1. Economic Systems and Theorists

2. Objective
Students will identify how Karl Marx and Adam Smith believed the problems of capitalism caused by the industrial revolution would be resolved

3. Remember?
The industrial revolution brought with it many problems in three areas:
Factory system: labor issues and safety issues
Urbanization: living standards, social classes
Pollution: rivers, chemicals, air

4. Economic Theorists
Economic theorists around the world began theorizing how to solve these problems
Economy is the allocation of resources. An economist studies how to do that. We must allocate resources because of the issue of scarcity.
Scarcity: unlimited wants yet limited resources
Allocate: To distribute

5. Economic Systems
The economic theorists considered each of the following economic systems and identified what they thought was best and why
They also offered their ideas for improvements
The Industrial revolution was an example of a massive shift from a traditional economy to a market economy

6. Economic Systems Traditional Market Command Mixed Barter
Self Sufficient
Products made based on history, customs, tradition
Ex: manorialism in Europe, Pygmies in Africa, Inuits in Alaska
Currency
Products made based on consumer wants and needs
Private property, choice, competition, no govt regs
Ex: GB after IR
Everyone contributes what they can and receives what they need
Products made based on what the government deems is necessary
Ex: Soviet Union, Cuba
Consumers choose what they want and need
Government has some regulatory power
Tradition dictates some production
Ex: United States

7. Traditional Advantages Disadvantages No unemployment
No recession/depression
Disadvantages
No new ideas
Creativity discouraged
Lower standard of living

8. Market Advantages Disadvantages Total consumer freedom
Incredible variety
Lots of new ideas/creativity
Disadvantages
Only productive people rewarded
Unemployment
Competition
Depression/recessions
Public needs sacrificed

9. Very little unemployment
Command
Advantages
Public needs met
Very little unemployment
Everyone equal
Disadvantages
Wants not considered
No incentives
New ideas discouraged

10. Mixed Advantages Disadvantages Consumers drive economy
Producers respond
Gov’t intervenes when necessary
Disadvantages
Public needs lacking
unemployment
Depressions/recessions

11. Check for Understanding
Explain each type of economic system to your partner and identify one advantage/one disadvantage of each
Be prepared to share

12. Karl Marx

13. Karl Marx and Friedrich Engels
Karl Marx and Freidrich Engels witnessed the treatment of workers in factories during the industrial revolution
They heard the working class people complaining about the upper class
They suspected that at some point, the workers will have had enough and will revolt against their bosses and steal their wealth to distribute amongst themselves

14. Karl Marx and Friedrich Engels
They wrote their ideas down in a pamphlet called “Communist Manifesto”
Bourgeoisie: upper and middle class people
Proletariat: working class and poor people
The Bourgeoisie controlled the factors of production, while the proletariat labored in terrible conditions and controlled nothing

15. Karl Marx and Friedrich Engels
When the proletariat revolted against the bourgeoisie, they redistribute wealth amongst themselves
This would eliminate class struggle – everyone would be equal
This new world and government would be called “dictatorship of proletariat”

16. Communism
This control of wealth and factors of production by the proletariat is what Marx and Engels referred to as Communism
Communism: all factors of production will be owned by the people. No private property.
In the 1900’s we will see many of these communist revolutions…

17. Communism
Communism = Command economy = Karl Marx

18. Index Card
Please create a new index card for Karl Marx and Friedrich Engels

19. Karl Marx and Friedrich Engels
“Communism Manifest”
Created idea of communism (command economy)
Proletariat: poor/working class; Bourgeoisie: upper/middle class
No private property, no social classes

20. Adam Smith
“Father of Economics”

21. Adam Smith Wrote “Wealth of Nations”
Laissez-Faire: The government should not interfere with the economy in any way UNLESS the factors of production are compromised

22. Adam Smith Three principles of free-market economics
Law of self-interest: people will work for their own good
Law of competition: competition amongst people makes better products
Law of supply and demand: goods will be produced to meet demand which will equalize prices

23. Adam Smith
The principle of supply and demand is also known as the “invisible hand”
Invisible hand: consumer demand and producer response will self-regulate the economy
This is called capitalism

24. Adam Smith
Capitalism = Market economy = Adam Smith