ECONOMIC SYSTEMS. – The totality of the economic activities of individuals and the action of political authority, which seeks to coordinate individual ends with social ones. In every period of history, several economic systems have always coexisted, because remnants of superseded systems survive within the new ones.
I. ECONOMY OF PRIMITIVE PEOPLES. — Until the last century it was believed that hunting, pastoralism, and agriculture had been, for all peoples, three successive stages of economic development. The historical-cultural ethnological school now distinguishes four principal forms of economy: gathering, higher hunting, pastoralism, and agriculture. The latter three derive, independently and each from its own center of origin, from the first, and their intermingling produced the mixed forms.
1. The economy of gathering. — In the groups that practice it, men procure food by hunting and fishing; women and children gather plant foods, or relatively immobile animals such as worms, insects and their larvae, snails, etc. Exceptionally, men take part in gathering when rapid collective labor is necessary, or when it is a matter of climbing trees, e.g. to collect honey, or to use the ax. To dig up roots and tubers, women use a digging stick. For hunting, men use a weapon: the bow and arrow, the harpoon, the blowpipe, and traps; as auxiliary means they use dogs and poisons. For fishing they use striking or throwing weapons, nets, creels, traps (among the northwestern Americans), as well as poisons cast into the water and poisoned bait. In certain places fishing can be so abundant as almost to replace the other means of subsistence, and it may occupy an important place even in economic systems different from gathering, whereas this is not the case with hunting. Each group of a tribe knows well the hunting and gathering resources of its territory during the favorable seasons of the year, while in certain other periods prohibitions or taboos are imposed for the protection of game, fish, and plants. However harsh or easy this way of life may prove, gatherers love it and do not wish to exchange it for any other, although they may have come to know its advantages, as, e.g., when the Andamanese came to know agriculture in their own country through the agency of the whites.
2. The economy of higher hunters. — It is so called in contrast to that of gatherers. What characterizes the latter, in fact, is that it is originally familial, whereas the former is tribal and appears to be proper to totemists. Among the latter, a broad economic solidarity is in fact observable, whereby the individual clans and groups exchange, more or less regularly, specific means of subsistence and implements of labor, such as tools, weapons, etc. Since the production of implements requires favorable conditions, such as, e.g., a good raw material, specialization developed: one group found itself in better conditions for forging swords, another daggers, and another for producing articles of clothing and ornament. Thus an artisan differentiation between clan and clan became established. Whereas in the economy of gatherers there was equality between the sexes, with a suitable division of labor, in that of higher hunters the economic importance of man in relation to woman increased, with the consequence of an imbalance between the sexes. The great development of the idea of the State, with all its divisions and subdivisions of clans with their totem, diminished the importance of the family, reducing it almost to nothing, with much detriment to the human personality. The economy of higher hunters is thought to have arisen in the Upper Paleolithic, whereas that of gatherers arose in the Lower Paleolithic, or rather in the prelithic or alithic period, if the use of wood without the exploitation of stone can be conceived.
