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A market economy is an
economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entit ...
in which the decisions regarding
investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
, production and
distribution Distribution may refer to: Mathematics *Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations * Probability distribution, the probability of a particular value or value range of a vari ...
to the consumers are guided by the
price signal A price signal is information conveyed to consumers and producers, via the prices offered or requested for, and the amount requested or offered of a product or service, which provides a signal to increase or decrease quantity supplied or quantit ...
s created by the forces of supply and demand, where all suppliers and consumers are unimpeded by price controls or restrictions on contract freedom. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the
factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the rel ...
. Market economies range from minimally regulated
free-market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
and ''
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...
'' systems where state activity is restricted to providing public goods and
services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...
and safeguarding private ownership, to interventionist forms where the government plays an active role in serving special interests and promoting
social welfare Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
. State intervention can happen at the production, distribution, trade and consumption areas in the
economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...
. The distribution of basic need services and goods like health care may be entirely regulated by an
egalitarian Egalitarianism (), or equalitarianism, is a school of thought within political philosophy that builds from the concept of social equality, prioritizing it for all people. Egalitarian doctrines are generally characterized by the idea that all hu ...
public health care policy (while having the production provided by
private enterprise A privately held company (or simply a private company) is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in the respective listed markets, but rather the company's stock is ...
), effectively eliminating the forces of supply and demand. State-directed or dirigist economies are those where the state plays a directive role in guiding the overall development of the market through
industrial policies An industrial policy (IP) or industrial strategy of a country is its official strategic effort to encourage the development and growth of all or part of the economy, often focused on all or part of the manufacturing sector. The government takes m ...
or
indicative planning Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market economies by coordination of private and public investment through forecasts and output targets. The ...
—which guides yet does not substitute the market for
economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources b ...
—a form sometimes referred to as a
mixed economy A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economi ...
. Market economies are contrasted with
planned economies A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, par ...
where investment and production decisions are embodied in an integrated economy-wide economic plan. In a
centrally planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, part ...
, economic planning is the principal allocation mechanism between firms rather than markets, with the economy's
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
being owned and operated by a single organizational body.


Characteristics


Property rights

For market economies to function efficiently, governments must establish clearly defined and enforceable
property rights The right to property, or the right to own property (cf. ownership) is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typically ...
for assets and capital goods. However, property rights does not specifically mean private property rights and market economies do not logically presuppose the existence of private ownership of the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
. Market economies can and often do include various types of
cooperatives A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control ...
or autonomous
state-owned enterprise A state-owned enterprise (SOE) is a Government, government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn Profit (econom ...
s that acquire
capital goods The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...
and raw materials in
capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...
s. These enterprises utilize a market-determined free price system to allocate capital goods and labor. In addition, there are many variations of
market socialism Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owne ...
where the majority of capital assets are socially owned with markets allocating resources between socially owned firms. These models range from systems based on employee-owned enterprises based on self-management to a combination of public ownership of the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
with factor markets.


Supply and demand

Market economies rely upon a price system to signal market actors to adjust production and investment. Price formation relies on the interaction of supply and demand to reach or approximate an equilibrium where unit price for a particular good or service is at a point where the quantity demanded equals the quantity supplied. Governments can intervene by establishing
price ceiling A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings ostensibly to protect consumers from conditions that could make com ...
s or price floors in specific markets (such as
minimum wage A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Bec ...
laws in the labor market), or use
fiscal policy In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
to discourage certain consumer behavior or to address market externalities generated by certain transactions (
Pigovian tax A Pigouvian tax (also spelled Pigovian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price). The tax is normally set by the government ...
es). Different perspectives exist on the role of government in both regulating and guiding market economies and in addressing social inequalities produced by markets. Fundamentally, a market economy requires that a price system affected by supply and demand exists as the primary mechanism for allocating resources irrespective of the level of regulation.


