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Primer on Economic Systems and Societal Organization

There are words used to describe systems of government and economic approaches to organizing societies.  In public discussions the differences are often lost and terms of government are used interchangeably with terms of economics.  Though a given approach to organizing government may lend itself to adopting a given economic system, government and economics are not synonymous.

Often the distinction between economic and political has been blurred. Words have meanings and the best way to convey thought is for the speaker and audience to share definitions in common.

Examples of Economic Systems

Dictatorship of the ProletariatCommunism: Often thought to describe a dictatorial political system that deprives individuals of nearly every freedom recognized by followers of natural law. In reality, communism is actually an economic system where the government owns all property and directs its use and the endeavors of the citizens in the country adopting communism. The term has gained the secondary meaning associated with dictatorship as a result of the countries that have utilized communist concepts in attempts to justify the legitimacy of the government.  Vladimir Lenin intermingled the concepts characterizing communism as a “dictatorship of the proletariat”.  In some respects, communism might be described as socialism on steroids.

Socialism: This too describes an economic system.  Socialism, unlike communism, allows private ownership of the factors of production. Frequently the government does own and operate major economic enterprises such as energy and transportation.  The private sector that is allowed is taxed significantly so that government is the major determiner of wealth distribution.  Socialism operates on a belief that government knows best how to distribute goods and services for the benefit of the society.

 Capitalism: Capitalism is an economic theory based upon markets with transactions primarily between private individuals. It is not a society’s political organization. The dominant factor in capitalist thinking is that free and open markets are the best way to deliver goods and services to a population in the most efficient manner. Private property is left in the hands of the individual and government’s role is to create an atmosphere that allows the markets to work and protect an individual’s property creating incentive for the individual to innovate and prosper.  For an innovative entrepreneur to prosper, markets are needed.  This means there must be a broad consumer class.  The advantages of an innovation can only benefit the innovator if there are consumers.  The underpinning thought is that freeing the talent of every societal member rather than being dependent upon the decisions of a few government leaders is the best way to improve the lives of all a society’s members.  An early explanation of how free markets build a society comes from Adam Smith’s 1776 Wealth of Nations, and contributed to the mixing of economic systems and political systems in language discussing “political economy”.

Examples of Political Systems

Monarchy: This political organization has at its head a king, queen, czar, sultan, chief or similar individual monarch. The monarch has absolute authority to set the laws for the conduct of society. In most instances the theory by which this power resides has a religious underpinning. The theory is that the ruler has by some method been selected by a deity or god, thus the law of the monarch is inspired by messages from the deity involved.  It is a claim from god that gives the monarch power.

Oligarchy: A step removed from Monarchy in that the ruling power is spread out among a select few of society, but again the ruling group relies upon a higher power as the basis for authority. Other societal political organizations may morph into oligarchies in reality, but there is a pretense that a different source of authority exists (an alleged democracy or republic may come to be dominated by a few resulting in a de facto oligarchy). In a straight oligarchy there is no pretending that any other source of power legitimates the authority. The best example may be the caste system.

Dictatorship: This societal organization is dependent for authority upon one thing alone, the exercise of raw power. Often laws and rules are imposed by military authority headed up by an individual who commands an army based primarily upon granting governmental favors to the dictator’s supporters.

Democracy: In its pure form, democracy is simply majority rule. Every person in a political unit gets together to decide every issue of government and to pass every law. There are no protections for minority rights. The decisions of those participating made by 50% + 1 are final and binding. Often, pure democracy is referred to as “mobocracy” in that decisions can be made by a simple majority of a mob and enforced on all society.

Representative Democracy: This is an evolution over pure democracy to allow larger societies to function when it becomes impractical for all members of society to participate in every decision. Representatives are chosen and simply again, 50% + 1 results in law. There are no permanent minority protections absent those which the majority wishes to grant and such protections may be taken away at the whim of the majority. This is principally the system of Great Britain, in that there is no written constitution and Parliament is the ultimate arbiter of everything. While English tradition has grown around respect of certain rights, there are no legal limitations upon Parliament changing the law in any way it desires.

Republic: A republic has a variety of characteristics that define it. First and foremost is the existence of a written supreme law, or constitution. The constitution contains both guarantees and systems to protect the rights of minorities and to place limitations upon the power of transitory majorities. Another characteristic includes the process of selection of representatives to pass laws pursuant to powers granted by the constitution. The source of authority in a republic is the people as a whole, and the people as a whole ratify a constitution before it becomes effective. A republic does not operate under the 50% + 1 rule because of the components that limit the government’s power and the legal protections afforded to what are considered “natural rights”.

Confusion of Republic and Democracy

Over time the terms republic and democracy have come to have meaning bit blurring them together. This may stem back to President Woodrow Wilson’s characterizing World War I as an effort to make the world safe for democracy. President Wilson was mistaken.

Written Constitutions and Republics of Limited Power an American Contribution to the World

Home of the ConstitutionOver the history of mankind, there have been documents alleging to be constitutions in that they have written out governmental powers. These documents have generally been placed into effect by a monarch, oligarchy or dictator, and as they have not been submitted to and approved by the people at large, they do not meet the true definition of a constitution.

The process of establishing a constitution and having the government derive its authority from the approval of the people through a ratification process is an American contribution to human social organization. The evolution of the written constitution in America is often said to have started with the Fundamental Orders of Connecticut, which set forth the powers and organization of that colony around 1638. The result of that is Connecticut’s nickname, the Constitution State.  Connecticut also set in motion the evolution of the American concept of federalism.

Over the next 140 years, political evolution of the concept of a constitution continued in the colonies and culminated in the Philadelphia Miracle in the Summer of 1787, the United States Constitution and the creation on a national scale for the first time, a Republic.



For Further Reading



  1. […] Primer on Economic Systems and Societal Organization […]

  2. […] the forcible inclusion into its “union” many of the countries bordering Russia.  Atheistic communism, with a centrally planned economy, government ownership of all property, government regulation of […]

  3. […] vote on every law. For a State to be admitted to the Union, it must establish a representative or republican […]

  4. […] The Article IV, Section 4 command of a Republican Form of Government for the states is known as the Guarantee Clause. This clause requires that state governments consist of representatives, rather than the alternative of “direct democracy”. Direct democracy is when all eligible citizens vote on every law. To be part of the Union a state must have a representative republican government. […]