3. The agricultural economy
It provides the means of subsistence through the cultivation of plants: it is principally a female activity; men, however, contribute by clearing and preparing the soil for sowing, by erecting, when necessary, protective hedges around the field, by assisting with the harvest, by building storehouses and similar structures, and especially by attending to defense against enemies or wild animals. The oldest form of cultivation is that carried out with the digging stick. In tropical regions, plantings of taro and yam are made every three or four months, so that mature tubers are always available, the garden being at different stages of maturation. Some peoples abandon land that has become sterile and, by burning the forest or brush, prepare a cultivated area in a different place; other peoples instead leave the land fallow for several years before cultivating it again. To the cultivation of plants is added the planting, carried out by men, of fruit trees (mango, date, betel, pandanus). There is also no lack of occasional hunting or fishing undertaken by men, nor of occasional gathering excursions made individually or in groups by women. For the irrigation of fields, canals are dug, which also serve to drain marshes. The breeding of pigs and poultry, and the invention of pottery and textiles, belong to this economic system. The agricultural economy is originally familial, and since it is predominantly female in character, diminishing man’s economic activity, it led to the matriarchal system (v. DONNA; MATRIARCATO) and to the emergence—because it requires residential stability—of the village, with its solid, square houses and their hipped roofs.4. The pastoral economy
The transition to the cultivation of plants and the raising of livestock is considered one of the milestones in the technical progress of the human race, accomplished during the period of transition from the Lower to the Upper Paleolithic, or, according to others, in the Neolithic. Pastoralism initially requires the domestication of wild animals and their multiplication in captivity. Today the Turco-Tatar peoples use meat, especially horse meat, as their principal food; indeed, they have no other word for food than “meat.” The Mongols, the Altaians, and the Chinghisi use chiefly lamb. Reindeer breeders (Koryaks, Samoyeds, Ostyaks, Lapps) do not eat reindeer meat except when game is lacking, and they use reindeer for travel and for milk. As milk animals they primarily value the mare, cow, sheep, and goat, and secondarily the reindeer, yak, camel, and she-ass. Milk is detested in non-Aryan India, Indonesia, and eastern Asia. Among many other tribes of East Africa devoted to pastoralism, the practice of drinking the blood of cattle and oxen is observed: a vein is opened and one or two liters of blood are drawn from them. Pastoral peoples eat meat and milk cooked; in fact, all the peoples of the world use fire, and all, except the Andamanese, Tasmanians, and Bocango (Congo), know how to produce II. Livestock raising is a distinctly male activity: women are left to care for the milk vessels, tan hides, construct tents, make clothing, grind grain, cook food, and sometimes prepare beer and perform similar tasks. Since pastoralists need good pasture for their flocks, nomadism and transhumance are characteristic of them.5. Economic cooperation
From the union of the agricultural economy with that of higher hunters there arises, as has already been mentioned, an intense exchange of goods, which leads to the development of industry and commerce, technology and art, as well as of broad social aggregates, as has been observed, e.g., in Melanesia, Australia, America, and Africa. Thus among African agricultural peoples …they include potters, carpenters, and blacksmiths, who often inhabit a designated part of the village of the group to which they are attached, and trade their products at the nearest market, exchanging them for means of subsistence (millet, maize, beans) of which the others have a surplus; or they work on request. Whenever nomadic shepherds succeeded in subjugating these mixed peoples, or the agriculturalists, or the superior hunters, the great archaic and pre-archaic empires arose, with the consequent technical advancement of agriculture and handicrafts. Animals were then employed in agriculture with the plough, and in transport by means of two- or four-wheeled carts (already known in the fourth millennium B.C.), while in warfare the use of war chariots and cavalry appeared. The exchange of goods, which among gatherers is based primarily on contacts between relatives, gradually led to the development of routes and means of communication and to the introduction of primitive money. This, however, was used only to facilitate and measure the barter of goods, and not for the purpose of capitalization. Cases in which primitive money was transformed into possession of livestock are extremely rare, as, for example, occurred in Buin in Bougainville (Solomon archipelago).
6. Origins of various economic systems
Ethnology has proved that the man of the most primitive culture (the gatherer) is no different from all other men of every time and place. The most authoritative prehistorians affirm that even the tools of the earliest Pleistocene attest to the full rationality, and hence the spirituality, of primordial man.The other economic systems—superior hunting, pastoralism, and agriculture—arose independently of gathering during the period of transition from the Lower to the Upper Paleolithic.
Hahn, followed by others, holds that livestock breeding began for magical-religious reasons in pre-Sumerian agricultural civilization, where it was later used for ploughing, and from there subsequently passed to other peoples, while agriculture would have originated in Mesopotamia. More recently, Fr. Hermanna and Wölfel, independently of one another, have sought to demonstrate that pastoralism began with sheep and goats; then the ox was domesticated, and with it the donkey, the onager, and the camel; thereafter the horse and the reindeer—not by the Proto-Samoyedic and Proto-Altaic hunters, but by a hunting people of Western Asia between Turan and Iran. From there pastoralism spread to Mesopotamia, Western Asia, and Egypt, then to Africa and Europe, and subsequently to India, to Mohenjo Daro, and among the Toda; finally it reached Central and Eastern Asia, where the ox arrived, but not the horse.