Capitalism

Capitalism is an economic system where the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
are largely or entirely
privately owned A privately held company (or simply a private company) is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in the respective listed markets, but rather the company's stock is ...
and
operated for a profit Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separat ...
, structured on the process of capital accumulation. In general, in capitalist systems investment, distribution, income and prices are determined by markets, whether regulated or unregulated. There are different variations of capitalism with different relationships to markets. In ''
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...
'' and
free-market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
variations of capitalism, markets are utilized most extensively with minimal or no state intervention and minimal or no regulation over prices and the supply of goods and services. In interventionist,
welfare capitalism Welfare capitalism is capitalism that includes social welfare policies and/or the practice of businesses providing welfare services to their employees. Welfare capitalism in this second sense, or industrial paternalism, was centered on industrie ...
and
mixed economies A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
, markets continue to play a dominant role, but they are regulated to some extent by government in order to correct
market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...
s or to promote social welfare. In
state capitalist State capitalism is an economic system in which the state undertakes business and commercial (i.e. for-profit) economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital ac ...
systems, markets are relied upon the least, with the state relying heavily on either
indicative planning Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market economies by coordination of private and public investment through forecasts and output targets. The ...
and/or state-owned enterprises to accumulate capital. Capitalism has been dominant in the Western world since the end of
feudalism Feudalism, also known as the feudal system, was the combination of the legal, economic, military, cultural and political customs that flourished in medieval Europe between the 9th and 15th centuries. Broadly defined, it was a way of structur ...
. However, it is argued that the term ''mixed economies'' more precisely describes most contemporary economies due to their containing both private-owned and state-owned enterprises. In capitalism, prices determine the demand-supply scale. Higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.


Free-market capitalism

A capitalist free-market economy is an economic system where prices for goods and services are set freely by the forces of supply and demand and are expected by its supporters to reach their point of equilibrium without intervention by government policy. It typically entails support for highly competitive markets, private ownership of productive enterprises. ''Laissez-faire'' is a more extensive form of free-market economy where the role of the state is limited to protecting
property rights The right to property, or the right to own property (cf. ownership) is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typically ...
and enforcing contracts.


''Laissez-faire''

''Laissez-faire'' is synonymous with what was referred to as strict
free-market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
economy during the early and mid-19th century as a
classical liberal Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econom ...
ideal to achieve. It is generally understood that the necessary components for the functioning of an idealized free market include the complete absence of government regulation, subsidies, artificial price pressures and government-granted monopolies (usually classified as
coercive monopoly In economics and business ethics, a coercive monopoly is a firm that is able to raise prices and make production decisions without the risk that competition will arise to draw away their customers. Greenspan, Alan''Antitrust'', in ''Capitalism:The ...
by free market advocates) and no taxes or tariffs other than what is necessary for the government to provide protection from coercion and theft, maintaining peace and property rights and providing for basic public goods.
Right-libertarian Right-libertarianism,Rothbard, Murray (1 March 1971)"The Left and Right Within Libertarianism" ''WIN: Peace and Freedom Through Nonviolent Action''. 7 (4): 6–10. Retrieved 14 January 2020.Goodway, David (2006). '' Anarchist Seeds Beneath the ...
advocates of anarcho-capitalism see the state as morally
illegitimate Legitimacy, in traditional Western common law, is the status of a child born to parents who are legally married to each other, and of a child conceived before the parents obtain a legal divorce. Conversely, ''illegitimacy'', also known as '' ...
and economically unnecessary and destructive. Although ''laissez-faire'' has been commonly associated with capitalism, there is a similar
left-wing Left-wing politics describes the range of political ideologies that support and seek to achieve social equality and egalitarianism, often in opposition to social hierarchy. Left-wing politics typically involve a concern for those in soci ...
''laissez-faire'' system called
free-market anarchism Free-market anarchism, or market anarchism, also known as free-market anti-capitalism and free-market socialism, is the branch of anarchism that advocates a free-market economic system based on voluntary interactions without the involvement of ...
, also known as free-market anti-capitalism and free-market socialism to distinguish it from ''laissez-faire'' capitalism. Thus, critics of ''laissez-faire'' as commonly understood argues that a truly ''laissez-faire'' system would be anti-capitalist and
socialist Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the e ...
.


Welfare capitalism

Welfare capitalism is a capitalist economy that includes public policies favoring extensive provisions for social welfare services. The economic mechanism involves a free market and the predominance of privately owned enterprises in the economy, but public provision of universal welfare services aimed at enhancing individual autonomy and maximizing equality. Examples of contemporary welfare capitalism include the Nordic model of capitalism predominant in Northern Europe.


