Compare the Difference Compare the Difference between Market and between Market and

Command Economic SystemsCommand Economic Systems

An Exploration of Capitalism, Socialism and Communism:

Economic SystemsEconomic Systems

Economic systems answer the questions:What to produce?How to produce?How to distribute?

Economics is the study of how people use scarce resources to meet unlimited demand. Some people like to think of economics as a study of supply and demand.

3-5.Traditional Economic System3-5.Traditional Economic System

Before the invention of money people in ancient civilizations or small communities use to barter for goods. Bartering is the process of trading one good for another. The problem with bartering is that it is not always easy to find the person who has the good you want and often it can mean carrying a heavy load in order to make a trade. For instance, if you wanted to trade a 100 bricks for 10 pigs one of the people involved in the trade would have to carry 100 bricks or herd a 100 pigs. As it turns out not only is money easier on your back, but it makes trading simpler and faster because you don’t necessarily need the specific good the other person in the trade desires, you simply need cash.

Traditional Economic System-Traditional Economic System-

I give you bone for that plastic club!Me give you bone for Audi 500- me drive fast past you in mud!

6-7. Market Economy6-7. Market Economy

As long ago as ancient Egypt humans began to use forms of money to trade for goods and with the free trade of goods arose what is now known as the market economic system.

In a market economy producers make goods based on the amount demand they perceive to exist among consumers. Consumers in turn pay for items based on their supply. For instance, gold is greatly demanded by people across the world, but its supply is limited. Therefore, gold is expensive.

8-10. Market Economy= 8-10. Market Economy= CapitalismCapitalism

Another word for market economic systems is capitalism. Capitalism is an economic and political ideology written about by an 18th century thinker- Adam Smith in a book entitled “The Wealth of Nations.” Smith claimed that the more the people of different people trade with each other the less likely they are to go to war. Moreover, he claimed that the government must not interfere with the economy or it may disrupt trade and people’s ability to prosper. Smith claimed that instead of a government running an economy an “invisible free hand” known as a market would. Today this concept is referred to as laissez faire or hands off economics.

Market EconomyMarket Economy

Adam Smith claimed that people who trade with each other don’t go to war with each

other.

11. Characteristics of Market 11. Characteristics of Market EconomiesEconomies

Entrepreneurship and risk taking are rewarded with big financial gains.

Private property rights are strictly enforced even when they result in many poor people and few very wealthy people.

Producers decide what to produce based on consumer tastes and demands.

Productivity results in more personal wealth Government’s role in the economy is limited The economy is based on almost entirely on supply and

demand Private individuals and companies own businesses and

industry.

Examples of Market EconomiesExamples of Market Economies

To a large extent the US has a market economy. Compared to the rest of the world taxes are low and supply is determined by demand

Singapore is also an example of a market economy. In Singapore there are very few taxes and businesses can decide on how and what to produce.

In reality there is no such thing as a true market economy because the government in almost every nation around the world plays a significant role in the economy including the US

““It’s Your money, not the It’s Your money, not the government’s”- President Ronald government’s”- President Ronald

ReaganReagan

Market economies are based on the open and Market economies are based on the open and free trade of goods.free trade of goods.

In the New York Stock Exchange individuals In the New York Stock Exchange individuals buy and sell stocks (ownership) of companies buy and sell stocks (ownership) of companies

(below)(below)

The World Trade Center was seen as a symbol of The World Trade Center was seen as a symbol of American capitalism because things were sold and American capitalism because things were sold and bought there from around the world. The New York bought there from around the world. The New York

Stock Exchange is on the left.Stock Exchange is on the left.

12. Criticism of Market 12. Criticism of Market Economies Economies

Market economies often result in unequal societies where there are a few very wealthy individuals and many poor people.

Market economies often encourage free trade that enables large private companies to exploit the laborers or the resources of less-developed nations. For instance, most of the clothing worn by Americans is made in China by workers who earn less than a $1 an hour.

Market economies often result in economic monopolies (when one company controls a business sector) that stop competition and result in higher prices

13-14. Command Economy13-14. Command EconomyCritics of market economies claimed that

capitalism was a form of “class warfare.” They claimed that capitalism/ market economies resulted in a few people ruling over the masses. In order to end capitalism/ market economies critics claimed that a revolution was needed to redistribute goods equally. This revolution came to be known as communism and its economy was known as a command economy. In a command economy the government controls all aspects of the economy.