BIBLI.: F. Engels, Der Ursprung der Familie, des Eigentums und des Staates, in Anschluss an L. H. Morgana Forschung, 16e ed., Stoccarda 1919, p. 2; E. Hahn, Waren die Menschen der Urzeit 250. der Jägerstufe und der Stufe des Hackerbaues Nomaden, in Ausland, 64 (1891), pp. 481-87; E. Grosse, Die Formen der Familie und die Formen der Wirtschaft, Friburgo-Lipsia 1896; F. Consentini, La social génétique, Parigi 1905, pp. 62-64; W. Schmidt, Totemismus, viehzachteris. Nomadismus und Mutterrecht, in Anthropos, 10 (1915-16), p. 307 ff.; K. Bucher, Die Entstehung der Volkswirtschaft, 10e ed., Tubinga 1917-18, pp. 574-95; W. Schmidt W. Koppers, Völker und Kulturen. Gesellschaft und Wirtschaft der Völker, Ratisbona 1924, p. 377 ff.; O. Leroy, Essai d'introduit, critique à l'étude de l'écon. primit. Les théories de K. Bucher et l'ethnol. moderne, Parigi 1925, pp. 6, 8, passim; W. Schmidt, Der Ursprung des Gottesides, VI, Munster in V. 1935, p. 4; id., The oldest culture-circles in Asia, in Mon. Serica, 1 (1935-36), pp. 1-16; R. Thurnwald, Die Wirtschaft der Völker, in Lehrbuch der Völkerkunde, Stoccarda 1939, pp. 307-34; P. Schebesta, Die Bambuti-Pygmaen vom Ituri, I, Bruxelles 1941, pp. 283-284; II, ivi 1948, pp. 546-47; G. Kraft, Der Urmensch als Schöpfer, Berlino 1942, pp. 200, 302, 303; P. Laviosa-Zambotti, Origini e diffusione della civiltà, Milano 1947, p. 179 ff.; W. Koppers, Der Urmensch und sein Weltbild, Vienna 1949, pp. 20 ff., 35 ff., 77 ff.; W. Schmidt, Das Menschenbild der Urkultur, in Wissenschaft und Weltbild, 1-3 (1949); id., Geist und Ethos des Menschen der Urkultur, ibid.; M. Hermanna, Die Nomaden von Tibet, Vienna 1949, pp. 227 ff., 282 ff.; W. Schmidt, Man. di metodologia etnol., trad. it., Milano 1949, pp. 198-201, 286 ff.
Luigi Vannicelli
II. ECONOMICS OF THE ADVANCED ANCIENT PEOPLES
Having passed beyond the phase of primitive economics, the most important economic systems of antiquity were those of ancient Egypt, Greece and the Hellenistic monarchies, and ancient Rome.
1. The economic system of ancient Egypt. — It developed during the millennium comprising the six finished and Memphite dynasties (from 3200 B.C. to 2275 B.C.). The religious premise of this system was the conception of the pharaohs’ power as a direct transmission of the power of the gods. In the political sphere, the consequence of the monarchy’s religious essence was absolutism; in the economic and administrative sphere, it was the tendency toward centralization and voluntarism. This tendency was intensified by geographical conditions (v. BerrTO): given the particular importance of the Nile’s periodic floods for agriculture and the country’s relative isolation, State intervention was facilitated, since only the State could first carry out the great works required to regulate the waters, and then the great religious and state constructions that offset the scarcity of commercial activity.
