America is the pinnacle of economic growth and development in the entire world. People from all over the world view the country as the place to be, where dreams come true and wealth is in abundance.

Having been through and surviving WWI, The Great Depression, WWII, The Cold War and so much more, America stays resilient as the strongest most successful economy in the world.

Mixed Economy in its True Form

But how exactly does the greatest economy in the world operate and what is the economic system in the United States like?

A Mixed Economy in its True Form

Although Karl Marx considered the USA to be a “free economy” where the resources of the country concentrate in the hands of a few privileged people who are driven by profit maximization motives while social welfare is not a concern that is catered, this is not a true depiction of the USA.

Neither is the command economy where the government has full control and authority. This is the system followed by communist states where individuals have little to no freedom and have no right to own property or businesses.

Mixed Economy in its True FormA good way of understanding the American economy is that if socialism or communism is the South Pole and capitalism is the North Pole, America lies right in the middle.

American economic system is a mixture of command and market economic systems.

In a mixed economy, people have the rights to:

  • Own property
  • Produce as they please
  • Earn profits
  • Equality

Since individuals are profit-driven, consumer behavior and prices determine what is to be produced. The more a good is consumed, the higher its price will be. This is a signal for other businesses and entrepreneurs to join the market. The lesser the consumption of a good, the lower its supply will be.

Hence, in the American economy, prices and consumer satisfaction control the market forces. What or how much is to be produced and at what price it will be sold are decisions dependent on how consumers behave.

Government’s Authority in the USA

Although freedom is what the American economy stands for, some services are best provided by the government. When talking about the economic system in the USA, understanding the role of government is essential.

The government provides several public goods with the tax revenue earned.

These include:

  • Schools
  • Hospitals
  • Courts
  • Roads
  • Security
  • Water, gas and electricity provision

US Government is also in charge of environmental regulation, providing unemployment benefits, pensions, and deciding economic policies such as monetary and fiscal ones.

Though consumers play an important part in economic activities, government surveillance is still integral.

Government’s Authority in the USAThe Federal Reserve is in control of monetary economics, deciding whether the USA should follow an expansionary policy increasing expenditure and inflation or if it should follow contractionary policies to encourage savings and slow down growth. Furthermore, the taxation system and revenues (fiscal policies) are the focus of Congress.

The government can ban, restrict, or provide licenses for certain economic activities.

Hence, the US economic system depends on the public sector to a large extent in order to operate.

Wealth Inequality in the USA – Cracks in the Economic System

Wealth Inequality in America has been on the rise since 1989 and reached alarming figures in 2016 when 77% of America’s wealth was estimated to be owned by just the top 10% of families ranked by household wealth.

Adding to that, the bottom 50% of the families ranked by family net worth make up only 1% of the total household wealth in the US in total.

This means that 63 million families in the US can combine their wealth to only contribute 1% of the total wealth which is terrible when considering how wealth is distrusted amongst US citizens.

Wealth Inequality in the USA Although private and public authorities both play a role in running the US economic system, the increasing wealth gap depicts cracks in the mixed economic system and shows that wealth is indeed accumulating in the hands of a few powerful people while private commercial interests outweigh social and political ones, as Karl Marx pointed out.

Consumerism is the focus of the American economy.

Reforms and further intervention is needed in order to fix the market forces, where the rich are getting richer while the poor are getting poorer as rents rise faster than wage, student debts increase all over the country and health care costs skyrocket.

The Economy in America – FAQs

Mixed Economy. Individuals are allowed to own resources and the government has limited control over them.
The USA is a mixture of command and market economy. It is a mixed economy.
Although state intervention is a part of the US economy, individuals are given the right to own property, businesses and government have limited involvement.
1. Traditional economic system

2. Command economic system

3. Market economic system

4. Mixed system

5. Socialist system
Colorado has the best economy in the USA. Its ease of doing business, employment rate, and growth of population all contribute to it ranking at #1.