Type of Economic Systems

 

This handout shows some basic differences between capitalism, socialism, communism, and fascism. .

 

Factors of Production

Factors are found worldwide and go into the manufacturing of all goods present in the world. They work as a unit, and the removal of any of them will bring production to a halt.

 

1. Land Land is the factor of production from which goods originate. Land consists of natural resources before people have worked on these natural resources

 

2. Labor This factor of production involves human effort in the production process. however, it does not include the managerial or organizational factors.

 

3. Capital This is nay human-made instrument of production used in the furthering of the production process. It can be something as simple as a drill press or as complex as a steel mill.

 

4. Entrepreneur This is a businessperson. The businessperson assumes the responsibility of the enterprise and coordinates and manages land, labor, and capital.

 

Below are some characteristics of capitalism, socialism, communism, and fascism with focus on who owns and manages the factors of production.

Capitalism

Economic system where the means of production are owned by private individuals

        Government control and interference at a minimum

        Private ownership of natural resources permitted

Allocation of national resources determined by supply and demand

Competition eliminates inefficient producers, improves products, reduces costs Private ownership of property permitted

 

Socialism

Socialism is an economic system in which most means of production is owned and controlled by the government.

        Socialists believe moving towards their goals of government ownership and control of production by gradual means

Property nationalized, owners compensated Government plans production by determining what produced and what quantity

        Socialism, production determined by need not profit

        Because government owns production, production can be planned and waste eliminated

        Overproduction, duplication of effort, and depressions avoided as competition replaced by cooperation and planning.

         

Negatives of Capitalism

Private ownership means production leads inequality of wealth- rich get richer, poor get poorer

        Competition wasteful b/c of high cost of advertising

        No government agency controlling production, creates waste by overproduction & duplication of effort

        Planning individual basis, leads to overproduction & waste

Negatives of Communism and Socialism

        Socialism lacks incentives for increasing effort. No motivating force Determining "need" a problem which government unable to solve

        Because government controls production, it also protects the inefficient producer

        Because of improper government planning, both overproduction and underproduction can and do occur

        Freedom of choice is somewhat limited under socialism

 

Communism

Communism an economic system, in theory, all goods owned collectively and payment of income based on need

Individuals given little freedom in determining what to produce

Everything owned collectively, private ownership of production prohibited

Individuals work to full potential w/compensation determined by government. In most controlled economies, incentives used to encourage work at full potential

Fascism

Fascism economic system combines capitalism's private ownership of production w/communism's state planning

Industry organized into corporations or estates under strict regulation of government

Industrial owners belong to Fascist Party, labor union strictly controlled

Fascism traditionally associated with war economy

 

Differences between Communism and Socialism

=;~ Communists seek to end capitalism by revolution whereas socialists do it by ballot box

Socialists believe in orderly transfer for production from private to public ownership Under socialism, fair payment is made for nationalized property

Socialism has high regard for an individual's freedom

Negatives of Fascism

=> Negatives of other systems apply here, combination of other economic systems