OK Economics Economic Systems Lecture Notes INTRODUCTION Full Graphics


  Classification of Economic Systems  


One-dimensional Classification


Traditionally textbooks of economics presented what can be described as 'one-dimensional' classification of economic systems. Pure capitalism and pure socialism were located on the opposite sides of the picture with a linear spectrum of 'mixed economies' between them.

"It is best to think of Capitalism and Socialism as occupying opposite ends of an economic spectrum. Countries' economies lie along the spectrum: some are closer to the capitalist end, and some are closer to the socialist end."(Roger A. Arnold: economics, Third Edition, West Publishing Company, 1996, page 812.)

The pure systems were usually presented as hypothetical extremes that do not exist in real world. All the real economies were considered a mixture of elements of both capitalism and socialism. Each country had specific shares of the two pure systems in its mixture. So for example USA was close to pure capitalism, with only minor admixture of socialist elements, but France or Great Britain had much larger dose of socialism in their mixtures.  Similarly USSR was close to pure socialism, but Yugoslavia although prevailingly socialist was a significant step away in the direction of capitalism.

Such a characterization appears, for example, in the textbook "Introduction to Economic Reasoning" by William D. Rohlf, Jr. (Fourth edition, Addison - Wesley, 1998, page 48) "No existing system adheres strictly to either pure capitalism or pure command socialism. All real-world economies are mixed economies; they represent a blending of the two models."

The main ingredients that made the country either capitalist or socialist were type of ownership, market and central planning. So pure capitalism was made of private property and market, while pure socialism consisted of public property and central planning.

"Socialism and capitalism present themselves as two basic kinds, or models, of economic systems in the world today. While capitalism is characterized by the essential features of the private ownership of means of production and reliance on the market system (prices and profits), socialism is normally associated with the public (social) ownership of the means of production and reliance on some form of planning....The ideal types of systems do not exist anywhere in the world today in their pure theoretical forms, yet every nation in the world today is a reflection of some combination of these two systems and their ideologies. For example, we merely have to point to the following examples to appreciate this fact: (1) The French socialism of Francois Mitterand in the early 1980s; (2) the African socialism of Julius Nyerere in Tanzania; (3) the welfare states of Scandinavian countries , particularly Sweden; (4) Eastern Bloc nations such as Bulgaria and Romania;(5) the dynamic capitalist economy of Japan; (6) the economy od South Africa; (7) West Germany. Each example is testimony to the fact that the world's two great economic systems have successfully given birth to many different offspring. Usually what differentiate these systems from each other, aside from basic ideology and property relations, are the roles of the market and the state in the economy.: (Riddell, Shackelford, Stamos: economics, A Tool for Understanding the Society, Third edition, Addison-Wesley, 1987, pages 522-523.)



Types of the economic systems

  One-dimensional Classification

 Convergence Hypothesis

Vacuum Hypothesis

Two-dimensional Classification


Property Rights vs. Coordinating Mechanism

Command Principle vs, Central Planning

Three-dimensional Classification


What is Socialism

Socialist Countries















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