Economic Systems

Communism ► Developed by Karl Marx and Friedrich Engels in their books Das Kapital (1867) and The Communist Manifesto (1848)

Marx described a society with two classes in bitter conflict: ► The Bourgeoisie, who owned the means of production (the land and capital). ► The Proletariat, who had nothing but their labor, and who lived meager existences, exploited by the Bourgeoisie.

Marx believed the proletariat would rise in revolution and overthrow the bourgeoisie. ► Competition would push many bourgeois into the proletariat. ► Eventually this much larger group would awaken and rebel.

The proletariat would then seize all of the capital and abolish private property. ► The means of production must be held by the government to prevent new classes from arising. ► Society would follow Marx’s formula: “From each according to his ability, to each according to his needs.”

Does it sound like a bad idea? ► Someone once said that anyone who isn’t a communist at age 18 has no heart... ►... but anyone who is still a communist at age 30 has no brain.

Criticisms of Communism ► #1. Some people disliked communism because Marx criticized religion and communist governments often suppressed it. ► Marx called religion the opiate of the people (but then he never got to see television.

#2. The Revolution would be violent ► The Bourgeoisie would not give up their property and privilege without a fight. ► Most communists didn’t care. Mao Zedong said that “Revolution comes from the barrel of a gun.” He thought the bourgeoisie were getting what they deserved.

#3. The problem of the Nomenklatura ► The class that ran the Soviet government. ► They treated themselves just like the bourgeoisie had.

What does a store look like? Would you recognize it even if you couldn’t read the signs? ► Maybe not in Soviet Russia! ► The best stores looked like this outside. ► Inside like this. What’s up with that?

They didn’t want the people to see how much better they were living. ► Most Russian stores looked like this! ► Marx always said whoever controlled the capital would take advantage of it.

It also made the government really, really powerful!!! ► This created other problems. ► There was no institution left that could stand up to the government. ► Marx said the state would “wither away.” It didn’t.

#4 The Problem of Incentive ► What makes us work hard? ► Probably more importantly, what makes us innovate? ► What if there’s no payoff for all that hard work?

What might a society with little or no incentive look like? Long lines? Empty stores? That’s what the Soviet Union often looked like.

Communists often said we don’t have to be like that. ► Properly educated, people can be happy in a communist system, and work for the good of all. ► They hoped that man was Tabula Rasa or a blank slate, like John Locke had thought. ► But if man has a basic human nature, perhaps communism is impossible.

After all, the Soviet communists had 70 years to educate the “Soviet man.” ► But both Russia and China have largely given up on communism.

#5 Central planning doesn’t work ► Communist governments have tried to organize production more efficiently. ► In the Soviet Union it was called GOSPLAN

The idea was to set prices and determine quantities. ► There were always problems. ► It turned out to be too big a job too handle. ► How do we do it?

We just leave it to take care of itself ► Adam Smith called it the Invisible Hand ► If people are left to pursue their own self- interest, the market will regulate itself. ► We get what is called “Consumer Sovereignty.”