Essay Preview: Socialism Case
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Socialism” (more accurately social democracy, characterized by economic regulation, welfare, Social Security, public spending and investment, labor laws, etc) saved the United States and almost ALL of the industrialized nations in the world from laissez-faire capitalism in the Great Depression (fascism “saved” Germany and Italy from capitalism in the Great Depression).
Economies are the systems of trade which try to solve the economic problem in their area (i.e. Nation or economic union). There are three major systems that are or have been imposed to solve the economic problem; they are the market economy, centrally planned economy and mixed economy. Despite having three types of economies, all current nations have mixed economies.
First of all, it is important to understand what the economic problem is. The economic problem is societys unlimited wants, despite having limited resources. Due to this, consumers and private firms must choose between their wants, and accordingly rank them in preference of need for the good and/or service. There are four questions that must be answered in all economies. What to produce? How much to produce? How to produce? How to distribute production?
A market economy involves all major business decisions being made by only individuals and private firms. This system is designed so that the consumer demands certain products, therefore attempting to solve the economic problem. The major factor in a market economy is supply and demand. That is, the quantity of a product and the amount of consumers who want the product. Market economies are also known as capitalist, free enterprise and laissez-faire.
A centrally planned economy is the contrast of the market economy. All decisions are made by the public sector (government). There is very little insight into what the individual wants. Centrally planned governments would allocate resources as they see fit. This economic system is designed to promote equality but rarely achieves it. Nations that have, in the past, only used this system are Russia (i.e. United Soviet Socialists Republic) and China. This system could be known as socialist or communist.
A mixed economy is a mixture of both market economies and centrally planned economies. There are two extremes within this system; they are the American system and the communist system. In the American system the economy is still dominated by supply and demand. Whereas in the communist system, such as China, private firms have enter the economy but the government still controls much of trade and have control of answering the economic problem.
In todays society all economies are neither complete market economies nor complete centrally planned economies. Every nation tries to find the right mix of government intervention and consumer input in an economy. Although there are many nations who claim to be capitalist or claim to be communist, in an economic sense they are not.
Capitalism is probably the most popularly used economic system in the world (not regarding mixed economies). Despite this most capitalist countries do not, in reality, have a market economy. We must revisit the meaning of a true market economy to understand this: A market economy involves all major business decisions being made by only individuals and private firms. Most capitalist systems around the world have some sort of governments intervention, this could include; railways, roads, defence forces, welfare or income tax. Therefore these economies are mixed economies, not capitalist ones.
Communism is not used in many economies today. Just like the capitalist system, those who claim to communism also do not have a centrally planned economy. A true centrally planned economy relies on government to make all decisions relating to the economy and therefore the economic problem. The only major economy in the world that uses the philosophy of communism is China. The Chinese government therefore should control all firms and factors of production. The most obvious breach of this system would be the allowance for franchises to locate in Beijing. Also because China participates in the global economy it both imports and exports in a way contrary to communism. Therefore these economies are mixed economies, not communist