Themes

What is Economic System definition/concept

The acquisition of products or services, as well as their manufacture, development and presentation within society form the concept of the Economic System . In this way, it can take different forms, depending on the country and the historical moment to which it refers, but what is certain is that currently the countries inclined to a free market economy are the most prosperous and efficient in the production and allocation of resources . This in no way means the absolute lameness of the existence of regulations on the part of the state, but it is an acknowledgment of the fundamental role that the private sector has in the improvement of society .

Thus, a free market economy assumes that it is based on natural laws. For example, the search for profit is an inclination of every man and it generates benefits to third parties, even so competition is present. This leads to an autonomous classification of the system, the famous “invisible hand”, a concept much discussed, but which is not yet in force; a closer formulation was conveyed by Hayek when referring to a “spontaneous order”, arising from individuals who pursue their own interests. This order always exceeds any order based on a schedule . Economic System

On the other hand, there is a planned or centralized economy. In this case, the production and distribution of goods are directed by the state, which decides what it is best to produce and to what extent. For Hayek, this type of organization inevitably leads to efficiency problems as it is impossible for the state and a group of technicians to process all the information required to provide a good allocation of resources . The problem with a centralized economy is the lack of detail in the processed information. Economic System

There is also an intermediate proposal between the highlighted positions. This guideline states that full economic efficiency is achieved when goods and services are provided by both the private and public sectors. Samuelson’s condition or the excellent relationship between the production of private and public goods intend to explain this scenario.

In addition to this approach, what is certain is that history has left aside any economic organization that pretends to be centralist. In this sense, Hayek’s observations seem to be correct. What is being discussed today is the extent to which state intervention can beneficially affect the economy.  Economic System

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