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• The economic system known as capitalism developed gradually over centuries, originating during the late Middle Ages.
• During the 19th century societal changes due to industrialization led some people believe that capitalism caused certain problems, such as the abuse of workers.
• These critics of capitalism responded by developing a new economic system called socialism
Capitalism• Definition:
economic system in which the factors of production are privately owned & money is invested to make a profit
Capitalism• Adam Smith: wrote
The Wealth of Nations
• Believed in Laissez-faire economics – gov’t should NOT interfere in a free market
Capitalism• 3 Natural Laws of Economics:1. Law of Self-Interest: People work for
their own good2. Law of Competition: Competition
forces people to make a better product
3. Law of Supply & Demand: Enough goods would be produced at the lowest possible price to meet demand
Socialism• Definition: economic system in
which the factors of production are owned by the public and operate for the welfare of all
Socialism• Grew out of a
concern for social justice
• Government should control key industries to end poverty and promote equality
• Individuals & businesses own property & means of production (private)
• The community or state owns property & the means of production (public)
Socialism
Capitalism
• Progress results when individuals follow their own self-interest
• Progress results when a community of producers cooperate for the good of all
Socialism
Capitalism
• Businesses follow their own self-interest by competing for consumer’s money
• Socialists believe that capitalism takes advantage of the worker
Socialism
Capitalism
• Dominos Pizza
• Papa John's Pizza
• Pizza Hut Pizza
Pizza Anyone?
Not lovin’ it
• Each business tries to produce goods or services that are better & less expensive than those of competitors
• The community or state must act to protect workers and consumers
Socialism
Capitalism
• Consumers compete to buy the best goods at the lowest prices
• Socialists believe that capitalism creates an unequal distribution of wealth
Socialism
Capitalism
• The Ultimate Price?
The Ultimate Price?
U.S. Distribution of Wealth 2013
• Consumer competition shapes the market by affecting what businesses are able to sell
• Rather than competition, goods should be distributed according to each person’s need
Socialism
Capitalism
• Gov’t SHOULD NOT interfere in the economy because competition creates efficiency in business
• Gov’t SHOULD control & regulate the economy to protect workers & consumers
Socialism
Capitalism
Marxism – Radical Socialism
• According to Karl Marx the economy is a major force for change
• Change generally occurs through class struggle
• The “HAVES” v. the “HAVE-NOTS”
Marxism – Radical Socialism
• Throughout history the “HAVES”:• Control politics &
government• Create & control
culture
Marxism – Radical Socialism
• As a result of this influence on society the “HAVES” have historically kept their position on top of the social structure
Marxism – Radical Socialism
• Said the large proletariat would revolt, seize factories/mills from the capitalists, & produce what society needs
Time Period
The “Haves”
The “Have-Nots”
EgyptPharaohs,
priests, royal families, etc.
IndiaUpper castes:
priests & rulers
Slaves, peasants
Lower castes:
servants & slaves
Time Period
The “Haves”
The “Have-Nots”
MiddleAges
Peasants, serfs
Age of Industr
y
Middle Class (Bourgeoisie)
Factory Owners
Nobles,landowners
Factory workers
(Proletariat)
Communism (in theory)• Pure Socialism in Marx’s Vision =
Communism• ALL “HAVES” & NO “HAVE-NOTS”• Classless
society with NO gov’t
• All goods & services shared equally
In the American System?• Business can require workers to
work for unlimited hours• Businesses compete with each
other for customers• Hiring practices permit
discrimination• Huge variety of products
available• Individuals can start a business
In the American System?• Individuals can own a business• People can improve material
wellbeing through hard work• Prices vary with availability and
demand• Production of too many goods
results in discount stores • Some people do not have health
care
In the American System?• Unregulated monopolies• Wages vary according to the
availability of that type of worker• Workers laid off if demand drops
or business fails• 40 hour work week • Bankruptcy laws
In the American System?• Child labor laws• Government protection of bank
deposits• Higher tax rates for wealthier
people • Government inspection of
meat/restaurants•
In the American System?• Medicare• Minimum wage• Old age/retirement payments by
the gov’t• Over-time pay• Public libraries, parks, & schools
In the American System?• Workman’s compensation for
injury on the job• Workplace safety inspection• No private ownership of the
means of production• Equal pay for equal work