Traditional economies
2.500
To an economist, economic society presents itself as a mechanism for survival – a means whereby people are able to carry out the tasks of production and distribution. If we look at the different political and social structures which exist in the world today, and the way in which those systems have developed over the years, we are tempted to say that people have made use of, and are making use of, a very great varieties of economic systems. In fact, in spite of the appearance of great variety, it is a possible to group these different economic structures into four broad categories. These basic types of economic organization are usually described as Traditional economies, Market economies, Command economies and Mixed economies.
Traditional economies
The oldest and until fairly recent times by far the most common way of solving economic problem was that of tradition. In traditional societies, people use methods of production and distribution that were devised in the distant past and which have become the accepted ways of doing things by a long process of trial and error.
In these societies we find that the division of land among the families in the village or tribe, the methods and times of planting and harvesting, the selection of crops, and the way in which the produce is distributed among the different groups are all based upon tradition. Year by year, little is changed; indeed a change in working procedures may well be regarded as an affront to memory of one’s ancestors or as an offence against the gods.
The basic economic problems do not arise as problems to be discussed and argued about. They have all been decided long ago. One follows the path that one was born to follow; a son follows in the footsteps of his father and uses the same skills and tools. A caste system provides a good example of the rigidity of a traditional society. The production problems (i.e. What? and How?) are solved by using land as it has always been used and the worker carrying out the traditional skills according to his or her fixed place in social structure. The distribution problem (For Whom?) is solved in a similar manner. There will be time-honoured methods of sharing out the produce of the harvest and hunt. The elders, the heads of families, the women and the children will receive shares according to ancient custom.
Traditional solutions to the economic problems of production and distribution are encountered in primitive agricultural and pastoral communities. But, even in advanced countries, tradition still plays some part in determining how the economy works. We are familiar with industries in which it is customary, for the son to follow his father into a trade or profession, and in Britain equal pay for women did not obtain legal sanction until the 1970-s.
Market economies
4.000
A society may attempt to deal with the basic economic problems by allowing free play to what are known as market forces. The state plays little or no part in economic activity. Most of the people in the non-communist world earn ant spend in societies which are still fundamentally market economies.
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The market system of economic organization is also commonly described as a free enterprise or laissez-faire, or capitalist system. We shall use all these terms to stand for a market economy. Strictly speaking the pure market of laissez-faire system has never existed. Whenever there has been some form of political organization, the political authority has exercised some economic function (e.g. controlling prices or levying taxation). It is useful, however, to consider the way in which a true market system would operate because it provides us with a simplified model, and by making modifications to the model we can approach the more realistic situations step by step.
The framework of a market or capitalist system contains six essential features. They are:
Private property
Freedom of choice and enterprise
Self-interest as the dominating motive
Competition
A reliance on the price system
A very limited role for government.
Private property.
The institution of private property is a major feature of capitalism. It means that individuals have the right to own, control and dispose of lands, buildings, machinery, and other natural and man-made resources. Man-made aids to production such as machines, factories, docks, oil refineries and road networks are known as capital. Private property not only confirms the right to own and dispose of real assets, it provides the owners of property with the right to income from that property in the form of rent, interest and profits.