Amanda Carla Montague
This project evaluates how resources are allocated under socialist and capitalistic economic systems. But firstly, let us define the key terms: economic systems, socialism, capitalism and resource allocation. An economic system is characterized as all the institutional means through which resources are used to satisfy human wants. By institutions, it is meant the laws of the nation, but also the habits, ethics and customs of its society. Economic systems are artificial in that institutions in an economy are exactly what human beings have made them. Capitalism is an economic system in which individuals privately own productive resources and posses property rights to use these resources in whatever manner they choose, subject to certain (minimal) legal restrictions. An idealized capitalist system works within the institution of private property that is controlled an enforced through the legal framework of laws, courts and police. Further, such a system is one of free enterprise, where producers freely choose the resources they use in the products they produce. Consumers have freedom of choice also, as do workers and owners in general. Individuals and producers express their desires through the market system, where prices are signals about the relative scarcities of goods, services and resources. The role of government is a limited one. In a ‘pure’ socialist system, the state owns the major non-labour productive resources: land and capital goods. Individuals can own consumer goods and consumer durables, but are not allowed to own factories, machines and other things that are used to produce what society wants. Second, people are induced by wage differentials. However, taxation of large incomes to redistribute income may reduce some of the incentives to produce. Third, the sate determines people’s wage...