I. Capitalism

AMERICAN GOVERNMENT CHAPTER 23: COMPARATIVE ECONOMIC SYSTEMS

Bellringer

A) Factors of ProductionFactors of Production – basic resources needed for a

nation’s economy which are used to make all goods and services

1) Land – agriculture, mining and forestry 2) Capital – all the human made resources that are used

to produce goods and services. Buildings, machines, computers.

3) Labor – individuals “own” their labor and sell it to an employer

- Entrepreneur – an individual with the drive and ambition to combine land, labor, and capital resources to product goods or offer services.

- Willing to risk losses and failures.

B) Free Enterprise SystemFree Enterprise System – an economic

system characterized by private ownership of capital and by investments that are determined by private decisions, not by public authorities.

Free market – a market in which buyers and sellers are free to buy and sell as they wish

Usually in a democratic nation

a) Private OwnershipIn a free market – private individuals and

companies own most of the factors of production

They decide – build, invest, what to produce

b) Individual InitiativeEntrepreneursPeople are free to start and run their own

businesses – to sell themLead to new scientific and technological

discoveries – improve everyday life

c) ProfitPeople are entitled to benefit from

whatever their investment or enterprise earns or gains in value

“profit motive”Why we risk

d) CompetitionA number of companies offer similar products or servicesHolds down prices and keeps quality highCompetition promotes efficiencyLaws of supply and demand – determine the market price for

goods or servicesMonopoly – a firm that is the only source of a product or serviceThey can charge as much as they want for a product – no

competitionTrust – when several corporations work together to eliminate

competition and regulate prices – can you name some?Sherman Anti-Trust Act of 1890 – forbids trustsAnti-Trust Division in the Department of Justice enforces this –

cans top sale or merger of companies and can break them up. AT&T and Standard Oil.

C) Laissez-Faire TheoryFrench for “to let alone”Belief that the government should not interfere – at all.Adam Smith – the invisible hand – helps promote the

general welfareLaissez-Faire says government should only:1) Foreign relations and national defense2) Maintenance of police and courts to protect property,

health, safety, and morals3) Functions that cannot be performed by private

enterprise at a profit – example?- In the economy – should be to promote and protect free

play

Wine Processing/bottling/Retail SalesWine TastingVineyard/Winery ToursParking across the roadEvents: Up to 150 People Per Day (Outdoors/Indoors)

Wine Industry MeetingsFood & Wine PairingsEducational seminars relating to the wine industryFund RaiserReunionsMeetings/ClassesEvents: up to 200 People Per Day (Outdoors/Indoors)

Weddings/Receptions - up to 10 events per calendar yearEvents: 2 annually (up to 2 consecutive days each)

Wine Festival (Indoor/Outdoor)Music:Indoor: Unplugged, acoustic music that allows for microphone and acouple of speakersOutdoor: Non Amplified Acoustic music. No Bands, No DJ’s allowed26

Hours of Public Operation:10:00 am to 8:00 pm, Sunday – Thursday10:00 am to 10:00 pm, Friday and SaturdayWith the following conditions/standards to be met:New Processing Structure to be located behind current processing buildingSite distance at the road entrance to remain clearedParking, lighting, signage in accordance with the Zoning OrdinanceConform to all JDC Environmental Health Dept. regulationsRun off control and drainage of parking lot, if parking is made on the north sideof Ford Road, will be provided if needed

D) A Mixed EconomyAn economy in which private enterprise

and governmental participation coexist.Is the US mixed?Prohibits trusts, protects the environment,

inspects our food, builds roads, social security, subsidies farms, loans money, postal system, public education, water, electric.

E) Types of Business OrganizationsOver 95% of businesses employ fewer than 20

people.1) Sole proprietorships – hair salons, auto repair

shops, dentist office – 75% of all business. 2) Partnerships – Lawyers, architects – one usually

provides capital, other provides knowledge3) Corporations – shareholders – people who own a

share or fraction of the business- Can be public or private- Income is taxed twice – income tax on the

corporation and income tax on the dividends.

F) Profit and LossProfit drives the economyTaking risks and making investments are

an essential part of the capitalist systemMany businesses fail every year because

they do not produce a profitSurvivors learn how to make the most

efficient use of the factors of production.

