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A market economy is an
economic system An economic system, or economic order, is a system A system is a group of interacting Interaction is a kind of action that occurs as two or more objects have an effect upon one another. The idea of a two-way effect is essential in the co ...
in which the decisions regarding
investment Investment is the dedication 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 , the purpose of investing is to generate a from the inve ...

investment
,
production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a statistic, g ...
and
distributionDistribution may refer to: Mathematics *Distribution (mathematics) Distributions, also known as Schwartz distributions or generalized functions, are objects that generalize the classical notion of functions in mathematical analysis. Distr ...
are guided by the
price signal A price signal is information conveyed to consumers and production (economics), producers, via the price charged for a commodity, product or service, which provides a signal to increase or decrease quantity supplied or quantity demanded. It also pr ...
s created by the forces of
supply and demand In microeconomics Microeconomics is a branch of that studies the behavior of individuals and in making decisions regarding the allocation of and the interactions among these individuals and firms. Microeconomics focuses on the study ...

supply and demand
. The major characteristic of a market economy is the existence of
factor market In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. ...
s that play a dominant role in the allocation of
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
and the
factors of production In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...
. Market economies range from minimally regulated
free-market In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goo ...
and ''
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), d ...
'' systems where state activity is restricted to providing public goods and
services Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of Faculty (academic staff), university faculty * Civil service, the body of employees of a governm ...

services
and safeguarding private ownership, to interventionist forms where the government plays an active role in correcting
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 indivi ...
s 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 Maslow's hierarchy of needs is an idea in psychology Psychology is the science of mind and b ...
. 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 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 In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Co ...
—a form sometimes referred to as a
mixed economy A mixed economy is variously defined as an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of go ...
. Market economies are contrasted with
planned economies A planned economy is a type of economic system where investment To invest is to allocate money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with th ...
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, ...
, 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 concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
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 Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until th ...
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 Private property is a legal designation for the ownership of property by non-governmental Legal personality, legal entities. Private property is distinguishable from public property, which is owned by a state entity, and from Collective ownershi ...
of the
means of production The means of production is a concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
. 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 The federal subject in Russia">Federal subjects of Russia">federal subject in Russia, close to borders of Finland. Picture of Petrozavodsk, the capital of the ...
or autonomous
state-owned enterprise A state-owned enterprise (SOE) or government-owned enterprise (GOE) is a business enterprise where the government or state has significant control through full, majority, or significant minority ownership. Defining characteristics of SOEs are ...
s that acquire
capital goods Capital most commonly refers to: * Capital letter, an upper-case letter in any type of writing * Capital city, the area of a country, province, region, or state, regarded as enjoying primary status, usually but not always the seat of the gover ...
and raw materials in
capital market 200px, The trading floor of the New York Stock Exchange, one of the largest secondary capital markets in the world. Most of the trades on the New York Stock Exchange are executed electronically, but its hybrid structure allows some trading to be ...
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 ownership, public, Cooperative ownership, cooperative, or social ownership of the means of production in the framework of a market economy. Market socialism differs from Economi ...
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 concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
with
factor market In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. ...
s.


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 commodi ...

price ceiling
s or price floors in specific markets (such as
minimum wage A minimum wage is the lowest remuneration Remuneration is the pay or other financial compensationFinancial compensation refers to the act of providing a person with money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, ...
laws in the labor market), or use
fiscal policy In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies ...

fiscal policy
to discourage certain consumer behavior or to address market externalities generated by certain transactions (
Pigovian tax A Pigovian tax (also spelled Pigouvian tax) is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or ...

