There are many ways that countries are run. Obviously, officials run most, but what kind of economic system do they use? Some of the most important systems used today are capitalism, socialism, and communism (Anderson 1).
Capitalism is an economic system in which the means of production are privately owned. Business organizations produce goods for a market guided by the forces of supply and demand (Oakley 2). Capitalism requires a financial system that enables business firms to borrow large sums of money, or capital, to maintain and expand production. Underlying capitalism is the presumption that private enterprise is the most efficient way to organize economic activity. Freedom, under capitalism, has only one meaning: freedom from the initiation of force by others. Politically, the root political cause of capitalism is freedom (Foundations 4).
The marketplace is the center of the capitalist system. It determines what will be produced, who will produce it, and how the rewards of the economic process will be distributed. From a political standpoint, the market system has two distinct advantages over other ways of organizing the economy. First, no person or combination of persons can control the marketplace, which means that power cannot be monopolized by a certain party or a special interest group; second, the market system tends to reward efficiency with profits and to punish inefficiency with losses. Economists often speak of capitalism as a free-market system ruled by competition. However, capitalism in this ideal sense cannot be found anywhere in the world. The economic systems operating in Western countries today are mixtures of free competition and governmental control (Gray 3).
Socialism uses another form of economy where the right to property is vested in the economy. The term socialism is commonly used to refer both to an ideology, a comprehensive set of beliefs or ideas about the nature of human society and its future desirable state, and to a state of society based on that ideology (Foundations 2).