1. Economic Systems

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

3. 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

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

5. 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.

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

7. 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

8. 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

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

10. 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

11. 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

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