Economic System – Definition, Objective, Types, and More

Economic System Definition

An economic system is a procedure of organization of the economy that society carries out to manage and administer its resources.

In simpler words, an economic system is the set of rules that govern a geographic area’s economy. Depending on the characteristics of the financial system, we can differentiate two main types. Those who give more power to the State and those who give more importance to individuals’ freedom of choice.

Along this line, we can say that the two great types of systems are capitalism and socialism. The first of them propose, mainly, the freedom of the market and private property defence. The second, which we call socialism, offers the opposite. That is the regulation of the market and the security of collective property.

The objective of an Economic System

• Economics, according to its origin, is a science that studies the management of scarce resources. That is, we have insufficient resources, and we must manage them to achieve positive objectives.
• And also, objectives among which we can discover the satisfaction of our needs, ranging from the most basic to the most complex.
• Therefore, with this in mind, we can deduce that an economic Document management system examples is a set of rules that define how society manages and administers those resources that, as we have already said, limit.

Types of Economic System

Referring to economic systems, we can differentiate two types, which we have already named at the beginning and a third that we call mixed.

Capitalism

• And also, it defends private property, freedom of business, the setting of prices through the law of supply and demand, and the existence of competitive markets.

Socialism

• And also, it defends collective property, companies belonging to the State, prices are set by legal laws, and markets regulate.

Mixed Economy

• There are many mixed economies of different kinds. Some more akin to capitalism and others closer to socialism. They are called mixed systems precisely because they are a mixture of the previous two.

Components of an Economic System

An economic system, as a mode of organization, has a series of elements that compose it. These include:

Goods and services: That is, all those goods and services that satisfy our needs.

Economic agents: The economic agents are companies, families and the State.

And also, Productive factors: They are land, work and capital.

Each of these three factors is organized in different ways and gives rise to economic activity. Depending on its nature, this economic activity can be part of the primary or agricultural sector, the secondary or industrial sector, or the tertiary or services sector.

What Elements Make up an Economic System?

The following elements make up an economic system:

Economic agents: Families, companies and the State.

Production factors: Land, labour and capital.

Goods and services: Goods and services produced to meet the needs of economic agents.

These elements give rise to different economic activities. These can be part of the agricultural or primary sector, the industrial or secondary industry, or the tertiary or services sector.

Also Read: Legal Ethics – Definition, Sources, Important, and More

Historical Evolution of Economic Systems

1. Although the predominant economic system is the capitalist one, throughout history, there have been other systems.
2. The western economic and cultural dominance in the international economy is explained as a consequence of developing a capitalist financial system, the duration of which is difficult to determine exactly.
3. The origin of the current economic system must be located at the end of the 15th century, coinciding with the expansion towards the “new world” and establishing commercial relations.
4. Although the system’s characteristics had not been formally established, from the 15th to the 19th century, economic and commercial relations at the international level were intensifying.
5. Adam Smith systematized (fundamentally in “The Wealth of Nations” ) the mercantile system’s characteristics.
6. And also, it allowed us to take a further step towards a structured economic model or design.
7. At the same time, in parallel, some countries experienced a strong level of economic growth. Mercantilism developed during the sixteenth, seventeenth and first half of the eighteenth centuries in Europe and characterized by a strong state’s strong presence in the economy.
8. In Western Europe, modern industry makes its way, with the United Kingdom leading the industrialization process (19th century).
9. The flows of exchange of goods between countries acquired more and more dimension, imposing on the part of Great Britain economic liberalism, whose most notable characteristic was reducing the State’s role in the economy.
10. Liberalism spread rapidly throughout the world, with so-called laissez-faire triumphing.
11. And also, the integration of markets and societies was increasingly intense, which led to a growing interdependence between countries on a global scale.
12. The strong economic expansion imposed the need for a monetarization of the economy. And also, from the hand of the international monetary system, capitalism arises as we conceive it today.

Conclusion

An economic system is a structure or way of organizing a society’s economic activity, producing goods, and providing services, managing and administering the available resources.

And also, hand in hand with new technologies, the collaborative economy has emerged.