ECONOMICSECONOMICS

ECONOMIC SYSTEMSECONOMIC SYSTEMS

METHOD USED BY A SOCIETY TO METHOD USED BY A SOCIETY TO PRODUCE AND DISTRIBUTE PRODUCE AND DISTRIBUTE GOODS AND SERVICESGOODS AND SERVICES

THREE ECONOMIC THREE ECONOMIC QUESTIONSQUESTIONS

WHATWHAT GOODS AND SERVICES SHOULD GOODS AND SERVICES SHOULD BE PRODUCED?BE PRODUCED?

HOWHOW SHOULD THESE GOODS AND SHOULD THESE GOODS AND SERVICES BE PRODUCEDSERVICES BE PRODUCED

WHOWHO CONSUMES THESE GOODS AND CONSUMES THESE GOODS AND SERVICESSERVICES

WHAT SHOULD BE WHAT SHOULD BE PRODUCED?PRODUCED?

HOW MUCH OF OUR RESOURCES HOW MUCH OF OUR RESOURCES SHOULD WE DEVOTE TO:SHOULD WE DEVOTE TO:– DEFENSE?DEFENSE?– EDUCATION?EDUCATION?– PUBLIC HEALTH?PUBLIC HEALTH?– CONSUMER GOODS?CONSUMER GOODS?

HOW SHOULD GOODS AND HOW SHOULD GOODS AND SERVICES BE PRODUCED?SERVICES BE PRODUCED?

HOW TO USE OUR RESOURCESHOW TO USE OUR RESOURCES

SHOULD WE PRODUCE ELECTRICITY WITH SHOULD WE PRODUCE ELECTRICITY WITH OIL? SOLAR POWER? NUCLEAR?OIL? SOLAR POWER? NUCLEAR?

DETERMINE HOW TO USE OUR FACTORS DETERMINE HOW TO USE OUR FACTORS OF PRODUCTIONOF PRODUCTION

COMBINING FACTORS OF COMBINING FACTORS OF PRODUCTIONPRODUCTION

O O

O O O O OO O O O OO O O O OO O O O O

1 acre 20 WORKERS CAPITAL+ +

1 acre 2 WORKERS CAPITAL+ +

=

=

10 BUSHELS OF CORN

50 BUSHELS OF CORN

WHO CONSUMES WHO CONSUMES GOODS AND SERVICESGOODS AND SERVICES

SOCIETIES MUST DECIDE HOW TO SOCIETIES MUST DECIDE HOW TO DISTRIBUTE THE AVAILABLE GOODS AND DISTRIBUTE THE AVAILABLE GOODS AND SERVICESSERVICES

DISTRIBUTION IS DETERMINED BY HOW DISTRIBUTION IS DETERMINED BY HOW SOCIETIES CHOOSE TO DISTRIBUTE INCOMESOCIETIES CHOOSE TO DISTRIBUTE INCOME

HOW DO WE DECIDE HOW MUCH LAND IS HOW DO WE DECIDE HOW MUCH LAND IS WORTH?WORTH?

HOW MUCH MONEY SHOULD TEACHERS HOW MUCH MONEY SHOULD TEACHERS EARN? DOCTORS?EARN? DOCTORS?

EACH SOCIETY ANSWERS THE QUESTION OF EACH SOCIETY ANSWERS THE QUESTION OF DISTRIBUTION BASED ON SOCIAL VALUES DISTRIBUTION BASED ON SOCIAL VALUES AND GOALSAND GOALS

GENERAL ECONOMIC GENERAL ECONOMIC GOALS OF SOCIETIESGOALS OF SOCIETIES

ECONOMIC EFFICIENCYECONOMIC EFFICIENCY: MAKING THE MOST OF RESOURCES: MAKING THE MOST OF RESOURCES

ECONOMIC FREEDOMECONOMIC FREEDOM: FREEDOM FROM GOVERNMENT : FREEDOM FROM GOVERNMENT INTERVENTION IN THE PRODUCTION AND DISTRIBUTION OF INTERVENTION IN THE PRODUCTION AND DISTRIBUTION OF GOODS AND SERVICESGOODS AND SERVICES

