Economic Systems
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Transcript of Economic Systems
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Economic SystemsTraditional, Command, Market, and Mixed economies
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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!
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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
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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
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4 Economic Systems•Traditional•Command•Market (or Free Market)
•Mixed
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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?
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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
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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?
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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
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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
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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
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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
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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
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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
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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???
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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
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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