The two central pillars of ancient Egypt’s productive structure were agriculture, practiced predominantly in individualistic form by small landowners who lived on the produce of their holdings, paying the State direct taxes in kind and in days of labor on the extensive estates of the pharaoh or the temples; and industrial activity, practiced predominantly in monopolistic form by the State. The State monopolized the mines, quarries, building enterprises for public construction (pyramids, temples), and factories, where the products of state lands and those obtained through taxes in kind were transformed into manufactured goods. On behalf of the State worked, besides slaves—limited to prisoners of war—free laborers hired contractually. The administration of the State’s economic activities was entrusted to officials. Internal exchanges were limited and took the form of barter; external exchanges, though likewise not very intense, were directed toward Syria and Palestine and were a State monopoly. The high productivity of free agricultural labor and the State’s substantial monopolistic profits enabled the economic system to sustain the great unproductive expenditures on public construction; but the disproportionate expansion of these expenditures eventually affected agricultural productivity and became one of the causes of decline. Other causes were the concentration of wealth in the hands of officials, whose office became hereditary after the Fourth Dynasty; the transformation of free agricultural laborers into colonists legally bound to the soil; and the emergence of tax privileges in favor of large estates. After the Sixth Dynasty, the Egyptian economic system, through a slow process of involution, lost its defining characteristics.
2. The economic systems of ancient Greece and the Hellenistic monarchies. — They developed from the seventh to the third century B.C. The geographical conditions of Greece ([v.] limited cultivable soil with an extensive coastline) and the political conditions (the consolidation of the city-state and the tendency toward colonial expansion) favored intensive agriculture (viticulture, olive cultivation, orchards); the exchange of foodstuffs, supplied by foreign peoples and the colonies, for industrial products manufactured in the city-state; and the need for, and hence the development of, maritime transport and commerce. The legal order and the productive structure differed considerably from city to city. Hereditary succession was admitted everywhere, with legal restrictions tending to eliminate both the concentration and the functioning of property, not so much for economic reasons as for political and moral ones. The forms of management of agricultural enterprises also varied. Agriculture and stockbreeding, however, constituted a secondary source of wealth in the Greek economic system. More highly developed was small-scale industry producing for the market. Labor was predominantly supplied by slaves belonging to the owner of the enterprise or entrusted to him. In the democratic cities, and especially in Athens, there were also free wage earners, both citizens and foreigners.
The commercial technique of the Greeks reached a perfection that would not be surpassed until the advent of the modern capitalist system. Besides disseminating coinage as an intermediary of exchange, the Greeks established genuine monetary agreements among the various city-states and between cities and colonies. During the period of the apogee of the Greek economic system (the fifth and fourth centuries B.C.), since money had become the principal form of income and accumulation, the need was felt to prevent it from remaining unproductive, and lending became widespread, regulated by precise legal provisions and carried out by specialized merchants.
With the conquests of Alessandro Magno, the urban way of life, individualism, the spirit of enterprise, and the Greeks’ advanced industrial and commercial technique were grafted onto Eastern absolutism, giving rise to the characteristic economic system of the Hellenistic monarchies. State monopoly was widely extended within II. The largest landed properties belonged directly to the State, while over the small and medium-sized properties transferred to private individuals the State reserved considerable rights (military service by the colonists, taxes, serf obligations). Highly specialized industrial activity was conducted in predominantly state-owned factories, with slave labor or free labor hired by contract. Handicrafts organized in craft associations also continued to exist; their production, however, was minutely regulated by state laws (those of Tolomeo in Egypt concerning the production of oil and paper are well known), and authorization to practice a craft was subject to the payment of a tribute. The economic system of the Hellenistic monarchies declined when, as productivity fell because of the concentration of wealth and the impoverishment of the artisan classes and free workers, state intervention was transformed into indiscriminate and oppressive fiscalism.
