F u n e W Frwh&mof F m d c

Systems md ~c Cmcepu 2.12 ANSWERS TO CHECK YOUR PROGRESS

A 1 i) False ii) True iii) False iv) False v) False

vi) True vii) False viii) True ix) False x) True xi) False
B 2 i) False ii) True iii) True iv) True v) False .
vi) False vii) True viii) True ix) True
C 1 i) False ii) True iii) False iv) False - It Gill depict reality only if
its assumptions are realistic. Otherwise, it would have only correct reasoning
without applicable conclusions.
v) ~ a l s e vi) False vii) True viii) False ix) False
2 i) f , ii) h iii) b iv) e v) g vi) c vii) d viii) a

2.13 TERMINAL QUESTIONS

1 .Distinguish betwe.en positive and normative economics. Which one should be
preferred and why?
2 Write short notes on the following :
a) Concept of Equilibrium
b) Limitations of Economic Laws
c) Ceteris Paribus
d) Tracing the Path of Change
3 Distinguish between :
a) Microeconomics and Macroeconomics
b) Static Economics and Dynamic Economics
4 State the reasons on account of which almost every modern economy is a dynamic
one.
5 In what forms opportunity costs manifest themselves for the consumer, the
producer, the investor, and a factor of production?

Note : These questions will help you in understanding the unit bettkr. Try to write
answers for them. But do not send your answers to the University. They are 1
L
for your practice only.
I
 ECONOMIC SYSTEMS
I
I Structure
3.0 Objectives
3.1 Introduction
3.2 Economic System
3.3 Various Economic Systems
3.4 Capitalism
3.4.1 Emergence of Capitalism
3.4.2 Features of Capitalism
3,4.3 Price Mechanism and the Working of a Capitalist Economy
3.4.4 Modem Corporation in a Capitalist Economy
3.5 Socialism
3.5.1 Building of Socialism
3.5.2 Features of Socialism
3.5.3 Role of Planning in a Socialist Economy
3.6 Mixed Economy
3.6.1 Features of a Mixed Economy
3.6.2 A Case for a Mixed Economy
3.6.3 Limitations of a Mixed Economy
3.7 Let Us Sum Up
3.8 Key Words
3.9 Answers to Check Your Progress
3.10 Terminal Questions

3.0 OBJECTIVES
V
t After studying this unit, you should be able to:
1 0 identify various forms of econdmic systems
outline the features of capitalism, socialism and mixed economy
0 explain the working of capitalism, socialism and mixed economy

I -
3.1 INTRODUCTION
In our day-to-day life we often talk of capitalism, socialism and mixed economy,
These are the economic systems presently found in different countries. In this unit,
you will learn what exactly these systems mean. You will further learn as to how these
systems emerged or are built and what are generally the modes of their functioning.
You will also learn how the,roles of market and the state planning differ from one
economic system to the other.
-
3.2 ECONOMIC SYSTEM

In the earlier section we have referred to 'certain economic systems which will be the
subject of major discussion in this unit, But prior to this discussion it is necessary to
learn the precise meaning of economic system and the sequential order in which the
--
various econprnic systems have evolved or have been set up, We h a v ~already
discussed (Unit 1) that every society creates an economic system or an economy to
solve the basic problem of the imbalance between means and wants. Thus,the word
'econbmic system (economy)' represents the sum total of all institutions, methods and
arrangements to deal with the problem of scarcity of means (resources) in relation to
unlimited wants and the choice of wants to be satisfied. In other words, the
mechanism that decides in a society as to what to produce, how to produce , how
much to produce and for whom to produce, is to be known as the eqonomic system,
~ ~ W ~ ~ ~ ~ F m m oThis
r nway of
l c looking at the csncept of economic system is sorncwhtat sirn~slistic.In a
Sysiena d W Calm*
more scientific sense, the term econc~lirricsystem can be defined as ,the "productive
forces' togetlrer wit& the 'relations of pr6ciuetiun1brrscd on a certain pattern of
ownership of 'means of production'. 'Tlncreforc, to understand the nature of the
economic systern in any society, we shall hove to eollsidar its productive forces
together with the relations of prodllctionq~evailingin that society. Now let us discuss
about these aspects in details.
Production Forces : In order to survive., man needs food, clothirlg, house and many
other goocls and serviscs. I.Ie has to arsr his labo~rsto produce, all thesc tl~ings.Wc
a11 know thiit labour cannot be r~seilalone to pf.od!ice anything. It has to use mnter'ials
like sugarcane, oilseedu, iron ore, coal, tools, mi~cl~ines, br~ildingsetc,, to produce
something havirig rrtility for human beinfis, All thesc thingswith wlnicil man works to
produce uscful gac~clsand scrvicp are known as means of production. Means af
productio~lcan be classified into two brsacl catcgorics. In the first catcgnry we mRy
include those means of production on which labour is directly applied. Co~nrnodities
like cotton, oilseeds, chcmict~lsand aiinersls which arc in the nature of raw materials
fall in this category. TI~cseare kriawn as objectfi ( I ~ ~ B ~ O I,Machines,
IP. tools and such
other capital equip~nentarc known as ismet~unnerrhollabcstsr. Apnr't from i~rstrutnents
of labour certain other tJiirips, like ronds, factory buildings, ports and warc!housc?sare
,included in what,is known] as mcrans of labour,
In till societies, primitive or modertr, ccmti~iunusintcrnciion takes placc l~etwcenthe
llrenns of protluctioa and iabouw which detern~inesthc productive forces Eoil thcsc
societies. With the progress in the field of science and technology, thcre has been
considerablc improvement in machines and tools. In fact, today thc instruments of
labour arc far inore diversified, and require greater sklll. The substance of the whole
argument is that over time productive forces lluvc grown and the indications at present
are that they will continue to grow in futurc.

