Economics is the study of how societies handle the distribution of money (wealth) and the production of goods and services. There are several different types of economic systems that historians and economists have identified throughout history, including: command economy, mixed economy and free market economy. Below is the details of a mixed economy.
OVERVIEW OF A MIXED ECONOMY
A mixed economy is considered to be in the middle of the economic spectrum and is based on the principles of both collectivism (left) and individualism (right). Based on the name of this economic system, it includes elements of both a command economy and a free market economy. For example, a mixed economy contains the following principles from a command economy: economic equality, collective interest, public property and social programs. However, it also contains the following principles from a free market economy: economic freedom, self-interest, competition and private property. This means that a mixed economy contains some degree of government intervention in the economy but lacks the extremes of either a command or free market economy. For example, in a free market economy the economic decisions of a country are generally determined by the individual needs or wants of the people and businesses. In a command economy, the decisions are generally made by the leader who has total control over the decision making of the economy. Whereas, in a mixed economy, both the government and individuals play a role in the decision making process. Therefore, while the market forces of supply and demand are responsible for determining what goods and services should be produced and who should get them, the government also plays a role in providing goods and services. The government’s role in a mixed economy is usually carried out in the form of social programs. Social programs are services which are funded by the government through taxation. In general, those wealthy enough to afford the taxation pay the most towards the program which benefit those who are less well off financially. Some typical examples of social programs in mixed economies include: government-funded healthcare, education, daycare, pensions, welfare, etc. However, a mixed economy also focuses on aspects to the right of the spectrum, such as private property. As such, while a wealthy business in a mixed economy is responsible for paying taxes to fund social programs, they are also driven by the principles of self-interest and the profit motive. The taxation that corporation need to pay is considerably less than the equitable distribution of wealth in a command economy, which means that businesses in a mixed economy still have the ability to build considerable wealth.
EXAMPLES OF A MIXED ECONOMY
Because of the nature of mixed economies, they are often associated with democratic societies based upon the principles of welfare capitalism or the welfare state. A democracy is a form of government in which most or all authority of the country is in the hands of the people who elect representatives to run the government. The welfare state is best associated with the 20th century and modern democratic nations. During the 19th century many people began to question whether or not laissez-faire capitalism was meeting the needs of all people in society. In fact, some argued that laissez-faire capitalism was causing a wide income gap in society between the business owners and working class. It was during this time period that the ideas of socialism developed. In general, socialism is a left-wing economic system that favors government intervention in the economy in order to try to decrease the imbalances created by laissez-faire capitalism. The ideas of socialism spread throughout Europe and North America and had a profound impact on capitalism. Essentially, it caused laissez-faire capitalism to adopt many of the principles of socialism, while also maintaining several of the main principles of capitalism. Therefore, the welfare state is placed near the center of the economic spectrum and takes a mixed approach to economics. For many historians and economists, this is known as the transition from a society based on classical liberalism to modern liberalism. Modern liberal societies are democratic countries that have mixed economies. Today many countries are considered to have mixed economies, including: the United States, Canada, France, Britain, Australia, etc.
POSITIVES OF A MIXED ECONOMY
On the positive side, a mixed economy benefits society because it focuses on the principles from the both the left (collectivism) and right (individualism) sides of the spectrum. This is positive because it means that a mixed economy does not contain the extreme left or right elements of a command economy or free market economy and it instead tries to strike a balance between both. As such, many economists argue that a mixed economy is more stable because it can change to the conditions of the economy and be more free market or command when needed. For example, usually in a mixed economy, the government intervenes less in a period of boom which is when the economy is doing well. However, when the economy is in recession, the government generally intervenes more in order to prevent a crisis and improve the overall economy. Furthermore, under a mixed economy, the government still allows free market principles, which means that a mixed economy avoids the economic issues that often faced a command economy, such as a lack of motivation for individuals to improve the economy. At the same time, a mixed economy avoids the issue of income disparity common in a free market economy, because it allows government intervention that steps in to provide basic social programs if people are in need. Therefore, many consider a mixed economy to be a system that balances the positive elements of both a free market and a command economy.
NEGATIVES OF A MIXED ECONOMY
Although there are several positive aspects of a mixed economy, there are also several negative aspects as well. First, a mixed economy contains more government intervention than a free market economy (through taxation) and therefore may not lead to the periods of boom that a free market economy does. The taxation required to fund the social programs puts a burden on private businesses and limits their ability to thrive. This problem highlights another issue with mixed economies, which is finding the right balance between socialism and laissez-faire capitalism. Although a mixed economy contains elements of both, it can be a struggle to truly find a balance and governments may sometimes intervene too much and other times intervene too little. Furthermore, mixed economies sometimes struggle from large income gaps, just as free market economies do. Although mixed economies contain social programs such as welfare to avoid these gaps, the programs often do not do enough to truly stop wide gaps from growing between the rich and poor. As such, mixed economies often still contain poverty and unemployment.
SUMMARY OF A MIXED ECONOMY
In conclusion, a mixed economy is a system in which the economic decisions are made by both individuals and the government. It is positioned in the middle of the economic spectrum because it contains principles from both a command economy (left) and a free market economy (right). While a mixed economy has the potential to balance both socialism and laissez-faire capitalism, it often suffers from keeping the perfect balance between taxation and promoting private ownership. Mixed economies have occurred throughout history, but are best known in many modern countries such as the United States, Canada, Britain and France.