THE FOUR (4) MAIN ECONOMIC SYSTEMS: The Traditional system, The Command

system, The Market system, and The Mixed economic systems.

Executive summary.
This report provides an overview of the four main economic systems namely being: The
Traditional system, The Command system, The Market system, and The Mixed economic
system. Each of these systems are characterized by their uniqueness, origin, and features.
Introduction
This report aims to provide a comprehensive overview of the four (4) economic systems.
Understanding the underlying characteristics of the different economic systems is essential
for the policymaker, the economist, and the citizens at large. We will dredge into their origin,
advantages, disadvantages and providing real-world examples of each economic system.
1. The Traditional economic system.
Meaning- The Traditional economy which is known as The Traditional economic system
is a system that is mainly rooted in a cultural manner, by the location, as well as
tradition(s). This system is often found in rural areas and indigenous communities where
people rely on bartering, farming, as well as hunting.
Origin- This is the oldest economic system. Its origin tracks all the way back to the Stone
Age Man. [TheStreet, Inc.]
Characteristics- The Traditional economic system has several characteristics that are
quite unique when being compared to the other three (3) economic systems. A part of its
characteristic includes the bartering system, which is an exchange of goods and services
that is conducted without any use of money; an example could be bartering 1Kgs of sugar
for 5 litres of milk. They have limited access to technology, very limited government
involvement as well as lack of market mechanisms. [Anon, 2023]
Advantages- There is a less destruction to the environment because their land is used for
farming and cattle life. In such economies their crime rate is extremely lesser than the
modern economies because of their strong bonds and camaraderie. It provides individuals
with a sense of belonging with its cultural and social identity.
Disadvantages- In this case there are disadvantages that underlie in this economic system.
Because The Traditional economic system relies on fishing and gathering food from their
farms, the weather then plays a big role in their daily life. Weather changes affect their
crops, as well as their livestock which then can lead them to starving. The lack of
economic development in this economic system can lead to limited access to right to
education and healthcare including any other essential service.
Current real-life example: Many of the families that are situated in the rural communities,
primarily observe The Traditional economic system.

 Barter and Trade: The bartering and trade system is still in place in some rural
communities, where goods and services are exchanged without the usage of
 money. In India bartering is still in place, livestock and handmade goods are
exchanged between villagers.
 Indigenous Communities: The Southern Africa is full of various indigenous
communities, such as the San people and the Khoi-San.

The Future of The Traditional economies- It is evolving towards a very inclusive

and adaptive approach. A resurgence on interest in local production and self-
sufficiency could see elements or traditional economies remerge in certain
contexts.

2. The Command economic system.

Meaning- A Command economy is also known as a planned economy. An economic
system in which a central government dictates permissible levels of production and
prices.
Origin- The origin of this economic system can be traced back to several developments. A
Viennese economist, Otto Neurath developed the concept of a command economy after
the World War I.
Characteristics- This economic system is characterized by the centralized government
control over the allocation of resources. [Anon, 2024] There is lack of individuals
freedom due to it being controlled by the state. The state has ownership and control of
most of it and major industries and enterprises.
Advantages- Reduced income inequality, long-term planning the economic system
then allows long-term planning and development of the economy. [Investopedia] Social
welfare programs, the government implements social welfare programs, education,
and unemployment benefits.
Disadvantages-In this context black markets would explode. The freedom in this
economic system is restricted. Inefficiency, due to the governments acting as a monolith.
Lack of competition inhibits innovation, those who favour government control criticize
private firms that esteem profit above all else.

Current real-life example:

 China, the government controls and decides what goods and services are to be
produced, how much they cost and where they will be sold. The stare owns and
operates many of the industries and the government is in control of the economic
decisions.
 Belarus: This country is in the Eastern Europe. It is a largely state-controlled
economy with the government owning and operating many key industries and
strategic sectors.
 The Future of The Command economies- The fall of the Soviet Union and the
economic liberalization of China have led to a decline in pure command
economies.

