Throughout modern history, one of the greatest political battles has been over the ideas of socialism, a planned economy, and capitalism, a market economy. In this paper, I will discuss what these systems are and how they affect an economy.
Planned economic systems are sometimes called centrally planned economies as well. The decisions on investments, production, distribution, and pricing, etc. are carried out by the government. Because all authority is in government hands; a planned economy can be called a command economy. The government has the authority and power to fix and regulate market transactions. This type of economic structure may consist of both fully government-owned enterprises, as well as privately owned but government-directed enterprises. A proposed advantage of a planned economy is that the government gets the ability to connect labor, capital, and profit without any intervention. However, economists point out that planned economies fail in deciding the consumer preference, surplus, and shortages in the market.
The political system linked to a planned economy is socialism. Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people. Socialism is most often criticized for providing high-tax social services programs that may slow economic growth.
The opposite of a planned economy is a market economy. In this economic structure, the decisions on production, investment, and distribution are made according to the supply and demand of the market. A market economy operates on the supply and demand of goods and services and reaches equilibrium on its own. Price is determined by the market and a producer’s ability to maximize profits. All trade and interactions are fairly determined at an agreed-upon price between a buyer and a seller. There are not many pure market economies in the world, but most economies are mixed where there is some state intervention on price regulation and production decisions. A market economy functions with lesser intervention from the state.
This laissez-faire economic style is tied to a capitalist political system. Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.” Capitalism is most often criticized for its tendency to allow income inequality and the creation of socio-economic classes.
A market economy or a capitalist system is much more effective and efficient than a planned economy. There is economic freedom in a capitalist system that allows the free flow of trade and the voluntary exchange of goods. This creates a society that is more free, happy, and able to buy and sell the things they want. Capitalism requires competition and competition drives innovation. Socialism and a planned economy do not work because a governing state does not know what decisions and products are best for everyone. There is no way that they can predict what services are needed and muster the motivation for people to provide these services when there is not an equal return on their work as there would be in a market economy.
The capitalistic system aligns most closely with my belief system. God created us as beings with free will, capable of making choices and living our lives in a way that glorifies Him. One of God’s commandments is that “thou shalt not covet” and I believe that socialism is built on the idea that the rich only get wealth because they have stolen from someone else. This is simply untrue. People will always try to abuse the system and take advantage of others, but in a true capitalist society, all exchanges are voluntary and not coerced. Socialism allows for the free choices of individuals. The idea that a governing body should require people to provide a good or service they may not want to provide or even be good at seems like a form of slavery to me.
The U.S. government controls or partially controls many goods or services, such as education, courts, roads, hospital care, and postal delivery. It also provides subsidies to agricultural producers, oil companies, financial companies, and utility firms. Still, the bulk of economic activity is controlled by consumers. Companies are allowed to buy or sell any goods they see as profitable as long as they meet the regulatory mandates of the government. Aside from the statutes and regulations, the market is generally free.