Choosing an economic system
By RICK CUNNINGHAM© St. Petersburg Times, published December 7, 2000
Paul, Hee-Sun and Sanna illustrate the three main types of economic systems: traditional, command and market. Read the story about each of their lives to learn how every society answers the following questions:
- What is to be produced?
- Who will produce it?
- How will it be produced?
- Who will share in what is produced?
Traditional economy is one based on self-sufficiency, with barter as the form of trade. People will do things as they have always been done. Traditional economies are organized by status and custom (for example, the king must have the greatest wealth in the society). Traditional societies depend upon personal characteristics for social organization. Those include who you are, your status or your family's status. This determines what job you will do and how you will live.
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Command economy is one in which decisions about production, distribution and consumption are made mostly by the government. People do things for the good of all society. Command economies are organized by rules, and those rules are decided upon by a centralized authority. For example, the government decides what goods will be produced and how much will be made. It is impersonal, in that individuals in the society probably don't know the individuals in the government who make the decisions.
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Market economy is one in which decisions about production and distribution are made mostly by individuals and companies in the economy. People do things because they see the potential for benefits, such as choosing a job with the salary that allows you to live the lifestyle you want. Companies produce goods based on what they think they can sell. Market economies are organized around free exchange.
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In the real world, there is no such thing as a pure market economy, or a pure command economy. Pure traditional economies may have once existed, but in the current world they become rapidly "mixed" on contact with the rest of the world.
