A mixed economic system is an economy that allows private property ownership and allows businesses and consumers to freely use capital. However, in a mixed economy, governments can intervene through regulation of the economy if it's deemed in the best interest of everyone.

Mixed economic systems are not state-owned economies, meaning the government doesn't own all of the means of production. In contrast, pure capitalism is a free, private economic system that allows voluntary and competing private individuals to plan, produce, and trade without coercive public interference.

Key Takeaways

  • Pure capitalism is a free, private economic system that allows voluntary and competing private individuals to plan, produce, and trade without government interference.
  • A mixed economic system is an economy that allows private property ownership, but there is some government involvement.
  • In a mixed economy, governments can intervene through regulation if it's deemed in the best interest of everyone.
  • Mixed economic systems are not state-owned economies, meaning the government doesn't own all of the means of production.

Understanding the Different Economic Systems

There are many political and moral connotations wrapped up in the centuries-old, ongoing debate between statist thinkers and free-market thinkers. On a simplistic level, the differences between the types of economic systems are straightforward. Some systems place a higher value on the rights of individual property owners, while others place a higher value on government oversight of production and distribution. In a nutshell, there are three overarching categories of economic systems: socialism, capitalism, and mixed economies.

Socialism

An economic system that's centrally planned with some degree of state or social control of production is called socialism. In extreme forms of this category, the government controls the output and prices of good and services. In the most extreme forms of the socialist system, decisions about how to distribute the goods and services are entirely made by the government.

In other words, under extreme socialism, people are solely reliant on the government for food, housing, income, and healthcare. North Korea—a state-run dictatorship—is a far-extreme example of a fully socialist system.

Capitalism

Capitalism is an economic system wherein private companies and individuals own property and capital goods. The fundamental basis of capitalism is that the market (or the forces influencing the market) determines prices and production in the economy.

In other words, the amount produced as well as the prices of goods and services are determined primarily by the supply and demand for those goods and services. As a result, capitalism is often referred to as a market economy, which is in stark contrast to a centrally planned economy by a government or command economy.

Pure capitalism—an extreme form of capitalism—is also known as laissez-faire capitalism. In pure capitalism, private property rights and freedom of contract are the dominant frameworks of production and trade. The laissez-faire economy evolves out of a system of respected private property rights.

Pure capitalism means that the less government involvement in the economy, the better off are its citizens and businesses, as well as the entire economy. Laissez-faire roughly translates from French to mean "let do" or "leave alone." In other words, there are no government controls, regulations, checks, and balances. In this extreme form of capitalism, property owners—including the owners of machines, capital, and other input resources—may contract and trade with each other as they see fit, irrespective of the wants of government.

Mixed Economic System

A mixed economic system is an economy in which there exists private ownership by businesses and individuals (i.e., capitalism), but in which there is some degree of state involvement (i.e., socialism). In a mixed economy, the state allows varying degrees of freedom between producers and consumers.

A mixed economy places varying limits on property rights as well. Property owners are restricted with regard to how they exchange with one another. These restrictions come in many forms, such as minimum wage laws, tariffs, quotas, windfall taxes, license restrictions, prohibited products or contracts, direct public expropriation, anti-trust legislation, legal tender laws, subsidies, and eminent domain.

Nearly every country in the world has a mixed economy, including the United States. Even relatively free-market economies, such as Hong Kong or Australia, are still mixed. In Western democratic republics, property rights may be violated if the plurality of elected representatives deem that such violations are in the public's best interest.

In the United States, for example, private ownership of property and production exists whereby the economy generally operates as capitalism. However, the government does have involvement, such as tax breaks or subsidies for agriculture as we as regulation of companies and capital markets. The U.S. government also owns aspects of the economy, such as the U.S. Postal Service as well as partial ownership in areas of national defense.