Relations of Prsd'slctions: In thc process of prt~duction,hunran t~eiitgsintetac! with

each other and have certain relations among themselves. ?'hcse.relations are known
as the 'relations of production'. Thr: relations of production depend cssc~iti:illyon the
fact as to who owns the means of production and who provides the labour. Iil other
words, tlne nature. of ralaticans of production will be determined by the ownership of
land, mineral resources, fnctories, machines, ctc. If these means of l~roductionare
owned by a selected group of people and other people, (constituting a vast majorityj
provide the labour, then the former will constitute an all powerful class and thc latter
will have a very inferior position in the society. On account of c:onflist of' intercsts,
these two of people.will always remain in co~st;t;urtconflict. If, on thc contrary,
all the means of productio~nare owited hy the ctatc which functions in the interest of
the entire society, tlicrn rel:~tionsof production will tcst oln xnutital cooperation and ,
there will be no scopo for exploitation of oue s*lassof pcople by another class of
people.
Compatibility slnd confllst between productive forces and relations of pr~duction:
Over rime not only the population has grown but man's knowledge and awareness
has also increased. This has necessitarcd sustained increase in production. In the
earlier times, when productive forces were very baclcward, rncn lived together and
worked together for their subsistence. Collective hunting of animals and sharing the
fruits of coUective labour was determincd by the backward form of the instruments
of labour. In contrast, now productive forces are very developed. Those people who
own means of production do not provide labour. These make others work. These
reiations of production are compatible with productive forces. So long as this ,
compatibility is not disturbed, the eccnomic systern remains stable. But o w e on
account of adlyartccs in j.rroductive forces, conflict develups brtwccrn theso ~ 1 1 dthe
relations of production, the economic system is threatened. For exalt~pie,sucll a
situation developed in the eighteenth ce~rturyin Europc. Discovery of a number of
machines resulted in a conflict in the old oruer. Far setting up modern industries, the
old peasant economy had to be mnrginalised. In the earlier sybteli, feudal lords were
the owners of land and actual farm operations were done by the bodded labour known
as serfs. With these relations of production, industrialisation was ruled out.
Therefore, coaflicl betweell pragressivc productive forccs and thc prevailirig relations
of production developed. This ultimately resulted in the destruction sf the old order
i.e., faudalism, and the new economic system known as capitalism emerged.
 ---.--*--.----."-- -----. -.*-
3.3
-..-.-.----
VARPOUB FOlRMS OF ECONOMIC SYSTEMS
--- -.-*-".- --. -.-------- -
Prom the study of history, we learn that the present day economic systems had not
existed in the ancient and medieval periods. The sequential order in which economic
systems have either cvcc~lvcdow havc been see up is as follows:
1 Primitive sosiaey
2 The slave c~wwingsystem
3 Feudalism
4 Capitalisin
5 Socialism

1 PrhHtlve SmieUy : The earliest organisation developrd by man is known as

primitive society. This system lastcd for several tliousuiid years and cilrnc to iin end
only about six to seven thotrsand years ago, l'his was the time when man was very
vyeak and helpless. The instruments of Iiibour in this age wcre primitive ancl
therefore, t h e was no clnoicc for t11e11but to coopcrate wit11 each other. People
hunted eogetQnzriri groups arid lived collcctivcly on the fruit of their joint labour.
Thore was no private property i l l this system. Over time when productive forc:es
cieve!opcd tlr~dman Bci~nlPto cRo fiirnaing, tPic rclutiorts of j3roduction started
changing. In tl~crlcw situuttorr i d ~ c r eit was possiblc for Inan to producc in excess
of WBI;PI was IIL:CI~CI~ for tiurnan subhistcncc, the institutian of slavery cmergccl, This
was the timc whcn the notion of privatc property alscr beca~rieacceptablc. Witlr
the ernergcncc of thc i~ilstitutio~is of sluvcry irnd privatc p r ~ p ~ r t the
y , classless
priniitivc society was rcplaccil by a class socicty dividocl into masters and slaves.
9, 'Fine Slave Owninrg Systcna : In this system, mcnns of production belongcd to
individuals who illso had control over thc labour of slaves. In the early period of
s l i ~ ~ e rrna~tcrs
y, nlso workcd along wit11 sli~vcs.Rut in cotlrse of tirtie this practice
was ab:~ndoncdancl only slaves were ~riadeto work. 'T'c masters appropriated tlnr
wliole output ancl gavc to slaves only that ~noctkas was iibsolutely necessary for
their subsistence. 1Jndcr slavery the producers, who wcrc invariably slaves, had
virtually 110 intcrcst in i~tiprovingthe tcchniqt~csas that did not irnprove their lot.
Improvetl technology ancl raising tlic productivity would have increased orily the
surplus to bc i~ppropriatcdby the innstcrs. I-Ience the relations of production in a
society boscd on slirvcry became an obstacle for the devclopmcnt of productive
forces. 'l'liis contradiction and also the conflict bctwecn the interests of the niasters
i\lld the slaves resulted ulti~rratelyin the break dowo of this economic system, 'rhe
IICW eco110111ic systerli to clncrge thereafter was feud a 1'~ s m .

3 Fend~lism: With the decli~ieof the slavcry anti rhe cmergencc of fclrdalism, an
opportunity was creatcd for the ~leveldpnlentof prod~~ctivc forces. Under fendalism
lancl was the pri~lciptllmcans of pro~iuctionant! it bclongcd to iltc king, feudel lords
:lnd thc nobility, The people who actually particijvilcil in flu m :,periitions did not own
any land and were know; as scrfs,They worked on the land ow~lcdby feudal lords
and in return received only that much as was essential for their subsistence.
Production of other goods was done by artisans and handicraft workers largely to
cater to local demand. In the course of time when market for suchco~nmodities
expanded and the industrial technology advanced, tlne need for setting up factories
arose. From this an incompatibility developed between the relations of production
and the productive forces under feudalism. Workers were needed to be employed
in the factories and their supply would not be forthcoming unless serfs were freed
from bonds with the feudal lords. Therefore, the capitalists in their own interest
encouraged serfs to fight for their freedom which ultimately resulted in the downhll
of feud:ilism. The new economic system emerged was capitalism.

4 Capitalism : Like the slave system and feudalism, capitalism also rests on the
private ownerslnip of means of production and the exploitation of one man by
another man, LJndcr capitalism the productive forces have registered a spectacular
growth and as a result there has been a tremendous increase in the productivity of
labour. In this economic system tho production i s largely clone for the market. In
the earlier phavc capitalism was competitive hut in the course of time, big
corporations havc succeeded in eliminating thc s m ~ lproducer.
l It is this reason why
in the present day capitalist system a small number af big prodllcers have control
FuM*mental Mariad Ecmomlc over the major portion of the supply in each line of production. Interestingly, the
Spdfimaud W c Conce@
labour power of workers has become a commodity and this enables the owners of
the means of production to exploit labour. In fact, the capitalist system is based on
class distinctions. On the one side there are capitalists owning machines, buildings,
raw materials and all other means of production, and on the other side there are
workers having nothing except their labour power. The interests of these two classes
are incompatible and result in what is known as class conflict. The class conflict,
once it gets sharpened, is expected to result in the downfall of capitalism and the
new system which is built thereafter is socialism. You will learn more about
capitalism later in this unit.
5' Socialism : Socialism is considered the next stage after the decline of capitalism.
One does not find conflicting classes existing together under socialism. This system
does not emerge from capitalism. In fact it has to be built in a planned manner.
Under socialism all means of production generally belong to the state and, thus,
there is sociatownership of means of production. Labour power in a socialist society
is not a commodity and, therefore, exploitation of workers comes to an end.
Production is carried out with a view to further the well-being of the people rather
than maximising private profit of a few individuals. In a socialist economy, role of
market is limited and great reliance is placed on economic planning which
sometimes gives rise to bureaucratisation and corruption. You will learn more
about socialism later in this unit.

ii) .....................................................................................................

iv) .................... .
............................................................................

