The Economy and Politics
The economy is the social institution that determines how a society produces, distributes, and consumes goods and services. In other words, how a society decides to distribute property and work.
Work is a physical or mental activity that produces or provides either goods or services.
Work is required to produce the basic necessities of life.
Why do people work more than they must in order to survive?
To produce a surplus
To produce luxury goods
To accumulate wealth
Wealth is the accumulation of valuable resources. Why do people accumulate valuable resources beyond their subsistence needs?
Personal or family security
Prestige
Power
Improved standard of living
People often set aside their surplus goods and services for trade. Trade is a method to redistribute surpluses in a manner that benefits one or more parties.
The barter system allows people to negotiate a direct exchange of goods/services based on perceived value or necessity.
Currency is a medium of exchange for goods and services.
A fungible commodity is one which is mutually exchangeable or interchangeable for another of a like kind.
Cars, houses, or animals are non-fungible, while commodities like precious metals, oil, or wheat are.
Ancient Slave Based Economies:
Many ancient civilizations engaged in near constant warfare in order to acquire slaves, whose labor fed the population and led to economic growth and prosperity of the ruling classes.
Ex. Ancient Sumeria, Persia, Egypt, the Roman Republic/Empire, Ancient China, Norse, and the Aztecs.
Feudalism of the Medieval era:
Feudalism was the prevailing economic system in medieval Europe, a system in which peasants or serfs exchange manual labor for protection from landowning/titled warriors.
Serfs are laborers or farmers who are bound to the land on which they live. They are not owned by a person, but they are not free either.
Titled or landed warriors include knights, lords, and samurai.
The most important commodity in a feudal society is food.
Feudal societies value precious metals as a medium of exchange, but only the wealthiest members of society had access to gold or silver. The majority of economic transactions were conducted using food as the medium of exchange.
As a result, most property was valued according to potential food production.
Feudal hierarchy was maintained by threats of violence to lesser lords, tenants, and serfs if they failed to satisfy their obligations. Warrior classes promised protection against external attacks for those who served them. As a result, feudal societies' economic obligations flowed upward from the food producers at the bottom to warriors and the monarch at the top. The monarch's power was based on the final allocation of surplus food and wealth, meaning the ability to grant or to strip people of these important commodities.
In summary: Feudalism was a political-economic system that used food and labor as the basis for taxation and value. Control of food and labor was the single most important indicator in an individual’s power and prestige and monarchs. Control over food and labor was maintained by violence, promises of protection, and religion.
Mercantilism of the Colonial Era:
Mercantilism is a political-economic system in which nations establish colonies in order to enrich themselves, often at the expense of the colonists.
Mercantilism was a theory that wealth and power were “zero sum,” meaning that there was a finite amount of resources, wealth, and power in the world and it was the responsibility of each empirical power to obtain as much of it as possible. Any possible gains would be at the cost of another country or people. Mercantilism treated an entire empire like a business with the overall aim to make a profit. Mother countries made sure that they functioned as the middleman in all business transactions.
Mother countries used conquest and settlement in order to create overseas colonies. The purpose of the colonies was to enrich the mother country. Mercantilism as a political-economic system fell out of practice as the increasing numbers of overseas colonies rebelled during the 18th and 19th centuries. Rebellions threatened the profitability of the entire enterprise. As a result, various forms of capitalism, which prioritized industrialization and international trade replaced mercantilism.
In summary: Mercantilism was a political-economic theory calling for the establishment of colonies so that imperial powers could gain the largest shares of international resources as possible. Rebellions, independence movements, and developments in economic theory brought about the end of mercantilism.
Capitalism is an economic system in which wealth is in private hands and is invested and reinvested to produce profits.
Profit is the all important motive for individuals to invest, innovate, produce, and sell in a capitalist system.
Supply and demand are the guiding forces for a capitalist economy, setting prices and wages.
Merchant capitalism: Tulipmania
Laissez-Faire capitalism, or free market capitalism, is an economic philosophy that argues that the government should stay out of economic matters entirely, allowing market forces to dictate investment, production, wages, and prices. During the industrial eras in the US and UK, Laissez-Faire capitalism typically resulted in the formation of monopolies, which undermined the entire system by eliminating competition and market pressures.
Monopoly is the domination of a particular market or industry by one person or company.
