Characteristics of Market or Capitalist Economies

• The dominant form of ownership of property and wealth is PRIVATE PROPERTY. This means that the vast majority of the means of production of material goods and services such as factories, farms, banks, insurance companies etc or the “Commanding heights” of these economies are owned by private entrepreneurs.

• The primary objective and motivation of the vast majority of economic activities in whatever sphere of business (food, clothing, health care, housing, transport, education and others) is the PROFIT MOTIVE

• The Market or Price system is generally the main mechanism used in these economies to allocate scarce resources to the members of these societies and between the sectors of these economies. This means that prices are the main but not the only criteria employed to allocate scarce resources

• The Government sector is generally expected to play a SMALL ROLE or a MINIMAL ROLE in the management of economic affairs ie in answering the five (5) main economic questions of resource allocation, price determination, etc. The philosophical basis and rationale for the role of government are rooted in Classical Liberalism and are:

(a)An active government in economic affairs “crowds out” the private sector ie private investments and innovations and is less efficient in using resources than the private sector

(b)The private sector ie the private sector or private property owners, innovators, investors are more efficient in using resources than the government

(c) The “Best government is the one that governs least”

(d)Government’s role in the economy should be confined to do the things that government does best such as designing and implementing contract laws, property rights, providing national security to its citizens, providing currency or legal tender etc

• Competition and Competitive Markets are arguably fostered to ensure cost, price, quality efficiencies that are mutually beneficial to successful firms and to consumers

• The pursuit of individual Self-Interests is generally realized primarily through private markets (See Principle#7- “Government can sometimes improve market outcomes”)

• The existence and protection of Voluntary Exchange in markets

• The official existence of the Judicial or Court System is to resolve conflicts between citizens( ex. Employees and employers, wives and husbands, neighbors and other groups)

Characteristics of Centrally Planned or Socialist Economies

• The dominant form of ownership of production and wealth is PUBLIC or SOCIAL PROPERTY. This means that the vast majority of the means of production of material goods and services such as factories, farms, banks, transportation facilities, insurance companies etc or the “Commanding heights” of these economies are publicly or socially owned or more popularly are state-owned

• The primary objective and motivation of the vast majority of activities in whatever sphere of the economy (production, wholesale, retail etc) is the satisfaction of the of the ESSENTIAL NEEDS of the population for food, clothing, health care, housing, transport, education and others

• The Central Planning or Command System is generally the main mechanism used in these economies to allocate scarce resources to the members of these societies and between the sectors of these economies. This means that non-price mechanisms such as worker effort, work attitudes and motivation, wants, needs among others are the main but not the only criteria employed to allocate scarce resources. Importantly it should be stated that prices are also used to allocate resources in these economies though they are not the central mechanism.

• The Government sector generally plays the MAJOR ROLE or the COMMANDING ROLE in the management of the economy through its design and execution of the CENTRAL PLAN for the economy for all of the opposite reasons for the minimalist role of the government sector in capitalist market economies earlier stated

• Competition and Competitive Markets are generally not fostered by the Central Planning agencies in these economies. The latter usually leads to less efficient costs, low quality and huge subsidies to maintain low prices for goods and services. The market or price system is heavily restrained and overshadowed by the Central Planning System in these economies

• The pursuit of individual Self-Interests is generally realized through private and social markets. The latter types of markets are predominant in these economies. (See Principle#7- “Government can sometimes improve market outcomes”)

• The existence and protection of Voluntary Exchange in markets

• The official existence of the Judicial or Court System is to resolve conflicts between citizens( ex. Employees and employers, wives and husbands, neighbors and other groups)