COMPARATIVE ECONOMIC SYSTEMS

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COMPARATIVE ECONOMICSYSTEMS

• ECONOMICS IN WORLD HISTORY

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WHAT DOES THIS MEAN?
Student needs to know the definitions of 1.
Traditional Economy 2. Market Economy 3. Command
Economy 4. Mixed Economy
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WHAT YOU NEED TO DO?
Compare the economies of historical societies
by focusing on their economic sectors.
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ECONOMIC DEFINITION
Economics is a Greek word meaning management of
the household. In the ancient world, this was
considered womens work and the word is feminine
in Greek. But the world over, women made the
cloth and silk traded.
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BASIC ECONOMICS
Economics is the study of scarcity and how
societies make economic decisions. In life, wants
are unlimited and resources are limited. The
result is scarcity.
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BASIC ECONOMICS
All societies make four basic economic
decisions. 1. What to produce? 2. For whom to
produce? 3. How much to produce? 4. How to
distribute the produce?
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ECONOMIC JOKE
What is the economic Golden Rule? Answer He
who has the gold makes the rules!
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WE ARE ALL MARXISTS!
Irrespective of his role as its founding father,
Marx was the first philosopher or economist to
see all societal structures in an economic
perspective. He felt you could not understand a
system without understanding who owned the means
(factors) of production.
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CAPITALIST ECONOMISTS
Adam Smith was the founding father of capitalism
or free market economics. John Maynard Keynes was
the founder of fiscal economics. The difference
between the two was the role and influence of the
state in economics.
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FACTORS OF PRODUCTION
All Societies use the four factors of production
to meet their needs. 1. Land 2. Labor 3.
Capital 4. Entrepreneurship
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LAND
Land represents the physical natural resources
that the land possesses, its quality and
its quantity. Land can be the dirt, the trees,
the raw minerals, the water, or the food grown.
Land earns rent in economic terms. All states
possess land.
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LAND EXERCISE
In economic terms, describe the land
of nomadic and prehistoric peoples, the river
valley civilizations, the classical
civilizations, and all major civilizations in the
Post-Classical to Contemporary Ages.
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LABOR
Labor represents the number of people in a
society who can do the physical labor. Labor
is literally muscle power. If society uses mostly
manpower to produce its needs, this is called
labor intensive. Labor earns wages.
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LABOR EXERCISE
In the economic terms of labor, describe work
in each of the historic periods and major
civilizations.
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CAPITAL
Capital is not money. It represents the tools
that societies use to produce their needs. All
societies have capital as well as labor. If
capital is used more extensively in a
society than is physical labor, the society is
capital intensive. Capital earns interest.
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CAPITAL EXERCISE
In economic terms, what is the capital of
a(n) Nomadic society? Neolithic
society? Classical society? Industrial
society? Post-Industrial society? A fast-food
business?
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CAPITAL EXTENSION
Why would a person or a businessman invest in
capital? How?
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ENTREPRENEURSHIP
Entrepreneurship represents the economic
equivalent of brain power and tendency to
innovate. Not all societies encourage entrepreneur
ship, while others reward it. This is sometimes
called intellectual capital and earns
profit! Trade is entrpreneurial.
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EXERCISE
Entrepreneurship involves innovation and
invention! Why do ancient societies not like
innovation? How do they discourage it? How do
modern societies reward innovation?
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TRADITIONAL SYSTEMS
In a traditional economic system, people make
decisions based on their traditions and how
earlier generations made decisions. Most often
the elderly and clans make decisions for the good
of those who constitute the group.
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TRADITIONAL SYSTEMS
In a traditional economic system, land is the
major input. What you do not have, you do not
have. Economies are subsistence, work is labor
intensive - more work means more produce. Capital
is simple or animal in nature and
entrepreneurs are considered suspect.
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TRADITIONAL SOCIETIES
What historical societies are considered
traditional? What aspects of modern society or
states are considered traditional? When economic
systems break down, why do they
become traditional?
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COMMAND ECONOMY
In a command economy, decisions are made largely
by an authority such as an aristocrat or a
central government planning authority. It can be
exercised in democratic or authoritarian
societies. Quotas and restrictions are common.
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COMMAND ECONOMY
What ancient economies were largely command? Why
might a hydraulic society (one dependant on
control of water and irrigation) be considered
command? What 20th century societies are or
were command economies?
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COMMAND ECONOMY
Why does a war-time economy have to be command?
Why would an economic crisis warrant a command
economy? Can you name some historical examples?
Was mercantilism a command economy?
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MARKET ECONOMIES
Market economies are sometimes called free
markets. They represent decentralized decision
making that is reflected in the
unencumbered interplay of supply, demand, and
price for goods and services No one is powerful
enough to control the market.
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MARKET ECONOMIES
Market economies can only exist where goods are
plentiful, have many close substitutes, and
no restrictions on exchange. This is free trade.
Additionally, consumers have many choices and no
one choice is better than another.
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MARKET ECONOMIES
Several of the key ideological components of
market economies are the rights to own
private property (capital) and to dispose of it
in any way you want to make profits without
restrictions. Land is sold to the highest
bidder and labor seeks a fair wage.
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MARKET ECONOMIES
Based on the previous definition, do market
economies exist? If so, under what
conditions? Would you consider the United States
a market economy? Why or why not?
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MARKET ECONOMIES
What is a black market? Why might one be
considered a free market economy? What might
the Drug Trade be considered a market economy?
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MIXED SYSTEMS
Ok, but all economic systems throughout
history have been or are mixed to some lesser or
greater degree.
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MIXED EXERCISE
Can you identify which aspects Of any famous
historical economy are traditional, command,
and market?