Chapter 16 Comparing Economic Systems 2010

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Chapter 16 Comparing Economic Systems 2010 Powered By Docstoc
					Comparing Economic

   Chapter 16
 An economic system in which
 individuals own and control the factors
 of production.
 Capitalism  became the dominant
  economic system in Europe and the
  U.S. in the 1800’s.
 This system emerged as part of a series
  of economic systems over the last
  several centuries.
 Duringthe Middle Ages, Europe’s main
 economic system was manoralism , with
 land-owning nobels granting peasants
 the opportunity to work the land in
 exchange for fixed payments.
 Population growth encouraged the
  expansion of trade.
 As trade increased, people began to
  invest money in businesses to make a
 Over   time, the powerful land-owners
  began to decline.
 Kings grew stronger politically and were
  able to form centralized governments.
 The rise of these new nations created a
  need for national currencies and
  banking or banking system, two key
  institutions of capitalism.
 Between  1500 and 1800, the
 governments of major European nations
 used the theory on mercantilism to
 direct their economics.
 Mercantilism defined a nation’s power in
  terms of its supply of gold and silver.
 Since these commodities were rare,
  Europeans generally believed that a nation
  could grow stronger only by gaining more
  wealth (and therefore power) than other
 This theory encouraged European nations to
  establish colonies around the world.
 By the mid 1700’s, many Europeans
  believed that mercantilism interfered
  with economic growth.
 Some economists encouraged
  governments to grant individuals more
  economic freedom.
 One  of the most influential of the
  reformers opposed to mercantilism was
  Adam Smith
 Smith’s book, Wealth of Nations, argued
  that economies would prosper without
  governmental interference.
 He  wrote that competition in the
  marketplace would eliminate inefficient
  businesses and that people would be
  driven by profits to succeed.
 Later this type of economic system
  became known as a free-enterprise, or
  capitalist, system.
 Capitalism currently functions with varying
  degrees of government involvement.
 Governments in every capitalist economy
  play an active role in assisting the poor and in
  providing public services as law enforcement,
  education, and environment protection.
 In the U.S. the government intervenes
  in the economy only on a limited basis
 In other nations the government has a
  great deal of influence on how the
  economy is run.
   Ex.   – Japan, Germany, France, South
 An  economic system which protects the
 idea of private ownership by individuals
 (as in Capitalism) and promotes the
 idea of ecomonic collectivism, in which
 everyone in society owns all and shares
 There have been many different forms
 of socialism used throughout world
 Socialism developed during the 1800’s
 in response to conditions created during
 the industrial revolution.
      – Long working hours, low wages,
   Ex.
   unhealthy working conditions, child labor.
 Largely  in response to these conditions,
  socialists began to question the
  capitalist system.
 Some favored an end to capitalism and
  the establishment of an economic
  system (socialism) that would provide a
  more equal distribution of wealth.
 Some   socialists believed in a peaceful,
  slow change in their existing country’s
 One of these adaptations became
  known as market, or democratic,
 Under market socialism, the people
 retain basic human rights and elect
 government officials.
   Ex.   - Sweden
 Inmodern market socialist countries,
  the state (government) owns and
  controls businesses/industries in 4
  major areas:
   Transportation   systems – ex. - British
   Banks or banking systems
   Health care – ex. - Hospitals
   Major industries – ex. – steel, energy, ect.
A socialist country has both a public and
 a private sector:
  Public Sector – industries, businesses, etc.
   owned and controlled by the government.
  Private Sector – businesses that
   individuals own.
 Some  socialist countries are referred to
 as “welfare states” because they
 provide many free services to their
  Ex.  – free health care, free dental care,
 How  are all these free services paid for
  by the government?
 Taxes are very high, especially on the
  middle and upper classes.
   Ex.– some of the wealthy pay as much as
    60% of their income in taxes
 An   economic system in which the state
  owns ALL means of production,
  distribution, and consumption and no
  private ownership is allowed by citizens.
 In its purest sense, wealth is to be
  equally divided among all citizens.
         Engels and Karl Marx wrote a
 Fredrick
 pamphlet entitled “Communist Manifest”
 which explained the economic system
 of communism.
 Marx  and Engels said that all human
  history was a struggle between the rich
  and the poor.
 They also said that the state was used
  by the rich to keep their wealthy
  positions and to keep the poor down.
 During  the industrial revolution Marx
  and Engels were angry about how
  workers were being exploited in
  factories by the rich factory owners.
 This situation encouraged them to
  devise a new type of economic system
  where wealth would be spread out more
  evenly among all citizens.
 Marx said the state was a tool for the
 bourgeoisie (rich factory owners) to stay
 rich and it must be destroyed in a
 bloody, violent revolution as the
 proletariat ( the working class) would
 take over everything, killing the
 bourgeoisie and state leaders.
 The  communist would guide them in
  setting up their system and then would
 This was a lie.
 Goals   of Communism
   Equaldistribution of wealth.
   No socio-economic class.
 In1917, the Bolsheviks (later called
  communist) overthrew the existing
  government in Russia and proclaimed
  Russia the world’s first communist
 Communist    countries are usually
 totalitarian dictatorships where the top
 communist leader or leaders run the
 government and forces every citizen to
 obey communist ideas.
 Production  levels for goods are usually
  poor because workers get paid the
  same no matter how hard they work.
 This is the major reason why
  communism fell in the Soviet Union (late
  1980’s, early 1990’s).
 In communist countries, no religion is
 The only loyalty and worship goes to the