Pigovian tax
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 concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
are largely or entirely
privately owned A privately held company, private company, or close corporation is a corporation not owned by the government, non-governmental organization File:Europe in a suitcase - UK.jpg, upright=1.3, alt=A roomful of people, Europe-Georgia Institute head ...
and operated for a profit, structured on the process of
capital accumulation Capital accumulation (also termed the accumulation of capital) is the dynamic that motivates the , involving the of money or any with the of increasing the initial monetary of said asset as a whether in the form of , , , or . The aim of cap ...
. 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 An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), d ...
'' and
free-market In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goo ...
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#REDIRECT Welfare capitalism Welfare capitalism is capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism ...
and mixed economies, 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 indivi ...
s or to promote social welfare. In
state capitalist State capitalism is an economic system in which the state undertakes business Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods and services). Simpl ...
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 A state-owned enterprise (SOE) or government-owned enterprise (GOE) is a business enterprise Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods a ...
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, and cultural customs that flourished in Medieval Europe In the history of Europe The history of Europe concerns itself with the disc ...
. 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 Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until th ...
.


''Laissez-faire'' capitalism

''Laissez-faire'' is synonymous with what was referred to as strict
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, a price s ...
free-market In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goo ...
economy during the early and mid-19th century as a
classical liberal Classical liberalism is a political ideology and a branch of liberalism Liberalism is a Political philosophy, political and moral philosophy based on liberty, consent of the governed and equality before the law. Liberals espouse a wide a ...
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 Coercion () is compelling a party to act in an involuntary manner by use of threat A threat is a ''communicated'' intent to inflict harm or loss on another person. Intimidation is widely observed in animal behavior (particularly in a rituali ...
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 Sn ...
advocates of
anarcho-capitalism Anarcho-capitalism is a political philosophy Political philosophy or political theory is the philosophical Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, existence, knowledge ...
see the state as morally
illegitimate Legitimacy, in traditional Western common law In law, common law (also known as judicial precedent or judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opi ...
and economically unnecessary and destructive. Although ''laissez-faire'' has been commonly associated with capitalism, there is a similar
left-wing Left-wing politics supports social equality and egalitarianism Egalitarianism (), or equalitarianism, is a school of thought within political philosophy that builds from the concept of social equality, prioritizing it for all people. ...
''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 o ...
, also known as free-market anti-capitalism and
free-market socialism Market socialism is a type of economic system involving the public In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is the totality of such groupings. This ...
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 Anti-capitalism is a political ideology An ideology () is a set of belief A belief is an Attitude (psychology), attitude that something is the case, or that some proposition about the world is truth, true. In epistemology, philosophers use t ...
and
socialist Socialism is a political Politics (from , ) is the set of activities that are associated with Decision-making, making decisions in Social group, groups, or other forms of Power (social and political), power relations between individuals, s ...
.


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#REDIRECT Nordic model The Nordic model comprises the economic An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the Production (economics), production, Distribution (economics), d ...
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 economy of the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, s ...
. It is contrasted with European models of capitalism such as the continental social market model and the
Nordic model#REDIRECT Nordic model The Nordic model comprises the economic An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the Production (economics), production, Distribution (economics), d ...
. 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 Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Ma ...
s, lower labor market protections and a less generous
welfare state The 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 Equal o ...
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 int ...
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
and
Ludwig Erhard Ludwig Wilhelm Erhard (; 4 February 1897 – 5 May 1977) was a German politician affiliated with the Christian Democratic Union of Germany, Christian Democratic Union (CDU), and Chancellor of Germany (1949–), chancellor of West Germany from 1 ...

Ludwig Erhard
after
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
in
West Germany West Germany is the common English name for 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 October 19 ...
. The social market economic model, sometimes called Rhine capitalism, 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 indivi ...
, destructive competition, concentration of
economic power Economists An economist is a professional and practitioner in the social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individu ...
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 ...

regulatory
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 a 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 ''anti-monopoly A ...
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 ...
. The philosophical background is
neoliberalism Neoliberalism, or neo-liberalism, is a term used to describe the 20th-century resurgence of 19th-century ideas associated with free-market In economics Economics () is the social science that studies how people interact with valu ...

neoliberalism
or
ordoliberalism Ordoliberalism is the German variant of economic liberalism that emphasizes the need for the state to ensure that the free market produces results close to its theoretical potential. Ordoliberal ideals became the foundation of the creation of ...

ordoliberalism
.


