The mixed market economy follows the Adam Smith’s philosophy that one must “let the economy operate according to natural laws”. This is also known as the “laissez-faire” theory, which the market economy abides by, but the major format in which it operates is related to the self-interest of the individual, which implies the aim of one getting the most profit as possible. There are various factors that make up this form of economy. The first is the private ownership of property, which is effective in motivating people to work as hard as they can to buy and own more goods. This can be defined as capitalism, where the biggest part of one’s wealth is property. Secondly, it must be noted that the factors of production (land, labor, and capital) are affected by the general income that the individual has, and in connection with this feature of the economy, the price of good is determined by the idea of “supply and demand”, where the consumers all want more quantity at lower prices. Sometimes this “more for less” is very successful and is considered a merit of this economic system.
The third aspect of a market economy is freedom of choice, which involves the consumer or the firm taking risks in investment. This is closely linked to the feature of competition; firms sell more products if they are more competitive, and essentially, this is the main focus of a market economy. Firms and consumers are allowed to (and should) take risks in the economy, which enables the individuals to attain a high profit. This is definitely another merit of the economy, because in parallel, people are able to achieve a higher standard of living. Lastly, there is a limited role for the government in a market economy, and this definitely offers many merits to the system. The government is only allowed to regulate firms (to make sure there are no monopolies, which means that there is more chance to have a higher income), to tax and spend (meaning that in the end, the individual gets the luxury of welfare), and to legislate certain issues (such as determining a minimum wage law, which ensures that one will have enough money for the bare essentials). All of these factors then combine with others, such as the price mechanism to create a very successful form of economy, that the majority of the world is pleased with.
Although many people will disagree with these claims, there are also merits to a command economy. While the mixed market economy is more focused on the benefit of the individual, the command economy aims to benefit the nation as a whole. In the market economy, through risk taking and competition, people have the chance to be become very rich, but this implies that it could have been done at someone’s expense; in other words, while the income of the more competitive individual has increased, the other individual that “lost” at the competition has now a lower income. However this, in a command economy, is not possible, because there is no chance for competition, as it focuses more on the equality of the people. There are various factors that make up this economy that distinguish it from the former. First of all, the factors of production (land, labour, and capital) are owned by the government, and the enterprise is also carried out by the state. This could be a merit, because there is a guarantee that everyone will receive the basics to lead a normal life.
Secondly, the government decides what and how to produce all of the economic goods, as well as planning the distribution of the goods. The price of goods is also fixed by the state. These are extremely positive merits for various reasons. These features of the economy entail that the production of the necessary goods are subsidized by the government. For example, in a mixed market economy, if the cost of delivery for an economic good is high, then the price of the good is higher, because the demand for would be higher than the supply. In a command economy however, the government financially supports the delivery of necessary goods, thus making it possible for firms to make money. Even if the goods and services are expensive to deliver, everyone has access to them, and prices for economic goods are generally lower. Many people argue that command economies have always been a failure, due to greed and destructive tendencies, but in truth communist economies did achieve some success. According to Encarta, “studies of trends from the 1950s to the 1970s show countries with centrally planned economies equaling and even exceeding growth rates of capitalist economies”. Command economies also achieve higher literacy rates, basic health care available to the population (and better welfare), as well as eliminating extreme poverty and avoiding unemployment.
Although one cannot absolutely claim whether the theory of a market economy is better than that of a command economy or not, it has been proven factually that a mixed market economy is more successful. Both of them have merits and advantages, but however, there is one factor which, when assessed, makes the mixed market economy a more rewarding one. The aim of each country is to get as close as possible to its production possibility frontier, as the closer a country is, the better the standard of living. As seen in the past, Soviet Russia had less unemployment and resources were being allocated more effectively, yet the standard of living was still higher in the United States. This is because the U.S.A. became rich because of enterprise and its adaptation of a free market, where people were taking risks. Thus, this could explain why countries, when choosing whether the market economy or command economy is more profitable, usually choose the market economy, based on the assessment of its merits.
