POLITICS AND ECONOMICS
• Economics: study of the production, distribution, and
consumption of goods and services
• i.e. The study of buying, selling, and trading goods and services
• Many political questions are also economic ones:
• Who should decide what goods will be produced?
• How should goods and services be distributed and exchanged
within a nation?
• What types of income or property should be taxed?
• What social services should a government provide?
• 3 Economic Systems of Government: Capitalism, Socialism, and
Communism
1. CAPITALISM
• AKA “The free enterprise system”
• An economic system in which the factors of production
(land, labor, capital, entrepreneurship) are privately owned
• Private ownership of goods
• Individuals – not the government - decide how to use
capital (resources)
• Consumers, business owners, and workers all have
freedom of choice
4 FUNDAMENTAL FACTORS OF CAPITALISM
1. Private Ownership
 Of resources used to produce goods and services
 Of your own labor (i.e. you sell your labor by taking a job)
 Of your property
2. Individual Initiative
 All individuals are free to start and run their own businesses
 Entrepreneurs are essential. They start businesses and make them grow
3. Profit
 Individuals are entitled to benefit from their labor and investments
 “profit motive” – the desire to gain from business dealings
4. Competition
 When a number of companies offer the same product or service
 Keeps prices low and quality high
2. SOCIALISM
• says that the benefits of economic activity (wealth) should be
distributed evenly in a society
• Rejects the emphasis on individualism and competition for profit
in Capitalism
• TRUE equality cannot just be political equality. Economic and
political equality should go hand in hand
• Socialists support collective (public) ownership of the most
important means of distributing goods and services.
• Some private ownership still exists, especially with new industries
and technology
4 CHARACTERISTICS OF SOCIALIST ECONOMIES
1. Nationalization: placing privately owned industries under government control
 Rarely includes ALL businesses in a country
 Usually just certain areas with many workers and few dominant firms
 Ex. Utilities (water, electricity), transportation, steel
2. Public Welfare
 Providing for the equal distribution of necessities and services
 Ex. Retirement pensions, health care, education, housing for the poor
3. Taxation
 All governments in capitalist and socialist economies get their $$ from taxes
 Socialist countries have much higher tax rates, sometimes 50%-60%
4. Centrally Planned Economy
 Government plans how the economy will develop, setting production goals and
making investments in specific industries
SOCIALISM: PROS AND CONS
PROS
CONS
•Less gap between rich and
poor
•Govt complicates decisionmaking
•Political equality works
better when paired with
economic equality
•People won’t work as hard,
no motivation for individual
initiative
•Deprives people the choice
of how to use their own $
3. COMMUNISM
•Full state ownership of
land and capital
•Principles of Communism
were first laid out by Karl
Marx and Friedrich Engels
in 1848 in The Communist
Manifesto
CHARACTERISTICS OF COMMUNIST ECONOMIES
1. Role of the Communist Party
 Communist Party holds all decision-making power in the govt and the economy
 Party leaders hold top govt positions
2. Central Planning
 Govt plans and supervises all production in factories, farms, and stores
 Often includes a 5 year plan, which shows how leaders will develop the economy
and sets prices and goals for production and distribution of goods
3. Collectivization
 Merging small private farms into large government-owned agricultural operations
4. State ownership
 Industrial enterprises, transportation, etc. are state-owned.