AGENDA Mon 1/23 & Tues 1/24
• Quiz Chapter 1
• QOD #5: Government Involvement
• Econ Systems Overview
• Externalities & Incentives Scenarios
• HW: Capitalism/Socialism Venn & Essay
Homework
• Read “Smith/Marx” & “Socialism v. Capitalism”
handouts
• Complete Venn Diagram
• Write an essay responding to the following prompt:
▫ Analyze the benefits and challenges of both capitalism
and socialism to determine which system provides the
greater overall benefit to society. Present a concise
argument for your selection including specific evidence
and theoretical support.
▫ Your essay should be 2-3 pages, typed, double-spaced,
MLA format with a minimum of 2 additional sources
(other than those provided to you in class).
▫ DUE: Wed 1/25 & Thurs 1/26
QOD #5: Government Involvement
• In a modern society, government should decide
what should be produced and how, so that the
goods and services everyone needs are
produced.
▫ Do you agree or disagree with this statement?
▫ Give specific support for your answer.
• What type of economic system does this
describe?
▫ What evidence do you have to support your answer?
Traditional Economic System
www.mbhs.edu/~grossmam/Social%20Studies%20Course%20Material/Economic%20System%20Web%20Quest.ppt
Traditional Economic System
• Before the invention of money people in ancient civilizations or
small communities use to barter for goods.
• Bartering is the process of trading one good for another.
• The problem with bartering is that it is not always easy to find
the person who has the good you want and often it can mean
carrying a heavy load in order to make a trade.
▫ For instance, if you wanted to trade a 100 bricks for 10 pigs one of
the people involved in the trade would have to carry 100 bricks or
herd a 100 pigs.
• As it turns out, not only is money easier on your back, but it
makes trading simpler and faster because you don’t necessarily
need the specific good the other person in the trade desires, you
simply need cash.
www.mbhs.edu/~grossmam/Social%20Studies%20Course%20Material/Economic%20System%20Web%20Quest.ppt
Market (Capitalist) v. Command (Socialist)
Pros
Market
Command
Cons
Market Economy
As long ago as ancient Egypt,
humans began to use forms of
money to trade for goods and with
the free trade of goods arose what is now known as the
market economic system.
In a market economy producers make goods based
on the amount demand they perceive to exist among
consumers. Consumers in turn pay for items based on
their supply.
For instance, gold is greatly demanded
by people across the world, but its supply
is limited. Therefore, gold is expensive.
Market Economy= Capitalism
• 18th century economic & political ideology
• Adam Smith’s The Wealth of Nations
• Claimed people who trade with each other don’t go to
war with each other.
• Government must not interfere with the economy or it
may disrupt trade and people’s ability to prosper.
• Smith claimed that instead of a government running
an economy an “invisible free hand” known as a
market would.
• Concept is referred to as laissez faire or “hands off”
economics.
Adam Smith, father of modern
economics (1723-1790)
• “It is not from the
benevolence of the butcher,
brewer, or the baker, that we
expect our dinner, but from
their regard to their own
interest.”
• In other words business
owners are interested in
making themselves better
off.
Adam Smith is most well known for his
book The Wealth of Nations.
• “Lauded by politicians and noblemen alike, the selfmade economist espoused the belief that if people
were set free to better themselves, it would- ‘as if by an
invisible hand’ -actually benefit society as a whole.”
• “His passionate advocacy for the free market
enterprise system helped to create the modern
academic discipline of economics.”
http://www.sceconomics.org/support.htm
Examples of Market Economies
• To a large extent the US has a market economy.
Compared to the rest of the world taxes are low and
supply is determined by demand
• Singapore is also an example of a market economy. In
Singapore there are very few taxes and businesses can
decide on how and what to produce.
• In reality there is no such thing as a true market
economy because the government in almost every
nation around the world plays a significant role in the
economy including the US
▫ http://www.heritage.org/index/Ranking.aspx
“It’s your money, not the government’s”
- President Ronald Reagan
Market economies are based on the open and free
trade of goods.