2 What is capitalism'?
............................................................................................................
...+.....................................................................................
...................
............................................................................................................
............................................................................................................

3 What is socialism'?
...........................................................................................................

4 State whcther the foilowing statements are True or Falsc.

i) When pri)ductive forces are incompatible with relations of psc)dnction, t l ~ c
.
econonlic system remains stable.
ii) Capitalism is the last ecollonlic systern in social evolution.
iii) Socialism emerges from capitalism.
iv) 2ocialisrn does not emerge from the previous systetn, it has to bc built.
v) Econo~nicsystem based on slavery is exploitative.
vi) Land is the principal means of production under feudalisnl.
vii) 111 a primitive society there was class conflict.
viii) From the point of view of the workers, capitalism1is the ideal system as there
is no scope for the exploitation of .workers.
3.4 CAPITALISM

By now you must be familiar with thc term capitalism. Now we shall take u p a more
detailed discussion of the capitalist economic system. A large number of countries in
the world today are capitalist in their nature. Some well known capitalist countries
are the USA, the U K , France, West Germany and Japan. Though there is a consensus
on the existence of capitalism in the various countries, views differ in defining it.
Gromwell and Czerwonky identified capitalism with a system of laissez faire o r free
private enterprise. According to Sombart and Weber, capitalism can be said to prevail
in a country when its people are infused with the spirit of enterprise, economic
calculation and rationality. In the opinion of historians like Hamilton and Nussbaum,
capitalism involves production for a distant market with the objective of maximising
profit. T h e most scientific and widely accepted definition is the one given by Karl
Marx. According to the Marxian approach, capitalism is dcfined in terms of mode of
production. It requircs tlie existence of two classes i) the capitalists who own the
means of production, and ii) the workers who are deprived of the ownership of the
means of production. Unlike slavery and feudalism where force and custom
determined the relationship between classes, under capitalism the relationship
between the two classes is free and contractual. A mere presence of commodity
production, i.e., production for the market, was not regarded by Marx to be
capitalism. For capitalism to prevail, labour power has itself to become a commodity
and thus t o bc bought and sold in thc market just like other objects of exchange.

3.4.1 Emergence of Capitalism

Capitalist relations o f production developed in the womb of feudalism. What this
means is that some of the traits o f capitalism had become visible even before the
destruction of feudalism. In order to understand how this happen'ed, it is necessa?y
to look at the following fattors which caused the disintegration of feudalism and thus
made way for the emcrgcnce of capitalism.
I Fast expanding volume of trade and commerce : Under feudalism an increase in
productivity in ilgl-iculturc due to growing productive forces made food and other
k~griculturalproducts : i ~ i ~ i l i l in
b l large
~ quantities. These commodities were
naturally uscd for trading in distant markets. T h e improvement In transportation
facilities further induced the setting up of commercial and industrial towns where
the merchant capitalists incrcusingly came to occupy an important role.
2 Putting-out system in industry : Under fcudalism manufacturing aotivity was carried
out ils family cnterprisc and thc workshop, tools, raw materials and labour all
hclongcd to tllc family itself. Grndui~llyin the latter phase of feudclism this system
ol' production got rcpli~cetlhy tlic putting-out system Nhich meant that the raw
matcriiil was supplied by the merchant capitalist to the craftsrncn to be made into
Finishctl products and i n r c t u r ~the~ former paid a fcc to thc latter for rendering this
scrvicc. Over time ownership of thc tools ilnd workshop also passed into the hands
ol'rilcrchant ciipitalist'who hircd thc labour 01' workers i.n rcturn for a wage. Thus
in this way cnicrgcd the ci~pitnlistrclutions of production.
3 The e n c l o s ~ ~ movement
re in agriculture : An important rcquiremcnt of capitalist
relations of productic~nis thc availability of an nssured supply of labour which has
n o custoniary tics as thosc (11' scrrs i ~ n d e rfeudalism i ~ n dwhich does not own any
means of production. 'Tlic cnclostlrc movement in Europe accompanied by a large
incressc in popuI;~tion.inthc sixteenth century helped in providing this supply of
I i l h o ~ ~The
r . enclosure nlovcmcnt mcnnt the enclosing of the earlier cornmon lands
by the feudal lords and using i t for rcaring sheep. Sheep rearing had become a
lucrative business due to the generation of demnntl for wool from the textile
industry. Since this activity required vcry little labour 21 large nurnhcr of the earlier
serfs and their fainily rncnibers were forced to migrate to cities in search of their
livelihood. And it was ,these people who constituted tlie labour force for the
capitalist industries.
3.4.2 Features of Capitalism
Without douht it can be snid that all capitalist economies do not look identical, yet
*
there arc certain features which are common to all of them, Let us now study the
main features of 'capitalism.
1 Prlveie awtner~liipof the musc~ilhlref 1,aacrlilactlasrh : A Ou+isIci~Pui't:oi' :I ~:;nl~il:iliut
cconotny is the private ownership of ttic nlealrs of ~~rtrduction. Whcthcr lhc laic:ins
of productior~arc objects of lak)our likc r a w inaterials or they arc instruments of
labour like machincry a~idtools, they are pritnai.ily ownccl by tlie capitt~listclass.
The capitalists do not cnmhine thcir own I;ibour power with t h ~ ?rtleirns of
production for carrying out prc~duction.'They hire rhc services o f others for this
purpose and lay a cl;tim to t!tc resulting ~ u t p n t .

