Market vs Demand Economy

Topics: Capitalism, Market economy, Communism Pages: 6 (2459 words) Published: May 16, 2006
Market Vs. Demand Economy

Market vs. Demand. Now it is time for the final comparison between the two major economic systems which happen to be big ones in the world today – the capitalist free market economy and the communist/socialist command-based one. We shall go about this comparison by going through a list of basic topics and questions required for setting up an economy, and provide the typical demand and the typical market response for them – in the end, that is the true way to fully comprehend both systems. The first question that needs to be answered in the creation of an economy is "what shall be produced?" Every individual has a certain amount of needs and a certain amount of desires, which they are all in the end willing to work for – in a capitalist economy, the government leaves the meeting of these needs to the actual people. The theory is that anyone who wants to succeed in a capitalist world, driven by Adam Smith's "invisible hand", will eventually discover these needs that need to be met by the people and sell them, mainly for the good of the entrepreneur himself, but ideally (you'll hear that word a lot during this comparison) for the good of the consumers and the employees as well – basically, if you know that people want a certain product, you know that people will buy that certain product, so you can guarantee your own success as well as the fulfillment of those consumers in need (which is usually a secondary motive). Demand economies, on the other hand, do not believe in such private profiting – rather, they assign a branch of the government as a "central planning committee" which decides what goods and services the people are entitled to. In a perfect world, this would work perfectly, and everyone would end up getting what they wanted – unfortunately, in more cases than not this central planning committee is too disconnected from the laborers they are providing for to know exactly what is in demand and what is not needed – if, for instance, the people had a large demand for razor blades but the often ignorant government decided to give you more toothpaste instead, well, you've just got to grin and bear it, and stand in a big long line to get your razor blades eventually – if you were experiencing this same problem in a capitalist country, you could just run off to the corner store and buy some razor blades from a private entrepreneur. The score so far: 1 point for the market system, 0 for the demand. Another question that needs to be answered is the simple one of "who shall everything be owned by?", and the answers for this one are rather obvious. Capitalism is a system that works on the very basis of private ownership and profiting, for without it the driving force of self interest would be rather useless… if everything were given to you, and nothing more, you would have no need to try to be as successful as you can be (and thus as beneficial as you can be), because you will never feel the effects of it. Communism, on the other hand, believes that capital should be owned communally by the entire community, and not single people or groups. This isn't exactly true for everything – yes, there are many people in communist countries who own different household commodities and so on (and even amounts of land) based on simply what they need, but in the end the public owns the capital wealth, which can be used to produce more wealth, which can be used to produce more wealth, ad nauseum. This concept of "profit" is one of the most important elements of capitalism – the private entrepreneur must be allowed to make more money, which he can use to make more money, etc. etc. – and, according to capitalist theory, the more money he earns the more he is actually bettering everyone involved in the deal (himself, the landowner, the employees and the consumers) – were this profiting not allowed, the welfare of everyone would eventually begin to suffer, or so they say. Communists and socialists, however, believe...
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