Role Of Money In A Socialist Economy

Role of money in socialist economy:

In a socialist economy, the government owns and controls the means of production and distribution. Factories, farms, mines, financial institutions, means of communication are controlled by state corporations. In a socialist economy, money does not operate freely. Rather it works under the regulation of central planning authority.
Mechanism of price in a socialist economy:
Various elements of price mechanism such as cost, prices and revenues all of them are planned and are calculated by the authorities keeping in view the goals and targets. It is the central planning authority that performs the functions of the market.
All the means of production are owned and regulated by the government, so the decisions

The businesses receive revenues through the sales which then go as tax payments and profit earnings and as repayments of loans to the state bank. These funds then again flow from the state budget and the state bank to the manufacturing businesses. This is how money flows in a circular form.
The role of money is less important in the socialist economy as compared to the capitalist economy. However, it helps to fix the prices, wages, salaries and profits. Socialist economy guides in determining the allocation of the resources equally, accumulation of the capital and the flow of money within and outside the economy.

Role of money in a capitalist economy:
Such an economy which is based on private ownership of the capital, production inputs, production of goods and profits. In socialist economy each individual has the capacity to act as consumer, producer and resource owner. Capitalist economy has the following features:
• This economy is a free enterprise economy.
• In this type of economy the individuals have a freedom of choice to produce, save, consume and invest. Customers can make alternative choices in their consumption.
• This economy is an unplanned

Role of money in a mixed economy:
Such an economy in which the private and the public sectors go side by side. The decisions are made and implemented through a discussion by both the sectors. It is such a system which is able to overcome the disadvantages of both the sectors. The individual’s rights are respected by the public sector.

In this type of economy the resources are owned by both the public as well as the private sector. Market forces are however monitored by the government.
The producers and consumers are free to produce and purchase the products respectively but the government keeps a check that harmful products are not being produced. Income is distributed equally and this is checked by the government.
Allocation of the resources:
Productive investments are made and level of equilibrium is maintained between the demand and supply. In this way resources are allocated rationally.
Mobility of the resources:
As this economy is an expanded one so the resources are mobilized from one sector to another. And it is helpful in the growth of the commerce and