Economic systems
All countries and economies must
decide:
• WHAT to produce
• For WHOM to produce
• HOW should they be produced
and by WHOM?
Economic Systems
• Capitalism = Capital City
• Socialism
Communism = Equality City
• Social Democracy (mixed economy) =
Regulation City
• Traditional economies = Community City
“Capital City”
VALUES:
•Profit
•Private property/private
ownership
• economic freedom/ market
economy
• economic growth
• Individual opportunity over
economic equality and
economic security
•Personal responsibility
•Business over labor
(workers)
• Only some government
regulation
Definition of Capitalism
• Economic system in which private citizens
own most of the factors of production
(land, labor, capital) in order to make a
PROFIT.
• The signal that controls capitalism is the
PRICE signal.
• Important people: Adam Smith, Milton
Friedman, Maynard Keynes
An economic “market” is not
Ralph’s- it is much bigger
WORLD OIL MARKET
JAPAN’S
TELECOMMUNICATIONS
MARKET
The “story” of capitalism: Resources are
scarce and so must be allocated efficiently.
This means using price as a signal.
CONCEPT OF
SCARCITY
The history of capitalism
Once upon a time, we were
artisans and craftspeople
working out of our homes and
our work was meaningful to us.
Then Industrialization mechanized
work and we became wage workers
Many choices…and contrasts
How low can we go? Whose
making all that cheap stuff and how
much are they getting paid?
Is “free” trade really free?
NAFTA = North American
Free Trade Agreement
between US, Mexico and
Canada. Removed many
tariffs and restrictions on
trade.
Nike factory in China: An American company gets American
tax breaks to NOT employ American workers.
Breaking down the GDP
Capital City worships GDP= value
of all goods and services produced
in a country
• GDP (Gross Domestic Product) = value of all goods
and services produced in the legal economy that are
taxed.
• GNP (Gross National Product) = dollar value of all the
final goods and services purchased by the nation’s
consumers, government and investors.
• NOTE: Neither of these are direct quality of life indicators
or tell you what social class is benefiting or quantify
government waste.
GNP “logic”: McDonald’s makes
sales, GNP goes up = good
Obesity rises = weight loss clinics
make money, GNP rises = good
GDP/GNP have no way
to subtract for negative
effects that cost society in
other ways =
externalities = + or –
effects on third parties
not involved in
economic transaction
Quality of Life not measured by
GDP
Let’s complete the Ten Chairs lesson
Capitalism Quiz
1) 10% of the population controls _______%
of the wealth.
2 – 5):
List one characteristic of capitalism for items
2-5)
Allocation in a market economy:
What do we value and why?
• THE FARMER’S WIFE
• Identify as many
positive and negative
aspects of capitalism
as you can
Equality City
• NO private ownership
• Government plans economy +
sets prices
• Redistribution of wealth
• Glorification of workers
• Workers are “comrades”
• Cult of Personality
• Communism tends toward
dictatorship, surveillance, secret
police and inefficient allocation of
resources- there are no markets
or price signals, only government
production.
Planning Ministries decide what
goods are produced, not
consumers
GOSPLAN
Equality City: Cult of Personality
MAO- former Communist
leader of China
Equality City’s view of Capital City
Communism in documentary and
drama
The Red Violin
The Berlin Wall
1961: A Soldier who is supposed to
guard the wall instead escapes!
The End of Communism….the wall
falls!
Regulation City: Mixed Economies of
Europe: Social Democracy
• Quality of life over
individual wealth
• Working to live instead
of living to work
•
taxes/ benefits
• More government
ownership/regulation
• Universal single payer
health care –may be
rationed
SWEDISH PARENT SPENDING MORE
TIME WITH FAMILY DUE TO FLEX -TIME
High taxes, more benefits
Benefits
Drawbacks
• High taxes, less take
home pay
• Lack of convenienceeverything closed on
Sundays, government
offices may close
early with no notice
• Higher unemployment
Community City: Doing things the way your
parents did them, the traditional way
• Indigenous people engage in
traditional economies
• Produce own products to use
and trade
• Much of life is spent taking
care of survival needs
• often agriculturally –based:
hunting, farming
• barter /trade systems
• Exist in agricultural parts of
South America, Africa and Asia
Example of a traditional economy
The Khanty of Western Siberia
Little Diomede Island
• Off coast of Alaska