2 Commodity production : I11 a ca1)italist econolny, prot1ur:tion is ~nniillycornmotlity

production, 111other wolds, production is c;trsii~clout ~ ~ r i ~ i n rwit11 i l y tllc objcctivc
of selliilg thr: psotluct in t l ~ crnil'lhet, tivcn Lhr~llghcoll~~ncb~lity prorl~nt~tiou h:itl tjc!i:un
under fcuJali!;rn ikclf, it w;\s ncit its nrost ~lrtrtni~lcnt t c ; ~ l u ~Will1
< : . 111~: di~1111i:griltion
of the feudal relations, camrma9dity producticrn cxg,anrlctl ;I lalrh:c acr~lc.'Vlrc two
fticmrs which ccsntri'buted im~aiensclyin thc csllnnsic~nof qosilsi~a,tEitvprclcluc'tiort
:ire : i) soci:li tiiviriion of labour, ilntl ii) plsivi!rt: owrrcrdlaip ol'!lIF~Ills0 1 ~ i r o t l ~ l c t i ~ ~ i .
With social division of labour, different pe.r:;c,i~sp:oducc ~liftcrcllt1:o0d4;; ~ s l a l111(:1i
excli:~ngc:them for crnc nlta)nht:n in tPtc tlrarket dcpdlidinfi otl Illcis b,l)iv:il'ic
rcqeiirc~tacmts.
3 Labour power, au u, ccrn~madlty: IJndcr cap~italisn~, Ii1111.)ur. power. itsr:l$'is :I
cor~tmodityend call IIC bc~laghtirnil sold in ttrc rt~tirketjust. \ilci: :illy trthttr c:on.~rncrtlity.
Since tire barguiraing position of the work!;rs vis-a-vis cmploycrs is /:c~.icr;~lly wciili,
thcy arc paid rrl~lchICSS that1 what t1ic.y ctuitriltute to ~IIc: [ . tlic ~ i ~ r [l ~iI ~
o ~ I [ ~ L I 11.1 I ~ ~C S.
they wqrc paid subsistcncr: avagcs wliilc tlicir ca~ntributioilto ths o ~ ~ t pi1.1;1.:(1 u l lo he
invariably Inrgcr than thc wages they recciwccl. Even now u'hcil cc.)ilcctivc
bargaining has become possible tlarougli tr:!de unions, workcrs its a groLrp do not
receive from thc employers all that they contribute to :hc oi~tpul.In this scnsc tlie
relation between the capitalists 2nd workers invo%ves:In clcnlc~itof cxploitntio~l,
4 Price mechtialsna : In the capitalist 5ystem, the tiecisions rcgi~rtlingwhat to produce,
how to produce nncl for whom to produce are t;ikcn in accorcli~nccwith t hc pniv,ite
gains of the producer which depcnd on the relative profitilhility of cn~~~~mioditics in
the market. Thc decisio~isarc, therefore, tlctcrmi~~ccl hy the ciaparity of the pcoplc
to pay for the commodirics and arc in rro wily rcl;~teclto pcoplc's ricctl f o thcm. ~
You will learn in cieli~ilabout price niechani$ni lutcr in this unit,
5 Persistent capital accl~~nuletioal and uconotllic cl-isis : 'Tlic process of c:~pit:~list
production car) bc descrihcd ilr one in which ;I ctrpitalist t~eginswill1 a ccrtitin
alnoultt of capitnl which he uses to genelate more c;~pital.In this wily at Lht: end
of the process, he has more capital than what he Ili~dto bcgil~with. 7'11~ first step
in this process is that thc capitiilist uses his initid utock of capital for two purpoea:!; :
i) some part he spends on thc purchase c~fecluipmc~~t, machincry and raw m;iterial,
and ii) the remaining pelat he ~lsosto purctiiise thc litt~oi!rpower. 'l'hc c;tpitalist
combines thc matcrinl meuns of production with Ii1bo11rpower to plSotlucco ~ ~ t p u t ,
Since you already know that workers do not get thcir rigl~tfulsharc in the ti)rm of
wages, capitcllists succeed in eilrning larger profits tlrun what thcy di:ssrtc to gct
nn the bnsiskf their rnanagcrial fu~lctio~n, Thcsc profit5 ; I I ~uscd for ecculnul:~tion
of cspital anti further expansion of output wliich cannoi alwnys hc s ~ ~ l icl ai Ilic
market due to lack of irdeqthte demand. In this situation n capitallst ccooomy i s
caught in economic crisis,

6 Class contradiction : The source of conflict betwccn thc workers anti capitalists is
the division of the vallle of a commodity betwecn tliem. The total valuc of any
calnmodity can be expressed as
TV = NV t SV
where TV = Total Value
NV = Necessary Value
SV = Surplus Value
Necessary value is tlie villue of It~bourpower given in tllc lonn of wagc to ~ h c
worker, Siirplu~~ by tlic: worker ovcr and nbovl: whi~l
value is excess value p~*oduccrl
he receives tls wages and goes to thc ckiljiliilist, 'r'l~ercf~rc t l ~ cworkers w;lnt to
incl.ease NV whcrcas thc capitalists nttcmpt to inwca~oSV, 'l'his class contrudiction
resillrs in conflict anc! when it nssutnqs itn ;~cl.itcl'or~n,it Ciln I~ccomoviolcnt irntl
t i ~ ktlkc~ ~ c ) I ' Hof
~ po1ificaI uphctlv~il,
I
FunbuMnW ~ d ~ ~ d E E D n o m l c
Sy&mand Bpric Concepts
4 Producers sovereignty : You bave learnf in the previous section that under
3 Large scale and diversllied production : The scale of production of a modern
corporation is many times larger than that of a household enterprise o r a
partnership firm. Moreover, a corporation carries on diversified activities in
different lines of production. Since a corporation will not suffer losses in all the
lines of production simultaneously, it can minimise the risk of bankruptcy by
diversifying production.
capitalism the producers produce those commodities for w!lich a market demand
exists. In such a situation the market preferences of consumers determine the
structure of output. Then we say that consumers sovereignty is prevailing. A '
modern corporation, however, creates its own demand pateern in the market, By
advertising, a modern corporation can generate demand for the commodities
produced by it. This is referred.to as producers' sovereignty.

Clmesk Your P~~ogrcss

B
1 List four capitalist coulatries you kmrov~
i) ........................................... 11). ................................................
iii) ............................................ iv) .............................................
2, Mention the factors which saused the disintegration of feudalism and the risc of
capitalism.

3 State whether the following staterjnents are True or False..

i) There is state ownership of the means of production under capitalism.

ii) Under capitalism labour power is a cosnrnodity.

iii) Private profit rather than the needs of the people guide productivtr activities
in a capitalist econorny.

iv) The state planning rather than the price mechanism determine the size and
pattern of production in ti capitalist cconftmy.

v) Partnership firm is 'the representative production unit in the developed

countries.

vi) In a modern corporation there .is separation of ownership from management.

As-you know socialism is generally defined as an economic system in which the means,
of production are jointly owned. Some well-known socialist countries in the world
today are Soviet Union, China and the countries of Eastern Europe like Poland,
Hungary, Czechoslovakia. Joint ownership of resources which is the basic feature of
socialism helps in promoting social benefit rather than the personal benefit of a few
individuals. This feature provides for a greater scope for state planning under
socialism.

