Elements of mixed market economies
Economics has more to do with economies, one of which is mixed market economy.
So, what is a market economy?
Probably, the best approach to this question is to describe the type of economies which sharply contrast the market economy such as non-monetary and command economies.
Non monetary economies are primitive economies that with little, by modern standards, we could call development.
Production of goods and services is centred on households with few linkages to other households.
Each household- husband, wife and children-does everything for its survival. It builds a house or a hut, cultivates its own food and makes bark or skin clothes.
There is little trade going on in that society.
When trade takes place, it is by barter, an exchange of goods for goods. This process prevents trade from growing because of ‘double coincidence of wants’.
What I mean is that if you have maize and you want a cow, you must find another person who does not only own a cow, but wants to exchange it for maize.
If the person wants to exchange it for goats, then there is no trade. In this society, money, as we understand it today, is not in use.
In a command economy, production of goods and services is organised and directed by government.
What is to be produced is planned by government officials and people are just told what to do. Government fixes the prices, distributes products and services. People just take orders.
In the mixed market economy, some goods are produced by individuals or group of individuals such as companies.
They do this without government directives. What government does is to provide public goods.
By that I mean goods which people cannot or unwilling to produce because the benefits enjoyed by everyone.
Best known of these are military or defence services. The duty of the army is to defend the country.
You can exclude a person who has not participated in cultivating a garden from partaking of the maize. But how do you exclude anybody from enjoying the peace provided by the defence force or the security provided by the police?
In a market economy, people specialise in production of goods.
Some are farmers, fishermen and builders while others are manufacturers, architects, drivers and captains.
Because people specialise in a particular field, trade becomes handy when you want a service or goods you do not produce. And a place where a buyer and a seller meet is called a market.
Some markets have physical characteristics such as a building with a roof under which people operate. These markets are common in urban areas. But in most rural areas, trade takes place on open grounds.
Producers consume their products and the surplus goes to the market to be sold for money not goods.
How do people decide what they want to produce?
They are guided by prevailing prices on the market. A person working as a civil servant may wish to retire and become a business person.
This person will first visit a market to find out what is being produced and sold before venturing in the business.
This trader may not want to provide goods which are already on the market.
—To be continued on Monday