For example, in the New York Stock Exchange individuals
buy and sell stocks (ownership) of companies (below)
The World Trade Center was seen as a symbol
of American capitalism because things were
bought and sold there from around the world.
Criticism of Market Economies
• Market economies often result in unequal societies
where there are a few very wealthy individuals
• and many poor people.
• Market economies often encourage free trade that
enables large private companies to exploit the laborers
or the resources of less-developed nations.
▫ For instance, most of the clothing worn by Americans
is made in China
▫ by workers who earn less than a $1 an hour.
• Market economies often result in economic monopolies
(when one company controls a business sector) that stop
competition and result in higher prices
Criticism of Market Economies
• Market economies often result in unequal societies
where there are a few very wealthy individuals and
many poor people.
• Market economies often encourage free trade that
enables large private companies to exploit the laborers
or the resources of less-developed nations.
▫ For instance, most of the clothing worn by Americans is
made in China by workers who earn less than a $1 an
hour.
• Market economies often result in economic
monopolies (when one company controls a business
sector) that stop competition and result in higher
prices
Command Economy
• Critics of market economies claimed that capitalism
was a form of “class warfare.”
• a few people rule over the masses
• A revolution was needed to redistribute goods equally.
• This revolution came to be known as communism and
its economy was known as a command economy.
• In a command economy the government controls all
aspects of the economy.
Karl Marx founder of the communist/
command economy ideology. He claimed
that as long as there existed a business
owning class oppression would continue.
Traits of a Command Economy
• The government controls all aspects of the economy
• Private property is illegal
• Supply and demand are determined by the
government, not by consumers and producers.
• Everyone is paid equally no matter what job they do.
• Industry and businesses are owned and controlled by
the government, not private individuals.
Examples of a command economy
• In the former Soviet Union the government killed
small property owners and redistributed their land to
workers.
• In Cuba all residents are given rations of foods.
Instead of purchasing food in a market Cubans go to
government food supply centers.
Examples of a Command Economy
In North Korea the former dictator Kim Il Sung
controlled the economy with an iron hand and had
statues of himself built to show his people who was in
charge of the government and the economy.
Example of Command Economy
Cuba’s Fidel Castro and
Che Guevarra established a
command economy by
expelling Cuba’s small
business and land owners.
Many of those who lost their
business now live in Miami.
Criticism of Command Economies
• Command economies are inefficient and reward
unproductive workers. Critics claim that since
workers are awarded the same amount of money for
doing every job workers aren’t productive.
• Command economies result in shadow/ illegal
markets. Because the government controls the
distribution of goods, rather than consumers and
producers individuals begin to sell things illegally.
• Command economies cease to stay competitive in the
world because competition and entrepreneurship is
discouraged.
This Professor is a Genius
• An economics professor at a local college made a
statement that he had never failed a single
student before, but had once failed an entire
class.
• That class had insisted that Obama's socialism worked
and that no one would be poor and no one would be
rich, a great equalizer.
• The professor then said, "OK, we will have an
experiment in this class on Obama's plan".
• All grades would be averaged and everyone would
receive the same grade so no one would fail and no
one would receive an A.
• After the first test, the grades were averaged and
everyone got a B.
The students who studied hard were upset and the
students who studied little were happy.
• As the second test rolled around, the students who
studied little had studied even less and the ones who
studied hard decided they wanted a free ride too so
they studied little.
• The second test average was a D! No one was happy.
• When the 3rd test rolled around, the average was an
F.
• The scores never increased as bickering,
blame and name-calling all resulted in hard feelings
and no one would study for the benefit of anyone else.
• All failed, to their great surprise, and the professor
told them that socialism would also ultimately fail
because when the reward is great, the effort to succeed
is great but when government takes all the reward
away, no one will try or want to succeed.
• Could not be any simpler than that.
• Thinking about what we have studied related to both
market & command economies, what are your
thoughts about the preceding “joke?”
