Economic Systems

Ohio Wesleyan University

Goran Skosples

4. Roots and Evolution of Economic Roots and Evolution of Economic SystemsSystems

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LEARNING OBJECTIVES

why and how economic systems change

historical systems

contemporary systems

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Why economic systems change?

Why economic systems change:

1. ________________ change

2. ________________ growth

technology + population constrained growth of material output tension change a new system

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2 fundamental ways how economic systems change:

1. ___________________ change• by slow degrees accommodating changes in

the external environment (continuous)- Schumpeter, Institutionalists (Hayek, North, …)

2. ___________________ change (Marx)• building up to crisis and resolving itself by

systematic change (discontinuous)

How economic systems change?

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1. Hunter-gatherer society

• sustainability of the _____________

• changes in technology and population?

2. Pastoral and agrarian societies

• land cultivation and live stock ↑ productivity

• division of labor

3. “Oriental despotism”

• hydraulic societies control of _____ (irrigation systems)

• South and Eastern Asia, Mesopotamia, ancient Egypt...

Systems throughout history

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Systems throughout history

4. Classical slave economies

• flourished where labor was ______ relative to capital and land

• __ employment cost + __ supervisory cost

• needs a strong centralized authority

5. The feudal system (serfdom)

• dominated Europe for about 1000 years

• paying rent in good and services for protection

• a system of hierarchy: monarch, nobility, lower aristocracy and peasantry

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Systems throughout history

6. Mercantilism (commercial capitalism)

• end of feudalism: gunpowder, Black Death and urbanization

• integration of smaller economic spaces

• state involvement (common currency)

• positive balance of ___ and _____________

• favored growth of money supply low interest rates and higher inflation good for merchants

• incorporation of businesses and creation of banks

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7. Industrial capitalism

• The Industrial Revolution: industrialized manufacturing and mass production

• abolishment of mercantile restrictions

• public health, pollution, child labor, education

8. Finance capitalism and imperialism

• fusion of finance and industry (J.P. Morgan’s takeover of the US steel industry)

- control of the industry by a small group of bankers

Systems throughout history

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Socialism – state capitalism

Communism – never attained

Market Capitalism

Welfare State – social democracy

Corporatism – supervisory and coordinating role (labor and capital) of the government. Collective interest over an individual

Economics of Islam – absence of interest rates equity participation

Contemporary Economic Systems