ECONOMIC SECURITY & PREDICTABILITYECONOMIC SECURITY & PREDICTABILITY: ASSURANCE THAT : ASSURANCE THAT GOODS & SERVICES WILL BE AVAILABLE, SAFETY NETS WILL GOODS & SERVICES WILL BE AVAILABLE, SAFETY NETS WILL PROTECT INDIVIDUALS IN TIMES OF ECONOMIC DISASTERPROTECT INDIVIDUALS IN TIMES OF ECONOMIC DISASTER

ECONOMIC EQUITYECONOMIC EQUITY: FAIR DISTRIBUTION OF WEALTH: FAIR DISTRIBUTION OF WEALTH

ECONOMIC GROWTHECONOMIC GROWTH: INNOVATION LEADS TO GROWTH AND : INNOVATION LEADS TO GROWTH AND GROWTH LEADS TO A HIGHER STANDARD OF LIVINGGROWTH LEADS TO A HIGHER STANDARD OF LIVING

OTHER GOALSOTHER GOALS: SOCIETIES PURSUE ADDITIONAL GOALS, : SOCIETIES PURSUE ADDITIONAL GOALS, SUCH AS ENVIRONMENTAL PROTECTIONSUCH AS ENVIRONMENTAL PROTECTION

4 MAIN ECONOMIC SYSTEMS4 MAIN ECONOMIC SYSTEMS

TRADITIONALTRADITIONAL

BASED ON CUSTOMS AND BELIEFSBASED ON CUSTOMS AND BELIEFS

– AGRICULTUREAGRICULTURE

– HAND CRAFTED GOODSHAND CRAFTED GOODS

– USED IN AFRICA AND PARTS USED IN AFRICA AND PARTS OF SOUTH AMERICAOF SOUTH AMERICA

COMMAND COMMAND INDIVIDUALS HAVE LITTLE (IF ANY) INFLUENCE INDIVIDUALS HAVE LITTLE (IF ANY) INFLUENCE

OVER ECONOMIC DECISIONSOVER ECONOMIC DECISIONS GOVERNMENT CONTROLS FACTORS OF GOVERNMENT CONTROLS FACTORS OF

PRODUCTIONPRODUCTION USED IN: USED IN:

NORTH KOREANORTH KOREA CHINACHINA LAOSLAOS CAMBODIACAMBODIA CUBACUBA VIETNAMVIETNAM (FORMER SOVIET UNION)(FORMER SOVIET UNION)

MARKETMARKET

GOVERNMENT HAS GOVERNMENT HAS NONO INTERVENTION INTERVENTION IN ECONOMIC DECISIONSIN ECONOMIC DECISIONS

USED WHERE?USED WHERE?

MIXEDMIXED

CONTAINS CHARACTERISTICS FROM CONTAINS CHARACTERISTICS FROM ALL ECONOMIC SYSTEMSALL ECONOMIC SYSTEMS

VERY COMMON THROUGHOUT THE VERY COMMON THROUGHOUT THE WORLDWORLD

USED IN THE UNITED STATESUSED IN THE UNITED STATES

CAPITALISMCAPITALISM

A. DEFINITIONA. DEFINITION: : – MEANS OF PRODUCTION ARE PRIVATELY MEANS OF PRODUCTION ARE PRIVATELY

OWNEDOWNED– SUPPLY AND DEMAND DETERMINE PRICESSUPPLY AND DEMAND DETERMINE PRICES– BUSINESS HAS FREEDOM TO MAKE BUSINESS HAS FREEDOM TO MAKE

DECISIONSDECISIONS

CAPITALISMCAPITALISM

B. B. ADAM SMITHADAM SMITH1.1. THE WEALTH OF NATIONS THE WEALTH OF NATIONS 1776 1776

C. LAISSEZ FAIRE THEORY – “HANDS OFF”C. LAISSEZ FAIRE THEORY – “HANDS OFF”1) Capitalism without government regulation1) Capitalism without government regulation2) Laissez faire Capitalism was blamed for 2) Laissez faire Capitalism was blamed for

the the following conditions following the following conditions following the Industrial Industrial Revolution Revolution