Regional models


Anglo-Saxon model

Anglo-Saxon capitalism is the form of capitalism predominant in Anglophone countries and typified by the
economy of the United States The United States is a highly developed mixed-market economy and has the world's largest nominal GDP and net wealth. It has the second-largest by purchasing power parity (PPP) behind China. It has the world's seventh-highest per capita GD ...
. It is contrasted with European models of capitalism such as the continental
social market The social market economy (SOME; german: soziale Marktwirtschaft), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model combining a free-market capitalist economic system alon ...
model and the Nordic model. Anglo-Saxon capitalism refers to a macroeconomic policy regime and capital market structure common to the Anglophone economies. Among these characteristics are low rates of taxation, more open
financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial market ...
s, lower labor market protections and a less generous
welfare state A welfare state is a form of government in which the state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal opportunity, equitabl ...
eschewing
collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. The i ...
schemes found in the continental and northern European models of capitalism.


East Asian model

The East Asian model of capitalism involves a strong role for state investment and in some instances involves state-owned enterprises. The state takes an active role in promoting economic development through subsidies, the facilitation of "national champions" and an export-based model of growth. The actual practice of this model varies by country. This designation has been applied to the economies of China, Japan, Singapore, South Korea, Taiwan and Vietnam. A related concept in political science is the developmental state.


Social market economy

The social market economy was implemented by
Alfred Müller-Armack Alfred Müller-Armack (28 June 1901 – 16 March 1978) was a German economist and politician. He coined the term " social market economy" in 1946. Müller-Armack was professor of economics at University of Münster and University of Cologne. H ...
and Ludwig Erhard after
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
in
West Germany West Germany is the colloquial term used to indicate the Federal Republic of Germany (FRG; german: Bundesrepublik Deutschland , BRD) between its formation on 23 May 1949 and the German reunification through the accession of East Germany on 3 O ...
. The social market economic model, sometimes called
Rhine capitalism The social market economy (SOME; german: soziale Marktwirtschaft), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model combining a free-market capitalist economic system alon ...
, is based upon the idea of realizing the benefits of a free-market economy, especially economic performance and high supply of goods while avoiding disadvantages such as
market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...
, destructive competition, concentration of
economic power Economic power refers to the ability of countries, businesses or individuals to improve living standards. It increases their ability to make decisions on their own that benefit them. Scholars of international relations also refer to the economic p ...
and the socially harmful effects of market processes. The aim of the social market economy is to realize greatest prosperity combined with best possible social security. One difference from the free market economy is that the state is not passive, but instead takes active
regulatory Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...
measures. The social policy objectives include employment, housing and education policies, as well as a socio-politically motivated balancing of the distribution of income growth. Characteristics of social market economies are a strong
competition policy Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
and a
contractionary monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
. The philosophical background is
neoliberalism Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
or
ordoliberalism Ordoliberalism is the German variant of economic liberalism that emphasizes the need for government to ensure that the free market produces results close to its theoretical potential but does not advocate for a welfare state. Ordoliberal ideals ...
.


