Economic Institution

Economic Institution is the institution that provides very basic materials to society for daily life activities. Without it, we cannot imagine our society, and the economy is directly influenced by our culture, beliefs, and system of living. Economics is the study of how money, industry, and trade are organized in society. (Economy is the unified form of the production system, distribution, exchange, and consumption.)

History :

• The first and foremost important task for a society is to maintain food, cloth, and shelter for its members. Historically speaking, during the hunting and gathering mode of production, we used to hunt wild animals, procuring fruits, berries, and nuts.
• The hunting and gathering mode of production was replaced by agriculture or land.
• During the period of hydraulic civilization, men developed the large-scale agro-production that helped him to transform the flesh diet of nomadism to the large use of cereal crops and vegetable foods like rice, wheat, corn, buckwheat, millet, and other edible vegetables.
• Animal husbandry, Pottery making, the weaving of wool, and gilding agricultural tools became an economic system of the society.
• Agriculture made abodes necessary and led to the establishment of village communities. Till the eighteenth century agriculture was the leading occupational activity of mankind as an economic system.
• The industrial revolution of Europe in the eighteenth century further specialized in the division of labor. It accelerated the speed of capitalism which stemmed from urbanization for industrial production.
• Twentieth-century has brought about mass production for the market. Large scale industries were set up for commodity production, consumption has created prospects in different areas for new economic systems in the world.

Types or Major forms of an Economic system :

• A capitalistic system as an economic institution
• A socialistic system as an economic institution
• A mixed system as an economic institution

A. Capitalistic system

Capitalism is a system of economy in which the means of production are largely owned by private hands. The main incentive of this system is to add surplus and get profit. Open market, competition, profit, accumulation of surplus, and personal benefits are the salient features of it.

• Capital or productive capacity includes – manufacturing plants, distribution systems, land, raw materials, and money that can be converted into income-generating.
• Capital can be thought of as income-producing wealth. (if you own something that produces income, you own capital)
• An economy in which most of the productive capacity is privately owned is called a Capitalist Economy.
• The United state is one of the most highly capitalistic nations in the industrialized world. (more of its productive capacity is privately owned ).

Limitations:

• Capitalism overemphasizes profits and neglects group interests and social functions.
• It provides no guarantee that profit accumulated(gathered) will better the interest of the community.
• It leads to labor exploitation and makes the life of workers measurable.
• It needs the birth of the Labour union which often fights against management to secure justice for the worker.
• Capitalism does not give the space for making communication between customers and owners when business houses are owned by a large number of stakeholders.

B. Socialism

It is an economic system in which profit-seeking is forbidden and all-important enterprises are state-oriented. Socialism is a form of economy in which the means of production and distribution in a society are collectively owned rather than privately. Its primary motto is to meet the people’s needs rather than to maximize profits.

• A system in which capital is publically owned is called a socialist economy. Sometimes to emphasize the major role of governments, the system is referred to as state socialism.
• It is a type of economy in which the means of production and distribution in a society are collectively rather than privately owned.
• (China, Cuba, North Korea) are the example of Socialism today.
• Economic activities are planned by the state and the market plays a fewer role.
• Human alienation (unfriendly) is not to be found.
• There is less chance of emerging class-based disparity.

An economic theory of Socialism:

• Market Socialism – involves public or cooperative companies within the free market. Rather than depending on taxes, the government takes all profits and redistributes them by paying employees, funding public institutions, and offering social services.
• In a Planned economy – The government owns the means of production and plans out what will be produced, how much will be made, and the price it will sell for.
• Self–managed economies – depend on the collective actions of specific groups to make decisions. For eg- a self-managed company may be owned by its workers, who collectively decide the direction of the business.
• State Socialism or state-directed economies – have industries that are owned cooperatively, but operate with some planning or direction from the government.

Differences between Capitalism and Socialism:

Capitalism	Socialism
The capital is owned, operated, and traded to generate profits for private owners or stakeholders. (emphasis on individual profit rather than the workers or society as a whole)	Emphasis on the profit being distributed among the society or workforce. (According to his ability and his contribution)
Capitalists beliefs the free market products the best economic outcome for society.	All people should be given an equal opportunity to succeed.
Fast Change within the system(The relationship between buyer and seller is important)	Change by the worker, rather than any market or desire of the consumer.
The accumulation of capital drives economic activities. (continuously produce profits and reinvestment this profit in the economy ’Production for Profit’	Economic activates and production especially are adjust to meet human needs and economic demands. ‘Production for use’
Free market Economy	Wealth distributed. Means of production are controlled by workers themselves.
Adam Smith, Friedman	Karl Marx, Albert Einstein

C. Mixed Economic system

Here, private and profit ownership is combined with some degree of socialism and welfare statism. It is the state of the economy where the state follows the capitalistic and socialist economy.

• Very few societies are purely capitalist or purely socialist.
  The United State, for example, is considered to be a capitalist society, but the social security system, which provides supports for people who are unable to work, is Socialistic
• Sweden is considered by some people to be a socialistic country because of its high Tax rate and large welfare system, but the majority of industry in the nation is in a Private hand, which is capitalistic.
• Social security is essential in a country in order to reduce the gap between the rich and the poor.
• Our country also follows a mixed system as national income is made for national development mediated through agriculture, tourism, and industries(service sector).

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