Tradition, or the subsistence economy, bases itself on family, clan, or tribe. By this system, each unit produces all that it needs, and it consumes all that it produces. In many rural areas of Africa, Asia, and Latin America, the question of who will work and what work will be assigned to whom is settled by custom.
The planned economy under central authoritarian rule differs from tradition in that the means of production and the authority to make economic decisions belong to the state. Examples existed in ancient Egypt and Babylonia, where massive work projects were organized at the whim of the ruling class. In more recent times, the communist nations which were formed after the Russian Revolution in 1917 have attempted the same large-scale operations as an outgrowth of a centralized authority. In neither instance did individuals actualize their own ideas or goals.
In the market system, or market economy, economic decisions are decentralized: Each member of the labor force chooses which job to follow; each household selects what to buy with its income; and each business decides what to produce, what production methods to use, and where to sell the resulting product. Modern examples exist in the United States, Western Europe, Japan, and Great Britain. This capitalism, which is also called a free or private enterprise system, is named for its use of capital, or investment funds.
None of the three methods, or systems, exists in pure form. Systems practiced today in the United States, Great Britain, Japan, or the Soviet Union are better described as mixed economies, which contain elements of both the market economy and the planned economy. For example, within free enterprise there are obvious government-sanctioned monopolies, such as electric power companies, railroads, and communications systems.
