Introduction to Economics

Types of Economies

• Traditional economies: tended to be subsistence economies. Sharing, bartering, survival, communal use of resources (with concern for future generations) of whole community were key values. 
  • Hunting and gathering and early farming communities at start of Neolithic Revolution
• Complex Economic Systems: Command economies vs. Market economies—as civilizations grew, so did the degree of control vs. degree of freedom individuals had to specialize in jobs, trade, buy/sell varied depending on the political system; most systems had elements of both since our first civilizations, but tended toward one extreme or the other. 
  • Command economies: the government decides what goods and services will be produced, how they will be produced, and how they will be distributed.
  • The wants of individual consumers are rarely considered and the government usually owns the means of production. 
  • Market economies: based on individual choice, not government directives; consumers and producers drive the economy.
  • Consumers are free to spend their money as they wish, to enter into business, or to sell their labor to whomever they want.
  • Producers decide what goods or services they will offer.  They make choices about how to use their limited resources to earn the most money possible in order to use it to purchase items to fulfil needs & wants in order to survive. 
  • In classic laissez faire  capitalist thinking, individuals act in their own self –interest when they make economic choices, but as they do so, they benefit others. You choose to buy a product that meets your wants and needs, but it benefits the producers who make those products because they make money from your purchase. 
  • Capitalism, socialism, communism
  • Capitalism emerges as a type of complex market economic system of a particular civilization. It arises  after  the Commercial Revolution and grows in tandem with Industrial Revolution. It comes to dominate Western Europe by mid 1800’s. 
  • Socialism and communism are reactions (also created by Western Europeans)  to the extremes of capitalism---these 3 systems are the main ones utilized by the world’s nation states today.  
  • Reality of capitalism’s dominance reflects global history: New Imperialism, Russian Revolution, Chinese Revolution,  Cold War,  fall of Communism at end of Cold War, &  increasing globalization.  
  • Socialism: any of the variety of ideologies proposed in the mid 1800’s by reformers who varied from wanting more control/ownership of the means of production by government, to those who advocated “utopian socialism”…where business owners would willingly run their businesses ethically, paying fair wages, treating workers well, and thus creating self generating local communities, to those who believed all means of production should be commonly owned and managed by the people
  • Communism: this was Karl Marx and Friedrich Engels version of socialism which postulated that the workers (proletariat) would have to violently overthrow the bourgeosie/capitalist class to wrest control of the government and implement socialist policies; after a time, this centralized control would wither away and the communally owned, collective, cooperative reality would emerge with no need for centralized state control.
  • Democratic Socialism: this arose in the 20th century and is the more common view of socialism as it is practiced today; it reflects more of a mixed economy with the centrally democratically elected government running and owning certain industries, but a lot of free market mechanisms are also allowed.
    • Higher taxation is often the result—but the larger goal is to get rid of corporate manipulated governing systems and structures that tend to benefit the wealthy.
  • Mixed economies—Mixed economies can have elements of all:  a market economy with significant government involvement (element of command) as well as traditional economies.
  • If one looks at the entire globe as a whole this indeed is true. Many nation-states currently have this reality as well. 
  • Some people in cities  live in a more capitalistic, industrialized market economy, while those in rural areas live in traditional ways.
  • Central governments regulate, tax, and monitor the systems to find solutions to urban poverty & famine, and raise standards of living in rural areas. Often there is pressure for those living in traditional economies to “develop” ---meaning migrate to cities, live more in capitalistic/industrialized systems. 

5 Key Goals of an Economic System to Ensure Survival for It’s People  and Adequate Standard of Living

• Economic Growth: needs to occur no matter what if population grows and wants to maintain a certain standard of living 
• Efficiency: producing in such a way as to ensure all 4 scarce resources in a society are being used to maximum potential, without waste, and without allowing for idle resources. 
• Equity: the quality of being fair and just in the distribution of goods & services in a society
• Economic Security: having confidence in one’s ability to support themselves and their families to survive.
• Economic Freedom: giving people the ability to make economic decisions for oneself about what goods and services to produce and consume, type of work, type of business to open, where to live, what prices to charge