3. The economic system of ancient Rome. — It developed during the imperial period, from Ottaviano Augusto (63 B.C.) to Costantino (A.D. 337). Political unity, the large urban population, and the security of land and sea traffic brought about the harmonious development of the three productive activities—agriculture, industry, and commerce—which were favored by the relatively decentralized administrative structure and prevailing economic liberalism. State intervention in the economy, limited to the fiscal and welfare spheres, was empirical and subordinated to political interests. The legal order, which in the Corpus iuris civilis attained a perfection unknown to earlier civilizations, was centered on the recognition and protection of real and movable property (including slaves) and of individual rights. The ager romanus first and the ager italicus later were capable of complete or Quiritary ownership and were exempt from taxation. The provincial lands, assigned to colonists or veterans or left to their former owners, were burdened with land taxes that sanctioned Rome’s theoretical right of ownership. The small peasant holding, directly managed and producing for the consumption of the colonial family, characteristic of the Republican age, underwent a continuous process of concentration, encouraged by the influx of capital, slaves, and livestock resulting from the military conquests. This led to the separation of ownership from management of the estate and of production from consumption of agricultural products, which characterizes the Roman economic system and, since agriculture was the principal source of wealth, justifies, in the view of some authors, despite the system’s lack of rationalization for profit-making purposes and the predominance of politics over economics, the designation “agrarian capitalism.” The redistribution of land to veterans during the Empire did not alter the system, since it created not new peasant holdings but new rural estates (latifundia) belonging to wealthy urban proprietors, based on slave labor and producing for the market. Agricultural products found their counterpart in manufactured goods, whose exchange, extended not only to luxury products but also to necessities, was facilitated by the sound road network, the unified monetary system, legislative protection of contracts, and the existence of interest-bearing loans.
Commerce was an important source of wealth, but its profits were predominantly invested in the purchase of land. Industry was decentralized and conducted in the form of small-scale craft enterprises with the assistance of servile labor; technically, it was little advanced and did not attain the level of Greek and Hellenistic industry.
With the end of the military conquests, the concentration of landed wealth, the low productivity of industry, whose development was halted by the contraction of the market caused by the general poverty of the mass of consumers, and the increase in the tax burden, which traditional taxes could not meet, imparted an involutionary movement to the economic system. The administrative structure also changed: the State resorted to extraordinary taxes in kind and in labor (liturgies), the collection of which was entrusted, first collectively and then individually, to wealthy citizens of the bourgeois class. Under Diocleziano and Costantino, state interventions increased (price controls, assistance in the purchase of tools for small colonists, etc.), but their lack of systematic organization rendered them ineffective.
III. MEDIEVAL ECONOMIC SYSTEMS
These are the feudal economy and the urban economy.1. The feudal economy (
V. FEUDALESIMO)
It extends from the ninth to the eleventh century and presupposes the formation of a conservative and particularistic feudal society, together with the continual decrease in population density. Real property is concentrated in the hands of the feudal lords, who cultivate it extensively and without profit-seeking aims. The serfs work the land either on behalf of the lord or on their own account; in the latter case, they pay the lord a rent and a portion of the harvest. Other economic and fiscal rights of the feudal lord include the collection of tolls; the right to the so-called banalities (the serf’s obligation to use, exclusively and for payment, the feudal lord’s oven, mill, and oil press); the right to succeed a colonist who dies without children; the exclusive right to hunt and fish; and so forth. Since the fiscal system is based exclusively on payments in kind and services—that is, since it is tied to the number and stability of the serfs on the estate—various restrictions are imposed on the mobility of the population (prohibition against leaving the estate, prohibition against marrying a person from outside the fief, etc.). Industrial production for the market does not exist: manufactured goods of first necessity come from artisans who produce to order or, for the most part, are the result of domestic labor. The result is an extremely limited trade conducted by itinerant merchants, laboriously organized in periodic fairs. Monetary circulation is extremely scarce and does not allow movable wealth to develop. The entire feudal economy is an anti-commercial economy, without risks and therefore tending to remain static.2. The urban economy (from the eleventh to the fifteenth century). — It develops with the revival of urban life and the formation of the Commune with a democratic structure. Crusades (v.) exert a considerable influence on its formation: they broke the static character of the feudal economy by opening the markets of the Levant and mobilizing men and capital. Ownership and exploitation of the land are fragmented; productivity is considerably increased by the influx of capital and the spread of rational systems of irrigation and drainage. The autarkic economic policy of the Communes favors the rise of new industries; production retains its artisanal character, but the new category of merchant-entrepreneurs emerges. They organize the activity of several artisans, supplying capital and raw materials and assuming the risks of production for the market.