1) CHILD LABOR1) CHILD LABOR2) LOW WAGES2) LOW WAGES3) NO BENEFITS (UNEMPLOYMENT)3) NO BENEFITS (UNEMPLOYMENT)4) DANGEROUS/UNHEALTHY 4) DANGEROUS/UNHEALTHY WORKING CONDITIONS WORKING CONDITIONS

CAPITALISMCAPITALISM

3)3) FREE ENTERPRISE (FREE ENTERPRISE (capitalistic ideal)capitalistic ideal)

1. EQUAL OPPORTUNITIES1. EQUAL OPPORTUNITIES

2. SUCCESS AND FAILURE 2. SUCCESS AND FAILURE

ADVANTAGESADVANTAGES

EFFICIENCYEFFICIENCY: : Many buyers and sellers, resources Many buyers and sellers, resources

are are used in the most profitable way used in the most profitable wayFREEDOMFREEDOM::

Producers have freedom (profit Producers have freedom (profit motive), motive), Producers keep the fruits for their Producers keep the fruits for their effortsefforts

SATISFACTIONSATISFACTION:: Variety of products are produced to Variety of products are produced to satisfy the consumersatisfy the consumer

DISADVANTAGESDISADVANTAGES

PURE CAPITALISM (Laissez-Faire) PURE CAPITALISM (Laissez-Faire) Ignores:Ignores:– The poorThe poor– The unemployedThe unemployed– The elderlyThe elderly

*Develops a wide range of “social classes”*Develops a wide range of “social classes”

*Monopolies/Oligopolies can be developed*Monopolies/Oligopolies can be developed

MIXED CAPITALISMMIXED CAPITALISM

INDIVIDUALS CONTROL ASPECTS OF INDIVIDUALS CONTROL ASPECTS OF BUSINESS WITH GOVERNMENT BUSINESS WITH GOVERNMENT REGULATIONSREGULATIONS

UNITED STATESUNITED STATES

SOCIALISMSOCIALISM

DEFINITION:DEFINITION: BELIEF THAT DEMOCRATIC MEANS BELIEF THAT DEMOCRATIC MEANS

SHOULD BE USED TO DISTRIBUTE SHOULD BE USED TO DISTRIBUTE WEALTH EVENLY THROUGHOUT A WEALTH EVENLY THROUGHOUT A SOCIETYSOCIETY

SOCIALISMSOCIALISM

A)A) CHARACTERISTICSCHARACTERISTICS

1) COLLECTIVE OWNERSHIP 1) COLLECTIVE OWNERSHIP

2) DEMOCRATIC IDEALS 2) DEMOCRATIC IDEALS

3) RE-DISTRIBUTION OF WEALTH TO 3) RE-DISTRIBUTION OF WEALTH TO

PREVENT CONCENTRATION OF WEALTHPREVENT CONCENTRATION OF WEALTH

B)B) GOVERNMENT RESPONSIBILITIESGOVERNMENT RESPONSIBILITIES

1) FREE MEDICAL AND DENTAL1) FREE MEDICAL AND DENTAL

2) FREE EDUCATION2) FREE EDUCATION

3) SOCIAL SECURITY3) SOCIAL SECURITY

4) HOUSING4) HOUSING

5) GUARANTEED EMPLOYMENT5) GUARANTEED EMPLOYMENT

ADVANTAGESADVANTAGES

EQUALITY (Wages are nearly identical)EQUALITY (Wages are nearly identical)

SOME SOCIAL BENEFITS (health care, SOME SOCIAL BENEFITS (health care, education, military defense)education, military defense)

FULL EMPLOYMENTFULL EMPLOYMENT

DISADVANTAGESDISADVANTAGES

LESS EFFICIENT THAN CAPITALISM LESS EFFICIENT THAN CAPITALISM (MORE WORKERS THAN NECESSARY)(MORE WORKERS THAN NECESSARY)

TAXES ARE VERY HIGHTAXES ARE VERY HIGH

COMMUNISMCOMMUNISM

EXTREME FORM OF SOCIALISMEXTREME FORM OF SOCIALISM

DEFINITION:DEFINITION: – ALL PROPERTY IS COLLECTIVELY OWNEDALL PROPERTY IS COLLECTIVELY OWNED– LABOR IS ORGANIZED FOR THE COMMON LABOR IS ORGANIZED FOR THE COMMON