Command Economy- Typically Command Economy- Typically begin with revolutions.begin with revolutions.

Karl Marx was the founder of the Karl Marx was the founder of the communist/ command economy ideology. communist/ command economy ideology. He claimed that as long as there existed a He claimed that as long as there existed a business owning class oppression would business owning class oppression would

continue.continue.

Traits of a Command EconomyTraits of a Command Economy

The government controls all aspects of the economy

Private property is illegal Supply and demand are determined by the

government, not by consumers and producers. Everyone is paid equally no matter what job they

do. Industry and businesses are owned and controlled

by the government, not private individuals.

Examples of a command Examples of a command economyeconomy

In the former Soviet Union the government killed small property owners and redistributed their land to workers.

In Cuba all residents are given rations of foods. Instead of purchasing food in a market Cubans go to government food supply centers.

Example of Command Economy- Example of Command Economy- Cuba’s Fidel Castro and Che Guevarra Cuba’s Fidel Castro and Che Guevarra

established a command economy by expelling established a command economy by expelling Cuba’s small business and land owners. Many Cuba’s small business and land owners. Many

of those who lost their business now live in of those who lost their business now live in Miami.Miami.

15. Criticism of Command 15. Criticism of Command EconomiesEconomies

Command economies are inefficient and reward unproductive workers. Critics claim that since workers are awarded the same amount of money for doing every job workers aren’t productive.

Command economies result in shadow/ illegal markets. Because the government controls the distribution of goods, rather than consumers and producers individuals begin to sell things illegally.

Command economies cease to stay competitive in the world because competition and entrepreneurship is discouraged.

Examples of a Command Economy- In Examples of a Command Economy- In North Korea the former dictator Kim Il Sung North Korea the former dictator Kim Il Sung controlled the economy with an iron hand controlled the economy with an iron hand

and had statues of himself built to show his and had statues of himself built to show his people who was in charge of the people who was in charge of the government and the economy.government and the economy.

16. Mixed Economy16. Mixed Economy

Mixed economies exist somewhere between command and market economies. In a mixed economy the government tends to own major industries like utilities, health care and major manufacturing industries; however, individuals own most small businesses. Mixed economies tend to tax their citizens more than market economies, but less than command economies.

Mixed EconomyMixed Economy

Traits of a Mixed EconomyTraits of a Mixed Economy

The government controls large industries, while private individuals control small businesses.

Citizens are taxed heavily to provide all citizens a social safety net such as welfare, free university tuition and free health care.

Property is controlled by both the government and private individuals.

Workers tend to be somewhat less productive than those in market economies, but less product then those in command economies.

Consumers generally have a wide variety choices.

John Maynard Keynes claimed John Maynard Keynes claimed that economies would benefit that economies would benefit

from deficit spending if it led to from deficit spending if it led to higher employment rates.higher employment rates.

President Franklin Roosevelt introduced the President Franklin Roosevelt introduced the principles of a mixed economy to the US by principles of a mixed economy to the US by

expanding the government, providing expanding the government, providing welfare and establishing Social Security for welfare and establishing Social Security for

the elderly.the elderly.

18. Examples of a Mixed 18. Examples of a Mixed Economy Economy

In France health care is free, university costs very little if you get in (many do not) and taxes are high. However, there are also private industries based out of France like Air France and Puegot.

In United Kingdom health care is free, university is cheap, but citizens can purchase private health insurance and attend private universities if they choose.

In the United States the federal government owns much land in the West and private ranchers are allowed to graze their cattle on that land.

19. Criticism of Mixed Economies19. Criticism of Mixed Economies Critics of mixed economies claim that they often result in

unproductive workers because there is not as much incentive to work hard as there is in a market economy. As a result mixed economies often suffer from higher unemployment rates and lack the same number of entrepreneurs as market economies.

Mixed economies often must raise taxes in order to sustain all of the social services such as welfare, free health care, low cost university education and pension systems for the elderly which can lead to a stagnant economy.

In essence, critics claim that mixed economies enable irresponsible behavior.

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