3/10/2017 Understanding Socialism, Communism, and Mixed Economies: Comparison & Analysis ­ Video & Lesson Transcript | Study.

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Understanding Socialism, Communism, and Mixed Economies:

Comparison & Analysis

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Lesson Transcript

Socialism and communism are alternative economic systems to capitalism. In this lesson, you'll learn some of the
key concepts behind these economic systems. You'll also learn about mixed economic systems.

Understanding Economic Systems

Meet Marvin, an average citizen who works a nine-to-﹜ve job, but dreams of being his own boss.
We'll be following Marvin through two economic systems and see how they're di쩱�erent. An
economic system is the way a society organizes the production, distribution, and consumption of
goods and services to meet people's needs and wants. Basically, economic systems address the
following questions:

What type of goods and services should be produced?

How much should be produced?

How should it be produced?

For whom should it be produced?

Economic systems can be divided into market economic systems and command systems. In a
market economic system, private individuals, like Marvin, own most of the factors of
production. These are things like land, labor, and capital that are used to produce goods and
services. Marvin also has the right to buy or sell whatever he wants. His decisions are guided by
pro﹜t, his self-interest, and the resources available to him, like money.

Supporters of market economies believe that everyone acting in their own self-interest results in
e迸cient and productive allocation of resources in an economy. Consequently, under a market
economic system, the market determines the types of goods and services that are produced, how
much should be produced, how it should be produced, and for whom it should be produced. There
is little government intervention in the economy. In fact, the United States is a good example of a
market economic system.

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3/10/2017 Understanding Socialism, Communism, and Mixed Economies: Comparison & Analysis ­ Video & Lesson Transcript | Study.com

Command economic systems are pretty much the opposite of market systems. In a command
system, most of the factors of production are publicly owned. Marvin probably doesn't have a very
good chance to start his own business in a pure command economic system. Economic decisions
are made through central planning by the government. In other words, the government's central
planners will determine what gets produced, how much of it gets produced, how it should be
produced, and who gets what is produced. The former Soviet Union was a command economy.

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Socialism
Socialism is a type of command economic system. The state owns and controls most of the factors
of production, including land and capital goods. The state also engages in central planning.
Production of goods and services, as well as their prices and distribution, are centrally controlled
by the state. Marvin will have a hard time starting a business in a purely socialistic economic
country.

However, socialism does not assert control over people's own labor. The central planners will not
dictate where Marvin can work and what he will do. Marvin can work for whom he wants and do
the type of work he wants so long as he can get hired. Economies that utilize socialism also tend to
have a high-degree of worker participation in management and distribution of wealth is often
based on need. Sweden is an example of a country that uses socialism as an economic system.

Communism
Communism is another command economic system. In fact, it's probably the ultimate command
system because all factors of production are controlled by the state. Marvin will be unable to start
his own business because the state owns the land, capital goods, and directs economic activities.
Under communism, Marvin doesn't even have a choice where he will work because labor is
controlled and directed by government central planning. China is generally considered to have an
economic system based on communism.

The Reality - Mixed Economies

Marvin doesn't live in a pure market or command economy because no one does. There is no such
thing as pure capitalism, socialism, or communism in the real world. Everyone lives in a mixed
economic system, where countries blend aspects of command and market systems to organize
their economies.

Of course, some countries are primarily market oriented, like the United States and much of
Western Europe, while other countries are orientated towards socialism, such as Northern Europe.
But even the United States has aspects of socialism, such as government regulations, social
insurance programs, and public schools. And even communist China has special economic zones
that allow for more free-market-orientated activities.

Lesson Summary
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3/10/2017 Understanding Socialism, Communism, and Mixed Economies: Comparison & Analysis ­ Video & Lesson Transcript | Study.com

Lesson Summary
Let's review what we've learned. We all live in an economic system, which is the manner in which
our society has structured the way goods and services are produced, distributed, and consumed to
satisfy our needs and wants. Economic systems can be divided into market-orientated systems and
command-oriented systems.

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A market system relies on market forces to determine production, distribution, and consumption
of goods and services. Most property and economic decisions are in the hands of private
individuals. A command system, on the other hand, relies upon the state rather than individuals
or markets. The state owns most property and most economic activities are directed through
central state planning.

Communism and socialism are two types of command systems. In a socialistic economic
system, the government owns most land and capital goods, but individuals still control their own
labor. Economic decisions of production, distribution, and consumption are centrally planned.
Workers often participate in management decisions and income is often allocated based upon
need. Communism is like socialism except all the factors of production, land, capital, and even
labor, are controlled by the state.

Pure economic systems, such as free-market capitalism, socialism, and communism, do not exist in
the real world. Instead, we all live in mixed economic systems where the government blends
di쩱�erent features of two or more systems. Of course, some economic systems are more market-
oriented and some are more command-oriented.

Learning Outcomes
When this lesson is ﹜nished, you should be able to:

Understand the types of economic systems

Identify a market system and a command system

Recognize socialism and communism as command systems

Recall that most of the world is a mixed system

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