Economic Systems & Schools of Thought

Capitalism is an economic system based on private ownership of resources, where prices and production are guided by markets and the pursuit of profit.

Socialism is an economic system in which resources and major industries are owned or heavily regulated collectively, often by the state, to distribute output more equally.

A mixed economy combines private markets with government intervention, such as regulation, public goods, and welfare programs.

A command economy is a system in which the government, not markets, decides what to produce, how, and for whom.

A market economy is a system in which production and prices are determined by the free interaction of supply and demand.

Laissez-faire is the principle that the economy works best with minimal government intervention in markets.

The invisible hand is Adam Smith's metaphor for how individuals pursuing self-interest can unintentionally promote the good of society through markets.

Keynesian economics holds that aggregate demand drives output in the short run and that government should use fiscal and monetary policy to fight recessions.

Classical economics holds that free markets self-correct to full employment in the long run, so government intervention is largely unnecessary.

Monetarism holds that the money supply is the main driver of inflation and economic activity, so central banks should control money growth steadily.

Supply-side economics argues that lower taxes and less regulation boost growth by increasing the incentive to work, save, and invest.

Mercantilism was an early economic doctrine that a nation's wealth comes from accumulating gold and running trade surpluses through protectionism.

The classical dichotomy is the idea that real variables (output, employment) and nominal variables (prices, money) can be analyzed separately in the long run.

The Austrian School is a tradition in economics built on individual choice, subjective value, and market prices as signals of widely dispersed knowledge.

Institutional economics is the study of how rules, norms and organizations shape economic behavior and outcomes, rather than prices and preferences alone.

Marxian economics is the tradition built on Karl Marx's analysis of capitalism, centered on the labor theory of value, surplus value and class conflict.

A traditional economy is a system in which custom, inheritance and long-standing roles decide what gets produced, how it is produced and who receives it.

Rational expectations is the assumption that people form forecasts using all available information, so their errors are random rather than systematic.

Adaptive expectations is the assumption that people predict future inflation from recent past inflation, adjusting only after they are proved wrong.