Types of Economies

Traditional Economy

►It is based on agriculture, fishing, hunting, gathering or some combination of the above.

►It is guided by traditions.►It may use barter instead of money.►May appear to be living in poverty,

even if their daily needs are being met.

►Most traditional economies operate in emerging markets or the Third World countries.

►They are usually located in Africa, Asia, Latin America and the Middle East.

►At its most basic level, a traditional economy exists in a hunter/gatherer and nomadic society.

►It is generally thought that all other economies got their starts as traditional economies.

►Likewise, it is generally expected that a traditional economy will evolve into either a market, command or mixed economy.

Capitalism“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their

regard to their own interest.” - Smith

Capitalism►Capitalism – an economic system based on

►private ownership and on the investment of money in business ventures in order to

►make a profit.

Capitalism►Adam Smith

Celebrated as father of Capitalist TheoryUniversity professor in Scotland

Supported CapitalismWrote “The Wealth of Nations”

Capitalism►Ideas:

Businesses compete with each other for

the consumer’s money.Each business tries to provide goods and services that are

better and less expensive than their competition.

CapitalismA market economy aims to produce the best goods at the lowest prices.►Supply and Demand

CapitalismGovernment should not interfere in the economy.►Laissez faire

CapitalismLaissez faire – letting owners of industry and business set working conditions without interference►No government regulations, such as minimum wage laws

►Free Market principles guide Capitalism

►But no examples of absolutely “pure” capitalism exist

►US is defined as a Capitalist Free Market economy but still has govt. controls/regulations in many aspects

►So more precisely, we have a MIXED economy.

Capitalism►Positive Effects:

Competition led to progress

►Negative Effects:Unequal distribution of wealth led to social unrest

Socialism

“From each according to his/her ability, to each

according to his/her work."

EXPLAIN?

Socialism►Socialism – an economic system in which the factors of production are owned by the public(govt.) and operate for the welfare of all. Limited aspects of private property

Socialism►Government actively regulates the economyControls major industries and resources. = COMMAND ECONOMY

Limited aspects of private property

►Many European countries are described as “Socialist” but they use many free market ideas/systems …..so….more precisely = Mixed Economy

Communism“The worker of the world has

nothing to lose, but their chains, workers of the world

unite.” - Marx

“From each according to his/her ability, to each according to his/her

need."

Communism►Communism – an economic system in which all means of production are owned by the people, private property does not exist, and all goods and services are shared equally.

►= COMMAND ECONOMY

Communism►Karl Marx

German journalistRadical Socialist

Wrote “The Communist Manifesto”

Communism

►Friedrich EngelsSon of a wealthy German textile entrepreneur

Radical SocialistCo-Wrote “The Communist Manifesto” and “Das Capital”

Communism►In many ways, Communism was a reaction to the Industrial Revolution and Capitalism

Communism►The Industrial Revolution intensified class struggle (rich vs. poor)“Haves” take advantage of “Have-Nots” (proletariat)

CommunismWorkers are exploited by employers

The labor of workers profits employers

Communism►Marx and Engels called for workers of the world to unite and overthrow the rule of the rich.Wealth would be redistributed

Classes and private property would cease to exist

► Ideally: sounds good on paper….but in reality…..

►When these revolutions took place, the governments that emerged became harsh dictatorships……when the idea was to allow the people to control all…..

►The government never released their control….

►The governments became a ruling class with total control over politics and economics

►All others were left to be subject to govt. control

►Some countries still run strict govt controlled states (politics and economics)

►= North Korea and Cuba ►Others have strict political control but

have allowed many free market systems to be established to allow for more economic growth …= China