Human society has seen different forms of economic organisations. Thus, from the primitive group society many known civilisations have passed through slavery and feudalism. A major portion of world today, however, is under two contemporary forms of economic organisations: capitalist and socialist.
1. There is private ownership of means of production.
2. The economy is based on maximisation of profit.
3. There is a free market so that both production and wages depend upon the laws of demands and supply.
4. There are two classes of capitalists and workers or bourgeoisie and proletariat.
1. Means of productions are socially owned.
2. The economy is based on the principle from each according to his ability and to each according to his needs.’
3. There is centralised planning for both production and wages.
4. It is a classless society.
A socialist economy is a planned economy. There being no private owners of productive resources, there is no private appropriation of the surplus created in production. There are four basic ways in which the product of the society is used.
(a) Private consumption of the workers who participate in production;
(b) Collective consumption of the people in the form of health, education and other services;
(c) Maintenance of the state; and
(d) Investment or creation of physical capital assets.
All these basic decisions are made through the central plan and not by the price system.