Historically, the mode of economic organisation has undergone many changes. The medieval ages were characterised by feudal mode of production while at the dawn of the modern period, feudalism came to be replaced by other modes, whereby socialism and capitalism are the two most important forms of economic systems followed throughout the world. In practice, no one society is purely capitalist or socialist, so it is helpful to think of capitalism and socialism as lying on opposite ends of a continuum. Societies mix elements of both capitalism and socialism but do so in varying degrees, so that some societies lean toward the capitalist end of the continuum, while other societies lean toward the socialist end. 

 

An economic system is a system of production, resource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes and patterns of consumption that comprise the economic structure of a given community. All economic systems have three basic questions to ask: 

 

·What to produce?

·How to produce and in what quantities?

·Who receives the output of production?

 

Today, we can identify 3 main types of economic systems:

1. Capitalism

2. Mixed economy

3. Socialist economy

 

The terms capitalism and socialism are both used to describe economic and political systems. One of the most fundamental differences between the systems of capitalism and socialism lies in the scope of government intervention within an economy.

The capitalist economic model relies on free market conditions for the creation of wealth. The production of goods and services is based on supply and demand in the general market. This economic structure is referred to as a market economy.

 

In a socialist economic model, the production of goods and services is either partially or fully regulated by the government. This is referred to as central planning, and the economic structure that is created is known as a planned economy or a command economy.

 

·The means of production are owned by private individuals. Means of production refers to resources including money and other forms of capital. 

·Under a capitalist economy, the economy runs through individuals who own and operate private companies. Decisions over the use of resources are made by the individual or individuals who own the company.

·Under capitalism, companies live by the motivation for profit. 

·Under capitalism, it’s the government’s job to enforce laws and regulations to make sure there is a level playing field for privately-run companies. The amount of governing laws and regulations in a particular industry generally depends on the potential for abuse in that industry.

 

·The means of production, such as money and other forms of capital, are owned to some degree by the public (via the state.). 

·Under a socialist system, everyone works for wealth that is in turn distributed to everyone. 

·A socialist economic system operates on the premise that ‘what is good for one is good for all, and vice versa’. Everyone works for their own good and for the good of everyone else. 

·The government decides how wealth is distributed among public institutions.

America follows capitalism. Communist countries, like China, North Korea, and Cuba, tend toward socialism, while Western European countries favour capitalist economies and try to chart a middle course. But, even at their extremes, both systems have their pros and cons.

 

What is followed today in most countries is neither pure capitalism nor pure socialism. Rich countries are using their governments to redistribute enormous amounts of their total national income, through health care, pensions, poverty assistance and other measures. The successful, effective redistribution might not be what the original socialists had in mind - the government doesn’t generally own the means of production in most industries in advanced countries. But there’s no denying that national health insurance, poverty assistance and other redistributive efforts were motivated by the ideas and efforts of socialists. 

 

On the other hand, even in socialist countries like China, there is a co-existence of private capitalists and entrepreneurs with public and collective enterprise. In other words, it’s wrong to think of neoliberalism and socialism as polar opposites or inveterate enemies. The world’s recent experience shows that free markets and government redistribution can co-exist to create rich societies where no one starves. Wealth hasn’t trickled down from the rich to the poor as much as many free-marketers had hoped, but the government has been effective in channelling wealth down.

 

Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems. In these economies, the government intervenes to prevent any individual or company from having a monopolistic stance and undue concentration of economic power. Resources in these systems may be owned by both the state and by individuals

 

In theory, capitalism and socialism may appear on 2 different ends of a continuum. While the former believes in free market, private ownership and profit oriented business, the latter stands for government owned public enterprises, oriented towards equal distribution of wealth. However, in reality following either in its purest form can be difficult. Practical examples have proven that following the path of mixed economies i.e. they exist somewhere on a continuum between pure capitalism and pure socialism, with the majority of countries practicing a mixed system of capitalism wherein the government regulates and owns some businesses and industries.