3,S.l Building of 8acialism

The change from capitalism to socialism is quite unlike the change from feudalism to
capitalism. The empirical evidence shows that capitalist relations of production began
 to develop prior to complete destruction of feudal relations. The socialist production
relations on the contrary would 'be established only after the elimination of the
capitalist production relations. Thus socialismcannot develop spontaneously but has.
to be built up. The socialist revolution whereby political power is transferred from
the few to all is a starting point of socialism. Only after this revolution socialist
relations can be established in the economic sphere.
Marx and Engels who propounded the theory of historical materialism, which views
the development of society in a sequential manner, bad expected that it would be a
mature capitalist economy which would undergo the transition to socialism. Hpwever,
in reality as things worked out, it were some of the backward capitalist economies
which changed over to so'cialism. The two socialist giants of today, viz., the Soviet
Union and China were both in their early stages of capitalist development when they
underwent the socialist revolution. This had important implication from the point of
view of the building of socialism. The problems of socialist construction in such an
economy can be explained as follows:

I Consolidation of socialist power through the control ovcr commanding

heights : Sincc the level of development of productive forces is low, the modern
.manufacturing sector and infrastructure in such an economy are quite
undcrdcvclopcd..Tliey are nevertheless very useful in the further developnlent of
thc economy. Thus sectors like industry transportation and finance are termed as the
commanding hcights in an economy. 'The leaders in an attempt to consolidate the
socialist rcvolution and provide the groundwork foi rapid economic change try to
socialise these commanding heights as fast as possible.
2 Socialist accumulation and primitive socialist accumulation : When a backward
capitalist economy becomes a socialist economy, for its development resources have
to bc accumulated within the economy. Thcse resources can be created either
. through socialist acculnulation or through primitive socialist accumulation. Before
taking up the difference between these two methods of accu~nulation,it is necessary
to know that a socialist economy soon after the revolution does not socialise all the
"L'. rncans of production. In other words, there continues to exist a non-socialist sector,
particularly in trade and agriculture.
I
t Coming to socialist accumulation it can be defined i s the accumulation of resources
I

I within the socialist sector for its further expansion. Primitive socialist accumulation
on+theother hand refers to the accumulation in the non-socialist sector of the economy
in order to furtlicr cxpand the socialist scctor. Because of thc backwardness of the
economy, prirnitive socialist accumulation is of much greater importance than socialist
eccurnulation for the generation of funds for developn~entin a socialist economy.

3.5.2 Features of Socialism

As yot~know a large number of cointries in thc world are now sdcia~istin nature. It
can hc said thtrt npproxi~natclyone third I J ~the world's population presently belo~lgs
to socialist countries. If we study the features of these countries deeply, they differ ,
considerably. However. the basic institutions on which they rest are the same. The
salient foaturcs of a socialist economy can be discussed as follows:
1 Socialwnership of means of production : The fundamental institution on which a
socialist economy rests is the collective ownership of means of production.
Collective ownership of the means of production should not, however, be taken to
mean that all thc resources are jointly owned. What it implies is that the crucial
resources to begin with are under the state control. Private activity in the form of
cultivation on privately owned small plots of land is allowed in almost all the known ,.

socinlist countries. 'The state decides un the ceiling on the size of the plot which
can be owned by a household. Over a period of time it is possible that tlie state
may alter thc jurisdiction of private qrxncrship. I t , however, needs to be added that
though some amount of private ownersilip is allowed even under socialism, the use
to which such resources can be put to is subject t? much restrictions than
under cupitnlism. For example. in a capitalia,t economy, a person is allowed to hire
labour to work on his piece of land. This is prohibited in a socialist economy so
' that only fanlily labour is engaged ow the privately owned land. The reason is that
the socialist economies eliminate the scope: for exploitation of one person by
another.
Fwtdomntal Robkmsof E c w d c 2 Non-antagonistic system -absence of class conflict : The socialist system call uc
System and Bask Concept8
termed as a non-antagonistic system. A non-antagonistic system is one where there
is no conflict among different groups of people in the society. As you have learnt
in slavery, feudatism and capitalism, some people own the resources and other
people have no command over the resources. Thus, these systems can be
characterised as having two classes : (1) the class of people who own resources,
and (2) the class of people who do nof own resources. Therefore, in these systems
ther'e.is a continuous conflict of interest between these two classes. But under
socialism, the crucial resources like factories, railways, mines, etc., are collectively
owned. Thus it is not possible to classify the people in a socialist economy into two
classes on the basis of ownership of the means of production. As a result a sociqlist
economy is free from class conflict.
3 Equitable distribution of income : For an individual there are primarily two sources
of income : (1) ownership of resources like land and capital which yield income in
the form of rent, prafit and interest, and (2) sale of labour services in the market
which in return brings wage income. Private income under socialism takes only the
second form whereas under capitalism it takes both the forms. Since natural
resources like forests are collectively owned under socialism, the income from the
use of such resources is distributed among all the people. Such income is known
as the social dividend. It can be distributed on the basis of each individual's
contribution to the output. However, some other factors such as the number of
persons in a family or the number of dependants (i.e., ;he children and aged in a
family) may also be taken into consideration. Thus inequality in income distribution
in a socialist economy can be due to wage income, whereas in a capitalist economy,
it can beadditionally due to rent, profit and interest income. The experience of a
large number of countries shows that inequalities in the distribution of income are
generally much less in terms of wage income as compared ,to inequalities in rent,
profit and interest income. Thus it can be understood that the working of socialist
economy is more conducive to an equitable distribution c ~ incorne
f as cornparcd to
a capitalist economy.
4 Planned economy and the limited role of market : Since major resources are owned
by the state in a socialist economy, decisions pertaining to their utilization have to
be taken by the state. In contrast to a capitalist economy, a sbcialist economy is
Inore planned. Major economic decisions are takcn by a body which is commonly
known as the Central Planning Board. Therefore market in a socialist economy as
a coordinator of decisions is much less important than in a capitalist economy. You
will learn more about the role ofplanning in a socialist economy in the next section.
5 Freedom of choice in consumption and oceupatioll : Though major decisions in n
socialist economy are taken by the leadership, the decisions, withlrespect to
consumption and occupation are left to an individual's discretion. An individual is
, free to choose his pattern of consumption. This will, however, be subject to his
income and availability of goods in the economy. In other words, given the type
of goods and services, an individual is allowed to decide the type of goods hc would
like t o consume. Rationing a s a method of distribution of goods is not a ncccssery
characteristic of socialism. Also an individual is allowed to do the jo.b of his choice.
These are the major characteristics of a socialist economy. Howcvcr, it is necessary
for you to remember that they all are not found to the same extent in all the present
day socialist countries of the worJd:

