This is just a short introduction of what we are going to discuss next.
In the last lesson, we discussed a one man economy. But what happens in a real economy, with many people? Where more people want the same goods? This is where institutions come in. People want institutions to solve their problem with the scarcity of goods.
We are going to go through three different institutions. Capitalism, socialism and mixed economy.
The term capitalism was made when Karl Marx wanted to convey the idea that it was a system only serving the interests of the capitalists. A capitalist system is based on private property. There are good’s owners, who have the legal authority to decide how the good is going to be used. So you cannot just go and take what you see, unless you have the permissions from the owner.
There is no real-world example of a pure capitalist system. There usually is a private sector with a public (government) sector. At the same time, there is no pure socialist system.
In economy, “the market” is often referred to as if it were a real being. “Leave the decision to the market.” This refers to the whole web of exchanges that individuals make with their private property.
Capitalist system also usually means having free enterprise, meaning that individuals (or groups) are free to enter any kind of work they choose.