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Most people work to earn a living, and produce goods and services. Goods are either agricultural (produced on farms) like maize and milk, or manufactured (produced in factories) like cars and paper. Services are such things as education, medicine and commerce. Some people provide goods; some provide services. Other people provide both goods and services. For example, in the same garage a man may buy a car or some service which helps him maintain his car.
The work people do is called economic activity. All economic activities taken together make up the economic system of a town, a city, a country or the world. Such an economic system is the sum-total of what people do and what they want. The work people undertake either provides what they need or provides the money with which they can buy essential commodities. Of course, most people hope to have enough money to buy commodities and services which are 'non-essential but which provide some particular personal satisfaction, such as toys for children, visits to the cinema and books.
The science of economics is based upon the facts of our everyday lives. Economists study our everyday lives and the general life of our communities in order to understand the whole economic system of which we are part. They try to describe the facts of the economy in which we live, and to explain how it works. The economist's methods should of course be strictly objective and scientific.
We need food, clothes and shelter. We probably would not go to work if we could satisfy these basic needs without working. But even when we have satisfied such basic needs, we may still want other things, such as the toys, visits to the cinema and books mentioned above. Our lives might be more enjoyable if we had such things. Human beings undoubtedly have a wide and very complex range of wants. The science of economics is concerned with all our needs: with the desire to have a radio as well as the basic necessity of having enough food to eat.
So far we have suggested that economic systems are the same everywhere. This is not entirely true. Not all economic systems in the world are the same. The economic system of the USA differs greatly from the system of the former USSR. The American system is based on private enterprise with private ownership of the means of production and is essentially capitalistic, while the Russian system was communistic and based on the principles of Karl Marx, the 19th century political economist. The economic systems and ideologies of these two nations contrast very strongly.
Britain is similar to the USA. It has an economic system based on private enterprise and private supplies of capital. An important form of capital is surplus income available for investment in new business activities. Property in both the US and Britain can be and is owned by individual citizens and these citizens exercise considerable economic freedom of choice. They can choose what they want to do and how they want to earn their living, but are not of course entirely free to do as they wish. They must obey the law. Otherwise, however, they can use their time, money and effort as they wish. If a person can do this, then economists say that he is economically free.
In all communities, of course, limits are imposed upon personal freedom, limits which are sometimes very complex. Complete economic freedom of action can create great difficulties, because the freedoms exercised by various individuals inevitably conflict. If citizens were completely free, some landowners might build factories in unsuitable places, while some factory owners might make their employees work too long each day. If they were completely free, workers might stop working when they got their first pay, and come back only when they needed more money. Such economic anarchy could create instability in the entire economy of a country.
Laws which relate to economic conditions are sometimes concerned with contracts between employers and employees. Sometimes they are concerned with workers' health, wages and pensions, and sometimes with the location of places of work. Sometimes they protect the interests principally of the workers, while at others they may be beneficial to the employers. The government policy towards both employees and employers will depend very much upon, the political and economic ideology which the government adopts, and may be biased towards employers and capital on the one hand, or workers and the problems of labour on the other.
In states which have a communistic system, private property and private enterprise are reduced to a minimum. They exist, but are limited to a small area of the economy. Karl Marx conceived of a world in which there would be no private property whatsoever. Communism in theory states that all property should belong to the State. In practice, however, the citizens of states like the former USSR were permitted to have personal effects.
The important thing about the communist system is central planning. The State organizes the whole economic effort of the nation. A central authority with complete power decides what goods and services will be produced. The authority decides what quantities of goods will be produced, and also controls their quality, and decides where they will go and what prices will be charged for them. Additionally, the State provides all (or most of) the services which the citizens require. It is responsible for the economy and is therefore concerned with methods of production as well as quality and quantity. The national economy must be planned ahead over a number of years.
Marxist economies are planned. The system is related to the needs of the State as a whole, not the needs of the private person. The emphasis is collective and not individual, so that the individual is subordinated to the needs of the collective State.
The central authority in communist countries performs the function of the price system in capitalistic economies. Under capitalism the prices of goods and services are related to supply and demand. The system operates freely, dependent upon the quantities available and what people want. Therefore we say that in private enterprise systems the production of goods tends to follow price movements, to rise when prices rise and fall when prices fall. This rise and fall is not however normal in communist countries. The control exercised by the State prevents any such fluctuation of prices. Government planners under communism therefore know what goods are available and what prices will be charged, but economists in non-communist systems do not always know this.
No state today is completely communistic or completely capitalistic. The various national economic systems tend towards one type or the other, but many are difficult to classify. It has been found necessary in many countries to exercise some degree of control over national economic conditions, and under-developed nations particularly are interested in longterm plans. Countries like India have had a number of plans guided by the government. India makes a clear distinction between the public sector and the private sector of its economy and so has a system called a mixed economy.
Britain today has a mixed economy. In the public sector are the nationalized industries likе coal and steel, British Rail and BOAC (British Overseas Airways Corporation). In the private sector are the majority of the nation's industries, from giants like ICI (Imperial Chemical Industries) and BP (British Petroleum) down to small family businesses. In 1962 the British government set up an official planning body known as the National Economic Development Council, a body which would help plan national production and set up production targets. The members of the NEDC are representatives of both the employers' federations and the TUC (Trades Union Congress), together with members of the government, eminent industrialists and leading economists.
The main function of the NEDC is planning national production and setting up production targets. It is however a very difficult matter to plan ahead in a mixed economy. It is not possible to plan ahead with any certainty even in a rigidly controlled economy, because natural disasters, political changes and other factors can affect the general plan in unexpected ways.
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