3 . 5 3 Role of Planning in a Socialist Economy

A s we have discussed in the preceding section, planning is a basic characteristic of a
sotialist economy. Generally, planning implies that the economic decisions are talten
in a coordinated manner by the Central Planning Board. Hence the functioning of a
socialist economy is different fromthat or capitalist economy where the individuals
are allowed greater autonomy in decision making. Socialist economies can havc either
centralised planning or decentralised plitrlning, The distinction between the two types
of planning systefhs can be easily followed if we understand thedistinction between
decisions taken at the following three levels jn a socialist economy.
1 Decisions a t the macro level : These macro level decision8 determine the overall
direction hf econolnic development. The)' are, for example, concerned with the
rate of growth of national output, its distribution between consumptioi~and
investment a d the sectoral distribihTn of ihvestmgt.
 2 Decisions a t the enterprise level : These decisions determine, for example, the level
and composition of output of an enterprise, the enterprise from which it will obtain
the inputs and the enterprises to which it will supply its output.
3 Decisions at the individual level : Exan~plesdf such decisions are the composition
of household consumption subject to household income and the choice of
occupation.
I

I
In all socialist economies, macro level decisions are taken by the Central Planning
Board and individual level decisions are left to individuals concerned. Whether
i
i
planning is centralised or decentralised will depend on the fact as to who takes the
i enterprise level decisions. If these decisions are taken by the Central Planning Board,
the planning is considered'to be centralised one. On the other hand, if the enterprises
are allowed to take enterprise level decisions,'the planning is said to be docentralised.
Generally whkn a primitive capitalist eosnomy undergoes the socialist transition, it
follows a centralised planning system in the phase following the change-over from
capitalism to'socialism. Over time with the development of the socialist economy it
is expected that the economy will move towards greater decentralisatidn.
t
Whether economic planning is centralised or decentralised, its primary role is t o solve
the central problems of the, economy. In other words, just like the price mechanism
under capitalistn, planning under socialismis used to determine what to produce, how
to produce and for whom to produce. The Planning Commission which is entrusted
with this task makes on the one hand an estimate of the total availability of material
(natural and human resources), and on the other it tries to determine the
requirements of the economy for various goods and services. Since the economy, is
planned, the requirements are based o n a set of priorities, which may be decided by
the political leadership of the country. Once the two are calculated, an attempt is
made to strike a balahce between the requirements and the resource availability. The
balancc i s arrived at by keeping in mind social welfare rather than private welfaie as
it happens under capitalism. Ilowever, on siccount of the scale of caordination
required in decision making the balance at any point of time is not perfect. In other
words, there is a mismatch between demand and supply ofvarious cortlmodities, With
greater sophistication in techniques of plaoning such mismatch can be reduced.
Fundmental PmbYms of Eeonomic
Systems md pasic Crmcepls 3.6 MIXED ECONOMY

In a discussion on economic systems, it is now a common practice to refer to the concept

of mixed economy. However, what exactly it means is not clear to many people. Some
people believe that mixed economy is a system in which elements of both capitalism
and socialism co-exist. The presence of market, private ownership of m a n s of
production and large part of production in the private sector motivated by the profit
are the important features of capitalism that exist in a mixed ekonomy. Besides, there
exists a public sector and the state may attempt to regulate economic activities through
some system of econoniic planning and various physical, monetary and fiscal controls.
Planning and controls are:the comrnonly used devices under socialism. Tklercfore, it
is quite natural on the part of certain persons to convince themselves that in a mixed
economy certain features of both socialism and capitalism blend together to produce
an economic system which is superior to them. This view is, however not correct.
Mixed ecoiiomy in true sense is a variant of capitalis~nand is characterised by the
co-existence of public and private sectors. The presence of public sector and adoption
of some planning techniques do not allow us to place that economy even loosely in the
category of socialism. In fact, economic planning and public sector lose thcir socialist
character once. they are being introduced in a basically capitalistic economy.
Nevertheless such an economy in its character would be distinctly different froni the
capitalistic economy of the earlier period.

3.6.1 Features of a Mixed Economy

'A mixed economy has many features, of a pure capitalist economy. This is because
in building a mixed econoiny no attempt is made to completely eliminate the basic
features o f a capitalis1 econo'my. While preserving the essential institutions of a
capitalist economy, the government only tries to inoderate their working through
certain regulatory devices. It is this reason why there is a clost5 resenlblance b?twcen
capitalism anckthe niixed economy. From the above discussion we can easily identify
the following characteristic features of a mixed
, .
economy :

