Economic Systems

1. Economic Systems Traditional, Command, Market, and Mixed economies

2. Recapping the Industrial Revolution • Occurs in mid 18th century • Great Britain • Machines replace human workers • Spinning Jenny, Power Loom, etc • Enclosure Movements force people to the cities • Urbanization • People begin working in mills/factories • Make more money!

3. Recapping the Industrial Revolution • Factory work greatly increases production • Machines • Assembly Line (Ford – Model T) • Prices of manufactured goods go down • Money left over • Owners driven by profit! • Poor working conditions • People start to question best economic practices

4. The economy – Who/What/How? • What makes up an economy? • Everything associated with the production, distribution, and consumption of goods. • Who produces what? • How much is produced? • How much is the cost? • These are known as the means of production • Question: Who owns or controls the means of production? • Answer: Varies according to economic system in place

5. 4 Economic Systems • Traditional • Command • Market (or Free Market) • Mixed

6. Things to keep in mind regarding economic systems • Who/what determines what/how much is produced? (the means of production) • Who/what determines prices of goods?

7. Traditional Economic System • Used to describe undeveloped regions of the world • Remote villages • Free of centralized gov’t—at least as we see it • Think ‘Old School’ • Based on tradition, custom, & inheritance • How it was done in the past is how it will be done in the future • Self-Sustained, subsistence farming • Produce what you/your village needs • Each person has a job/role • No real need for currency

8. Market Economic System (Free Market) • Economic system in which there is no economic intervention or regulation by the government • USA & UK = Examples • Capitalism = Free Market • Private individuals control the means of production • Examples of private individuals? • Who is not a private individual?

9. Market Economic System (Free Market) • True “free” market systems do not exist • Some regulation is in place to protect businesses, workers, and consumers • Examples: • Monopolies – When one individual or business controls all access to a certain good • Restricted by government laws • Minimum Wage

10. Adam Smith and the Invisible Hand • Where does the support for a free market or capitalist system come from? • The Wealth of Nations • Written by Adam Smith, 1776 • Argued that free-market systems are most beneficial & productive • Argues that the economy is guided by an invisible hand • Economies regulate themselves based off of natural laws of supply & demand

11. Adam Smith & laissez-faire • Smith also championed laissez-faire economics • Though he never mentions it • Means: “let it be” • Implies: Leave it alone • No government regulation! • Free Trade • No tariffs • Government non-interference

12. Command (Controlled) Economic System • Economic system in which the state (or government) owns/controls all means of production • What is produced? • Who produces it? • Who determines prices? • Example = Communism • Former USSR • North Korea • China (sort of) • Based on the idea that all people should be equal • No social/economic classes

13. Why the support for command systems? • Where does the support for Command economies or Communism come from? • Poor working conditions during early stages of Industrial Revolution • Low Wages • Very few wealthy people, man impoverished • Middle Class starts to expands • Workers and some owners start to question the conditions in the workforce

14. Karl Marx & the Communist Manifesto • The Communist Manifesto • 1848, Karl Marx • Contains Marx’s theories on society and politics • Argues that history is a history of class struggle. • Examples: • Freed man v. slave • Lord v. Serf • Rich v. poor • Oppressor v. Oppressed • Argues that Capitalism continues this class struggle

15. Class Struggle in Capitalism • Marx argues that the struggle in capitalism takes place between those who on the means of production (think employers, business owners) and the laborers (workers). • Bourgeoisie (owners) vs. Proletariat (workers) • Eventually, the Proletariat will rise to power and overthrow the Bourgeoisie • Through rebellion or labor unions • Leads to Communism • Everybody equal • See why communism was feared in the US???

16. Issues with Communism • In a true Utopian society: • Everyone has everything they need. • Historically, communism has not been successful. • Failed USSR • North Korea • China is more capitalist than communist • Government’s typically cannot provide for all the citizens • Little motivation to work hard/ become educated

17. Mixed Economic Systems • Economic system in which the state (government) controls key industries, but the rest are controlled by private individuals. • AKA – democratic socialism • Examples: Sweden • Some might say USA • Goal: To provide more equal distribution of wealth • Marx saw Socialism as the step between capitalism and communism

18. Robert Owens and early socialism • Not all factory owners endorsed the poor working conditions • Some believed that workers would work hard if they lived and worked in nicer, cooperative environments • Bring out the good in people • Utopian Socialists • 1820s: Robert Owens created such environments in Indiana factories • Provided nicer conditions, housing, schooling for children • Ultimately failed