Economic System Meaning and Definition

Meaning of Economic System

An economic system is a systematic process of allocating resources and exchange of goods and services for fulfilling the needs and wants of people in a country or the economy.

An economic system is a means by which societies or governments organize and distribute available services, resources, and goods across all geographic regions of the country. Economic systems regulate the factors of production, including land, labour, capital, and physical resources.

The needs and wants of people are satisfied through national resources. These resources are managed through an economic system which involves business organizations, institutions and policy mechanisms. It includes people involved in the means of production, distribution, exchange and consumption.

Definition of Economic System

According to Jan Prybyla, “An economic system may be defined as the sum total of devices which through their interaction give effect to economic choice, ie., which translate choice from an idea into action”.

According to W.W. Loucks, “An economic system consists of those institutions which a given nation or group of nations has chosen or accepted as the means through which their resources are utilised for the satisfaction of human wants”

According to Carl Landauer, “An economic system is the sum total of the devices by which preferences among alternative purposes of economic activity is determined and by which individual activities are coordinated for the achievement of these purpose”.

The economic system is wide in its applications and it includes various aspects of an economy such as the role of the State, market mechanism, nature of property rights, ownership of resources, etc.

There are three types of economic systems that exist in the world today:

  • Capitalism
  • Socialism
  • Mixed Economy

Capitalism is also known as a free economy, It is a complex economic system that has been the foundation of many successful economies worldwide. It is based on the principles of free markets, private ownership, and competition. In this system businesses privately own capital goods. In this system, business owners, also known as hire workers, capitalists, or labourers, who receive wages for their services. However, labour does not own the means of production but only utilizes them on behalf of the capital owners.

A Socialist economy is also known as a ‘Planned Economy’ or ‘Command Economy. The features of a Socialist economy are the opposite of those just listed for capitalism. In this type of economic system, the means of production are owned collectively, typically by the government. The primary objective of socialism is not to pursue personal profit but rather to work towards the collective good. In socialism,  the needs of society are considered more important than individual needs. This means that the country’s resources and wealth are distributed in a way that benefits the entire community, rather than just a select few. As a result, people do not engage in profit-driven competition but rather collaborate for the betterment of all.

A mixed economy system is a blend of both private and public sectors that co-exist and work together towards the economic development of the country. This system is a combination of capitalism and socialism, which aims to eliminate the negative aspects of both economic models. A mixed economy system can create a balanced and sustainable economy by allowing private businesses to operate freely and by providing essential services through the public sector while also regulating them. Several countries have adopted a mixed economy system, including England, India, France, Brazil etc. 

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