Socialism

Market socialism is a form of market economy where the means of production are
socially owned Social ownership is the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the form ...
. In a market socialist economy, firms operate according to the rules of supply and demand and operate to maximize profit; the principal difference between market socialism and capitalism being that the profits accrue to society as a whole as opposed to private owners. The distinguishing feature between non-market socialism and market socialism is the existence of a market for
factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the rel ...
and the criteria of profitability for enterprises. Profits derived from publicly owned enterprises can variously be used to reinvest in further production, to directly finance government and social services, or be distributed to the public at large through a
social dividend The social dividend is the return on the capital assets and natural resources owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividend payment to each ...
or
basic income Universal basic income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive an unconditional transfer payment, that is, without a means test or need to work. It would be received independently of a ...
system.''Social Dividend versus Basic Income Guarantee in Market Socialism'', by Marangos, John. 2004. International Journal of Political Economy, vol. 34, no. 3, Fall 2004. Advocates of market socialism such as
Jaroslav Vaněk Jaroslav Vaněk (20 April 1930 – 15 November 2017) was a Czech American economist and Professor Emeritus of Cornell University known for his research on economics of participation ( labour-managed firms, worker cooperatives) and, in his earlier ...
argue that genuinely free markets are not possible under conditions of private ownership of productive property. Instead, he contends that the class differences and inequalities in income and power that result from private ownership enable the interests of the dominant class to skew the market to their favor, either in the form of monopoly and market power, or by utilizing their wealth and resources to legislate government policies that benefit their specific business interests. Additionally, Vaněk states that workers in a socialist economy based on cooperative and self-managed enterprises have stronger incentives to maximize productivity because they would receive a share of the profits (based on the overall performance of their enterprise) in addition to receiving their fixed wage or salary. The stronger incentives to maximize productivity that he conceives as possible in a socialist economy based on cooperative and self-managed enterprises might be accomplished in a free-market economy if
employee-owned companies Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Em ...
were the norm as envisioned by various thinkers including
Louis O. Kelso Louis Orth Kelso (; December 4, 1913 – February 17, 1991) was a political economist, corporate and financial lawyer, author, lecturer and merchant banker who is chiefly remembered today as the inventor and pioneer of the employee stock ownersh ...
and
James S. Albus James Sacra Albus (May 4, 1935 – April 17, 2011) was an American engineer, Senior NIST Fellow and founder and former chief of the Intelligent Systems Division of the Manufacturing Engineering Laboratory at the National Institute of Standards an ...
.


Models of market socialism

Market socialism traces its roots to classical economics and the works of
Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
, the
Ricardian socialists Ricardian socialism is a branch of classical economic thought based upon the work of the economist David Ricardo (1772–1823). The term is used to describe economists in the 1820s and 1830s who developed a theory of capitalist exploitation from ...
and mutualist philosophers. In the 1930s, the economists
Oskar Lange Oskar Ryszard Lange (27 July 1904 – 2 October 1965) was a Polish economist and diplomat. He is best known for advocating the use of market pricing tools in socialist systems and providing a model of market socialism. He responded to the econo ...
and
Abba Lerner Abraham "Abba" Ptachya Lerner (also Abba Psachia Lerner; 28 October 1903 – 27 October 1982) was a Russian-born American-British economist. Biography Born in Novoselytsia, Bessarabia, Russian Empire, Lerner grew up in a Jewish family, which ...
developed a model of socialism that posited that a public body (dubbed the Central Planning Board) could set prices through a trial-and-error approach until they equaled the marginal cost of production in order to achieve perfect competition and
pareto optimality Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engine ...
. In this model of socialism, firms would be state-owned and managed by their employees and the profits would be disbursed among the population in a social dividend. This model came to be referred to as market socialism because it involved the use of money, a
price system In economics, a price system is a system through which the valuations of any forms of property (tangible or intangible) are determined. All societies use price systems in the allocation and exchange of resources as a consequence of scarcity. Even ...
and simulated capital markets, all of which were absent from traditional non-market socialism. A more contemporary model of market socialism is that put forth by the American economist
John Roemer John E. Roemer (; born February 1, 1945 in Washington, D.C., to Ruth Roemer and Milton Roemer, namesake of Roemer's law) is an American economist and political scientist. He is the Elizabeth S. and A. Varick Stout Professor of Political Scien ...
, referred to as
economic democracy Economic democracy is a socioeconomic philosophy that proposes to shift decision-making power from corporate managers and corporate shareholders to a larger group of public stakeholders that includes workers, customers, suppliers, neighbour ...
. In this model,
social ownership Social ownership is the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the form o ...
is achieved through public ownership of equity in a market economy. A Bureau of Public Ownership would own controlling shares in publicly listed firms, so that the profits generated would be used for public finance and the provision of a basic income. Some
anarchists Anarchism is a political philosophy and movement that is skeptical of all justifications for authority and seeks to abolish the institutions it claims maintain unnecessary coercion and hierarchy, typically including, though not necessari ...
and
libertarian socialists Libertarian socialism, also known by various other names, is a left-wing,Diemer, Ulli (1997)"What Is Libertarian Socialism?" The Anarchist Library. Retrieved 4 August 2019. anti-authoritarian, anti-statist and libertarianLong, Roderick T. (20 ...
promote a form of market socialism in which enterprises are owned and managed cooperatively by their workforce so that the profits directly remunerate the employee-owners. These cooperative enterprises would compete with each other in the same way private companies compete with each other in a capitalist market. The first major elaboration of this type of market socialism was made by
Pierre-Joseph Proudhon Pierre-Joseph Proudhon (, , ; 15 January 1809, Besançon – 19 January 1865, Paris) was a French socialist,Landauer, Carl; Landauer, Hilde Stein; Valkenier, Elizabeth Kridl (1979) 959 "The Three Anticapitalistic Movements". ''European Socia ...
and was called mutualism. Self-managed market socialism was promoted in Yugoslavia by economists
Branko Horvat Branko Horvat (24 July 1928 – 18 December 2003) was a Croatian economist and politician. Horvat was born in Petrinja on 24 July 1928. In 1944 during World War II, Horvat and his father Artur Horvat joined the Partisan movement in Croatia. He w ...
and
Jaroslav Vaněk Jaroslav Vaněk (20 April 1930 – 15 November 2017) was a Czech American economist and Professor Emeritus of Cornell University known for his research on economics of participation ( labour-managed firms, worker cooperatives) and, in his earlier ...
. In the self-managed model of socialism, firms would be directly owned by their employees and the management board would be elected by employees. These cooperative firms would compete with each other in a market for both capital goods and for selling consumer goods.