Oligopoly is the domination of a particular market or industry by a few producers or suppliers.
Corporation is a social entity that has legal rights, privileges, and liabilities apart from those of its members.
Publicly traded corporations are used to avoid personal liability and to quickly raise capital. The idea behind a corporation is to share the risk and reward among a group rather than an individual.
A conglomerate is a giant corporation that owns a collection of companies in different industries. They aim to increase efficiency and reduce the risk of financial loss.
Transnational corporation is a large company that is based in one country but operates across international boundaries.
Transnational conglomerate is a corporation that owns a collection of different companies in various industries in a number of countries.
Interlocking Directorate is a situation in which the same people serve on boards of directors of several companies or corporations.
Globalization is the growth and spread of investment, trade, production, communication, and new technology around the world.
Offshoring is the sending of work or jobs to another country to cut business costs at home.
Deindustrialization is a process of social and economic change because of the reduction of industrial activity, especially manufacturing. A major part of deindustrialization is downsizing, which is an euphemism for firing large numbers of employees at once.
Karl Marx’s criticisms of capitalism and vision for a socialist economy:
Modern work is alienating
Modern work is insecure
Capitalists get rich, while workers do not. “Profit is theft.”
Capitalism is unstable
Capitalism is bad for capitalists.
Socialism is an economic system based on the principle of the public ownership of the production of goods and services.
Aspects of Socialism:
Collective ownership of property
Cooperation
No profit motive
Collective goals rather than individual investments
Communism is a political and economic system in which all members of a society are equal. Communist regimes use authoritarian or dictatorial authority to maintain an “equal society” often by denying civil liberties. There has never been an example of a true communist society, only authoritarian regimes that use communist vocabulary. The aim for equality has never been materialized.
Under communism, most property and economic resources are owned and controlled by the state.
Under socialism, all citizens share equally in economic resources as allocated by a democratically elected government.
As a result, communism is much more compatible with authoritarianism, while socialism is with democracy or republicanism.
Most nations have adopted mixed economies, meaning that they blended aspects of capitalism and socialism together in an attempt to maximize benefits and mitigate drawbacks.
Politics is the social institution through which individuals and groups acquire and exercise power and authority to make decisions.
Power is the ability of a person or group to affect the behavior of others despite resistance and opposition.
Authority is the legitimate use of power.
Traditional authority is power based on customs or traditions that justify the position of the ruler. Ex. Queen Elizabeth or President Biden
Charismatic authority is power based on exceptional individual abilities and characteristics that inspire devotion, trust, and obedience. Ex. Charles Manson
Rational-legal authority is power based on the belief that laws and appointed or elected political leaders are legitimate.
A government is a formal organization that has the authority to make and enforce laws.
Authority is the legitimate use of power, so a government does need to have some form of legitimacy.
A monarchy is a political system in which power is allocated solely on the basis of heredity and passes from generation to generation.
Anarchism argues against society with rulers, hierarchy, inequality, exploitation, and bosses.
Authoritarianism is a political system in which the state controls the lives of citizens but permits some individual freedom. The goal of an authoritarian regime is full political power.
Totalitarianism is a political system in which the government controls every aspect of people’s lives. Totalitarian regimes are different from authoritarian regimes in the scale of their control. The totalitarian aims to control every aspect of their citizens' lives. Their goal extends beyond political power.
Totalitarians aim to control every aspect of a society and combine them into the state, leaving nothing outside of itself.
This total control is achieved through:
Extreme political repression
Personality customs for the leader
Absolute economic control
Widespread censorship of the media
A republic is a state in which supreme authority is held by representatives, who make and enforce laws.
A democratic-republic is a state that vests supreme authority in representatives who are elected through popular vote.
In a republic, power is ultimately held by the people who temporarily loan it out to representatives to wield it on their behalf.
A democracy is a political system in which, ideally, citizens have control over the state and its actions.
A political party is an organization that tries to influence and control government by recruiting, nominating, and electing its members to public office.
When some functionalists examine American politics they argue that it functions as a pluralist system.
Pluralism is a political system in which power is distributed among a variety of competing groups in a society.
Conflict theorists argue that the US politics do not reflect a pluralist model, but instead only three groups exercise the vast majority of power in society.
Those who exert the vast majority of power and influence in society are the power elite: a small group of influential people who make the nation's major political decisions.