3 Basic Economic Systems in the World?

Let’s Name Them!

What kind of an economy is it?

Capitalism

SocialismCommunism

What is an economic system?• Economic system is more than simply a

way to make a decision

• It is a way of life.

• Differs among societies and reflects a wide variety of values for individuals.

• One value cannot prove superior to others as a general rule. Values are set in cultures and cultures set by economic system.

Check it out!

Economy of Europe

Economy of China

Economy of Middle East

Economy of Africa

Economy of America

TRADITION ECONOMICS

Very common in underdeveloped countries• All countries have a touch of tradition still

today.• Oldest way to cope with an economic

problem• Problems solved by guidelines suggested by

social customs, religious traditions, and morals

• Fruits of production are distributed by age,sex, - something unrelated to productivity.

• Birth is a dominant factor- sets the status for life.

What is Capitalism?Accumulation of factors of productionProductive labor (work for wages/become

productive/produce more/ more accumulation of financial capital and capital)

Profits are the motivational factor to production and wages.

3 Basic Freedoms Capitalism Depends On

• Private property- we are protected by our Constitution to own property.

• Private enterprise- we can go into business if we desire.

• Freedom of choice- jobs, school, businesses, production, consumption,

Private Property – bank balances, dogs, houses, gardens, tools, earth’s minerals, Property represents Wealth

Economic Freedom –(political freedoms) buy any good, start a business, use technology, invest, quit your job

Economic Incentive –better life, work harder, go to school, receive rewards for work- punishments also

Competitive markets –supply/demand/individual preferences.Exercise choice. Markets and prices*** key

Limited Role of Government –2 roles (rule-maker, and umpire).Allows individuals equal opportunities

Five Features of FE Economy

Freedom is Not Really Free!In our political and economic system… the

powers of government have been entrusted to the people.

It is not possible to separate political and economic freedoms…

What Changes our Capitalism into Socialism?

Economic system mixed with government involvement/regulation

• U.S. Postal Service• Amtrack• Medicare, Medicaid• AFDC• Social Security• Unemployment Compensation• FTC• EPA

BRINGS US TO A MIXED CAPITALIST SYSTEM

What is SOCIALISM?• State ownership of means for

producing goods and services.– A Socialist economy has 3 basic

characteristics:1.State owns major factors of production2.Central planners determine many of the three

basic questions3.There is an attempt to distribute income

equally.As in all 3 basic economies… socialism is

determined by degrees…explain!

Degrees of Socialism-Just like degrees of Capitalism.

Freedoms measured by economies

CAPITALISM SOCIALISM

Most Reduced Quasi-Balanced Increased Least

COMMUNISM

Freedom measured by degrees

Summary Socialism

• State ownership of means for producing goods and services

• Major industries often controlled by government. BBC… British Airlines…Coal Mines… Steel Mills. Venezuela today nationalizing industries.

• Private ownership of secondary institutions.• Personal freedoms do exist- but to lesser degree than

market economy.• Allocation of resources not efficient…massive

government “bog-down” “featherbedding” etc.• Not a lean/mean economy…. Very heavy government.

MARXIAN SOCIALISM Movement to overthrow capitalism by force is traced to Marx.

Marx disturbed by living conditions of working class- in 1848 wrote Communist Manifesto- urged “workers to unite, you have nothing to lose but your chains.”

In major work Das Kapital, Marx forecast the end of capitalism. Doomed cause based on inequality. Capitalists vs Prolitariat. Capitalists controlled factors which gave them power and control.

Capitalists gained profit at expense of workers – Theory of Labor value suggested by Marx.

MARXISM Dictatorship would rule working class-become central

planners- making all economic decisions.

Through socialism people’s material and spiritual well-being would improve. A true classless society would come into existence.

All property would be owned collectively

All people would work to the best of their abilities to produce goods and services.

People would consume only what they need

People would worship the government.

Summary Command

• Relatively small amount of personal freedom-very restricted.

• Lower standard of living for all except political leaders.

• Only one political party runs government• Production and distribution of goods in hands of

government• Change through revolution (often bloody-Russia,

China)• Private business can exist- state controlled• Master plan of government is key to economic

success.If plan fails, economy fails.

REMINDER

There are no pure economic systems anyplace in the world.

Because we began civilization as clans, tribes, etc…. Traditional was prevelent

Moved to Kings, Sovereigns, benevelent and non-benevelent rulers (but…. Combined the political with the economic)

Europe had strong mercantilist economy for over 300 years.

So how unusual it was for a new nation to actually want to self-rule and establish a market economy.

HOW ON EARTH COULD THE CANDLES BE MADE, THE BREAD BAKED, THE BUSINESSES ESTABLISHED????

Invisible Hand concept – Mr. Adam Smith.

I know of no safe depository of the ultimate powers of society but the people themselves, and if we think

them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it

from them but to inform their discretion by education.

Thomas Jefferson