Socialism

Market socialism is a form of market economy where the means of production are socially owned. 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 Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...
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 Socialism is a political Politics (from , ) is the set of activities that are associated with Decision-making, making decision ...
or
basic income Universal basic income (UBI) is a sociopolitical financial transfer concept in which all citizens of a given population regularly receive a legally stipulated and equal financial grant paid by the government without a means test A means te ...
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 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 A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a m ...
were the norm as envisioned by various thinkers including Louis O. Kelso and
James S. Albus
James S. Albus
.


Models of market socialism

Market socialism traces its roots to
classical economics Classical economics or classical political economy is a school of thought in economics that flourished, primarily in Kingdom of Great Britain, Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smith, Je ...
and the works of
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
, the
Ricardian socialists Ricardian socialism is a branch of Classical economics, 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 capitali ...
and mutualist philosophers. In the 1930s, the economists
Oskar Lange Oskar Ryszard Lange (27 July 1904 – 2 October 1965) was a Poland, Polish economics, economist and diplomat. He is best known for advocating the use of market (economics), market pricing tools in socialism, socialist systems and providing a model ...
and
Abba Lerner Abraham "Abba" Ptachya Lerner (also Abba Psachia Lerner; 28 October 1903 – 27 October 1982) was a Russian-born British economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual ...

Abba Lerner
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 In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...

marginal cost
of production in order to achieve
perfect competition In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
and
pareto optimality Pareto efficiency or Pareto optimality is a situation where no individual or preference criterion can be better off without making at least one individual or preference criterion worse off or without any loss thereof. The concept is named after Vi ...

pareto optimality
. 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 Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods an ...
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 currently the Elizabeth S. and A. Varick Stout Professor of Political Sc ...
, 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, neighbours ...
. In this model,
social ownership Social ownership is the appropriation of the surplus product Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philoso ...
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 Political philosophy is the philosophical study of government, addressing questions about the nature, scope, and legitimacy of public agents and institutions and the relationships between them. Its top ...
and
libertarian socialists Libertarian socialism, also referred to as anarcho-socialism, anarchist socialism, free socialism, stateless socialism, socialist anarchism and socialist libertarianism,Carlson, Jennifer D. (2012). "Libertarianism". In Miller, Wilburn R., ed. ''T ...
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 Paris () is the Capital city, capital and List of communes in France with over 20,000 inhabitants, most populous city of France, with an estimated popu ...

Pierre-Joseph Proudhon
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 An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts f ...
and Jaroslav Vaněk. 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 The Chinese economic reform or reform and opening-up, known in the West 250px, A compass rose with west highlighted in black West or Occident is one of the four cardinal directions or points of the compass The points of the compass are the ...
, China developed what it calls a
socialist market economy The socialist market economy (SME) is the economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of g ...
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 reforms in 1986. This system is frequently characterized as state capitalism 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 Primary stage of socialism, 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 described capitalism as being closely related to Catholicism, but Max Weber drew a connection between capitalism and Protestantism. The economist Jeffrey Sachs has stated that his work was inspired by the healing characteristics of Judaism. List of chief rabbis of the United Hebrew Congregations, Chief Rabbi Jonathan Sacks, Baron Sacks, Lord Sacks of the United Synagogue draws a correlation between modern capitalism and the Jewish image of the Golden Calf.


Christianity

In the Christian faith, the liberation theology 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 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 and Marxism. 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.


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 economics, 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-Convexity (finance), 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 Economic interventionism, 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 (probability theory), martingale or a Brownian motion 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 nature of any fair market and being market participants subject to the law of competition which impose reinvesting an increasing part of profits, the mean statistical chance of bankruptcy within the Half-life, half life of any participant is also 50% and 100% whether an infinite sample of time is considered. Robin Hahnel and Michael Albert 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 ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
'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 concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
. McNally argues that
market socialism Market socialism is a type of economic system involving the Public ownership, public, Cooperative ownership, cooperative, or social ownership of the means of production in the framework of a market economy. Market socialism differs from Economi ...
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


External links


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