The introduction of capitalism

Human have unlimited needs and wantsThe earth has a limited amount of resources

Land, labor, capitalThis creates scarcity

So how do you decide how to allocate all resources

Three basic economic questionsWhat to produce?How to produce it?Who gets it? (How to distribute it)

There are three basic economic systemsThe 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 directionPublic directionPlanned economyFree enterpriseLaissez-faireCommand

economyInvisible handMixed economyCollectivism

CommunismCapitalismWelfare

capitalismSocialismInterventionistIndividualistIndividual

initiativeCommon goodSocial welfare

Public Direction Private Direction

Left Wing Center Right Wing

Planned EconomyCentrally Planned

EconomyCommand Economy

Mixed EconomyFree Enterprise

Laissez-faireInvisible Hand

Communism Socialism Welfare Capitalism Capitalism

Interventionist Individualist

Common GoodSocial WelfareCollectivism

Individual InitiativeIndividualism

Competition between nations for gold / silver = power

Protective tariffs, monopolies, limited international trade (colonies and mother country), high levels of government regulationse.g. Hudson Bay Company

Protestant Reformationvalue of hard work, thrift and material growth

Industrial Revolutiontransportation = new markets / resourcespopulation explosion = new labor / marketsSuccess in Europe = spread throughout the world

Liberal Movement (classical liberalism)Merchants complain about government

restrictionsbelieved 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 ActFactory systemEntrepreneurial opposition to the mercantilist

systemRise of middle class and nouveau riche

How do these events promote classical liberal ideals?

strength of nations rested on goods produced, not goldlaws and restrictions hindered, rather than promoted

economic growthno 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 motivePrice system (supply and demand)CompetitionInequalities 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 survivethis will benefit society as a wholethese 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 BCanadian Economy - $717 BJapan’s Economy - $4.7 TEuropean Union - $7.9 TUnited 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