ECONOMIC SYSTEMS
Objective
• identify the historical origins and characteristic
of the free enterprise system, communism, and
socialism
• Agenda
• Modern Economic Systems: Capitalism,
Socialism, and Communism
MODERN ECONOMIC SYSTEM
INTRODUCTION
• From the 18th century the industrial revolution
transformed Western Europe and N. America from
agricultural, trading nations to industrial nations .
The metamorphosis of these country’s economic
structures led to great and complex changes in the
lives of their people. The average worker went from
being a self-employed farmer to being an
employee at a large factory and the working class
was formed .
• As a direct result of industrialization, the free
enterprise system (capitalism) expanded and two
new economic systems emerged: socialism and
communism.
BASIC ECONOMIC TERMS
• Land
• Natural resources or gifts of
nature that are used to
produce goods and services
• Labor
• Productive services provided
by human beings, including
physical effort, skills,
intellectual abilities and
applied knowledge
• Capital
• All buildings, equipment and
human skills used to produce
goods and services
BASIC ECONOMIC TERMS
• Means of production
• Refers to physical, non-human
inputs used in production—the
factories, machines, and tools
used to produce wealth
• Goods and Services
• Goods - objects that can satisfy
people's wants
• Services – activities that can
satisfy people’s wants
• Limited Resources
• Resources that cant be
replaced or replaced fast
enough
UNDERSTANDING ECONOMICS
• Economics is how people meet their needs by
making, distributing, & using goods & services.
• People have unlimited wants
• Because we can never be wholly satisfied because we
have limited resources
• We only have so much time, energy, & resources to satisfy
our needs & desires
• 3 basic economic questions: What should be produced? How
should it be produced? Who should get it?
FREE ENTERPRISE SYSTEM
• People are free to make their own economic
choices in deciding what to buy, where to work,
what to make, & how to invest their money
• In a free enterprise system, government
interference is limited
• Acts as a referee to settle disputes & make sure the
economy is functioning smoothly
• 3 basic economic questions are answered by the free
interplay between producers & consumers
Capitalism
LAW OF SUPPLY & DEMAND
Prices
• High
Demand/Short
supply
Prices
• Low
demand/larg
e supply
ADAM SMITH
• A Scottish professor who was the 1st to explain how
the free enterprise system works
• Wrote the Wealth of Nations
• Explained how production benefits from division of labor
• How laws of supply/demand determine prices & production
• “Invisible hand,” guides individual actions so that they
actually work for the common good
• Attacks the restrictive system of British Mercantilism:
thought it was a waste of resources, encouraging
inefficient production of good
• Favored a laissez-faire (government is hands off) policy
ECONOMIC SYSTEMS DEFINITIONS
• Capitalism
• An economic system in which the means
of production are privately owned. All
economic decisions are made by the
producers and the consumers with the
purpose to create a profit.
ECONOMIC SYSTEMS DEFINITIONS
• Socialism
• A political and economic theory based on the
collective; to end the poverty and injustice that
developed as a result of the IR, the people as a
whole rather than private individuals would
take over through social change and own and
operate the means of production.
ECONOMIC SYSTEMS DEFINITIONS
• Communism
• Holds the belief that violent revolution is
necessary to destroy the inequalities between
employees and employers; Advocates the
elimination of private property; goods are
owned in common, available to all as needed.
Economic decisions are made by a central
authority (command economy).
COMMUNISM
“Workers of the world unite:
You have nothing to lose
but your chains”
Karl Marx (1818- 1883)
• The struggle between
workers & employers is
unavoidable.
• There must be a revolution
not against the gov’t, but
against rich
• The “Haves” ---- The “HaveNots”
WHAT IS COMMUNISM?
• This is the symbol of
Communism – The
Hammer and the
Sickle
Hammer for the
Workers
Sickle for the
Peasants – the
farm labourers
This is Karl Marx, the ‘Father of
Communism’. People who believe in his
ideas are called ‘Marxists’
THE ROAD TO COMMUNISM
• Karl Marx and Friedrich Engels
studied the history of the world’s
economies.
• This means the way that power,
industry and finance are controlled.
• They saw the way countries
developed in stages.
Communism
Socialism
Capitalism
Feudalism
Primitive
Communism
Explain these please!
