Introduction to Economic Theory 199before them, and most goods are produced and consumed
locally.
The different economic theories that have developed have
been attempts to answer some of the questions about how to
achieve the desired goals of economic growth, full employment,
price stability, economic freedom, economic security, and equi
table distribution of income. These theories include capitalism,
socialism, and communism. In fact most economic systems are
a mixture of more than one of the three. However, there are
premises which require that the system be more one than the
other, e.g., basically socialistic with some elements of capitalism
or vice versa. Laissez-faire is free-enterprise capitalism carried
to one extreme of the pendulum, while communism is socialism
carried to its logical extreme.
Some brief definitions of the major theories follow:
Capitalism is an economic theory which values the concept of
private ownership of property, the right to engage in business for
a profit, the legality of contracts between private individuals, and
the primacy of private enterprise as the best means to insure the
objectives of the community. Minimal government involvement
is the goal; government regulation is acceptable, while govern
ment control is frowned upon.
Socialism calls for state ownership of the basic industries.
Those industries which are considered basic to the general
welfare should be owned and operated by the government. The
more industrial, technological, and complex the society, the
more industries that might come under the government control.
The more simple the society the fewer industries that would
become socialized. Interestingly, government control of a simple
society’s one or two industries would have the effect of consid
erable government control over the entire community. In a
highly developed country with a great many different industries,
the government ownership and operation of several industries
would have the practical effect of less governmental control over
the entire community.
Communism, simply defined, is state ownership of all pro
ductive goods and services and their means of distribution.
Obviously the control of all the means of production and distri
bution will have a significant effect on the entire community.
The state becomes integrally involved in every aspect of the lives