Economic Systems

Economic Systems Refers to use of resources in a society 3 main systems Capitalism Socialism Communism

Capitalism Individuals make own economic decisions, without gov’t interference (laissez-faire) Also known as free enterprise 5 characteristics – 1. private ownership 2. no gov’t interference 3. competition among businesses 4. freedom of choice (free market) 5. possibility of profits

Adam Smith “Father” of capitalism Wrote Wealth of Nations Believed gov’t shouldn’t participate in market – only ensure free competition

The US Economy Pure capitalist society doesn’t exist US is a mixed market economy – Free market combined w/ gov’t regulation US regulates certain industries – ie. Meat Inspection Act; FDA, etc. for public safety Social security, minimum wage, etc.

Criticisms of Capitalism Encourages inequalities in society Lower classes have potential to be mistreated

Socialism Socialism reaction to problems associated w/ Industrial Revolution in 1800s Gov’t owns means of production, determines use of resources, distributes products, wages & services 3 goals: 1. Distribute wealth & opportunity equally 2. Gov’t makes all major decisions 3. Public ownership of land, factories, other factors of production

Democratic Socialism Ppl have basic human rights and control over gov’t through elections Once elected, gov’t takes control of economy Ex. Scandinavian countries (Denmark, Norway, Sweden) Gov’t controls factories Health care, medical care for all

Criticisms of Socialism Stifles individual efforts High taxes hinder growth Too much government may lead to a dictatorship

Communism Karl Marx wrote Communist Manifesto outlined inevitable outcome of capitalism History divided ppl into two groups Bourgeoisie – owners, capitalists Proletariat – workers Proletariat typically mistreated More proletariat than bourgeoise Eventually proletariat will join together, rise up and overthrow bourgeoisie

Communism Once p. overthrew b., all would share all factors of production and profits equally Final result would be communism in which all property was community No need for formal gov’t

Command Economy No true communist country Instead use command economy in which gov’t makes all economic decisions, incl. wages, housing, etc.