Capitalism:-
According to Loucks definition of economic system is that it consist of those institutions
which a given people or nation or group of nations has chosen or accepted as the means through
which resources are utilized for the satisfaction of human wants.
According to Gruchy, It is an evolving pattern or complex of human relations which is
concerned with the disposal of scarce resources for the purchase of satisfying various private and
public needs for goods and services.
To understand meaning of economic systems, it refers to the role or model of distribution
and production which take place in the society. Business is considered as an organized economic
activity. The primary objective of any business is to product and sale goods or services. It exists
to serve people living in the society with differ means. There are some questions which a economic
system must answer:
What to product and service to provide?
The organized of both the production and services
What are the methods to distribute products and services?
A system under which the ownership of land and wealth is for the most part
in the hands of private individuals
1. Classical Capitalism - Adam Smith assumed the presence of perfect competition. The
state is more or less non-existent so far as the economic matters are concerned. The State
job was restrained to enforcement of contracts, protection of property, maintain law and
order national frontiers. They were on the opinion the State has no right to interfere in
the country economic activities. In this type the principle of laissez-faire dominated.
The government has to pave the way and promote a healthy competition among the
enterprises, which in turn increases the output and investment.
The government must attract more foreign investments through a healthy showcase of the
stable economy with emerging industries.
Q2. Identify the basic characteristics of Capitalism, Socialism and Mixed
Economy?
Characteristics of Capitalism-
1. Free Enterprise Economy
Capitalism is also called as free enterprise economy. This is because under capitalist
system, individuals and private firms have the right to own and use property. They have the right
to earn, save and spend incomes also. They are allowed to obtain resources, to organize production
and to sell the products in any manner they like and to anyone.
2. Private Ownership
Under capitalist economy, the factors of production like labor, land, capital and
organization are privately owned. Private property is protected, controlled and enforced by law.
Individuals have the right to own property and also free to use it as they like.
4. Market Mechanism
The market mechanism is the most important characteristic feature of capitalist economy.
It is also called as price mechanism. Under capitalist economy, profit, which is related with market
mechanism, guides the allocation of resources. Under this system the whole economic system
moves in and around the market mechanism. This system suffers from lack of proper planning for
distribution of economic resources and co-ordination between production and consumption. Price
mechanism determines the level of consumption, production and distribution. It is acting as the
regulating mechanism in capitalist society.
5. Consumers’ Sovereignty
Under capitalist economy. Consumers have complete freedom to choose what to purchase.
Consumer is the king of the market under capitalism. Manufacturers consider consumers’ demand,
taste, preference etc. while producing goods.
9. Inheritance
The right to give or acquire property in inheritance is allowed in capitalism.
3. Classless Society
In a capitalist economic system there are different living standards like upper, middle and
lower class. Structure of capitalist society is determined through financial and economic position
of members. However in a true socialist society everyone is equal as far as economic status is
concerned.
7. Pricing Mechanism
The pricing process does not freely but works under the control and regulation of the
central planning authority. In socialist economy price have vital importance. Two types of prices
prevailing the in this economic system one is market prices and other is accounting prices.
Market prices are for consumer goods, while accounting prices helps managers to take decision
about production of consumer and investment goods and production method.
Characteristics of Mixed Economy-
1. Co-existence of the Private and Public Sectors
Co-existence of the private and public sectors is the outstanding feature of mixed economy.
In mixed economy, both public sector as well as private sector industries will be functioning.
Certain industries will be in the public sector and certain industries in the private sector. Private
individuals and firms own private sector industries. Profit will be the primary motive of private
sector industries. In public sector, industries are owned and managed by the Government. Public
industries will also have profit motive but that too for the promotion of social welfare.
4. Planned Economy
The entire economic structure is subject to the planning of the Government. Mixed
economy is a planned economy. The planning commission decides the objectives, targets and
allocation of resources etc.
5. Private Property
Under mixed economy, private firms and individuals have right to own and use property.