Comparative Economic
Systems
Mercantilism, Capitalism, MixedEconomies, Socialism and
Communism
Mercantilism
•
1.
2.
3.
4.
5.
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
Characteristics of Mercantilism
Manufactured goods
Mother
County
Raw
materials
Colony
Cheap labor
Who Benefited Most From
Mercantilism?
£ Monarchs.
£ Merchant capitalists.
£ Joint-stock companies.
£ Government officials.
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 Wealth of Nations
(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;
Basic Capitalist Principles
Goods and services are produced for profitable
exchange.
Human labor power is a commodity for
sale  LABOR IS THE SOURCE OF VALUE.
Goods & Service
Consumer Spending
Businesses
Households
Wages
Labor & Investments
Basic Capitalist Principles
Individuals seeking success are driven by
self-interest  Profit Motive
The Law of Supply and Demand
 Individuals who are free to pursue their
self-interest will produce goods and services
that others want, at prices others will be
willing to pay.
Basic Capitalist Principles
Law of Competition
 The competitive market system compels
producers to be increasingly efficient, and
to respond to the desires of consumers.
Government should interfere minimally with
the free and efficient workings of the
market
 Laissez faire [“Leave things alone.”]
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.
Pros and Cons of Capitalism
Pros
Cons
• Competition to provide
goods and services
keeps prices low
• Rewards hard work
• Provides choice
• Allows for the building up
of wealth and
possessions
• Consumers regulate the
market
• Exploits people who
cannot compete
• Uneven distribution of
wealth
• Creates a moneyoriented society
• Constant economic
growth may deplete the
earth’s resources
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.
Socialism
• Ancient roots – Judeo-Christian belief in
the common good, which takes
precedence over individual desires
• Term “socialism” coined in 1827 by British
socialist Robert Owen to describe his view
of a cooperative new society.
Socialism’s principles
• egalitarianism or equality. Humankind will be
unified and cooperative, once wealth is owned
and used for the common good. Capitalism
exploits the very people who create society’s
wealth.
• Moralism. Division of rich & poor is evil;
capitalism is fundamentally unjust. Instead, the
ideal future emphasizes peace, social justice
and true liberty for all.
Private Property and Socialism
• Private property not abolished, but the
public should control the use of property
and make necessities available to all.
• Individual rights not abolished but should
complement other important values such
as concern for others.
• Change can occur through an evolutionary
process that uses democratic means.
Pros and Cons of Socialism
Pros
Cons
• All members share benefits
• Those who cannot contribute
may still participate (disabled,
elderly)
• Each member’s survival needs
are met
• Equal distribution of wealth
• No socioeconomic classes
• No incentive to work
harder
• No competition means no
reward to be innovative
• New members to the
community (immigrants)
are seen as competition
for limited goods and
services
• Higher taxes
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
Marx’s Goal:Create a utopia
(an ideal state that does not exist)
• 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’
This is his friend, Frederick Engels.
Marx’s key ideas
1. Slave system gave way to feudal
economy
2. Feudal economy broke down with growth
of manufacturing, towns, navigation &
transportation, emergence of middle class
3. Industrial capitalism emerged, with only
two classes: proletariat and bourgeoisie.
Industrial Capitalism –
Negative Effects
• Destroys important human values,
replacing even religious belief with naked
exploitation.
• Undermines an individual’s sense of
personal value in one’s work.
• Undermines human relationships; all
relationships are based on cash.
• Destroys human freedom. The only
freedom it protects is free trade.
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.
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.
The Worker’s Utopia
• In the end, a classless society with no
more oppression or internal contradictions.
• People will be free to choose how they
labor, and can be creatively productive.
They will be able to live to their fullest
potential. Consider the description in
Marx’s Communist Manifesto in 1845:
Capitalism
Communism
• most property & businesses • most property & businesses
are privately owned
are owned by government
• banking system privately
• banking system government
owned
controlled
• free movement of both capital • strict government control of
and labor
both capital and labor
• individual rights of citizens
• rights of state/gov’t valued
guaranteed by constitution
over individual rights
• based on freedom & selfish • based on the “common
interest of the individual
good” and total equality
• democratic forms of
• non-democratic forms of
government
government
• nationalistic
• rejects nationalism
• believes in supremacy of
• believes in future worldwide
separate, sovereign nations
socialist government