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