Capitalism / Smith
Similarities /Mixed
Socialism / Marx
Mixed Economy
• Mixed economies exist somewhere between command
and market economies.
• In a mixed economy the government tends to own
major industries like utilities, health care and major
manufacturing industries; however, individuals own
most small businesses.
• Mixed economies tend to tax their citizens more than
market economies, but less than command economies.
Traits of a Mixed Economy
• The government controls large industries, while private
individuals control small businesses.
• Citizens are taxed heavily to provide all citizens a social safety
net such as welfare, free university tuition and free health care.
• Property is controlled by both the government and private
individuals.
• Workers tend to be somewhat less productive than those in
market economies, but less product then those in command
economies.
• Consumers generally have a wide variety choices.
John Maynard Keynes claimed that
economies would benefit from deficit
spending if it led to higher
employment rates.
President Franklin Roosevelt introduced
the principles of a mixed economy to the
US by expanding the government, providing
welfare and establishing Social Security for
the elderly.
Examples of a Mixed Economy
• In France health care is free, university costs very little
if you get in (many do not) and taxes are high.
However, there are also private industries based out of
France like Air France and Puegot.
• In United Kingdom health care is free, university is
cheap, but citizens can purchase private health
insurance and attend private universities if they
choose.
• In the United States the federal government owns
much land in the West and private ranchers are
allowed to graze their cattle on that land.
Criticism of Mixed Economies
• Critics of mixed economies claim that they often result
in unproductive workers because there is not as much
incentive to work hard as there is in a market
economy. As a result mixed economies often suffer
from higher unemployment rates and lack the same
number of entrepreneurs as market economies.
• Mixed economies often must raise taxes in order to
sustain all of the social services such as welfare, free
health care, low cost university education and pension
systems for the elderly which can lead to a stagnant
economy.
• In essence, critics claim that mixed economies enable
irresponsible behavior.
Externalities Scenarios
▫ In many suburban high schools, there are giant parking lots full of
automobiles that students drive to school, even though bus
transportation is available. Discuss the environmental impact
of school policies that allow students to drive and park at school.
Describe incentives for such actions and the externalities
created. Suggest a policy to reduce the environmental problems
caused by the current policy, taking care to identify the costs and
benefits of both the current and proposed policies.
▫ Throughout the day, trash accumulates in the hallways of many
public high schools. Oftentimes, the custodial staff spends hours a
day cleaning up trash instead or taking care of repairs or
enhancements to the school. Additionally, rodents, birds and
insects infest the site, causing additional concerns for health and
safety. Develop a list of positive and negative incentives for
the student body to reduce litter in the school building and on the
school grounds.
Homework
• Read “Smith/Marx” & “Socialism v. Capitalism”
handouts
• Complete Venn Diagram
• Write an essay responding to the following prompt:
▫ Analyze the benefits and challenges of both capitalism
and socialism to determine which system provides the
greater overall benefit to society. Present a concise
argument for your selection including specific evidence
and theoretical support.
▫ Your essay should be 2-3 pages, typed, double-spaced,
MLA format with a minimum of 2 additional sources
(other than those provided to you in class).
▫ DUE: Wed 1/25 & Thurs 1/26
Web Sites to Explore
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Detailed Information on Economic Systems
Capitalist Thinker
Communist Thinker
Socialist Thinker
Another Capitalist
Evaluations of Socialist Experiments in the US
References
• Arnold, R (2001). Economics in our times, 2nd
edition. Chicago, IL: National Textbook Company .
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http://img.skitch.com/20080208-xhkwr5t2b34pj7etw8cgda1q4f.jpg
http://www.sceconomics.org/images/AdamSmith.jpg
http://www.sceconomics.org/support.htm
www.frbsf.org/publications/education/greateconomists/grtschls.html#A8
www.mbhs.edu/~grossmam/Social%20Studies%20Course%20Material/Eco
nomic%20System%20Web%20Quest.ppt