ADVANTAGE OF THE COMMUNITYADVANTAGE OF THE COMMUNITY– EVERYONE CONSUMES ACCORDING TO EVERYONE CONSUMES ACCORDING TO

NEEDSNEEDS

COMMUNISMCOMMUNISM

B) ECONOMIC AND POLITICAL POWER B) ECONOMIC AND POLITICAL POWER RESTS IN THE HANDS OF THE CENTRAL RESTS IN THE HANDS OF THE CENTRAL GOVERNMENT (DICTATOR)GOVERNMENT (DICTATOR)

ADVANTAGESADVANTAGES

UNFORTUNATE AND UNPRODUCTIVE UNFORTUNATE AND UNPRODUCTIVE PEOPLE STILL SHARE IN THE BENEFITSPEOPLE STILL SHARE IN THE BENEFITS

PEOPLE USE ELECTORAL POWER TO PEOPLE USE ELECTORAL POWER TO INFLUENCE MANY OF THE WHAT, HOW, INFLUENCE MANY OF THE WHAT, HOW, AND FOR WHOM QUESTIONSAND FOR WHOM QUESTIONS

DISADVANTAGESDISADVANTAGES

INDIVIDUAL FREEDOM LOSTINDIVIDUAL FREEDOM LOST NO INCENTIVESNO INCENTIVES FAILS TO MEET THE WANTS OF FAILS TO MEET THE WANTS OF

CONSUMERSCONSUMERS LACKS FLEXIBILITY TO DEAL WITH LACKS FLEXIBILITY TO DEAL WITH

CHANGESCHANGES HIGH TAXESHIGH TAXES

COMMUNISMCOMMUNISM

BACKGROUND OF KARL MARXBACKGROUND OF KARL MARX1) COMMUNIST MANIFESTO (1848)1) COMMUNIST MANIFESTO (1848)

* Short book, talked of revolt* Short book, talked of revolt2) DAS KAPITAL2) DAS KAPITAL

*Outlined:*Outlined: A)A) WHAT IS WRONG WITH CAPITALISM WHAT IS WRONG WITH CAPITALISM B)B) HOW COMMUNISM WOULD TAKE HOW COMMUNISM WOULD TAKE

OVEROVER C)C) WHAT THE FUTURE UTOPIA WOULD WHAT THE FUTURE UTOPIA WOULD

BE LIKEBE LIKE

COMMUNISMCOMMUNISM

MARX THEORIESMARX THEORIES

1) 1) Dialectical MaterialismDialectical MaterialismClass struggle between the proletariat and the bourgeoisie Class struggle between the proletariat and the bourgeoisie which will end in revolution and the triumph of communismwhich will end in revolution and the triumph of communismPROLETARIAT: WORKERSPROLETARIAT: WORKERSBOURGEOISIE: WEALTHY CAPITALISTSBOURGEOISIE: WEALTHY CAPITALISTS

2) 2) Law of Capitalist AccumulationLaw of Capitalist Accumulation-Rich get Richer/ Poor become poorer-Rich get Richer/ Poor become poorer

3) 3) Labor Theory of ValueLabor Theory of Value-Value of a product comes from the labor put -Value of a product comes from the labor put into the productinto the product-Thus the worker should receive the benefit of the -Thus the worker should receive the benefit of the product…….not the business ownerproduct…….not the business owner

CommunismCommunism

4)4) Instances where Marx was wrongInstances where Marx was wrong

1)1) ““Communism would start in Industrialized Communism would start in Industrialized Europe or the U.S.” – not in agrarian U.S.S.REurope or the U.S.” – not in agrarian U.S.S.R

2)2) ““Communist government will wither away”Communist government will wither away”

FASCISMFASCISM

A. A. DefinitionDefinition: A form of capitalism (private : A form of capitalism (private ownership) with strict government controlownership) with strict government control

*Wages*Wages

*Prices*Prices

*Production*Production

B.B. Involves a DictatorshipInvolves a Dictatorship

C.C. Extreme Nationalism – MilitaristicExtreme Nationalism – Militaristic

D.D. Racial PurityRacial Purity