Chapter 33 : COMPARATIVE ECONOMIC SYSTEMS

Introduction

• The study of comparative economic systems is of practical importance because while some economic laws (e.g., the Law of Diminishing Returns) are universally valid across all systems, others are system-specific.
• Example of system-specific validity: The Marginal Productivity Theory of Distribution may not apply under socialism.
• Reasoning: A purely communistic society operates on the principle of "from each according to his ability and to each according to his needs." → Under such conditions, an income distribution theory emphasizing marginal productivity holds no significance.
• Types of Economic Systems mentioned:

1. Capitalism (e.g., the U.S.A.)
2. Socialism (e.g., former Soviet Russia)
3. Nazism
4. Fascism

Key Terms

📌 Exam Tidbits

• Universally valid law: Law of Diminishing Returns.
• System-specific law: Marginal Productivity Theory of Distribution (not applicable under pure communism).
• Maxim: "from each according to his ability and to each according to his needs." (Guiding principle of a purely communistic society).

CAPITALISM

Features of Capitalism

Capitalism is defined by six important economic institutions:

1. Private Property: A basic institution referring to a group or bundle of rights extended to an individual by society as a whole.

• Includes the right of inheritance (the individual decides how property is disposed of after death).
• Limitation: It is not an absolute right; it can be modified and severely restricted by government/social action.

2. Freedom of Enterprise: The general right of each individual to engage in any line of activity which appears desirable to him, including the choice of occupation or business.

• Exceptions/Restrictions: Individuals are forbidden from anti-social activities (e.g., stealing, burglary and organization of murder for profit).
• Professions like doctors or lawyers require completing extensive courses of training and passing rigorous examinations.

3. Economic Motivation and the Profit Motive: Individuals are motivated by the desire for economic gain, which is believed to make people work harder and longer than any other motive.

• Distinction:

4. The Price System: The very important institution where basic economic decisions relating to production, distribution, exchange and consumption of goods are made on…