A characteristic of the urban economy is the formation of the Arts and Corporations (v.). From a free professional association, the corporation, once enrollment became obligatory, assumes the character of a professional monopoly. Exchanges, both interregional and international, are extremely active; monetary circulation is abundant but insufficient for the needs of exchange, which credit amply supplies. During this period, while the force (v.), legitimate grounds are recognized for the payment of compensation to the lender (damnum emergens, lucrum cessans, risk, etc.). The activity of Florentine and Flemish bankers gives rise to a developed credit technique. The fiscal system of the cities is based on indirect taxes as ordinary revenues; on direct taxes, public loans, and monetary devaluation as extraordinary revenues.
IV. THE ECONOMIC SYSTEMS OF THE MODERN AND CONTEMPORARY AGE
1. The mercantilist economic system (V. MERCANTILISMO)
It manifested itself in a more or less organic manner in all the European states from the sixteenth century to the end of the eighteenth, but reached its greatest development in France and England in the seventeenth century. Its premises were furnished by the practical necessity of the recently formed unitary states to have at their disposal constant, secure, and substantial revenues to meet their needs (organizational, administrative, and military expenses, etc.). The mercantilist system gave rise to a series of state interventions aimed at increasing national wealth, of which money was considered the expression and measure. It developed in three phases. In the first, interventions were limited to prohibiting the export of money. In the second phase, interventions sought to increase the quantity of money within the country through the control of individual foreign-trade contracts. In the third phase, corresponding to the system’s greatest development, the state sought indirectly to influence the balance of trade by creating within the country conditions favorable to the export and unfavorable to the import of finished products (v. MERCANTILISMO; CROMWELL, OLIVER). The mercantilist economic system favored the transition from the urban economy to modern capitalism, from which it differed through its accentuated voluntarism—that is, through its confidence in an economic well-being that was not spontaneous but could be achieved by the deliberate intervention of authority.2. The capitalist economic system (
V. CAPITALISMO)
The premise of the system is «liberalism» (v.), which the American Revolution (1776) and the French Revolution (1780) had affirmed in politics, and which physiocracy (v.) first and the classical school (v. ADAMS) afterward had affirmed in economics, with their confidence in a beneficial and spontaneous economic order. Its technical characteristics are: the renewal of agricultural technique through the introduction of four-year crop rotation and artificial fertilization; the renewal of industrial technique through the increasing introduction of machinery; the renewal of land-transport techniques through the creation of railway lines, and of maritime transport through steamships.The consequences of the changed ideological and technical situation are: capital (v.) from labor, which passes into the hands of the entrepreneur who organizes production, appearing on the market as seller of the product and purchaser of raw materials and labor, regarded as a commodity; the increasing employment of fixed capital, in a proportion greater than that of circulating capital; the division and rationalization of labor; the search for an ever broader market and the continual transformation of the combination of productive factors and of the size of the enterprise in order to adapt them to the qualitative and quantitative changes in the market itself; the highly developed monetary economy, to facilitate the formation and distribution of savings; the predominance of collective enterprises over individual ones and, consequently, the separation of ownership (shareholders) from management (administrators) of the enterprise; the proletarianization of the working class, which, although a necessary collaborator of capital in production, is antagonistic to capital itself in the distribution of the product, and the consequent class struggle. The capitalist economic system presents highly complex characteristics that are difficult to schematize because of the dynamism inherent in the system itself. Its development may be regarded as divided into three periods.
The first (in the more economically advanced countries, from the end of the eighteenth century to the middle of the nineteenth) is the period of the transformation of agricultural and industrial technique; of the predominance of the private initiative of the entrepreneur-owner; and of the formation of class consciousness among workers abandoned to themselves in a labor market unfavorable to them because of their weaker bargaining power, the competition of female and child labor, and the lack of organization and legal protection.
