Comparative Economic Systems
Mercantilism, Capitalism, Mixed-Economies, Socialism and
Communism
Mercantilism
• The chief characteristics of Mercantilism include:
1. Empire, A “Mother Country” & attending colonies
2. Emphasis on gold and silver bullion.
3. A positive balance of trade
4. The Zero-Sum Game 5. Command economic
structure
Characteristics of Mercantilism
Manufactured goods
Raw materials
Mother County Mother County
ColonyColony
Cheap labor
Who Benefited Most From Who Benefited Most From Mercantilism?Mercantilism?
Who Benefited Most From Who Benefited Most From Mercantilism?Mercantilism?
£ Monarchs.Monarchs.
£ Merchant capitalists.Merchant capitalists.
£ Joint-stock companies.Joint-stock companies.
£ Government officials.Government officials.
Laissez-Faire Capitalism
• Market forces such as Supply & Demand drive the activity
• Government has a “hands off” policy in economic affairs
• Classical Economics is the domain of early laissez-faire theory
Adam Smith and The Wealth of Nations
• Smith, a Scot, was the principal architect of modern market economics.
• The metaphor he used to describe market forces was the “invisible hand.”
• He published his great work, The Wealth of Nations, in 1776.
The Wealth of Nations (1776)
The Principles of Capitalism include:
The idea that “capital”, a factor of production that is not wanted for itself but for its ability to help in producing other goods, is a worthy means of generating wealth.
A belief in “Private Property”;
Emphasis on individual initiative, entrepreneurship, innovation, and competition;
Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles
Goods and services are produced for Goods and services are produced for profitable exchange.profitable exchange.
Human labor power is a commodity for Human labor power is a commodity for sale sale LABOR IS THE SOURCE OF VALUE. LABOR IS THE SOURCE OF VALUE.
BusinessesBusinesses HouseholdsHouseholds
Goods & Service
Goods & Service
Labor & Investments
Labor & Investments
Consumer SpendingConsumer Spending
WagesWages
Individuals seeking success are driven by Individuals seeking success are driven by self-interest self-interest Profit MotiveProfit Motive
The The Law of Supply and DemandLaw of Supply and Demand Individuals who are free to pursue their Individuals who are free to pursue their
self-interest will produce goods and self-interest will produce goods and services that others want, at prices others services that others want, at prices others will be will be willing to willing to pay.pay.
Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles
Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles
Law of CompetitionLaw of Competition The competitive market system The competitive market system
compels producers to be increasingly compels producers to be increasingly efficient, and to respond to the desires efficient, and to respond to the desires of consumers.of consumers.
Government should interfere minimally Government should interfere minimally with the free and efficient workings of the with the free and efficient workings of the marketmarket
Laissez faireLaissez faire [“Leave things alone.”] [“Leave things alone.”]
Some of the abuses of laissez-faire capitalism such as:
Child labor
Dangerous conditions
Unfair labor practices
Extremely long hours
Resulted in calls for reform and regulation.
Pros and Cons of Capitalism
Pros• Competition to provide
goods and services keeps prices low
• Rewards hard work• Provides choice• Allows for the building up
of wealth and possessions
• Consumers regulate the market
Cons• Exploits people who
cannot compete• Uneven distribution of
wealth• Creates a money-
oriented society• Constant economic
growth may deplete the earth’s resources
Socialism
• Socialism is an economic system characterized by social ownership of the means of production and co-operative management of the economy.
• There are many variants of socialism, but because it requires collective ownership of property, the most dominant form is State Sponsored Socialism.
Socialism
• Ancient roots – Judeo-Christian belief in the common good, which takes precedence over individual desires
• Term “socialism” coined in 1827 by British socialist Robert Owen to describe his view of a cooperative new society.
Socialism’s principles
• egalitarianism or equality. Humankind will be unified and cooperative, once wealth is owned and used for the common good. Capitalism exploits the very people who create society’s wealth.
• Moralism. Division of rich & poor is evil; capitalism is fundamentally unjust. Instead, the ideal future emphasizes peace, social justice and true liberty for all.
Private Property and Socialism
• Private property not abolished, but the public should control the use of property and make necessities available to all.
• Individual rights not abolished but should complement other important values such as concern for others.
• Change can occur through an evolutionary process that uses democratic means.
Pros and Cons of Socialism
Pros• All members share benefits• Those who cannot contribute
may still participate (disabled, elderly)
• Each member’s survival needs are met
• Equal distribution of wealth• No socioeconomic classes
Cons• No incentive to work
harder• No competition means no
reward to be innovative• New members to the
community (immigrants) are seen as competition for limited goods and services
• Higher taxes
Communism
Communism is the most extreme expression of Socialism. It requires a violent Revolution.
The Communist Manifesto and Das Kapital, lay out the principles Marx and Engels believe justify their call to revolution
Friedrich Engels Karl Marx
Marx’s Goal:Create a utopia (an ideal state that does not exist)
• This is the symbol of Communism – The Hammer and the Sickle
Hammer for the Workers
Sickle for the Peasants – the farm
labourersThis is Karl Marx, the ‘Father of Communism’. People who believe in his ideas are called ‘Marxists’
This is his friend, Frederick Engels.
Marx’s key ideas
1. Slave system gave way to feudal economy
2. Feudal economy broke down with growth of manufacturing, towns, navigation & transportation, emergence of middle class
3. Industrial capitalism emerged, with only two classes: proletariat and bourgeoisie.
Industrial Capitalism – Negative Effects
• Destroys important human values, replacing even religious belief with naked exploitation.
• Undermines an individual’s sense of personal value in one’s work.
• Undermines human relationships; all relationships are based on cash.
• Destroys human freedom. The only freedom it protects is free trade.
Principles of Communism• Labour Theory of Value: the value of a
good is derived from how much labor went into its production.
• Alienation of Labor: Workers are separated from the fruits of their labor and alienated from the Bourgeoisie by exploitation.
• Class Struggle: In Marxist view of History, one class always exploits the others.
Ten Policy Planks of the Communist Manifesto1. Abolition of private property
in land and application of all rents of land to public purpose.
2, A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.
6. Centralization of the means of communication and transportation in the hands of the state.
7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal obligation of all to work. Establishment of Industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country.
10. Free education for all children in government schools. Abolition of children's factory labor in its present form.
The Worker’s Utopia
• In the end, a classless society with no more oppression or internal contradictions.
• People will be free to choose how they labor, and can be creatively productive. They will be able to live to their fullest potential. Consider the description in Marx’s Communist Manifesto in 1845:
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