The meaning of an economic system would be more explicit from an examination of some important definitions of economic system advanced from time to time.
According to Jan Prybla, “An economic system may be defined as the sum-total of devices which through their interaction give effect to economic choice, i.e , which translate choice from an idea into action. Action in this context means the actual movement of resources towards the intended uses.”
Carl Landauer defined an economic system as “the sum-total of the devices by which the preference among alternative purposes of economic activity is determined and by which individual activities are coordinated for the achievement of these purposes.”
In the words of Gottlieb, “an economic system is an evolving pattern of complex human relations which is concerned with the disposal of scarce resources for the purpose of satisfying various private and public needs for goods and services.”
Prof. Loucks says, “An economic system consists of those institutions which a given people or nation or group of nations has chosen or accepted as the means through which their resources are utilised for the satisfaction of human wants.”
By analysing these definitions we may observe that an economic system has certain common features. An analysis of these features will help us further to, comprehend the composition and the nature of an economic system.
Features of an Economic System :
There are certain features fundamental to an economic system.
1. A Group of People.
An economy has a population base. It deals with human beings. An economic system always implies a group of people who are living in a particular territory. It enquires how a given people are engaged in the organisation of production for the satisfaction of their wants. ‘Participants’ constitute a major element of an economic system.
2. Scarcity of Resources : Organisation of Production.
An economic system irrespective of its form exists due to the fundamental fact that there is a scarcity of economic resources, through which goods and services can be produced. Prof. Lewis has therefore observe that we have economic systems or economies because we are confronted by the economic problem. Had there been no scarcity of productive resources there would have been no economic system. So optimal allocation of resources constitutes the central core of any economic system. Effective organisation of production is a common and general problem. Different economies tackle this problem in different economic ways.
3. Organisation of the Process of Consumption :
Mere production is not enough. In any society production is aimed at the satisfaction of material wants. This aim may be the satisfaction of present wants or the satisfaction of future wants of the society. This necessitates a pricing process or economic calculation. Under capitalism this is done in an automatic manner through the operation of the price mechanism. But in a socialist economy economic calculation poses a problem.
4. Institutions :
An economic system consists of an assemblage of economic institutions. An institution simply means a way of doing something or a way of managing something. Depending on the diverse human interest there are different types of institutions, such as religious, social, legal, political, economic, etc. But an economic system is concerned with the economic institutions only. As Loucks observes, “An economic system consists of the totality of a people’s or a nation’s, ways of handling the job of using its resources for the satisfaction of human wants.”
Economic institutions reflect all the organisations and human groupings devised to help us provide a flow of goods and services to the members of a society.” There are a large number of economic institutions in a country all of which may not be important in this respect. An economic system is characterised by the outstanding economic institutions only. Grossman has rightly remarked “the set of institutions that characterizes a given economy comprises its economic system,”
5. Flexibility :
The economic systems are not static but dynamic. They go on changing from time to time. Economic systems being man-made are subject to alteration. An economic system is composed of certain economic institutions. These institutions are created, destroyed, replaced, moulded and remoulded by the members of a society in different capacities. When these institutions change or are modified in a certain way we label them under capitalism. When they change other direction, they constitute socialism or a mixed economy.