According to the responsibility and the structure of production and distribution network, world economies are broadly categorized into three models viz. Capitalistic Economy, State Economy and Mixed Economy.
- The three models of the economic system which evolved in the course of human history are basically the different stages in the evolutionary process. That is many countries transformed into another mode with due course of time.
- It is the economic point of view of the Liberal philosophy.
- Democracy is an essential feature of this system.
- The decisions of what to produce, how much to produce and at what price to sell is decided by the market force (invisible hands) in this system, with the state having no economic role.
- Rooted in the ideas of historical materialism proposed by Karl Marx, in practice, it is of two types viz. socialist economy (in erstwhile USSR) which emphasizes collective ownership of the means of production ascribing a large role to the state in running the economy; and communist economy (in China from 1949-1985) which is a later version of the socialism, advocates state ownership of all properties with absolute power to state in running the economy and the state becomes authoritarian.
- Contrasting Capitalism, in the Communist model, the decisions related to production, supply and prices are all taken solely by the state only.
- In essence, this system can be called state capitalism.
Due to the failure of classic capitalism model during the Great Depressions
, John M.Keynes suggested strong government intervention in the economy, by increasing government expenditures, discretionary fiscal policy to boost the demand of goods and services.
He suggested the capitalistic order to assimilate the economic goals of the socialistic economy.
As a follow-up, many Capitalist economies policies initiated policies such as producing and distributing some basic goods and services or public goods or social sector and left the remaining goods and services to the market.
This non-ideological fusion of Capitalism and Socialism is the Mixed Economy.
Likewise, Oscar Lange suggested socialist economies adopt market socialism, which was outrightly rejected. But, by taking a lesson from the USSR disintegration, China opted for market socialism.
In short, Mixed economy focuses on economic efficiency, social justice, and individual liberty.
It can be known as Welfare economy.
Even, the World Bank which accepted the good and the need for ‘state intervention’ in the economy. This implies that now there is not any rigid categorization of the economies.
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