Warm-up: Sept. 13

1. Warm-up: Sept. 13 • Make a criticism of both the socialist and capitalist economic systems

2. The Major Economic Systems

3. The Role of Economic Systems • A.) Governments provide for many different kinds of economic systems • B.) Economic systems make decisions about what goods and services should be produced, how they should be produced and who gets them

4. I. Capitalism/Market Economy • A.) Capitalism is based on free enterprise or individual economic choices (supply and demand) • B.) Capitalism developed gradually from the economic and political changes in medieval and early modern Europe-one of the founding principles stands as laissez-faire: the economy operates without government oversight • C.) The United States has a capitalist economy, but government plays a role which makes its technical definition a “mixed economy” • D.) Government’s role in the US economy has increased since the early 1990s • E.) Today the US has a mixed market economy, incorporating both free enterprise and government regulations of business and industry

5. II. Socialism • A.) Under socialism, government owns the basic means of production, plans the use of resources, distributes many products and wages, and provides basic social services • B.) Socialism developed in Europe during the 19th-Century • C.) Some socialists favored taking over the government by means of revolution, while other socialists believed in democratic socialism, in which economic conditions change peacefully and people have some freedoms and rights

6. III.) Communism (Command) • A.) Communism is based on the 19th-Century ideas of Karl Marx, who argued that capitalism exploited workers to benefit a small group of capitalists who controlled the economy • B.) Marx predicted that workers would eventually rise in a violent revolution, which would result in government ownership of all means of production and distribution; when all property was held in common, there would be no need for government • C.) In communist nations, government makes all economic decisions; owns the land, natural resources, industry, banks, and transportation system; and controls all mass communication

7. IV. Mixed Economies • Government and individuals share the decision making process • Government guides and regulates production of goods and services offered • Individuals own means of production • Protects consumers and workers from unfair policies • Most effective economy for providing goods and services

8. A Brief History of the Main Economic Philosophies

9. Adam Smith • A Scottish political economist and moral philosopher (1723-1790). • His Inquiry into the Nature and Causes of the Wealth of Nations (1776) founded the modern discipline of economics and provided the rationale for free trade, capitalism and libertarianism.

10. The Invisible Hand • The free market, in a market economy, appears chaotic and unrestrained. • Actually, it is guided by “an invisible hand” to produce the right amount and variety of goods. (supply and demand) • If a product shortage occurs, the price rises, establishing a profit margin that provides an incentive for others to enter production.

11. Social Benefit • While human motives are selfish and greedy, the competition in the free market tends to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services. • He argued against the formation of monopolies.

12. Laissez-faire • Smith attacked most forms of government interference in the economic process, including tariffs on imported goods. • Government restrictions on trade cause inefficiency and high prices. • “Laissez-faire” means “let them do.” • Capital was key to philosophy: capital being all things made by people to use to produce

13. Self-Interest • 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. • We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

14. National Wealth • As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual value of society as great as he can.

15. Karl Marx • Karl Marx (1818-1883) was an immensely influential German philosopher, political economist, and socialist revolutionary. • He is most famous for his analysis of history in terms of class struggles.

16. Communism • An ideology that seeks to establish a future classless, stateless social organization, based upon common ownership of the means of production and the absence of private property. • Was to be achieved through government direction of production: the “Command Economy” (Ex: Gov’t makes orders for amount of a product to be produced and determines the price/not market-based)

17. Communist Manifesto (1848) • The history of all hitherto existing society is the history of class struggles.

18. Communist Paradise • Marx taught that paradise would appear on earth, following the destruction of capitalism and the state. • Under capitalism, labor is alienated. • In a communist society, human beings freely develop their nature in cooperative production. • Under communism, there is no government and, accordingly, perfect freedom.

19. Class Struggle • Those who must sell their labor power are “proletarians.” • The person who buys the labor power someone who owns the land and technology to produce, is a “capitalist” or “bourgeoise.” • The proletarians inevitably outnumber the capitalists.