Capitalism and Socialism Or Free Market System and Command Economies

Capitalism or The Free Market System

Adam Smith Smith (1723 – 1790) –private competition –no control by government –produces and spreads wealth –government-regulated markets are not good

Adam Smith Wealth of Nations (1776) –Pursuit of private interests help both the individual and society as a whole. –Society is helped by the maximum production of things people want.

The Invisible Hand Smith said that a combination of: –self-interest –private property –and competition between sellers in markets would lead “as by an invisible hand”, to a better society.

1. Private Ownership Land and capital are privately owned. –Capital = buildings, machines, and other equipment used to produce goods and services Financial resources (money) necessary to produce goods and services. Characteristics of Capitalism

2. The Market Economic activity is organized and coordinated by buyers and sellers (or producers) in markets. Prices are set within the market by the interaction between the amount of the good available (supply) and how much buyers want that good (demand). Characteristics of Capitalism

2. The Market What you want and how much you are willing to spend will determine what is made and how much it costs Characteristics of Capitalism

3. Pursuit of Self-Interest Owners and workers are free to pursue their own self-interests –seek maximum gain from the use of resources and labor. Consumers are free to spend their incomes in ways that they believe will give the greatest satisfaction. Characteristics of Capitalism

4. Little Government Regulation So long as competition is present, all economic activity well be self-regulating. The government should not interfere in the workings of the market –“laissez-faire” = hands off. Characteristics of Capitalism

Socialism or Command Economies

Karl Marx Karl Marx was a German philosopher of economics. He lived ( ) during the height of the Industrial Revolution –No rules

Karl Marx He was concerned with problems such as how societies might produce and distribute goods fairly.

Class Struggle Marx argued that capitalist systems resulted in class struggle between the owners of capital and the laboring [working] classes. Inevitable result = a worker’s revolt.

Karl Marx He believed that all members of society should be economically equal. Believed workers should control government & own all “factors of production” – anything used to produce a good or service.

Communist Manifesto –Published in 1848 –Argued that workers would rebel against the owners –Workers would then create a Socialist society

Socialism to Communism 1.Workers create a new economic system - socialism. –Resources distributed equally –Government is the workers –Items produced & price set by government. 2.This would result in Communism –a classless society – no rich, no poor. –No need for a government