Primitive
Communism
This is how humans first lived together – in small
tribes. Primitive means ‘not very advanced’ e.g.
hunting and gathering. Communism means that
everything was shared amongst the tribe – food,
jobs, belongings. No-one owned land. Eventually a
group comes to power – this leads to Feudalism…
FEUDALISM
Under feudalism, a
king or emperor or
chief becomes the
ruler over all the
people.
Feudalism
Primitive
Communism
The people
are kept
uneducated
and told that
god chose
the king to
rule. The
church
helps the
king this
way.
He gives land and
privileges to ‘nobles’
who rule the people for
him.
As trade develops, some
people get richer. This
leads to Capitalism…..
FEUDALISM TO CAPITALISM
The
capitalists
get more
power to
serve their
own
interests.
The business
owners or
capitalists get
richer while the
workers do all
the hard work.
Feudalism
Capitalism
Capitalism creates a huge workingclass of people who soon get angry
at the way they are treated. They
organise in unions and demand
changes. This will lead to a
revolution and Socialism…
CAPITALISM TO SOCIALISM
The workers
take control of
the country to
produce things
for everyone.
Capitalism
In the Socialist revolution all
the rulers – kings, churches,
capitalists are got rid of.
Because nothing is made for
profit, all people benefit from
education and health.
Socialism
These ideas
spread across
the world to
create
Communism…
SOCIALISM TO COMMUNISM
The remaining capitalists put up a
bitter fight, but the will of the people
will always win.
Communism
Socialism
As everyone now works
together, war is a thing of the
past – armies are not needed.
Sharing means no police are
needed. Everything is provided
by the people – so money
becomes a thing of the past.
All human activity
goes towards
benefiting each
other – allowing all
to live their lives to
the full.
WHICH ECONOMIC SYSTEM?
WHICH ECONOMIC SYSTEM?
WHICH ECONOMIC SYSTEM?
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#1: “There is one and only one social
responsibility of business—to use its
resources and engage in activities
designed to improve its profits so long as
it stays within the rules of the game,
which is to say, engages in open and
free competition without deception or
fraud.”
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#2: “…human nature can be changed:
since we are all products of our
environment, one need only change the
environment to change man.”
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#3: Consumption is the sole end and
purpose of all production; and the
interest of the producer ought to be
attended to, only so far as it may be
necessary for promoting that of the
consumer.
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#4: “Man [should be] free from the trinity
of evils responsible for all the world's
misery and vice: traditional religion,
conventional marriage … and private
property.”
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#5: “You are horrified at our intending to do
away with private property. But in your existing
society, private property is already done away
with for nine-tenths of the population; its
existence for the few is solely due to its nonexistence in the hands of those nine-tenths.
You reproach us, therefore, with intending to
do away with a form of property, the
necessary condition for whose existence is the
non-existence of any property for the
immense majority of society.”
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#6: “The need of a constantly
expanding market for its products
chases the bourgeoisie over the whole
surface of the globe. It must nestle
everywhere, settle everywhere, establish
connections (sic) everywhere.”
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#7: The Communists disdain to conceal
their views and aims. They openly
declare that their ends can be attained
only by the forcible overthrow of all
existing social conditions. Let the ruling
classes tremble at a Communistic
revolution. The proletarians have nothing
to lose but their chains. They have a
world to win. Working Men of All
Countries, Unite!
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#8: “Little else is requisite (required) to
carry a state to the highest degree of
opulence from the lowest barbarism but
peace, easy taxes, and a tolerable
administration of justice: all the rest
being brought about by the natural
course of things.”
IDENTIFY WHICH ECONOMIC SYSTEM THE
FOLLOWING QUOTE APPLIES TO:
#9: "What ideas individuals may attach to the
term "Millennium" I know not; but I know that
society may be formed so as to exist without
crime, without poverty, with health greatly
improved, with little, if any misery, and with
intelligence and happiness increased a
hundredfold: and no obstacle whatsoever
intervenes at this moment except ignorance
to prevent such a state of society from
becoming universal".
KEY:
•
•
•
•
•
•
•
•
•
#1: Capitalism (Milton Freidman)
#2: Communism (Marx/Engels-Communist Manifesto)
#3: Socialism (Robert Owen)
#4: Socialism
#5: Socialism (Robert Owen)
#6: Capitalism (Adam Smith)
#7: Communism (Marx/Engels-Communist Manifesto)
#8: Socialism-(Robert Owen-A New View of Society)
#9: Communism (Marx/Engels-Communist Manifesto)