COMPARATIVE COMPARATIVE ECONOMICECONOMICSYSTEMSSYSTEMS

ECONOMICS IN WORLD HISTORY

WHAT DOES THIS MEAN?WHAT DOES THIS MEAN?

Student needs to know the definitions of:

1. Traditional Economy2. Market Economy3. Command Economy4. Mixed Economy

WHAT YOU NEED TO DO?WHAT YOU NEED TO DO?

Compare the economies ofhistorical societies by

focusing on their economicsectors.

ECONOMIC DEFINITIONECONOMIC DEFINITION

Economics is a Greek wordmeaning “management of the

household.” In the ancient world,this was considered women’s

work and the word is feminine inGreek. But the world over, women

made the cloth and silk traded.

BASIC ECONOMICSBASIC ECONOMICS

Economics is the study of scarcityand how societies make economic

decisions. In life, wants are unlimitedand resources are limited.

The result is scarcity.

BASIC ECONOMICSBASIC 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?

ECONOMIC JOKEECONOMIC JOKE

What is the economic “Golden Rule”?

Answer:“He who has the ‘gold’

makes the rules!

WE ARE ALL MARXISTS!WE ARE ALL MARXISTS!

Irrespective of his role as itsfounding father, Marx was thefirst philosopher or economist

to see all societal structures in aneconomic perspective. He felt youcould not understand a system

without understanding who ownedthe means (factors) of production.

CAPITALIST ECONOMISTSCAPITALIST ECONOMISTS

Adam Smith was the foundingfather of capitalism or free marketeconomics. John Maynard Keynes

was the founder of fiscaleconomics. The difference between

the two was the role andinfluence of the state in economics.

FACTORS OF PRODUCTIONFACTORS OF PRODUCTION

All Societies use the four factors ofproduction to meet their needs.

1. Land 2. Labor3. Capital

4. Entrepreneurship

LANDLAND

Land represents the physicalnatural resources that the land

possesses, its quality and itsquantity. Land can be the dirt,the trees, the raw minerals, thewater, or the food grown. Land

earns rent in economic terms. Allstates possess “land.”

LAND EXERCISELAND 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.

LABORLABOR

Labor represents the number ofpeople in a society who can do

the physical labor. Labor isliterally muscle power. If

society uses mostly manpower to produce its needs, this is

called labor intensive. Labor earns wages.

LABOR EXERCISELABOR EXERCISE

In the economic terms of labor,

describe “work” in each of the historic periods

and major civilizations.

CAPITALCAPITAL

Capital is not money. It representsthe tools that societies use to produce

their needs. All societies have capital as well as labor. If capital isused more extensively in a society

than is physical labor, the society is capital intensive.

Capital earns interest.

CAPITAL EXERCISECAPITAL EXERCISE

In economic terms, what isthe capital of a(n)Nomadic society?Neolithic society?Classical society?Industrial society?

Post-Industrial society?A fast-food business?

CAPITAL EXTENSIONCAPITAL EXTENSION

Why would a person ora businessman invest

in capital? How?

ENTREPRENEURSHIPENTREPRENEURSHIP

Entrepreneurship representsthe economic equivalent of brainpower and tendency to innovate.

Not all societies encourageentrepreneurship, while others

reward it. This is sometimes calledintellectual capital and earns profit!

Trade is entrpreneurial.

EXERCISEEXERCISE

Entrepreneurship involvesinnovation and invention!

Why do ancient societies notlike innovation? How do they

discourage it? How do modernsocieties reward innovation?

TRADITIONAL SYSTEMSTRADITIONAL SYSTEMS

In a traditional economic system,people make decisions based ontheir traditions and how earlier

generations made decisions. Mostoften the elderly and clans makedecisions for the good of thosewho constitute the “group.”

TRADITIONAL SYSTEMSTRADITIONAL SYSTEMS

In a traditional economic system,land is the major input. What you

do not have, you do not have.Economies are subsistence, work islabor intensive - more work meansmore produce. Capital is simple oranimal in nature and entrepreneurs

are considered suspect.

TRADITIONAL SOCIETIESTRADITIONAL SOCIETIES

What historical societies are considered traditional?What aspects of modern

society or states areconsidered traditional?

When economic systems breakdown, why do they become

traditional?

COMMAND ECONOMYCOMMAND ECONOMY

In a command economy, decisionsare made largely by an authoritysuch as an aristocrat or a centralgovernment planning authority. It can be exercised in democratic

or authoritarian societies. Quotas and restrictions

are common.

COMMAND ECONOMYCOMMAND ECONOMY

What ancient economies werelargely command? Why might

a hydraulic society (one dependanton control of water and irrigation)

be considered command? What20th century societies are or were

command economies?

COMMAND ECONOMYCOMMAND ECONOMY

Why does a war-time economyhave to be command? Why would

an economic crisis warrant acommand economy? Can you name

some historical examples? Wasmercantilism a command economy?

MARKET ECONOMIESMARKET ECONOMIES

Market economies are sometimescalled free markets. They representdecentralized decision making thatis reflected in the unencumbered

interplay of supply, demand, and price for goods and services

No one is powerful enough to control the market.

MARKET ECONOMIESMARKET ECONOMIES

Market economies can only existwhere goods are plentiful, have many close substitutes, and norestrictions on exchange. This

is free trade. Additionally,consumers have many choices

and no one choiceis better than another.

MARKET ECONOMIESMARKET ECONOMIES

Several of the key ideologicalcomponents of market economies

are the rights to own privateproperty (capital) and to dispose

of it in any way you want tomake profits without restrictions.

“Land” is sold to the highest bidder and labor seeks a fair wage.

MARKET ECONOMIESMARKET 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?

MARKET ECONOMIESMARKET 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?

MIXED SYSTEMSMIXED SYSTEMS

Ok, but allall economic systems throughout history

have been or aremixed to some lesser

or greater degree.

MIXED EXERCISEMIXED EXERCISE

Can you identify which aspectsOf any famous historical

economy aretraditional, command, and

market?