What are the main differences between a mixed economic system and pure capitalism?


A mixed economic system is an economy that allows private property and allows businesses and consumers to freely use capital. However, in a mixed economy, governments can intervene by regulating the economy if it is seen in everyone’s best interest.

Mixed economic systems are not state-owned economies, which means that the government does not own all the means of production. In contrast, pure capitalism is a free and private economic system that allows voluntary and competitive private individuals to plan, produce, and trade without coercive public interference.

Key takeaways

  • Pure capitalism is a free, private economic system that allows private individuals and competitors to plan, produce, and trade without government interference.
  • A mixed economic system is an economy that allows private property, but there is some government involvement.
  • In a mixed economy, governments can intervene through regulation if it is seen in everyone’s best interest.
  • Mixed economic systems are not state-owned economies, which means that the government does not own all the means of production.

Understanding of different economic systems

There are many political and moral overtones involved in the centuries-old debate between statist thinkers and free market thinkers. On a simplistic level, the differences between the types of economic systems are clear. Some systems place a higher value on the rights of individual owners, while others place a higher value on government oversight of production and distribution. Simply put, there are three general categories of economic systems: socialism, capitalism, and mixed economies.

Socialism

A centrally planned economic system with some degree of state or social control of production is called socialism. In extreme forms of this category, the government controls the production and prices of goods and services. In the most extreme forms of the socialist system, decisions about how to distribute goods and services are made entirely by the government.

In other words, under extreme socialism, people depend solely on the government for food, housing, income, and health care. North Korea, a state dictatorship, is an extreme example of a fully socialist system.

Capitalism

Capitalism is an economic system in which private companies and individuals own property and capital goods. The fundamental basis of capitalism is that the market (or the forces that influence the market) determine prices and production in the economy.

In other words, the quantity produced, as well as the prices of goods and services, are mainly determined by the supply and demand of those goods and services. As a result, capitalism is often referred to as a market economy, which is in stark contrast to an economy centrally planned by a government or a command economy.

Pure capitalism, an extreme form of capitalism, is also known as laissez-faire capitalism. In pure capitalism, private property rights and freedom of contract are the dominant frameworks of production and trade. The laissez-faire economy develops from a system of respected private property rights.

Pure capitalism means that the less government involvement in the economy, the better for its citizens and businesses, as well as the entire economy. Laissez-faire is roughly translated from French as “let go” or “leave alone.” In other words, there are no government checks, regulations, checks, or balances. In this extreme form of capitalism, owners — including owners of machines, capital, and other input resources — can contract and trade with each other as they see fit, regardless of government needs.

Mixed economic system

A mixed economic system is an economy in which there is private ownership of companies and individuals (that is, capitalism), but in which there is some degree of state participation (that is, socialism). In a mixed economy, the state allows different degrees of freedom between producers and consumers.

A mixed economy also imposes variable limits on property rights. Owners are restricted in how they trade with each other. These restrictions come in many forms, such as minimum wage laws, fees, quotas, extraordinary taxes, licensing restrictions, prohibited products or contracts, direct public expropriation, antitrust legislation, legal tender laws, subsidies, and eminent domain.

Almost every country in the world has a mixed economy, including the United States. Even relatively free market economies like Hong Kong or Australia remain mixed. In western democratic republics, property rights can be violated if the plurality of elected representatives considers such violations to be in the best interest of the public.

In the United States, for example, there is private ownership of property and production so the economy generally operates as capitalism. However, the government does have participation, such as tax exemptions or subsidies for agriculture, since we have as regulation of companies and capital markets. The United States government also owns aspects of the economy, such as the United States Postal Service, as well as partial ownership in areas of national defense.

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Mark Holland

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