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Understanding Economic Systems: Capitalism, Socialism, and Communism

Learn about different types of economic systems such as traditional, command, market, and mixed. Explore the principles of capitalism, socialism, and communism and understand their impact on society. Discover the balance between liberty and equality in economic systems.

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Understanding Economic Systems: Capitalism, Socialism, and Communism

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  1. Economics • What? • How? • Who?

  2. Economic System: • A particular set of social institutions which deals with the production, distribution and consumption of goods and services in a society.

  3. 4 Types of Economic systems • Traditional: tradition and custom govern economic decisions (tribes, ethnic groups) • Command: government makes all economic decisions • Market: Economic decisions are made by individuals competing to earn profits based on supply and demand • Mixed: combines elements of pure market and command economies

  4. Economic SystemsCapitalism, Socialism & Communism Liberty or Equality?

  5. Capitalism • Maximizes liberty • Adam Smith – 1776 – “The Wealth of Nations” • “Free Enterprise” – everyone is free to pursue any economic activity • Laissez-Faire – do not interfere in the economy • Freedom to succeed and freedom to fail • Private ownership of capital (means of production)

  6. Capitalism • Profit is the motivator, competition is the regulator (not government) • Under pure capitalism, almost all goods would be provided by the private sector (small government) – police, courts, military (even schools and the fire department could be private goods) • Do not tax the rich more than the poor – no redistribution of income • Good of the individual is above society

  7. Communism • Maximizes Equality • Karl Marx – 1848 - “The Communist Manifesto” • Industrial Revolution – Europe – horrible working conditions - critique of capitalism • 1. View of History – class struggle (bourgeoisie and proletariat) • 2. Labor Theory of Value – all value comes from labor • 3. Nature of the State – the state (government) always sides with the rich • 4. Dictatorship of the Proletariat – poor must overthrow the government and set up a classless society

  8. Communism • Public (government) ownership of the means of production • “From each according to his ability, to each according to his need.” • Workers run the factories – everyone earns an equal amount • Lots of government intervention in the economy to promote equality • Good of society is above the individual

  9. Socialism • Mix of Equality and Liberty • Between pure capitalism and pure communism • Some private ownership and some public ownership of property • Some government intervention in the economy • Redistribution of income – high taxes on the rich to provide lots of government services • Examples of government programs like this in the USA?

  10. Roads, Bridges • Military • Public librarys • Police • Fire Depts

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