1 Private ownerslnlp of meanas of production and profit iuided prcsdurtion : In a inixed

economy, right to property is guaranteed. This naturally allows people to acquire
ownership of the rnea;!s of production. They own larid, tools, lnachines, factories,
buildings and So on. Cieiierally in a mixed econorny agricultural land belongs to
individuqls:Sorne of them are peasants and some others are landlords, Peasants
carry out production either for the consumption of the household or for thc rtlarket
and often for both. Landlords either elnploy labni~rfor fasrn operations or give
land to tenants on rent. In the industrial sector most of tlre production units are
privately owned. The small and cottage industries sector remains entirely in the
private hands. Soine basic aqd heavy inclusrries which for variolas reasons cannol
be set up in the private sector are developed in the public sector. Thus, in most of
the mixed economies, the role of the public sector is supplenientary tcr the role of
plivate sector. The private sector generally accounts for 70 to 90 per cent of the
gross output in a mixed economy. The major part of this production is done for
sale in the market, A pritrake producer often.attempts to maximise his profit and
therefore his activities are guided largely by profit objective. This explains why a
private producer simply does fiot care to produce even the most essential
commodities if he thinks that their production will not ensure maximisatiqn of his
* profit. He concentrates on the production of those commodities for which adequate
demand exists in the market even though they may be less essential for human
existence. In allocating resources to the production of these com~noditiesthe
producer wit1 surely maximise his profit.
2 Decisive rote of ranrket mnech8nism : The market occupies the most strategic
position in a ~n~ilved
economy. In such an economy markets exist not only for
"consurrier goods, raw materials, and prk~ducergoads, but also far factors of
production like labour, capital and land. E ~ c hof these can~mnditicsand factors of
production hakc prices which arc determined gei'lcrally by ,lie frceplay of thc forces
of demarid and supply. Sometimes it1 a mixed econury und~;r the conditions of
scarcity the governrrient atternptsto regulate the prices of essential commodities
with the view to provide essential commodities to everybody in the society at a fair
price. Prices of various camrrlodities and the factors of production and thc changes
 that take place in them generally guide the producers in taking decisions with
respect to what to produce, how to produce and for whom to produce. This point
you have learnt earlier in the section dealing with capitalism. The only difference
between the [ales of milrlret mechanism in capitalism and the mixed economy is
that in the former it is c6mpletely free, while in the latter i t operates under
certain state controls which sometimes may be quite stringent.
3 Public sector: In a rnixed ecyrlomy the public sector co-exists with the private sector.
The need for crenting'a public sector was felt particularly by the less developed
ecorlolnies in the posj Second World War period. After the Second World War
when these countries got Independence, they found the conditions prevailing in
their' economies wereahardly conciucive to economic development. In these
countries, transport and energy sectors were underdeveloped and basic and capital
equipment industries were virtually non-existent. Obviously the private sector at
this juncture hi~dno capabiliti'cs to develop them. Under these circumstances the
intervention of the state in the economies of these countries was considered
cssential for initiating the process of econonlic development. In fact, it is this
h~storicalnecessity rather than any ideological stance that explains the creation of
public scctor in a basically capitalistic economy and thereby transforming it into a
mixed economy.
4 Economic planning: Economic planning was first adopted in socialist countries.
This howcvcr does not metin that adoptian of planning invariably transforms an
economy into a sociali:;t econt~;ny.In a number of less developed capitalist
ccononlics rcliancc is placed on economic planning for speeding up the rate of
growth and for rcalising some other objectives. An attempt to introduce economic
planning in basically capitillistic economy transforms it into what is now known as
a rnixctl economy. In mixed economics econornic planning is done relying more on
ccononlic incentives rather than-direction. The latter is however not completely
rulctl out.
3.6.2 Case for a Mixed Economy
The lcss devclopcd economics found that they could not go along the path followed
i by the prcsent day developed countries. They discovered that the market regulated
system tlocs not ensure the realisation of their objectives. Further, qy adopting
? economic planning thcy'could overcome the limitations or the markgt mechanism.
With thc market rcguli~tcdsystem, there arc four major difficulties
ITllc market mechanism has a tendency to,ignore equity. This is the reason why in
capitalist countries owners of the means of prdd"ction are extremely rich whcreas
tlic workers are poor.
2 7'hc markct decisions do not ensure allocation of resources in sudh a manner that
most csscntiul commodities and services are prodiiced before resources are made
irvailablc for producing lcss essential goods and services.
3 'l'ti~market fails to perform in such a manner that aggregate demand always equals
agpcgatc supply. Without equilibrium of aggregate demalid and supply, prices
ccasc to be rcli:iblc criteria for decision making.
4 When mirrkct functioning results in an equilibrium in aggregate demand and
aggrcgatc supply, therc is nothing in the system that will ensure the economy to
operate at full employment.
Thc intervention of thc state through economic planning in the form of physical and
Inclnetary controls and public sector activities can moderate market system in sirch a
manner thiit thc ecoqomy performs better. Further economic planning can be used
t o givc ;\.direction to cconomic development. In the process of development if the
I
need arises for tackling the problems of poverty, unemployment and income
inequalities, then stirte can also ulldertaite special unemployment, poverty alleviation
and minimum nccds programmes for the well being of the economically deprived
sections of the s!,ciety.
3.6.3 Limitations of a Mixed Economy
A mixed economy, despite the fact that it has tackled some of the problems of a free
market economy, suffers from a number of weaknesses. The most important of these
are as fc~llows:
+
I Unstable framework of mixed economies: In all mixed economies both public and
Fundamental ~roblernsnf Economic private sectors co-exist and the role which they play are rarely the same. Often in
Systems and Basic Concepts
the same country with the changes in correlation of politics1 forces their roles
change. For example, in India the public sector was assigned an important,role in
the earlier phase of economic planning. May be because at that time the capitalist
class in this country was not as strong as it is today. Over time the correlation of
political forces in this country has undergone a change. The capitalist class, traders
and big and large farmers have now emerged quite strong and they are presently
attempting to undermine the.importance of the public sector. Further, under their
constant pressure regulatory system is also being dismantled. This clearly reflects
that the mixed economy is a relatively less stable system and its character undergpez
a change under political pressures.
2 Concentration of economic power : In an underdeveloped economy the laissez faire
is being transformed into a mixed economy with the objective of accelerating the
process of economic growth. The growth process, however, results in the growth
of big corporations and concentration of economic power. Development of
transport facilities, energy sector, professional institutes which impart training in
management and technology, and the setting up of basic industries in the public
sector induce activity in the organised private corporate sector on a larger scale.
In the private sector the law of capitalist development operates and in course of
time larger firms wipe out smaller firms from the market. These larger firms enjoy
considerable monopolistic power and dictate terms to small producers. The
consumers also all the time remain at the receiving end. In their attempts to gain
increasing economic power, the big corporatioqs are helped not only by the
economies of scale but also by their capital raising abilities vis-a-vis small producers.
Often the licensfng policy of the government also helps them in their expansion
activities. India's case evidently proves that in spite of the government's desire to
keep growth of mo~lopoliesunder check there has taken place the concentration
of economic power due to in-built system of the mixed ec&omy,

3 Bureaucratic inefficiency and corruption: The efficiency level of public enterprises

is generally low and corruption may also be found in the state sector. The efficiency
particularly at the managerial level is low in the public sector in a numhcr of less
developed countries because of the non-availability of specially trained managerial
cadre. Under the circumstances general administrators are assigned the job of
managing public sector enterprises though they may npt possess t l ~ crequired
capability to do the same. Adoption of discretionary controls in a mixed economy
creates scope for corruption. It creates distortions in decision making and often
does not allow speedy execution of decision :~tdifferent levels. Corrupt officials
invariably misuse their authority for personal gain, which affects adversely the
efficiency of the public enterprise.
4 Denial of social justice: In a mixed economy there is not enough scope to reduce
income inequalities and alkviate Doverty. In such an economy when the institution
, of private sector is combined with an inequitable distribution of private ownership 1
of the means of production, economic inequ21liticsshow tendcncy to increase. Poor
also may not get a fair treatment in such a society. Since in a mixed economy classes
of haves and have nots exist and the state power is in the hands of thc former, thc
government has rarely the will to prevent the tcndency of the concentration of
economic power.
5 Built-In tendency to slide back: The mixed economy is rightly viewed by some
economists as a variant of capitalism. These ecoliomists argue that oncc thc public
sector has performed its function in the earlier phase of development, its presence
,is considered redundant and economy shows a tendency to revert back to an
essentially market oriented economy, In this situation the role of economic
planning is undermined and there is increasing stress on privatisation.

