6 Moments To Remember From 6 Types Of Economic Systems | 6 types of economic systems

In The Wealth of Nations (anonymously), Napoleon Hill identifies 3 types of economic systems. These are the first order of analysis. I think most readers will agree that our “dominant” economic system, based on our current understanding and model for the world, is the first type. It is also the system that has been reigning since the beginning of recorded history. Our “second order” of analysis is the second type, which is the alternative systems that can be used to create a more favorable, or balanced economic system.

The first system is markets and governments. Napoleon Hill noted in his classic book, The Science of Getting Rich, that all market-oriented activities take place within the framework of political systems. For example, all of the exchange, buying and selling, production and consumption of wealth occur within a nation-state or nation-continent because those systems define the rules for how humans interact and decide how to allocate their resources. These systems, which include legal systems, political institutions, economics, marketing, culture and psychology, are all deeply rooted in the makeup of humans. Humans are inherently social and tribal and have very flexible organizational structures that allow them to share and cooperate, even efficiently, in order to survive and thrive.

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Governmental economic systems are the opposite of markets. They are characterized by rigidly structured procedures and laws that provide little room for human improvisation or spontaneous decision-making. A central government establishes laws and determines taxation and borrowing for the nation. A bureaucracy develops to manage this vast system. Those who control the bureaucratic structures, which also control the economy, ensure that the rules are strictly followed. Those who are economically vulnerable, such as students, farmers and employees, are the least likely to benefit from the laws and regulation of a government economy.

Private economic systems occur without governmental intervention. They are characterized by individual initiative, entrepreneurship and free markets with minimal government intervention. They tend to grow and prosper on their own, with little need for government support or regulation. The advantage is that they are less rigid than government economic systems and have the potential to become more democratic, allowing policies to be changed if people are dissatisfied with them.

Markets offer a dynamic range of goods and services that can be traded, bought and sold easily. They are a spontaneous process in which buyers and sellers meet to mutually agree upon a price that both will accept. Unlike most economic systems, markets place enough pressure on participants to prevent monopoly or excessive concentration of power. A market system allows individuals and small businesses to specialize in their products and services, to enter new markets, and to reduce costs and maximize productivity.

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Markets and government lead to competition, transparency and efficiency. A highly efficient market makes goods and services affordable to a large number of people and reduces the need for government intervention. The current system of globalization is a testimony to the ability of market systems to provide a sustainable growth through innovation and discipline.

Types of Economies - The Business Quest - 3 types of economic systems

Types of Economies – The Business Quest – 3 types of economic systems | 3 types of economic systems

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Economic Systems — презентация на Slide-Share | 3 types of economic systems

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