Socialist market economy

Following the 1978 reforms, China developed what it calls a
socialist market economy The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. The ...
in which most of the economy is under state ownership, with the state enterprises organized as joint-stock companies with various government agencies owning controlling shares through a shareholder system. Prices are set by a largely free-price system and the state-owned enterprises are not subjected to micromanagement by a government planning agency. A similar system called
socialist-oriented market economy The socialist-oriented market economy (Vietnamese: ''Kinh tế thị trường theo định hướng xã hội chủ nghĩa'') is the official title given to the current economic system in the Socialist Republic of Vietnam. It is described as a ...
has emerged in Vietnam following the
Đổi Mới (, ; ) is the name given to the economic reforms initiated in Vietnam in 1986 with the goal of creating a " socialist-oriented market economy". The term itself is a general term with wide use in the Vietnamese language meaning "innovate" or ...
reforms in 1986. This system is frequently characterized as
state capitalism State capitalism is an economic system in which the state undertakes business and commercial (i.e. for-profit) economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital ...
instead of market socialism because there is no meaningful degree of employee self-management in firms, because the state enterprises retain their profits instead of distributing them to the workforce or government and because many function as ''de facto'' private enterprises. The profits neither finance a social dividend to benefit the population at large, nor do they accrue to their employees. In China, this economic model is presented as a preliminary stage of socialism to explain the dominance of capitalistic management practices and forms of enterprise organization in both the state and non-state sectors.


In religion

A wide range of philosophers and theologians have linked market economies to concepts from monotheistic religions.
Michael Novak Michael John Novak Jr. (September 9, 1933 – February 17, 2017) was an American Catholic philosopher, journalist, novelist, and diplomat. The author of more than forty books on the philosophy and theology of culture, Novak is most widely known ...
described capitalism as being closely related to Catholicism, but
Max Weber Maximilian Karl Emil Weber (; ; 21 April 186414 June 1920) was a German sociologist, historian, jurist and political economist, who is regarded as among the most important theorists of the development of modern Western society. His ideas profo ...
drew a connection between capitalism and
Protestantism Protestantism is a branch of Christianity that follows the theological tenets of the Protestant Reformation, a movement that began seeking to reform the Catholic Church from within in the 16th century against what its followers perceived to b ...
. The economist
Jeffrey Sachs Jeffrey David Sachs () (born 5 November 1954) is an American economist, academic, public policy analyst, and former director of The Earth Institute at Columbia University, where he holds the title of University Professor. He is known for his work ...
has stated that his work was inspired by the healing characteristics of Judaism.
Chief Rabbi Chief Rabbi ( he, רב ראשי ''Rav Rashi'') is a title given in several countries to the recognized religious leader of that country's Jewish community, or to a rabbinic leader appointed by the local secular authorities. Since 1911, through a ...
Lord Sacks Jonathan Henry Sacks, Baron Sacks ( he, יונתן הנרי זקס, translit=Yona'tan Henry Zaks; 8 March 19487 November 2020) was an English Orthodox rabbi, philosopher, theologian, and author. Sacks served as the Chief Rabbi of the United He ...
of the
United Synagogue The United Synagogue (US) is a union of British Orthodox Jewish synagogues, representing the central Orthodox movement in Judaism. With 62 congregations (including 7 affiliates and 1 associate, ), comprising 40,000 members, it is the largest ...
draws a correlation between modern capitalism and the Jewish image of the Golden Calf.


