The introduction of capitalism
 Human have unlimited needs and wants
 The earth has a limited amount of resources
 Land, labor, capital
 This creates scarcity
 So how do you decide how to allocate all resources
 Three basic economic questions
 What to produce?
 How to produce it?
 Who gets it? (How to distribute it)
 There are three basic economic systems
 The fourth – traditional economies, is rare
 Market Economy – also known as capitalism, free
market, private enterprise
 Planned Economy – also known as socialism,
communism, centrally planned, public enterprise
 Mixed Economy – can range from welfare capitalism,
to highly socialistic economies
 Private direction
 Public direction
 Planned economy
 Free enterprise
 Laissez-faire
 Command economy
 Invisible hand
 Mixed economy
 Collectivism
 Communism
 Capitalism
 Welfare capitalism
 Socialism
 Interventionist
 Individualist
 Individual initiative
 Common good
 Social welfare
Left Wing
Center
Right Wing
Public Direction
Planned Economy
Centrally Planned
Economy
Command Economy
Communism
Private Direction
Free Enterprise
Laissez-faire
Invisible Hand
Mixed Economy
Socialism
Interventionist
Common Good
Social Welfare
Collectivism
Welfare
Capitalism
Capitalism
Individualist
Individual Initiative
Individualism
 Competition between nations for gold /
silver = power
 Protective tariffs, monopolies, limited
international trade (colonies and mother
country), high levels of government
regulations
 e.g. Hudson Bay Company
 Protestant Reformation
 value of hard work, thrift and material growth
 Industrial Revolution
 transportation = new markets / resources
 population explosion = new labor / markets
 Success in Europe = spread throughout the world
 Liberal Movement (classical liberalism)
 Merchants complain about government restrictions
 believed that the economy should be free to follow
natural laws (supply/demand)
 believed people motivated by self-interest; competition
encouraged better production by workers
 “The most far-reaching, influential transformation of
human culture since the advent of agriculture eight or
ten thousand years ago…The consequences of this
revolution would change irrevocably human labor,
consumption, family structure, social structure, and
even the very soul and thoughts of the individual.”
 Richard Hooker
Write each of the following, including a brief
explanation:
 Enclosure Act
 Factory system
 Entrepreneurial opposition to the mercantilist system
 Rise of middle class and nouveau riche
 How do these events promote classical liberal ideals?
 strength of nations rested on goods produced, not gold
 laws and restrictions hindered, rather than promoted
economic growth
 no need to plan the economy; if people free to pursue own
self-interest, the sum of their individual actions would
automatically work for the betterment of society
 invisible hand
 government should interfere only to protect the country
against foreign enemies, ensure competition, maintain law
and order and protect individual property rights
 laissez-faire
 Virtues of self-reliance, initiative, hard work
 Necessity of private property
 Profit motive
 Price system (supply and demand)
 Competition
 Inequalities of wealth
 What goods/services to produce: consumer
demand
 How to produce the goods/services: competition
of suppliers (quality, price)
 Who should the goods/services be distributed to:
goods/services produced for those who can afford
them (price system)
 the world’s population advancing faster than world’s
ability to produce food
 population growth in past was checked by famine and
disease
 government intervention with charity would only
unbalance the system
 used Malthus’ argument to state that poverty was
inescapable
 Iron Law of Wages: increasing wages = large families =
too many workers = even lower wages
 poverty was a natural law of limiting population that
governments should not challenge (laissez-faire mixed
with doctrines of Malthus and Social Darwinism)
 based on Darwin’s theory of “survival of the fittest”
(Social Darwinism was NOT promoted by Darwin)
 Natural laws = place in society according to ability –
the best and brightest will prosper and the unworthy
will not (everyone is paid what they are worth)
 competition ensures only the fittest survive
 this will benefit society as a whole
 these arguments justified the practices of the
economic elite and the gap between the rich and poor
Advantages
•Market gives producers an incentive to produce goods the
public wants
•Market provides an incentive to acquire useful skills
•A wide variety of goods and services is available
•There are incentives to use resources efficiently
•Competition encourages good quality at lower prices
•Productivity is rewarded by higher profits
•Fosters self-reliance
•Possible to become very wealthy
 Growth of the middle class and “nouveau riche” during
the Industrial Revolution
 The rapid industrialization around the world is
promoted by the ability to profit from innovations
 The growth of the US and other consumer countries
compared to those nations with high levels of
socialism (government intervention, like North Korea)
 The current technological revolution has been spurred
by the benefits of competition
Oil Prices – the
perfect example
of supply and
demand
Prices in 2007-2008?
Prices today?
 2000
 Russian Economy - $259 B
 Canadian Economy - $717 B
 Japan’s Economy - $4.7 T
 European Union - $7.9 T
 United States - $9.8 T
The US is not the most capitalist nation in the world (as of
2007 Singapore was more right wing), but it is the most
successful capitalist nation in the world.
2006