The second period (68 middle of the nineteenth century) is characterized by the predominance of the speculative-financial element over the industrial; by the development of large enterprises and the struggle to conquer international markets. Trade-union organizations grew stronger, and wages were determined through collective bargaining. The state intervened in social relations through laws concerning the physical protection of workers and the length of the working day. It was in this period that the system’s deficiencies became fully evident: the periodic recurrence of depressions, with consequent mass unemployment, and inequality in the distribution of wealth.
The third period (from the end of the nineteenth century to the First World War) is characterized by agreements among large enterprises to move from a regime of competition to one of coalition (or near-monopoly). Enterprises, unable to respond to variations in demand with corresponding variations in supply because of high fixed costs and the relative rigidity of wages, partially relinquished their individuality and freedom of initiative in order to reach agreements with other enterprises, forming national and international groups, cartels, or trusts. The enterprises party to these agreements pursued a monopolistic price policy. During this period, extensive social legislation and collective wage bargaining gave relations between employers and workers a semi-public character, without, however, diminishing their separation and antagonism.
3. The collectivist economic system. — It was implemented in Russia with the Bolshevik Revolution (1917). The philosophical premise of historical materialism (v.) of C. Marx; its political premise is the simultaneous realization of the dictatorship of the proletariat, with the abolition of social classes, property, and private initiative (v. BOLSCEVISMO).
4. The system of regulated economy (or programmatic or partially planned economy). — It became established in a more or less defined form in all states, with the exception of the U.S.S.R., from the end of the First World War to the present day. It consists in direct and increasingly extensive state intervention in economic life, in order to modify the results of individuals’ economic actions and coordinate individual aims with social aims. In the present stage of the development of the regulated economy, social aims, theoretically expressed as the achievement of social justice, take concrete form in the tendency toward full employment and a more equitable distribution of wealth. The economic system recognizes private property and private initiative, but subjects them to legal limits (expropriation, compulsory pooling, etc.) and economic limits (control of investment, nationalization, control of trade, etc.). The premises of the regulated economic system are to be sought: 1) in the new structure of the market for products and productive factors, which has changed from a competitive market to a coalition market; 2) in the inability of the capitalist system to overcome its deficiencies: economic cycles and the maldistribution of wealth; 3) in the changed conception of relations between the state and the economy, with the implementation of social justice incorporated among the essential functions of the state.
State interventions that implement the regulated economy vary from one State to another, in order to adapt to the different pre-existing economic situations. They may be grouped as follows: interventions in monetary policy: manipulation of the discount rate, preferential credits, etc.; interventions in international-trade policy: bilateral and multilateral agreements, exchange controls, protective tariffs, export subsidies, etc.; interventions in social policy: social legislation and insurance, vocational guidance and selection, etc.; direct interventions in production: nationalization of key industries, public works, fixing of prices above (e.g., the United States Agricultural adjustment act of 1931) or below (e.g., the so-called political prices) the market price, etc.; interventions in business-cycle policy, aimed at preventing expansions (credit controls, limits on the self-financing of enterprises, etc.) or at alleviating depressions (public works, increasing the money supply, etc.).
Taken separately, such interventions are characteristic of any economic system, but in the regulated economy they assume particular importance because they are planned and coordinated with one another for the attainment of a single economic and social goal. The regulated economy brings profound modifications to the fiscal system through the introduction of the State’s economic budget, that is, a budget drawn up according to criteria that are not exclusively financial, and to the administrative structure of the State, through the creation of new bodies (Ministries of the Budget or of Production, Supreme Economic Councils, etc.) or through the expansion of the functions of bodies already in existence. Particular forms of regulated economy are: the corporative economic system, implemented by the Fascist regime in Italy (v. CORPORAZIONE), and the English Labour economic system (v. LABURISMO). The regulated economy raises the problem of the relationship between individual freedom and the authority of the State.
Once the autonomism in international economic relations characteristic of the gold-exchange system has been abandoned—a system incompatible with the attainment of full employment and social security, and consequently with the regulated economy—the regulation of those relations cannot be conceived except according to common and organic criteria among the various States. Thus the regulated economy also raises the problem of international cooperation, examples of which are the European Payments Union (E.P.U.), customs unions, etc.