The United States of America is a mixed market economy. This means that it makes use of elements traditionally associated with both capitalism and socialism. While private enterprise is the biggest driver of American economic development, government intervention is still a significant factor.
Let’s look at how a mixed market economy works by understanding command and market economies and how their features come together. We’ll also look at how the mixed market economy in the United States manifests.
How Does a Mixed Market Economy Work?
The United States is not unusual in being a mixed market economy, and contrary to what the implication might be, this does not mean that it’s not capitalist. All countries that currently describe themselves as capitalist are technically mixed market economies.
To understand how this works, we need to understand the extremes that mixed market economies sit between. On one end of the spectrum are command economies, which are government run, and on the other, market economies, which are controlled exclusively by the free market.
Command economies are those where the functions of these systems are controlled by the government, or hypothetically, any central authority. This system is most often associated with countries that describe themselves as communist and was a major player in global economics during the Cold War, with the Soviet Union being the prime example.
A lot of these countries didn’t and don’t have truly command economies, leaning into mixed market economies to varying degrees. The People’s Republic of China is an example of a country that describes itself as communist but has a very large private sector and many other capitalist features.
In a market economy, the system is driven by the free market. Prices are controlled entirely by supply and demand, and any sorts of regulation are driven by private actors within these economies. This system is largely theoretical insofar as there are no extant countries which have this low a degree of government oversight, regulation or intervention.
Command economies are vulnerable to crises due to their rigidity, and market economies can lead to disastrous imbalances in the worst-case scenarios. For this reason, most countries adopt systems that attempt to temper the negative features of each system with the positive features of its counterpart.
What then defines the presentation of a country’s mixed market economy is where on the spectrum they choose to balance and which specific elements they prioritize over their counterparts. The United States of America and the People’s Republic of China both use mixed market economic systems, and yet their economies are very different.
How Does the Mixed Market Economy in the United States Work?
The United States economic system is complex, but we can break it down by looking at some of the most significant ways in which it manifests.
The private sector is the biggest part of the American economy. Private businesses from family-owned ones to giant corporations can operate within the market and drive the development of the country. The nation’s strong laws protecting property rights make it easy for the private sector to flourish.
In addition to degrees of government ownership in certain sectors, there’s also an entirely government-run public sector. Although few people consider, for example, courts or the military to be part of the economy, they play a huge role, from protecting businesses to maintaining a country’s physical integrity.
Although often a sore point between the government and proponents of lessening government’s role in the economy, regulations play a crucial role in how the system functions. These affect everything from working conditions to environmental concerns. While these inputs can be viewed as limiting or restrictive, they are included with the intent of improving the situation, though, of course, outcomes are unpredictable.
Taxes are the most direct way in which we feel the government’s interactions with the economy. Whether it’s income tax from your salary or sales tax when you buy something from a store, taxation is practically impossible to legally evade. It is these taxes, however, that fund the organs that the government uses to protect property rights, for example, and so help the private sector function.
When looking at what is the economic system in the United States, it’s easy to want to define it in terms of capitalism and socialism, but we’ve learned today that it’s a mixed market economy that integrates features from both.