3. The Market economic system.

Meaning-A Market economic system, also known as a free-market system or capitalist
economy, are characterized by minimal government intervention and a reliance on private
ownership of factors of production (land, labour, and capital). [Friedman, 1962]
Origin- This economic system can be traced back to the ideas of the classical economist
Adam Smith, who championed the concept of the “invisible hand” and argued for the
benefits of free trade and competition.
Characteristics- Private ownership, the individuals have the right to own and control,
resources and the means of production. Under this specific economic system, individuals
and companies play a significant role. Consumers have the freedom to choose and
purchase goods and services of their personal preferences, wants and needs.
Advantages- The economy offers a high chance of wealth. The competitive
environment encourages innovation, leading to better quality products and pursue their
own self-interest. Individuals have economic freedom, to make choices and decisions
based on their interests and preferences. There is a wide range of choices and options in
the market to meet consumer choices.
Disadvantages-There is a wide gap between income inequality and wide social and
economic gap between the rich and the poor. Monopolies and unfair competition may
harm consumers as well workers. Harmful goods or inferior products that may be
encouraged by free market. Lack of public goods and services that are not profitable
firms to produce.
Current real-life examples:

 The United States of America, looking at this country its tech industry is
dominated by companies like Apple, Google, and Amazon, it exemplifies the
economic system with its innovation-driven growth, competition, and consumer
choice.
 United Kingdom, The UK’s real estate market operates on market principles
with property prices that are determined by the supply and demand, and location
factors, and properties are bought, sold, and rented freely by individuals and
businesses.

The Future of The Market economies- While market economies have driven
innovation and economic growth, concerns about income inequality,
environmental sustainability, and market failures have led to calls for greater
government intervention in recent decade.
4. The Mixed economic system.

Meaning- A mixed economic system is an economic system that combines elements

of both a market economy and command economy. In this economic system both
private and government entities have and active role in determining economic activity
and making economic decisions.[Stiglitz, 2008]

Origin- The Mixed economic system emerged as a response to the shortcomings of

pure market and command economies. It seeks to harness the efficiency of markets
while mitigating their externalities and ensuring social equity through government
intervention. Mixed economies became widespread in the aftermath of World War II,
with the adoption of Keynesian economics and welfare stare policies.

Characteristics- Both private and companies and government owned entities

operate in the economy. Economic planning and market forces, the government
sets goals and specific polices while the market also influences economic activities.
Consumer choice and welfare, this focuses on both consumer choices and provides
public services and welfare.

Advantages- Efficient production and allocation of resources. This improves the

social welfare. It provides capital through the promotion in innovation. It provides
goods or services whenever they’re required. The Mixed economic system
provides more opportunities for companies to grow. [ Louise Gaille, 2019]

Disadvantages- It creates a higher level of debt. It might trigger poverty if managed

incorrectly. It offers higher tax rates than the other economic systems. [Louise
Gaille, 2019] The government involvement can be influenced by politics and
corruption. The economic system ca be complicated and bureaucratic.

Current real-life examples:

 Canada- Its infrastructure and transportation, it is both involved within the
private and public ownership and government investment and regulation.
 Germany- Germanys healthcare system is a combination of public and private
providers. Its automotive industry, with companies such as BMW, VW, and
Daimler, operate in a competitive market environment with consumers driving
the demand, innovation, and market competition.
The Future of The Mixed economies- Mixed economies are likely to remain the
dominant model for the foreseeable future. The key challenge lies in finding the
right balance between market efficiency and government intervention to achieve
economic prosperity, social justice, and environmental sustainability.
Conclusion
The four economic systems explored in this report are mainly the traditional,
command, market, and mixed economic system each represent different
approaches to the fundamental questions of resource allocation and economic
organization. Each system has its own strengths and weaknesses, its advantages
and disadvantages and their origin. The optimal approach may vary depending on
a country’s specific circumstances.

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