Christianity

In the Christian faith, the
liberation theology Liberation theology is a Christian theological approach emphasizing the liberation of the oppressed. In certain contexts, it engages socio-economic analyses, with "social concern for the poor and political liberation for oppressed peoples". In ...
movement advocated involving the church in labor market capitalism. Many priests and nuns integrated themselves into labor organizations while others moved into the slums to live among the poor. The
Holy Trinity The Christian doctrine of the Trinity (, from 'threefold') is the central dogma concerning the nature of God in most Christian churches, which defines one God existing in three coequal, coeternal, consubstantial divine persons: God the F ...
was interpreted as a call for social equality and the elimination of poverty. However, the Pope was highly active in his criticism of liberation theology. He was particularly concerned about the increased fusion between
Christianity Christianity is an Abrahamic monotheistic religion based on the life and teachings of Jesus of Nazareth. It is the world's largest and most widespread religion with roughly 2.38 billion followers representing one-third of the global pop ...
and
Marxism Marxism is a Left-wing politics, left-wing to Far-left politics, far-left method of socioeconomic analysis that uses a Materialism, materialist interpretation of historical development, better known as historical materialism, to understand S ...
. He closed Catholic institutions that taught liberation theology and dismissed some of its activists from the church.


Buddhism

The Buddhist approach to the market economy was dealt with in E. F. Schumacher’s 1966 essay "Buddhist Economics". Schumacher asserted that a market economy guided by Buddhist principles would more successfully meet the needs of its people. He emphasized the importance or pursuing occupations that adhered to Buddhist teachings. The essay would later become required reading for a course that Clair Brown offered at
University of California, Berkeley The University of California, Berkeley (UC Berkeley, Berkeley, Cal, or California) is a public land-grant research university in Berkeley, California. Established in 1868 as the University of California, it is the state's first land-grant u ...
.


Criticism

The economist Joseph Stiglitz argues that markets suffer from informational inefficiency and the presumed efficiency of markets stems from the faulty assumptions of neoclassical welfare economics, particularly the assumption of perfect and costless information and related incentive problems. Neoclassical economics assumes static equilibrium and efficient markets require that there be no non- convexities, even though nonconvexities are pervasive in modern economies. Stiglitz's critique applies to both existing models of capitalism and to hypothetical models of market socialism. However, Stiglitz does not advocate replacing markets, but instead states that there is a significant role for government intervention to boost the efficiency of markets and to address the pervasive market failures that exist in contemporary economies. A fair market economy is in fact a martingale or a
Brownian motion Brownian motion, or pedesis (from grc, πήδησις "leaping"), is the random motion of particles suspended in a medium (a liquid or a gas). This pattern of motion typically consists of random fluctuations in a particle's position insi ...
model and for a participant competitor in such a model there is no more than 50% of success chances at any given moment. Due to the
fractal In mathematics, a fractal is a geometric shape containing detailed structure at arbitrarily small scales, usually having a fractal dimension strictly exceeding the topological dimension. Many fractals appear similar at various scales, as illu ...
nature of any fair market and being market participants subject to the law of
competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
which impose reinvesting an increasing part of profits, the mean statistical chance of bankruptcy within the
half life Half-life (symbol ) is the time required for a quantity (of substance) to reduce to half of its initial value. The term is commonly used in nuclear physics to describe how quickly unstable atoms undergo radioactive decay or how long stable at ...
of any participant is also 50% and 100% whether an infinite sample of time is considered.
Robin Hahnel Robin Eric Hahnel (born March 25, 1946) is an American economist and professor emeritus of economics at American University. He was a professor at American University for many years and traveled extensively advising on economic matters all over t ...
and
Michael Albert Michael Albert (born April 8, 1947) is an American economist, speaker, writer, and political critic. Since the late 1970s, he has published books, articles, and other contributions on a wide array of subjects. He has also set up his own media ...
claim that "markets inherently produce class division". Albert states that even if everyone started out with a balanced job complex (doing a mix of roles of varying creativity, responsibility and empowerment) in a market economy, class divisions would arise, arguing:
Without taking the argument that far, it is evident that in a market system with uneven distribution of empowering work, such as Economic Democracy, some workers will be more able than others to capture the benefits of economic gain. For example, if one worker designs cars and another builds them, the designer will use his cognitive skills more frequently than the builder. In the long term, the designer will become more adept at conceptual work than the builder, giving the former greater bargaining power in a firm over the distribution of income. A conceptual worker who is not satisfied with his income can threaten to work for a company that will pay him more. The effect is a class division between conceptual and manual laborers, and ultimately managers and workers, and a de facto labor market for conceptual workers.
David McNally (professor), David McNally argues in the Marxist tradition that the logic of the market inherently produces inequitable outcomes and leads to unequal exchanges, arguing that
Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
's moral intent and moral philosophy espousing equal exchange was undermined by the practice of the free markets he championed. The development of the market economy involved coercion, exploitation and violence that Smith's moral philosophy could not countenance. McNally also criticizes market socialists for believing in the possibility of fair markets based on equal exchanges to be achieved by purging parasitical elements from the market economy such as private ownership of the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
. McNally argues that
market socialism Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owne ...
is an oxymoron when socialism is defined as an end to Wage labor, wage-based labor.


