There are four types of economies: market, command, mixed and traditional.
The Facts
In a market economy, people make decisions about their economic activity. The government's role is limited to providing public goods, such as defense and law enforcement.
A command economy is one in which the government has control of the resources and makes the decisions.
A mixed economy is some combination of a market and a command economy.
A traditional economy is one in which a society uses the resources in its immediate vicinity to make the things it needs.
Effects
Different types of economic systems produce drastically different allocations of resources in society. Capitalism has produced the most efficient use of resources, resulting in the greatest prosperity in society but with insecurity. Communism has produced lower productivity because workers do not have the profit motive.
History of
This is a general history of types of economies. It is not meant as a straight-line history, and many of these economies have existed alongside others.
The first type of economy was a traditional hunting and gathering one. In this system, foragers use the land and animals around them to live.
Feudalism emerged subsequently. In feudalism, peasants work for a chief or landowner who gives them protection in return for their work.
Capitalism resulted next from the rise of markets. Individuals own the means of production and work for profit. There is private property under capitalism.
Under socialism, the concept of private property is maintained while the state or collectives own the means of production.
Finally, communism, which bans private property and features communal ownership of the means of production, developed. Under communism, there is no state nor are there classes of people.
Type
Communism and socialism are the most well-known examples of a command economy, while capitalism is the most well-known example of a market economy. Most economies of the world are a mixture of these economies. A type of traditional economy is a hunter/gatherer one, which rarely exists today.
Expert Insight
Adam Smith was an 18th-century Scottish philosopher who wrote "An Inquiry into the Nature and Causes of the Wealth of Nations" in 1776. He believed that people, acting in their own economic self interest, will maximize the economic situation of society as a whole as if guided by an "invisible hand." He believed government should take a hands-off approach to a nation's economy. He is seen as the creator of the study of economics and the best known proponent of free markets.
Karl Marx was a German philosopher who laid out his theory of communism in his book "The Communist Manifesto," published in 1848. He believed communism was destined to replace capitalism because history is full of class struggles that would eventually produce a revolution resulting in communism.
