COMPARATIVE
ECONOMIC
SYSTEMS
ECONOMICS IN WORLD HISTORY
WHAT DOES THIS MEAN?
Student needs to know
the definitions of:
1. Traditional Economy
2. Market Economy
3. Command Economy
4. Mixed Economy
WHAT YOU NEED TO DO?
Compare the economies of
historical societies by
focusing on their
economic
sectors.
ECONOMIC DEFINITION
Economics is a Greek word
meaning “management of the
household.” In the ancient world,
this was considered women’s
work and the word is feminine in
Greek. But the world over, women
made the cloth and silk traded.
BASIC ECONOMICS
Economics is the study of scarcity
and how societies make economic
decisions. In life, wants are unlimited
and resources are limited.
The result is scarcity.
BASIC ECONOMICS
All societies make four basic
economic decisions.
1. What to produce?
2. For whom to produce?
3. How much to produce?
4. How to distribute the produce?
ECONOMIC JOKE
What is the economic
“Golden Rule”?
Answer:
“He who has the ‘gold’
makes the rules!
WE ARE ALL MARXISTS!
Irrespective of his role as its
founding father, Marx was the
first philosopher or economist
to see all societal structures in an
economic perspective. He felt you
could not understand a system
without understanding who owned
the means (factors) of production.
CAPITALIST ECONOMISTS
Adam Smith was the founding
father of capitalism or free market
economics. John Maynard Keynes
was the founder of fiscal
economics. The difference between
the two was the role and
influence of the state in economics.
FACTORS OF PRODUCTION
All Societies use the four factors of
production to meet their needs.
1. Land
2. Labor
3. Capital
4. Entrepreneurship
LAND
Land represents the physical
natural resources that the land
possesses, its quality and its
quantity. Land can be the dirt,
the trees, the raw minerals, the
water, or the food grown. Land
earns rent in economic terms. All
states possess “land.”
LAND EXERCISE
In economic terms,
describe the “land” of
nomadic and prehistoric peoples,
the river valley civilizations,
the classical civilizations,
and all major civilizations in the
Post-Classical to Contemporary
Ages.
LABOR
Labor represents the number of
people in a society who can do
the physical labor. Labor is
literally muscle power. If
society uses mostly manpower
to produce its needs, this is
called labor intensive.
Labor earns wages.
LABOR EXERCISE
In the economic terms of labor,
describe “work” in
each of the historic periods
and major civilizations.
CAPITAL
Capital is not money. It represents
the tools that societies use to produce
their needs. All societies have
capital as well as labor. If capital is
used more extensively in a society
than is physical labor,
the society is capital intensive.
Capital earns interest.
CAPITAL EXERCISE
In economic terms, what is
the capital of a(n)
Nomadic society?
Neolithic society?
Classical society?
Industrial society?
Post-Industrial society?
A fast-food business?
CAPITAL EXTENSION
Why would a person or
a businessman invest
in capital? How?
ENTREPRENEURSHIP
Entrepreneurship represents
the economic equivalent of brain
power and tendency to innovate.
Not all societies encourage
entrepreneurship, while others
reward it. This is sometimes called
intellectual capital and earns profit!
Trade is entrpreneurial.
EXERCISE
Entrepreneurship involves
innovation and invention!
Why do ancient societies not
like innovation? How do they
discourage it? How do modern
societies reward innovation?
TRADITIONAL SYSTEMS
In a traditional economic system,
people make decisions based on
their traditions and how earlier
generations made decisions. Most
often the elderly and clans make
decisions for the good of those
who constitute the “group.”
TRADITIONAL SYSTEMS
In a traditional economic system,
land is the major input. What you
do not have, you do not have.
Economies are subsistence, work is
labor intensive - more work means
more produce. Capital is simple or
animal in nature and entrepreneurs
are considered suspect.
TRADITIONAL SOCIETIES
What historical societies are
considered traditional?
What aspects of modern
society or states are
considered traditional?
When economic systems break
down, why do they become
traditional?
COMMAND ECONOMY
In a command economy, decisions
are made largely by an authority
such as an aristocrat or a central
government planning authority.
It can be exercised in democratic
or authoritarian societies.
Quotas and restrictions
are common.
COMMAND ECONOMY
What ancient economies were
largely command? Why might
a hydraulic society (one dependant
on control of water and irrigation)
be considered command? What
20th century societies are or were
command economies?
COMMAND ECONOMY
Why does a war-time economy
have to be command? Why would
an economic crisis warrant a
command economy? Can you name
some historical examples? Was
mercantilism a command economy?
MARKET ECONOMIES
Market economies are sometimes
called free markets. They represent
decentralized decision making that
is reflected in the unencumbered
interplay of supply, demand,
and price for goods and services
No one is powerful enough to
control the market.
MARKET ECONOMIES
Market economies can only exist
where goods are plentiful, have
many close substitutes, and no
restrictions on exchange. This
is free trade. Additionally,
consumers have many choices
and no one choice
is better than another.
MARKET ECONOMIES
Several of the key ideological
components of market economies
are the rights to own private
property (capital) and to dispose
of it in any way you want to
make profits without restrictions.
“Land” is sold to the highest bidder
and labor seeks a fair wage.
MARKET ECONOMIES
Based on the previous definition,
do market economies exist?
If so, under what conditions?
Would you consider the
United States a market economy?
Why or why not?
MARKET ECONOMIES
What is a black market?
Why might one be considered
a “free market” economy?
What might the Drug Trade
be considered a “market”
economy?
MIXED SYSTEMS
Ok, but all economic systems
throughout history
have been or are
mixed to some lesser
or greater degree.
MIXED EXERCISE
Can you identify which aspects
Of any famous historical
economy are
traditional, command, and
market?