See also

* Capitalism * Classical economics * Co-determination * Economic freedom * Economic liberalism * Free market * Free-market anarchism * Gift economy * Grey market * Keynesian economics * ''Laissez-faire'' * Market socialism * Market structure * Mixed economy * Neoclassical economics * Planned economy * Price system * Regulated market * Social market economy * Socialist market economy * Social ownership


References


Further reading

* Åslund, Anders. “The Rise of State Capitalism.” Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy, Yale University Press, 2019, pp. 97–131, . * * * Boushey, Heather. “Market Structure.” Unbound: How Inequality Constricts Our Economy and What We Can Do about It, Harvard University Press, 2019, pp. 114–138, . * Chari, Anusha. “The International Market for Corporate Control.” Global Goliaths: Multinational Corporations in the 21st Century Economy, edited by C. FRITZ FOLEY et al., Brookings Institution Press, 2021, pp. 129–182, . * Cochoy, Franck. “Another Discipline for the Market Economy: Marketing as a Performative Knowledge and Know-How for Capitalism.” The Sociological Review 46, no. 1_suppl (May 1998): 194–221. * Cordier, S., Pareschi, L. & Toscani, G. On a Kinetic Model for a Simple Market Economy. Journal of Statistical Physics 120, 253–277 (2005). * Corneo, Giacoma and Daniel Steuer. “Market Economy Plus Welfare State.” Is Capitalism Obsolete?: A Journey through Alternative Economic Systems, Harvard University Press, 2017, pp. 225–248, . * * * Cronin, James E. “Market Rules and the International Economy.” Global Rules: America, Britain and a Disordered World, Yale University Press, 2014, pp. 121–147, . * Cyndecka, Małgorzata Agnieszka. “The Applicability and Application of the Market Economy Investor Principle: Lessons Learnt from the Financial Crisis.” European State Aid Law Quarterly, vol. 16, no. 4, Lexxion Verlagsgesellschaft mbH, 2017, pp. 512–526, . * * Ebner, Alexander. “Continuity and Change in Germany’s Social Market Economy: A Matter of Economic Style?” Contesting Deregulation: Debates, Practices and Developments in the West since the 1970s, edited by Knud Andresen and Stefan Müller, 1st ed., vol. 31, Berghahn Books, 2017, pp. 41–56, . * Finn, Daniel k. “What Can Be Done about Market Injustice?” Consumer Ethics in a Global Economy: How Buying Here Causes Injustice There, Georgetown University Press, 2019, pp. 143–153, . * * Hirschfeld, Mary L. “Toward a Humane Economy: A Pragmatic Approach.” Aquinas and the Market: Toward a Humane Economy, Harvard University Press, 2018, pp. 191–218, . * * * * Kratz, Agatha, et al. Time's Up: China's Coming Battle for Market Economy Status. European Council on Foreign Relations, 2016, . * Kunde, Meg. “Making the Free Market Moral: Ronald Reagan’s Covenantal Economy.” Rhetoric and Public Affairs, vol. 22, no. 2, Michigan State University Press, 2019, pp. 217–252, . * * * Leshem, Dotan. “From Ecclesiastical to Market Economy.” The Origins of Neoliberalism: Modeling the Economy from Jesus to Foucault, Columbia University Press, 2016, pp. 153–182, . * Lothian, Tamara. “The Democratized Market Economy in Latin America (and Elsewhere): An Exercise in Institutional