What is the Economic System in the United States?

Image of of stock prices and trading

The Economic System in the United States

The Economic System in the United States is known as a mixed economy. This system combines elements of free market capitalism with government intervention. Some economists describe this system as a blend of capitalism and socialism.

Image of of stock prices and trading

A Mixed Economy

The United States economy operates with private business and government regulation. While businesses compete with one another in a market-driven economy, the government also largely controls certain areas, such as education, roads, and postal delivery. In addition, Federal and state governments regulate how businesses and industries operate.

The federal government regulates industry and businesses through employment and labor laws. For example, it establishes workplace safety standards, guidelines for equal opportunity hiring, and provisions for family and medical leave.

History of Increased Government Involvement

During the early 20th century, government involvement in the U.S. economy increased during what is referred to as the Progressive era. The federal government began to break up monopolies through anti-trust laws and regulate key industries, such as railroads and steel. The government also started to provide worker protections, including for unions.

Photo of the Capitol Building in Washington D.C.
Federal and state government intervention is a key component of the U.S. economy.

By the 1930s, the New Deal under Franklin Delano Roosevelt increased government involvement in the market economy. For example, the federal government began to provide pensions for retirees and employment insurance through the Social Security Act. It also began to protect the right to form unions and ensure that companies would allow for collective bargaining rights under the National Labor Relations Act.

The 1960s was also a period of increased government involvement in the economy. During this period, health coverage under Medicare and Medicaid was established by the federal government for elderly and lower-income individuals and families. The Equal Employment Opportunity Commission was also established to prevent discrimination in hiring practices.

Types of Economic Systems

While the U.S. government has increased its involvement in the market economy, the U.S. has not become a command economy. Under this system, the government controls most, if not all, of the economy. This type of economic system is used in communist countries.

During the second half of the nineteenth century, the United States came closer to practicing a free market economy. This type of system had little government oversight over industry and business. Instead, the laws of supply and demand tended to regulate how the economy operated.

Socialism is an economic system based on the public ownership of industry and national resources. It is also referred to as shared or collective ownership, where the government determines the output and prices of goods and services. It is a centrally planned system with the idea that everything is owned collectively but controlled by the state.

Distinctions with Communism

Communism is a form of socialism that tends to be connected to the political doctrines of Karl Marx. One of the primary distinctions is that communism aims to create a classless society. It also aims to make private property ownership nonexistent or significantly reduced in a planned economy.

Photograph of statue of Karl Marx
Karl Marx had a vision of a classless society that had no place for private property ownership.

Capitalism and the United States

Most people think that the United States operates under a capitalist system, and that’s partially true. The U.S. economic system does have goods and services under private ownership or through corporate investments.

However, government intervention plays a crucial role too. In addition to the above, the federal government intervenes in the economy by using tax and tariff rates. It also has the authority to set minimum and maximum price rates.

For example, the federal government sets a national minimum wage. A state or city government can establish rent control laws that establish a maximum rate that renters can charge. In a purely capitalist system, these types of actions would not occur.

The Mixed Economic System in the United States

While debates continue today about how much government regulation there should be, most economists view the mixed economic system in the United States positively. There tends to be a consensus that free enterprise and government management have largely helped the US economy.

Government officials and businesses leaders especially play a crucial role in helping sustain a healthy labor force. The government provides resources through health and unemployment insurance, while companies offer retirement savings accounts, stock options, and career programs. This dual approach is fundamental to the mixed economic system of the United States.

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