Review

II. Socialism and Communism

CHAPTER 23:

BellringerDo you think that history is a series of class

struggle and that al conflicts are based on economics? Why or why not?

Do you think that laborers should receive the full value of the goods they produce? What about the role of the entrepreneur and the profit motive in this system?

Do you think that the US government is controlled by capitalists?

What might be the drawback of the proletarian dictatorship, even if it is a transitional phase?

A). Karl Marx’s TheoryKarl Marx (1818-1883) – the father of modern

socialism and communismCritical of capitalism and the Industrial

revolutionHim and Friedrich Engel wanted social and

economic reform – crazy reformThe Communist Manifesto (1848) – written by

Marx and Engel, political document that created communism and socialism calling on workers to unite and free themselves from “capitalist enslavement”.

Four Concepts of Communism1) History – story of class struggle – fought over control

of labor and productive property- Bourgeoisie – the capitalists (rich owners)- Proletariat – the workers (poor, powerless)- The masses will unite and bring down the

Bourgeoisie.2) Labor Theory – value of things was based not on how

much it cost to build, but how much labor was used to build it – workers deserved that value

3) Role of Institution – two fold – rich use government to stay in power. Religion is a drug that helps workers tolerate bad life for hope at a “fictional afterlife”

4) Dictatorship of the ProletariatGoal is a utopia To get there you need to “force” the peopleStarts with a revolutionProletariat rises up and takes control of productivity and

enforces the interests of the massesNeed a dictatorship to do thisOnce true equality was achieved – dictatorship would

disappear In reality – dictatorship never disappeared.Socialism – process of peaceful democratic movement to

the UtopiaCommunism = the violent revolution movement to create

the Utopia

B) Characteristics of Socialist Economies1) nationalization – taking over and running privately owned

industriesUsually important ones – utilities, transportation and steel.Small businesses privately owned2) Public Welfare – provide for welfare services – retirement

pensions, healthcare, education and housingCalled a welfare state (page 687)3) taxation – high – around 50 – 60% - mostly on rich for

equalization of taxes4) A Command Economy – government decide what is

produced, who produces it, how much is produced, and what cost (if any).

Economic decision making is not private but public and centralized

C) Socialism TodayRecently in Britain, France, and Germany

– most socialist parties have lost power or had to abandon their projects to expense and unpopularity.

Countries in Africa and Latin AmericaVenezuela and Hugo Chavez – nationalized

oil and used it to pay for education, healthcare, and low-cost housing – poor love him

D) Characteristics of Communist EconomiesCommunism more totalitarian then socialism. Usually

leads to dictators.1) Communist party – run everything, government and

economy – control over social, intellectual and religious life.

2) Central Planning – set 5 year plans to develop industry and agriculture growth – also set prices and where products will be distributed.

3) Collectivization – all private land ownership will be taken over by the government - usually merge small farms into big collective farms – by force

4) State ownership – all industry and transportation are taken over by the state.

E) The Soviet UnionLenin created the first communist state in Russia in

1917 – complete control of social, political, and economic institutions.

Several 5 year plans allowed the USSR to achieve heavy industry and industrialization but at a cost – no consumer goods, housing, and urban services.

Did provide free education and medical care - all poor quality

Mikhail Gorbachev – Last General Secretary of the USSR – started dismantling communism – collapsed peacefully in 1991.

Glasnost – OpennessPerestroika – restructuringPrivatization – process of returning nationalized

enterprise to private ownership.

F) ChinaMao Zedong took control of China from the

nationalists in 1949.Assigned workers to jobsGreat Leap Forward – a 5 year plan to modernize

China quickly All free enterprise and land ownership were goneFailed horrible – famineDeng Xiaoping – took over in 1977 and began to

move China from a command economy to a market economy and opened up the country to foreign investors.

G) Other Communist NationsCuba dependent on USSR aid. When that

fell, Cuba in trouble. Still poor today.Vietnam and Laos have instituted free

market reforms to promote growth and investments.