Thinking Within Law and Political Economy.” Law and the Wealth of Nations: Finance, Prosperity, and Democracy, Columbia University Press, 2017, pp. 138–196, . * Lothian, Tamara. “The Democratized Market Economy.” Law and the Wealth of Nations: Finance, Prosperity, and Democracy, Columbia University Press, 2017, pp. 113–137, . * * * * * * Mittermaier, Karl and Isabella Mittermaier. “Free-Market Dogmatism and Pragmatism.” In The Hand Behind the Invisible Hand: Dogmatic and Pragmatic Views on Free Markets and the State of Economic Theory, 1st ed., 23–26. Bristol University Press, 2020. * Kevin M. Murphy, Murphy, Kevin M, Andrei Shleifer, Robert W. Vishny, The Transition to a Market Economy: Pitfalls of Partial Reform, The Quarterly Journal of Economics, Volume 107, Issue 3, August 1992, pp. 889–906, * Víctor Nee, Nee, Victor. “The Role of the State in Making a Market Economy.” Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift Für Die Gesamte Staatswissenschaft, vol. 156, no. 1, Mohr Siebeck GmbH & Co. KG, 2000, pp. 64–88, * * * Ngo, Tak-Wing. “Asia and the Historicity of the Market Economy.” Verge: Studies in Global Asias, vol. 1, no. 1, University of Minnesota Press, 2015, pp. 44–50, . * Pomeranz, Kenneth. “Market Economies in Europe and Asia.” The Great Divergence: China, Europe, and the Making of the Modern World Economy, NED-New edition, vol. 117, Princeton University Press, 2021, pp. 69–108, . * * Robin, Ron. “Castrophobia and the Free Market: The Wohlstetters’ Moral Economy.” The Cold World They Made: The Strategic Legacy of Roberta and Albert Wohlstetter, Harvard University Press, 2016, pp. 118–138, . * Rodgers, Daniel T. “Moralizing the Market Economy.” As a City on a Hill: The Story of America’s Most Famous Lay Sermon, Princeton University Press, 2018, pp. 96–106, . * * * Schebesta, Martin. Climate Change, Digitisation and Globalisation — Does the Social Market Economy Need Renewal? Konrad Adenauer Stiftung, 2020, . * * * * * * Sundararajan, Arun. “The Sharing Economy, Market Economies, and Gift Economies.” The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism, The MIT Press, 2016, pp. 23–46, . * * Temin, Peter. “The Labor Market.” The Roman Market Economy, Princeton University Press, 2013, pp. 114–138, . * Tomlinson, Jim. “The Failures of Neoliberalism in Britain since the 1970s: The Limits on ‘Market Forces’ in a Deindustrialising Economy and a ‘New Speenhamland.’” The Neoliberal Age?: Britain since the 1970s, edited by Aled Davies et al., UCL Press, 2021, pp. 94–111, . * * * Weiss, Hadas. “Capital’s Fidelity: Financialization in the German Social Market Economy.” Financialization: Relational Approaches, edited by Chris Hann and Don Kalb, 1st ed., vol. 6, Berghahn Books, 2020, pp. 177–195, . * Widerquist, Karl and Grant S. McCall. “The Negative Freedom Argument for the Market Economy.” The Prehistory of Private Property: Implications for Modern Political Theory, Edinburgh University Press, 2021, pp. 79–99, . * * *


External links


Market Systems
at ''Encyclopædia Britannica'' Online. {{DEFAULTSORT:Market economy Capitalism Classical liberalism Economic ideologies Economic liberalism Economic systems Market (economics) Market socialism