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We have discussed in the preceding chapters the two economic system. capitalism and socialism. But there is also a third one,  the mixed economy. It is neither pure capitalism nor pure socialism but a mixture of the two. In the system we find the characteristics both of capitalism and socialism. As Samuelson observes, “Within the advanced countries themselves, the scene was drastically changed from the Victorian days of laissez-faire capitalism. Almost unconsciously, undiluted capitalism had been evolving into a mixed economy with both private and public initiative and control. The clock of history sometimes evolves so slowly that its moving hands are never seen to move In the modem world, what we find mostly are mixed economics. Mixed economy means that it is operated both by private enterprise and public enterprise. That is. private enterprise is not permitted to function freely and uncontrolled through price-mechanism.

 On the other hand, the government intervenes to control and regulate private enterprise in se~!!ral ways. It has been realised that a free functioning of private enterprise results in several types of evils. For instance, free functioning of private enterprise produces trade cycles,sometimes depression and unemployment  and at other times booms and inflationary situation. Besides, free functioning of private enterprise  results in extreme inequalities of  income and wealth. Under the  laissez-faire policy pursued by the  in the free enterprise economy, the weaker and vulnerable sections  of society as well as the indigenous industries uo not get protection . It is also realised that in the under-developed countries, like India, economic development cannot be achieved at the desired rate of growth without any active  government help and guidance. Hence the government in such countries actively participates in economic activities in order to minimise the evils of unadulterated capitalism and to accelerate economic growth. That is why most of the capitalistic economies of the world have  become mixed economies, because in all economies the economic functions of the State have increased.

TIle laissez-faire policy propounded  by Adam Smith And other classical economists has  been al~lOst altogether abandoned and the economies even of the U.S.A. and the U.K. have  become mixed economics. Eminent Americann economists like Prof. Samuelson and Hansen call   the American. English and the French economics as “Mixed Capitalist System” 011 “Mixed  Enterprise System” because governments interfere in  working  by controlling and regulating it and they actively participate in economic aetivities Types. In one type, the means of produc- ~n are o’jncd by private enkepreneurs; Hut th~ govcrnmcnt  directly controls aM regulates the working ofthe cconomj through its monetary and fiscal policies. For. example, it institutes price cuntrol. licensing  system. import control. exchange control. controlover capial issues, etc. The government does not take over the ownership of the means yf production to undertake  production itself. Even if it undertakes productiondirectly. it is comparatively very little as compared with the volume of production under the control of private entrepreneurs. That is why such a mixed economy is called ‘mixed capitalist system’. It i predominantly capitalistic and the government only influences its working and growth through appropriate fiscal and monetary policies. It controls and regulates private enterprise so that the evils of free private enterprise and of the price system are avoided and some pre-determined objectives are achieved. In such mixed enterprise systems the government confines its productive activity only to the production  or defence equipment and provision of publicutility services like water. gas and electricity and transport facilities. Such a mixed economy is also called  .

Another type of mixed economy is one in which the government does not merely control and regulate the private enterprise system by means of direct controls and appropriate fiscal and monetary policies but it also plays vital role in the actual production of commodities. In such a mixed  economy, several basic and strategic industries are owned by the State and their operationand management is in the hands of the government. The remaining industries are owned by private entrepreneurs and they operate and manage them.  the governor controls and regulates vate sector t rough direct control and appropriate nectary a  fiscal policies

The lain difference between the mixed economy of ~this type and of the former type
is that in this type of mixed  economy. the government controlsthe means of production in a mud! larger measure and itself undertakes production. Whereas. the first type  of mixed economy is biased more towards capitalism.the latter type il biased more towards socialism. the economy is an example of this second type  of mixed economy.  In the Indian economy, both the public sectorand private sector are in operation. The foundations of mixed economy in India were laid by the Industrial Policy Resolution of 1948 which was modified by the Industrial Policy Resolution (1{ 1956. According to these resolutions. the various industries were divided between the two sectors, vi:.. the private sector and the public sector. The responsibility for the development of several basic, heavy and strarcgrc industries was assigned to the State and the development of the rest of thc industries was left  the private sector. Even the private sector is controlled and influenced by the Government of India by mean of direct controls or through appropriate fiscal and monetary policies.  It is clear from the above that the mixed economy is a mixture of capitalism and socialism. The mixed economy tries to avoid the two extreme of pure capitalism  and pure socialism and the evils associated with each. In other words. it strikes a middle path between capitalism and socialism. We have mentioned above .

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