History of Economic Systems

Economic Systems The economy is the combination of resources and processes involved in the production, distribution, and consumption of goods and services Economics is the study of the production, distribution, and consumption of goods and services An economic system is an organized model for making decisions about the distribution of resources.

Organizing an Economy There are three basic systems to organize an economy (answer and carry out the economic questions). (Centrally) Planned Economy: All economic decisions are made by a central authority (the government). 1 Market Economy: Buyers (consumers) and sellers (producers) decide what is produced and how much is produced. 2 Mixed Economy: A combination of decision makers - individual producers/consumers AND a central authority (the government) 3

Adam Smith Capitalism Adam Smith is known as the father of… He was in individualist, which means he believed… Some key terms or phrases that are associated with Adam Smith are… Government should not be involved in the economy at all. (laissez-faire: “Leave to do” or HANDS OFF) Individuals should be free to make decisions for themselves. Competition will provide the best quality products for cheap. Profit will motivate people to work hard. Those who work hard should profit, those who don’t should not. individualism, competition, profit motive, laissez-faire, invisible hand, private ownership

Collectivism vs Individualism Degree of Government Control Economic Spectrum Collectivism vs Individualism Degree of Government Control Free Market Economy Capitalism Little or no government (state) control of the economy; producers and consumers in control KEY TERMS individualism, competition, supply and demand, incentive, profit motive, private ownership

Karl Marx Communism Karl Marx is known as the father of… He was a collectivist, which means he believed… Some key terms or phrases that are associated with Karl Marx are… Government should control the means of production. A society of classes is wrong Wealth should be taken from the rich and given to the poor. This will create equality among the people and eliminate the abuses of capitalism. Society should be co-operative, NOT competitive Government should regulate business to ensure it is acting in the best interest of the people collectivism, equality, common good, proletariat, bourgeoisie, public ownership “From each according to ability, to each according to need”

Economic Spectrum Centrally Planned Economy Communism Collectivism vs Individualism Degree of Government Control Centrally Planned Economy Communism Free Market Economy Capitalism Little or no government (state) control of the economy; producers and consumers in control Total government (state) control of the economy; central planning KEY TERMS equality, egalitarianism, collectivism KEY TERMS individualism, competition, supply and demand, incentive, profit motive, private ownership

The Rise of Socialism Demands for Change In the early 1800’s, calls for reforms by workers began to be noticed. As workers began smashing their machines in protest, Parliament began to realize it had to investigate why these violent revolts were occurring before they got worse. In 1831, Parliament began these investigations. Factory Act of 1831 – Parliament took action after realizing the hardships of the workers. They passed the Factory Act of 1833, which limited the working conditions for children. Children between the ages of 9 and 13 to 8 hour work days. Ages 14 to 18 could only work 12-hour workdays. Mines Act of 1842 – Employers could no longer: Hire women in mines, hire boys below age 13. In 1874, the 10-hour workday was extended to all workers. Rise of Labour Unions Illegal labour unions began to form in Britain, They immediately met strong opposition. The shorter hours and higher wages demanded by these unions were viewed negatively by factory owners. They would add to cost of goods and reduce profits. Despite this opposition unions formed and gained power. These unions were able to strike, allowing them to achieve better wages and working conditions.

British Labour Party Formed in 1900, this party was able to work in parliament for better working conditions. This is important because it established a political means of improving life for the workers. The formation of this party was the result of the Fabians efforts to make available information that would convince parliament to take up the cause of labour. By doing this, they forced the recognition of the need for state intervention. Gains for Workers In the last half of the 1800’s, wages nearly doubled in Britain and France. Employers began to believe that safe, healthy workers would be more productive. In many industrial nations, governments set up insurance funds for workers who were injured or lost their job. Women were able to return to the homes, as husbands became the sole wage earner. Improving City Life City governments began programs to provide adequate water and sewage systems. Building codes were passed that established minimum standards for housing. Between 1850 and 1870, the city of Paris was almost completely

Socialism Socialism is… Socialists believe… During the Industrial Revolution, socialists worked too… They did this by… a term applied about 1872, at first in ridicule, to a group of German political economists who advocated state aid for the betterment of the working classes. Decisions should be made to benefit society as a whole. Everyone’s basic rights should be met. Everyone’s basic needs should be met. Improve the lives of workers. Passing laws to ensure workers rights were protected.

Economic Spectrum Centrally Planned Economy Communism Collectivism vs Individualism Degree of Government Control Centrally Planned Economy Communism Free Market Economy Capitalism Socialism (Mixed Economy ) Mixture of left-wing and right-wing economic ideas Little or no government (state) control of the economy; producers and consumers in control Total government (state) control of the economy; central planning KEY TERMS equality, egalitarianism, collectivism KEY TERMS individualism, competition, supply and demand, incentive, profit motive, private ownership

Centrally Planned Economy Communism Fascism DEMOCRACY Political Spectrum DICTATORSHIP Centrally Planned Economy Free Market Economy Capitalism Democratic Socialism (Mixed Economy ) Economic Spectrum Democratic Socialism Democratic Capitalism