A financial framework comprises of the establishments and the strategy by which assets are apportioned and items and administrations are appropriated. Financial frameworks vary principally in who possesses the elements of creation, how the designation of assets is coordinated and the strategy used to coordinate monetary movement. The essential refinement between the distinctive frameworks is the extent to which the administration takes an interest in the economy.
Communism
Communism, also known as a command system, is an economic system where the government owns most of the factors of production and decides the allocation of resources and what products and services will be provided.The most important originators of communist doctrine were Karl Marx and Frederick Engels. Like the socialists before them, they wanted to end the exploitation of the masses by the few. The capitalist system at that time required workers to work under harsh and dangerous conditions for little pay. The end goal of communism was to eliminate class distinctions among people, where everyone shared equally in the proceeds of society, when government would no longer be needed.
Karl Marx agreed with Louis Blanc in how labor and income should be managed: "From each according to his abilities, to each according to his needs." However, it seems clear from history that Adam Smith had the correct principle, which is that people work in their own self-interest.
Marx and Engels believed that there was a class struggle between the masses, which Marx referred to as the proletariat, who could only offer their labor, and the owners of the means of production, which included land, raw materials, tools and machines, and especially money. Karl Marx called these members of the ruling class the bourgeoisie. He believed that a political revolution was essential because the state was a central instrument of capitalist society, and since the bourgeoisie had a stranglehold on the government, it would, in many cases, be necessary to use force and violence to overthrow the capitalists.
Although Marx and Engels believed that property should belong to society, they did not really give much thought to how economic decisions would be made. Communist countries, particularly Russia and China, decided on a centrally planned economy (aka command economy). The centrally planned economy had the following major attributes:
- The government owns all means of production, which is managed by employees of the state.
- These employees operated under party-appointed economic planners, who set output targets in prices and frequently interfered with the operations to satisfy personal or party desires.
- And because communist economies are not efficient and because of the Communist Party's desire to retain power, most economic resources were devoted to industrialization and to the military, depriving consumers of food and other necessary products, causing intense competition for these limited necessities, where many people had to wait in long lines for common consumer goods, such as toilet paper.
Major decisions were made by the highest-ranking members of the Communist Party, which, in the Soviet Union, was the Politburo. The Politburo frequently met with the Central Committee that consisted of the heads of the local Communist Party factions and government ministries, the military, police, and other major participants in the economy.
Although the purpose of communism was to serve the needs of the proletariat, communist governments simply became repressive regimes that exploited their people to aggrandize their own power, exploiting the masses even more so than the capitalists.
Capitalism
As long ago as 1776, the Scottish philosopher Adam Smith set down many of the main principles of capitalism in his now classic book An Inquiry into the Nature and Causes of the Wealth of Nations.Under capitalism (aka market system), each individual or business works in its own interest and maximizes its own profit based on its decisions. A market economy is one where the allocation of resources and the trading of goods and services are through the decentralized decisions of many firms and households. Prices and the willingness of the market to pay those prices determines economic output, which, in turn, determines the allocation of resources.
The market system fosters competition that generally produces the most efficient allocation of resources. In pure capitalism, also known as laissez-faire capitalism, the government's role is restricted to providing and enforcing the rules of law by which the economy operates, but it does not interfere with the market. (Laissez-faire means "let it be.")
The essential characteristics of capitalism are that:
- the factors of production are privately owned;
- economic transactions take place in markets, where buyers and sellers interact;
- businesses and employees are free to pursue their own self-interest;
The main purpose of the government in regard to the economy is to promote free markets, keep inflation low and steady, protect the rights of private property, and to guarantee contracts.
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