT in 1959. Supporters of PROUT (Proutists) claim that the theory exposes and overcomes the limitations of both capitalism and communism. It describes an alternative to the capitalist and communist socio-economic paradigms. It aims to be economically progressive and improve social development. The theory is in line with Sarkar’s Neohumanist values which aim to provide “proper care” to every being on the planet, including humans, animals and plants.

The Proutist universal association whose goal is to promote this theory is associated with Ananda Marga. The latter is considered a sect by several anti-sect associations.

19. Proprietism

Proprietism is an economic system composed of a vast network of sole-proprietorships ( is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work ‘alone’—it is possible for the sole trader to employ other people).

Proprietists believe private ownership fosters a more responsible and accountable business environment as owner(s) and company are not legally separated entities.

As in capitalism, the resources of a proprietist system are allocated through market forces, though proprietism differs from capitalism because the structure implies a more decentralized ownership of capital, similar to that of a company with an employee stock ownership plan. According to Kurke, proprietism has the potential to resolve the principal-agent problem by structurally realigning productivity and innovation with compensation, assuming advances in information systems continue. Kurke argues that proprietism already exists in the zeitgeist, especially among millennials.

Proprietism is a free market political-economic philosophy that supports eliminating state-created moral hazards like limited liability and corporate bankruptcy. Instead of limited liability corporations, the economy would be built around full liability proprietorships and partnerships that buy insurance to protect the personal assets of owners and investors from risk in excess of business value.

20. Social Credit

Social credit is an economic systems of ideology and a social movement that emerged in the early 1920s. Originally, it was an economic theory developed by Scottish engineer Clifford Hugh Douglas. Each citizen receives each year a total of created currency proportional to the growth of goods and services, and inversely proportional to the number of citizens of the currency area. The name “social credit” derives from his desire to make the goal of the monetary system (“credit”) the betterment of society (“social”).

Social credit is also called universal dividend, social dividend or, arguably more appropriately, monetary dividend.
Douglas believes that social credit can correct this problem by ensuring that there is always enough money (credits) in circulation to buy all the goods that can be produced. Its solution is defined by three main claims:

That a “National Credit Bureau” calculate on a statistical basis the number of credits that must circulate in the economy;
A price adjustment mechanism that reflects the true cost of production;
That a “national dividend” gives a guaranteed basic income to all regardless of whether or not they have a job.
The engineer says the latter request makes good sense since technology has reduced the number of workers needed to produce goods as well as the number of hours they have to work.

Douglas’ ideas enjoyed great popularity during the Great Depression, but not enough to carry out his plan.

21. Workers’ self-management

In its classic definition, self-management (from the Greek autos, “oneself”, and “management”) is the fact, for a structure or a group of individuals considered, to entrust the decision-making concerning it to the all of its members. Self-management does not involve any governmental or decision-making intermediary, it is in fact part of the anarchist or libertarian philosophy.

This conception is generally constructed explicitly against practices qualified as hierarchical, authoritarian, vertical, against forms of dispossession that certain modes of organization would constitute. In other words, this type of self-management would allow a reappropriation of a form of collective organization.

Moreover, this definition allows self-management practices that are not limited to the sole economic field.
An enterprise that is self-managed is referred to as a labour-managed firm. Self-management refers to control rights within a productive organization, being distinct from the questions of ownership and what economic system the organization operates under. Self-management of an organization may coincide with employee ownership of that organization, but self-management can also exist in the context of organizations under public ownership and to a limited extent within private companies in the form of co-determination and worker representation on the board of directors.

An economic system consisting of self-managed enterprises is sometimes referred to as a participatory economy, self-managed economy, or cooperative economy. This economic model is a major version of market socialism and decentralized planned economy, stemming from the notion that people should be able to participate in making the decisions that affect their well-being. The major proponents of self-managed market socialism in the 20th century include the economists Benjamin Ward, Jaroslav Vanek and Branko Horvat. The Ward–Vanek model of self-management involves the diffusion of entrepreneurial roles amongst all the partners of the enterprise.

Photo credit: Pixabay

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