Economic SystemsTraditional, Command, Market, and Mixed economies

Recapping the Industrial Revolution

• Occurs in mid 18th century▫Great Britain

• Machines replace human workers▫Spinning Jenny, Power

Loom, etc• Enclosure Movements force

people to the cities▫Urbanization

• People begin working in mills/factories▫Make more money!

Recapping the Industrial Revolution

• Factory work greatly increases production▫Machines▫Assembly Line (Ford –

Model T)• Prices of manufactured

goods go down▫Money left over

• Owners driven by profit!▫Poor working conditions

• People start to question best economic practices

The economy – Who/What/How?• What makes up an economy?• Everything associated with the

production, distribution, and consumption of goods.▫Who produces what?▫How much is produced?▫How much is the cost?

• These are known as the means of production

• Question: Who owns or controls the means of production?

• Answer: Varies according to economic system in place

4 Economic Systems

•Traditional•Command•Market (or Free Market)

•Mixed

Things to keep in mind regarding economic systems•Who/what determines what/how much is

produced? (the means of production)•Who/what determines prices of goods?

Traditional Economic System• Used to describe undeveloped regions of the

world Remote villages Free of centralized gov’t—at least as we

see it Think ‘Old School’

• Based on tradition, custom, & inheritance▫How it was done in the past is how it will be

done in the future• Self-Sustained, subsistence farming

▫Produce what you/your village needs▫Each person has a job/role▫No real need for currency

Market Economic System (Free Market)• Economic system in which

there is no economic intervention or regulation by the government▫ USA & UK = Examples▫ Capitalism = Free

Market• Private individuals control

the means of production• Examples of private

individuals?• Who is not a private

individual?

Market Economic System (Free Market)• True “free” market systems do

not exist• Some regulation is in place to

protect businesses, workers, and consumers

• Examples:• Monopolies – When one

individual or business controls all access to a certain good▫Restricted by government

laws• Minimum Wage

Adam Smith and the Invisible Hand• Where does the support for

a free market or capitalist system come from?

• The Wealth of Nations▫Written by Adam Smith,

1776• Argued that free-market

systems are most beneficial & productive

• Argues that the economy is guided by an invisible hand▫Economies regulate

themselves based off of natural laws of supply & demand

Adam Smith & laissez-faire • Smith also championed

laissez-faire economics▫Though he never

mentions it• Means: “let it be”• Implies: Leave it alone• No government regulation!• Free Trade

▫No tariffs• Government non-

interference

Command (Controlled) Economic System• Economic system in which

the state (or government) owns/controls all means of production▫ What is produced?▫ Who produces it?▫ Who determines prices?

• Example = Communism▫ Former USSR▫ North Korea▫ China (sort of)

• Based on the idea that all people should be equal

• No social/economic classes

Why the support for command systems?• Where does the support

for Command economies or Communism come from?

• Poor working conditions during early stages of Industrial Revolution

• Low Wages• Very few wealthy people,

man impoverished▫ Middle Class starts to

expands• Workers and some owners

start to question the conditions in the workforce

Karl Marx & the Communist Manifesto

• The Communist Manifesto▫ 1848, Karl Marx

• Contains Marx’s theories on society and politics

• Argues that history is a history of class struggle.

• Examples:▫ Freed man v. slave▫ Lord v. Serf▫ Rich v. poor▫ Oppressor v. Oppressed

• Argues that Capitalism continues this class struggle

Class Struggle in Capitalism• Marx argues that the struggle

in capitalism takes place between those who on the means of production (think employers, business owners) and the laborers (workers).▫ Bourgeoisie (owners) vs.

Proletariat (workers)• Eventually, the Proletariat will

rise to power and overthrow the Bourgeoisie▫ Through rebellion or labor

unions• Leads to Communism

▫ Everybody equal• See why communism was

feared in the US???

Issues with Communism• In a true Utopian society:

▫ Everyone has everything they need.

• Historically, communism has not been successful.▫ Failed USSR▫ North Korea▫ China is more capitalist

than communist• Government’s typically

cannot provide for all the citizens

• Little motivation to work hard/ become educated

Mixed Economic Systems• Economic system in which

the state (government) controls key industries, but the rest are controlled by private individuals.

AKA – democratic socialism

Examples: Sweden Some might say USA

• Goal: To provide more equal distribution of wealth

• Marx saw Socialism as the step between capitalism and communism