The Right Is Right

Updated on February 12, 2019

The Four Economic Systems and Their Origin

Many economists believe in 4 main economic systems that can usually be classified as either right-skewed (free market economies) and left-skewed (planned economies.) These 4 main systems are known as traditional, market, mixed, and planned economies. The ideas of these economic systems are very old with the idea of capitalism and free market economies being popularized by the Scottish economist Adam Smith. Many modern left-skewed economies draw ideas from Karl Marx and Friedrich Engles who wrote the political pamphlet know as The Communist Manifesto.

The origins of left and right leaning economies are very old and have routes in the earliest civilizations throughout human history. Many early civilizations may have had a capitalist belief set while events like the French revolution were examples of communist-like ideology before the "invention" of communism. Immense social and economic factors lead to the development of the ideas supported by Adam Smith and Karl Marx.


Traditional Economies

A traditional economy is a sort of wildcard since it can either be a right-leaning or left-leaning economy. A traditional economy is defined as "Traditional economy is an economic system in which traditions, customs, and beliefs help shape the goods and services the economy produces, as well as the rules and manner of their distribution." In laymen's terms, social norms dictate the price of goods and services.

I would not say that this is a bad economic system but it would only ever work within a group of less than 1000 or so people. However, if America, England, or Russia were to implement a traditional economy it would cause the decline of the listed nations and anarchy would rule those once powerful countries.

Command Economic Systems

The most radical of leftists will argue for a command economic system. A command economic system is an economic system where an outside force has complete control over the economy. Such a system would have said outside force (I.e the government) can control the price, production, and availability of goods and services as opposed to supply and demand like a market economy. If a country employed a command economy personal property would become a thing of the past and theoretically anyone "more equal" than you would have a right to your property.

This economic system is associated with "Soviet-style" communism which was a totalitarian form of collectivism that gained power after promises of increased social welfare. Historical examples of command economies universally had poor living standards like North Korea, North Vietnam, The Soviet Union, and China (though China has moved closer to a mixed economy.) Any country that employs a command economy will have citizens One common argument against my point is that the Soviet Union and all other states listed above weren't "true communism." I would agree with this assessment but it does not invalidate the point I'm making. This is because of the fact that a perfect communist society (as described in The Communist Manifesto) could only practically exist within a post-scarcity society.

Within a historical communist society, there were high levels of poverty, and the quality of life within these states was generally poor even though everyone was supposed to be equal. A command economy system which has perfect social welfare will not give people incentive to raise the quality of their own lives and thus it will stagnate. It would also give no reason to employ people or engage in business with others. To see an example of these systems failing look no further than this link: https://en.wikipedia.org/wiki/Trabant. While other systems can create a poor state this system will inevitably lead to poor quality of life.

Command economic systems also often lead to corruption within the higher tiers of the government. Many historical examples exist of hedonistic communist dictators like Kim Jong Un. Stalin wasn't exactly a hedonist but he did enjoy a level of power beyond that of every organization within Russia. He could easily kill political dissenters without much protest. To quote Animal Farm " All animals are equal, but some animals are more equal than others."

Market Economies

A market economy or capitalism is a system supported by conservatives, libertarians, and most of the American-Republican party. Capitalism is defined as "an economic system in which production and prices are determined by unrestricted competition between privately owned businesses." This would mean that the prices are driven by the supply and demand of a good or service. In a market economy, the government has very little or no involvement in the economic actions of its citizens.

A common argument against capitalism is that it promotes inequality. Yes, this is true but that is because some people are able to rise above the others around them and achieve positions of power. This can either just be luck or the draw when you're born or it is a person's labor that allows them to achieve positions in society. To quote Milton Friedman, author of Free to Choose and noble prize winner, "A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both."

Another common criticism is that it encourages greed. But, what is greed truly every society is based on greed even the countries that despised the idea were based on greed. Every person is naturally inclined to seek their own interests both economically and socially. Societies are based around people looking out for their own interests and coming up with ideas to achieve them. Henry Ford revolutionized automotive travel with the invention of the Ford Model T for profit. The Wright Brothers built one of the first heavier than air flying machines for profit. So capitalism encouraging greed is not a bad thing about the system.

Mixed Economies

A mixed economy is a mostly free market society with certain things regulated by an outside force. These aren't as free as capitalism but they aren't nearly as controlled as a command economy. These are characterized by multiple social enterprises (I.e free healthcare for all, free college, and jobs for all.) Some (not all) American liberals and Democrats support this type of economic system. Most of the power of a mixed economy comes from regulation like minimum wage laws and other things like a mandated price for water (like in Greece.) While these ventures often cost the taxpayer more money than a capitalist economy the main expense is put upon the high echelons of society and large business owners.

I would not go as far as to say that this system is inherently bad like a command economy. My main problems with a mixed economic system are that it often considers things such as healthcare, housing, and college inalienable rights. This assumption is false however since you never have a right to a specific service or good unless it is required to conduct something fairly (like a lawyer for a trial.) Certain aspects of mixed economies are needed to maintain a fair capitalist society. This can include public goods and the ability for the government to enforce some sort of will over the economy like breaking apart economies.

Why the Market Protects Consumers and Employees

One would be wrong to assume that minimum wage regulations protect the worker. This is a wrong assumption. In reality, it only would make it harder for one to get a job, and it only serves to hurt workers more than it helps. One argument in favor of the minimum wage is that it will allow companies to grow in power because they could exploit employees and create large monopolies. However, this isn't the case. Any business exploiting the worker and consumer will be doomed to fail because of other business's competition. Every business will try to make everything as cheap as possible so that they will get the most business. This process will continue until the product is being sold for what it is worth. Corporations also often attempt to get the most skilled employees by offering a higher salary. This is one of the many reasons why there should be no minimum wage.

Minimum wage laws also make it harder for people to get jobs. This is because if an employer and a potential employee are negotiating and the employer only has a certain budget he may not hire because it would be too expensive. This person is not only losing out on a paycheck he is losing out on valuable experience which may secure them a better paying job in the future. Many people also think that large businesses will drop the worker's salary and force him to work for .50$ an hour. However, this assessment is not very logical. Everyone will be paid what they are worth and if they are worth only .50$ an hour they will be rendered unemployable. If you pay a person 3$ an hour who's work demands 10$ an hour he will either be given a raise, quit and find a better job, or be given a better job offer.

Monopolies are also incredibly hard to achieve and they are only really possible with the government intervening or if the person has some revolutionary new production technique. Even then a government could still break apart a companies monopoly. To sum things up whenever a worker, employer, and company all strive for self-gain it will produce a better and more equal society for all. As long as the government can take actions to prevent monopolies from gaining to much power (even though their formation is unlikely.) This logic can be applied to many things such as how when companies innovate to make a profit the consumer also gains since they are getting cheaper and higher quality devices. In a free market society, a consumer is never "exploited" they will buy something if they believe that they will get something out of it.

Conclusion

To conclude I will quote Adam Smith, author of The Wealth of Nations:

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow citizens."

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