Comparative Economic
Systems
Mercantilism, Capitalism, MixedEconomies, Socialism and
Communism
Mercantilism
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The chief characteristics
of Mercantilism include:
Empire, A “Mother
Country” & attending
colonies
Emphasis on gold and
silver bullion.
A positive balance of
trade
The Zero-Sum Game
Command economic
structure
Laissez-Faire Capitalism
• Market forces such
as Supply &
Demand drive the
activity
• Government has a
“hands off” policy in
economic affairs
• Classical
Economics is the
domain of early
laissez-faire theory
Adam Smith and The Wealth of
Nations
• Smith, a Scot, was the
principal architect of
modern market
economics.
• The metaphor he used to
describe market forces
was the “invisible hand.”
• He published his great
work, The Wealth of
Nations, in 1776.
The Principles of Capitalism include:
The idea that “capital”, a factor of production
that is not wanted for itself but for its ability
to help in producing other goods, is a
worthy means of generating wealth.
A belief in “Private Property”;
Emphasis on individual initiative,
entrepreneurship, innovation, and
competition;
A belief in Profit.
Say’s Law: “Supply constitutes demand.”
In the quest for a balanced equation of market
equilibrium between supply and demand, Say
favored the “supply” side of the equation.
“Supply Constitutes Demand”
Say’s Law can be explained by applying
“The Crusoe Effect”, a metaphor based
on the main character of Daniel Defoe’s
novel about a man shipwrecked on an
uninhabited island.
Although Robinson
was quite hungry,
having eaten nothing
for days, and his
demand for food
being intense, there
would be no dinner
until he created a
supply by catching a
fish to eat.
John Maynard Keynes
This 20th Century English
economist is the guru of
“Demand” side
economics. His work, The
General Theory of
Employment, Interest,
and Money, published in
1936, is the source of
demand theory referred
to as Keynesian
Economics. The book
challenged the
established Classical
Economics
The Great Depression and the New
Deal
FDR’s New Deal employed Keynesian principles
in numerous government sponsored programs
designed to use tax dollars as a means of
“priming the pump.”
The creation of jobs in public projects would
provide pay in the form of wages and salary to
stimulate DEMAND. This, in turn, was to
reverse the spiraling trend to deflation:
Lower wages, lower prices, fewer jobs.
Other Key Classical Economists
• Thomas Malthus
proposed that while food
production increased
arithmetically; population
grew exponentially.
David Ricardo
• David Ricardo:
The Iron Law of Wages
The Law of Comparative
Advantage
Thomas Malthus
Some of the abuses
of laissez-faire
capitalism such as:
Child labor
Dangerous conditions
Unfair labor practices
Extremely long hours
Resulted in calls for
reform and regulation.
In London, a school
for boys who
suffered industrial
injuries resulting
in amputation.
Many were textile
mill scavengers,
tasked with
retrieving scraps
of fabric from
between various
machinery.
In cases where Profits became the sole
determinant of economic decision making, the
darker side of the industrial revolution, became
so apparent as to give rise to an alternative
ideology, Socialism.
Socialism
• Socialism is an economic system
characterized by social ownership of the
means of production and co-operative
management of the economy.
• There are many variants of socialism, but
because it requires collective ownership of
property, the most dominant form is State
Sponsored Socialism.
Henri de
Saint-Simon
“Cooperation
Will replace
Competition.”
Pierre Joseph
Proudhon
The First
Anarchist
“Property is theft.”
Early “Utopian” socialists
appeared in France in
the years following the
French Revolution.
While they enjoyed
some support for
proposed economic
reforms, radical ideas
about religion, marriage,
family, and sexuality,
limited any wide
acceptance.
Utopian Socialists, Positivism, and
the Fabians
Throughout the 19th
Century European
socialists tried out
numerous experiments in
social order and
governance in the pursuit
of a New Eden, a
reformed social state that
was a “Utopia”. They
believed that this could
be achieved by
evolutionary change
through existing
institutions
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Auguste Comte
George Bernard Shaw
Charles Fourier
Robert Owen
Eduard Bernstein
Edward Bellamy
William Morris
Etienne Cabet
John Humphrey Noyes
Sidney & Beatrice Webb
Communism
Communism is the most
extreme expression of
Socialism. It requires a
violent Revolution.
The Communist
Manifesto and Das
Kapital, lay out the
principles Marx and
Engels believe justify
their call to revolution
Friedrich Engels
Karl Marx
Principles of Communism
• Labour Theory of Value: the value of a
good is derived from how much labor went
into its production.
• Alienation of Labor: Workers are
separated from the fruits of their labor and
alienated from the Bourgeoisie by
exploitation.
• Class Struggle: In Marxist view of History,
one class always exploits the others.
Principles of Communism (cont.)
• Historical Materialism: The endless
conflict over who will control resources
and the means of production. This is also
referred to as “Dialectical Materialism.”
The oppression of the workers under
Capitalism would result in inevitable
revolution.
• Dictatorship of the Proletariat: The
transitional rule preceding a classless
society, when “the state will wither away.”
Ten Policy Planks of the Communist Manifesto
1.
2,
3.
4.
5.
6.
Abolition of private property
in land and application of all
rents of land to public
purpose.
A heavy progressive or
graduated income tax.
Abolition of all rights of
inheritance.
Confiscation of the property
of all emigrants and rebels.
Centralization of credit in the
hands of the state, by means
of a national bank with state
capital and an exclusive
monopoly.
Centralization of the means
of communication and
transportation in the hands of
the state.
7.
Extension of factories and
instruments of production
owned by the state; the
bringing into cultivation of
waste lands, and the
improvement of the soil
generally in accordance with a
common plan.
8. Equal obligation of all to
work. Establishment of
Industrial armies, especially
for agriculture.
9. Combination of agriculture
with manufacturing industries;
gradual abolition of the
distinction between town and
country by a more equable
distribution of the population
over the country.
10. Free education for all children
in government schools.
Abolition of children's factory
labor in its present form.