North Korea – severe food shortages and complete control of economy – poorest place on earth

H) Evaluating Command EconomiesLayers of government in socialism hurt initiativeCentral planning is too slow to reactNo freedom, paid low, no incentive to work harderWhy work hard when your basic needs will be taken

care of anyway.Defenders of socialism and communism say it’s a

fairer systemThere are inequalities in capitalism – medical care,

housing and education – wealth and powerOwners can abruptly close a factory leaving

workforce and community in trouble – can’t under socialism.

Review

AMERICAN GOVERNMENT CHAPTER 23: COMPARATIVE ECONOMIC SYSTEMSIII. The U.S. in a Global Economy

BellringerRead these two quote – then answer this

question.To what extent should government

participate in the economy?

A) The Domestic EconomyFirst 120 years, no government involvementGreat Depression changed that.A vital free enterprise system fosters competition and

entrepreneurship – the Government tries to support it by trying to make it fair

The Federal Reserve System (the Fed) – established in 1913 it is the central banking system of the US – monetary policy – adjusts the discount rate

SEC – Securities and Exchange Commission – police of the stock market – stops insider trading and makes corporations disclose their finances

Department of Labor – OSHA has decreased deaths at work by 60%, ESA (Employment Standards Administration) monitors fair contracts and the Bureau of Labor Statistics tracks unemployment and the consumer price index.

B) The Global EconomyGlobalization – economic interdependence among

nations of the world.Because of jets and internet, the world is smaller

place. (bigger boats)The purpose of trade is to sell your goods and buy

goods that you can’t produce. Food for oil.Canada number one, then China, then Mexico.US largest exporter (1.2 trillion) and importer (2.1

trillion)Oil biggest import – 12% of world marketNAFTA – free trade agreement with Mexico and

Canada

C) US Trade PoliciesUS needs to protect its interest and workers

and balance them with its trade partnersProtectionism – protect native industries from

foreign competitionTariff – tax on imported goods (steel)Import quota – limit put on the amount of a

commodity that can be imported into a country (cotton, sugar, and milk) (TV shows)

Trade embargo – ban on trade with a particular country or countries (usually used for foreign policy)

NAFTANorth America Free Trade AgreementFree trade (no tariffs) between Mexico,

Canada, and US – common tariff.Thought it would lead to huge job loss –

supports said it will increase exports costing new jobs – also help stabilize Mexico and stop illegal immigration.

US did lose manufacturing jobs but farm exports to Mexico quadrupled from 1993 to 2008.

D) International OrganizationUS tries to strengthen foreign ties to help trade.WTO – World Trade Organization – intention is to

increase trade with its 151 members. It spells out rules, creates a forum for new agreements, and place to resolve trade agreements (copyright)

GATT – General Agreement on Tariffs and TradeWorld Bank – loans money to developing nationsIMF – International Monetary Fund – helps countries

whose banking or financial institutions are in troubleG8 – annual meetings of the leaders of eight wealthy

nations and industrialized nations. (US, Canada, France, Germany, Italy, Japan, Russia, and UK)

Other Trade AlliancesEU (European Union)1957 established the European Common market –

6 countries coordinate economic policies and trade1986 created the EEC (European economic

Community) – free trade1993 – Formed the EU – own parliament, flag – can

travel as tourists or workers without passport.202 – created the EURO – own currencyNow 27 nations including former USSR states.APEC – 21 Pacific Rim countries for tradeMERCOSUR – trade bloc in South America

F) Impact of TradeGlobalization leads to

more good availableHelps poor nations

expand economies and grow

Cheaper prices leads to growth – more jobs

Economic interdependence lead to fewer conflicts

Issues in Iraq and Nigeria raise oil prices here

Might need “permission” from trade partners to legalize gay marriage for example.

US now a service industry instead of manufacturing (too expensive)

Trade deficits to China is financed by China – own a portion of US economy.

G) Tomorrow’s MarketplaceWe will increased globalization with new

members to NAFTA and the EU – expand free trade

US will try to lower its trade deficit with China

Increase service exportsMore loss of manufactured jobsNeed to rely on intellectual property as

much as on exported goodsProtect copyrights and patentsPromote stability in oil producing nations

ReviewIs the growth of free trade a positive or

negative development?For the US?For the World?