The economic system is the essential structure in which the world functions. It is clearly defined as a scheme where goods and services are organized and distributed over a specified geographical region. It is the only system whereby production factors such as labor, capital, and physical resources are regulated. The economic system comprises institutions, entities, agencies, patterns, and decision-making processes that are economically structured for a specific community. It is an essential aspect of society as it improves the living standards of the people. The economic system is, therefore, significant to world history in various ways.
The earliest economic system is the one associated with primitive society. It involves the tradition serving as the central means of restoring order. The economic forms of primitive society are ancient compared to the Cro-Magnon people. Still, some states are up to date and preserved by several groups such as Kalahari hunters, Inuit, and Bedouin. In the arrangement, all traditionally-bounded people still solved their economic problems, despite having worked a long time ago. The occurrence was evident by climate changes and societal self-sustenance through hunting and gathering. A well-organized economic system will solve the following main financial problems: the kind and quantity of goods to be produced, how goods will be produced, and finally, how the goods will be distributed. If the three problems are well addressed, the standards of living are raised. The importance of these stages of the economic system was that people did not require to move from one place to another in order to get food (Ioffe & Maggs, 2019). The trade involved many cities that provided protection because of their large armies.
Primitivism mainly occurred during agrarian societies where people tended to self-produce all their wants and needs at a household level. Families grew their crops, built their own houses, hunted and cooked their food, and fashioned their clothes. A minor division of labor occurred in this era, which led to low production. There were fewer market transactions as the period encouraged vertical integration of production processes within a community where there was a reciprocal exchange between families and households (Ioffe & Maggs, 2019). In societies, decision-making and private property were more applied to the family.
The emergence of civilization brought up economies based on social class, such as feudalism and slavery. Slavery encompassed production by enslaved persons treated as the owner’s property as they lacked personal freedom and rights. In feudalism, a class of individuals known as the lords owned large land pieces. The lords leased small pieces of land to peasant farmers, who, in the end, handed over much of their production to the lords in exchange for security that included a place to live in and food to eat. Feudalism was vital in protecting violence and warfare after the fall of Rome. It also helped avoid the collapse of a strong central government in Western Europe (Ioffe & Maggs, 2019). In world history, feudalism helped secure Western Europe’s society and prevented powerful invaders, which helped in the restoration of trade.
Capitalism, another form of economic system evolution, emerged as a result of rapid industrialization. Capitalism is a system where entrepreneurs organize productive resources to produce goods and services for profitable means rather than personal consumption. In this era, workers are hired in return for wages; rent is paid to the owners of land for land use, and royalties are paid for resource use. There are minimal government regulations and state enterprises in capitalism to the social market systems. The efforts are to ensure equitable distribution of wealth and to maintain social justice. Through capitalism, Britain produced goods cheaply hence the need to open and explore overseas markets (Ioffe & Maggs, 2019). It is most important in world history as it contributed to international free trade and an end to tariffs which meant more profits.
Economic socialism is where limited ownership of the means of production and a system of prices, losses, and profits are not used as determinants to select the production owners. All decisions for production are made through a collective decision-making process. Some economic functions are shared by everyone, including economic, and strategic tasks that affect all citizens. Some capitalism elements are in modern socialism, such as centralized control of several systems and the market mechanism. Economic socialism can happen in various forms of government that include democratic socialism in Nordic countries and authoritarian strands. Through socialism, land and labor resources were well utilized, ensuring efficiency in production (Ioffe & Maggs, 2019). Key industries were nationalized, wealth was equally distributed, trade unions’ rights were recognized, and the activities marked an important stage in world history.
Communism is a form of an economic system whereby there is centralization of all economic activities. It is done by well-coordinated central planners dictated by the government. The government determines when, why, and type of goods to be produced. Communism is hardly practiced today, with countries such as North Korea and Cuba still practicing it (Ioffe & Maggs, 2019). The ideology of communism has led to improved public education and health, provision of state-directed social services, and social benefits, which has helped in societal development and labor productivity.
Among the four systems that the world functions on, the economic system is the most important. Through it, a country can measure its growth over a specified period. There is a decrease in growth; measures can be put in place to rectify the decline and improve the general increase. By setting up a proper decision-making process, economic agents can enter a binding contract that will later realize profits. The economic system uses a well-coordinated system and incentive system, which later encourages labor and specialization division. Production activities are equally distributed as income to individual groups in the society through a well-organized distribution system.
Reference
Ioffe, O. S., & Maggs, P. B. (2019). The Soviet legal system in connection with the Soviet economic system. The Soviet Economic System, 5(8), 46-58. Web.