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In his book, What Are the Four Types of Economic Systems?, Thomas Carlyle asked; “What are the proper function of government, private enterprise, and religion?” He goes on to list the differences between the three types of systems. Among the topics he delves into air; personal, political, social, and cultural systems. These are interesting topics and have indeed helped us think about what are the four types of economic systems.

According to Carlyle, there are three primary types of economic systems. The first would be laissez faire economic systems, which he defines as “the belief that social responsibility ought to be left to the individuals and the communities.” The second would be classical liberal economic systems, which he says are “government by the people, for the people, with taxation serving as a trust fund.” The last is the free-market systems, which are “laissez faire with limited government.” In this article we will examine these three systems and show how each one differs from the other two.

First, the governments of the Western world tend to lean towards laissez faire because it is closer to the ideals of liberalism. By limiting government intervention and empowering the citizens to be involved in the decisions regarding their lives, government weakens the influence of special interests groups and facilitates the free flow of capital. On the other hand, government intervention is necessary to ensure a level playing field for all entrepreneurs. Private enterprise thrives when the government provides a stable economy and protects it from threats or when it over regulates business competition. The free market, by contrast, thrives when consumers are not hampered by high prices and the government protects them from abusive lending practices.

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It is also interesting to note the differences between laissez faire and capitalism. The first system is designed to protect and encourage entrepreneurial ventures and the second aims to protect the interests of large corporations. Neither system is free-market based and both aim for minimal government intervention into markets. For instance, in a laissez-faire society, taxes are typically paid by large corporations in return for a portion of their profits. In capitalism, businesses earn their money from the consumers via the price mechanism.

It would be simplistic to say that the two systems are bad, but they are not really different from each other in terms of their effects on society. The question, however, is which is the better system. The answer largely depends on one's position on socio-economic issues.

Whether or not one supports laissez faire or capitalism does not change the fact that they are merely two different economic systems. Each has positives and negatives but neither system can be completely classified as “good” or “bad.” Both are social constructs with historical roots that have shaped modern society. What Are the Four Types of Economic Systems? was written as an introductory course to college students interested in economics. It provides a basic introduction to economic theory and a brief discussion of economic concepts such as entrepreneurship and laissez faire.

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