Warm Up: 08/26/2013

1. What are the 3 questions every economic system must answer?

2. What are the 3 major economic theories discussed in Section 4, of Chapter 1?

3. What is the definition of free enterprise?

Unit 1Foundations of American

Government:

Major Economic Systems

Major Economic Systems:

Main Idea:Major Economic Systems Introduction

Notes:• While There are many

different types of economic systems world-wide, all have a common challenge. They must all answer the following questions:1. What to produce?2. How to produce?3. For whom to produce

Major Economic Systems:

Main Idea:Major Economic Systems Introduction (cont’d.)

Notes:• There are 3 major

types of economies found world-wide, and all 3 answer these questions differently. These systems are:1. Capitalism2. Socialism3. Communism

Major Economic Systems:

Main Idea:Capitalism

Notes:• Capitalism is the

economic belief that society is best served if individuals choose their own economic endeavors and pursue them with little government interference.

Major Economic Systems:

Main Idea:Capitalism (cont’d.)

Notes:• Capitalism has 5

characteristics:1. Private

ownership/control of property and economic resources.

2. Free enterprise3. Competition among

businesses4. Freedom of choice5. The possibility of profits

Major Economic Systems:

Main Idea:Capitalism (cont’d.)

Notes:• While no one

person/group can be credited with inventing the idea of capitalism, in 1776, a Scottish philosopher named Adam Smith best defined the concept in his book, The Wealth of Nations.

Major Economic Systems:

Main Idea:Capitalism (cont’d.)

Notes:• In Smith’s text, he

outlined the importance of the free market (gov’t. puts no limits on the freedom of buyers and sellers to make economic decisions), which later evolved into laissez-faire (hands off) economics.

Major Economic Systems:

Main Idea:Capitalism (cont’d.)

Notes:• Capitalism encourages

producers to compete for the business of buyers, making the general public the decision-makers of what should be produced and what they are willing to pay for it. This system is a favorite of democratic nations.

Major Economic Systems:

Main Idea:Socialism

Notes:• In Socialism, the

government owns the basic means of production, determines the use of resources, distributes the products & wages, & provides services such as education, healthcare, and welfare.

Major Economic Systems:

Main Idea:Socialism (cont’d.)

Notes:• The goals of socialism

are 3-fold:1. Distribute wealth and

opportunity equally2. Government controls all

major decisions about productions on behalf of and with consent of society

3. Public ownership of most land, factories and other means of production

Major Economic Systems:

Main Idea:Socialism (cont’d.)

Notes:• During industrialization in the

Europe in the 19th century, there was a growing class of low paid workers who were living in harsh conditions and becoming discontent. A group of socialists began to call for a rejection of capitalism, and embrace the idea of shared benefits. Some of these people called for violent revolutions, while others wanted to create separate socialist communities.

Major Economic Systems:

Main Idea:Socialism (cont’d.)

Notes:• Democratic Socialism: those who

believed in peaceful solutions advocated for change to come by working from the inside of the established democratic frame-work of their country. They called this democratic socialism, which gave people basic human rights as well as some control over government officials, via free elections and multi-party systems—but still allowed government to own the basic means of production and make most economic decisions.

Major Economic Systems:

Main Idea:Communism

Notes:• Karl Marx, a socialist

favoring violent revolution, is attributed with inventing the idea of communism and publishing it in a book called, The Communist Manifesto, in 1848. He believed that all throughout history conflict resulted from class struggles.

Major Economic Systems:

Main Idea:Communism (cont’d.)

Notes:• He stated that the

capitalists, or bourgeoisie, were to blame because they owned all means of production and misuse/underpay the working class, or proletariat. This, he believed, allowed capitalists to control society by suppressing the lower class.

Major Economic Systems:

Main Idea:Communism (cont’d.)

Notes:• Marx believed the lower

class would eventually rise up, and overthrow the capitalists, causing one class to emerge leaving there no need for government as all property would be common. He called this class “the common class” and his theory “scientific socialism”.