Check Yoparr finro$:re~h8)

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3.7 LET US SUM UP
In any society the form of the economic system depends on the given productive forces
in conjuction with the prevailing relations of production. This implies that the fact as
to who ow:is.thc means.of production and who provides the labour power broadly
determine the economic system that any society will have at some point of time.
People are not completely free to choose an cconomic system. In fact there is a
sequential order in which economic systems have either evolved o r have been set up.
Such sequential order is ': 1) Primitive society, 2) Slavery owning system, 3) Feudalism,
4) Capitalism, and 5) Socialism.
Capitalism refers to that economic system where means of produotion are piivntely
owned and production is done for the market. The labour power becomes a
commodity and is thus bought and sold like any other object of exchange. Capitalism .
emerged from feudalism and the factors which contributed to its evolutiorl were :
1) fast expansion of trade-and commerce, 2) the putting out syGem in industry, and
3) the tnclosure movement in agriculture.
The salient features of a capitalistic econollly are : 1) private ownership of the means
of4production,2) commodity production, 3) labour power itself a commodity,
4) predominant role of price mechanism, 5) persistent capital accumulation and
~ c o n o m i ccrisis, and 6) class contradiction. In a capitalistic economy the role of price
mechanism is decisive. This implies that people in their various capacities as
producers, consumers and suppliers of factor services attempt to take economic
decisions o n the basis of prevailing prices with a view to maximise their satisfaction
or income. In the present day capitalism corporation is the representative unit.
Socialism is an economic system in which means of production are jointly owned and
the production and distribution activities are carried out according to the state
-\ -
Fundamenid Prdblems of Exononiic
System aqd nmic concepts
plans. Socialism does not emerge from capitalism. It has to be consciously built after
the socialist revoludon has been carried out successfully. The salitnt features of a
socialist economy are: 1) social ownership of means of produ\. .an; 2) absence of class
conflict, 3) equitable distribution of income, 4) economic planning and the limited
role of market, and 5 ) freedom of choice in consumption and occupation. Economic
planning is an essential characteristic of a socialist economy. Mixed economy which
is a variant of capitalism, is characterised by the co-existence of public and private
scctbrs. Its salient features are : 1) private ownership of means of-production and
profit guided production,.2) decisive role of market mechanism, 3) public sector, and
4) economic planning. The need for creating a mixed economy arises due to the failure
of the economy which is solely dependent on the market for economic decisions.
imitations of the market mechanism are often overcome by introducing some' kind
of economic planning and physical and monetary controls. The mixed economy,
however, suffers from the followi~~g weaknesses : 1) instability in the framework,
2) concentration of economic power, 3) bureaucratic inefficiency and corruption,
4) denial of social justice, and 5 ) built-in tendency to slide back.
3.8 KEY WORDS
Capitalism : An economic system in which means of production are privately owned
and production is carried out for the market.
~ l a s 'Conflict
s : Conflict between the two classes, such as the worker and capitalist.
Economic Planning : Coordinated manner of taking decisions by the state and
implementing them.
Economic System : Productive forces in conjunction with relations of production
based on a certain pattern of ownership of means of production.
Feudalism : An economic system in which land which is the principal means of
production bclonged to the king, feudal lords and nobility and the actual farm
operations were carried out by serfs who were landless.
Laissez faire : The principle of allowing economic activities without government
control.
Market Mechanism : System of interaction between buyers and sellel-sof commoclities
and factor services.
Mixed Economy : An economic system characterised by the c'o-existence of private
and public sectors.
Planned Economy : An economy in which economic planning rather than mnrkct has
the decisive role.
Primitive Socialist Accumulatibn : Accumulation in the non-socialist sector of the
eonomy in order to further expand the socialist sector.
Primitive Society : The earliest organisation developed by m'an that calnc to an cnd
about six to seven thousand years ago.
Private Sector : Sector in which means of production are privately owned and
production is carried out for profit.
Producers Sovereign$ : Implying that the producer can sell any product by relying
on advertisement.
Productive Forces : The means of production and labour power in thelr interaction.
Profit Motive : The profit earning objective that activates producer in the private
sector.
Public Sector : Sector in whi,ch'means of production are ow7:ed by the govcrnment
and production is carried out in the larger interests of the people.
Putting Out System : System in which raw ma,terials were supplied by the merchant
capitalists to craftsmen for producing goods and the latter rendered labour service
for payment of a'certain fee.
Relations of Production : The relations which arise among people in the process of
production.
Socialism : An economic system in which means of, production
"
belong to the state
 aqid production is carried out keeping in view the needs of the society. Economlc System

Socialist Accumulation : Accumulation of resources within the socialist sector for its
fuyther expansion.
Surplus Value : The excess value produced by the worker over and above what he
receives as wage and that goes to the capitalist.

3.9 ANSWERS TO CHECK YOUR PEtOGRESS

-
-r 7

A 4 i) False ii) Fals'e iii) False iv) True v) True

8 I vi) True vii) False viii) False
R 3, i) False ii) True iii) True iv) False v) False
vi) True
C 3 i ) Fillse ii) Truc iii) False iv) True v) True
I vi) False vii) True viii) False
I
D :i i ) True ii) False iii) False iv) True v) False
I
vi) Truc

3.60 TERMINAL QUESTIONS

I What do you understand by economic system? Discuss the various economic

systems in their sequential order.
c s capitalism. Describe the role of, price mechanism in the
7 E:xpll~in thc f c ~ ~ t u r of
capiti~listeconomy.
P 3 1Scscrihc the fcetures of socialism. Explain the role of economic plann~ngin a
I socialist cconorn)/.
I 3 [listinguish hctwcen capitalism and socialism. Which one of these economic systems
I
i h 4upcrior in your opinion'? Give reasons.
4%
5 What arc the salient features of a mixed economy? How is it diffarent from
c;~pitalisni?

Note : Thcsc quc!ititans will help you to understand the unit better. 'Fry to write
ilnswcrs far thcrn. But. do not send your answers to the lJniversj,ty. These are
t o r your pr;wtic~only.
Fundnmenlal Problem8 of Econ~mle
Syatems and Bnslc Concepts SOME USEFUL BOOMS

. Satnuelson, Paul A . ,-agd William D, Nordhaus, 1985. , ~ c o n o m i c s qcgraw-Hill,

,
New Delhf .
~ i s r aS.K., 1988. Modern Economics, Prbgathi Publications, Delhi.
Ahuja) H.L., 1986. Analysis of Economic Systems and Microeconomic Theory,
S. Chand & CoilNew Delhi.
Stonier and .Hague. A Text Book of 'Economic Theory. ELBS Edition. +