Economic Theories

• Economics: A study of human efforts to satisfy seemingly unlimited wants through the use of limited resources. Resources include both natural and human factors.

• Governments generally regulate the economic activity of deciding how resources will be used.

Capitalism

• Economic system which freedom of choice and individual incentive for workers, investors, consumers, and business enterprises is emphasized.

• Pure Capitalism: 1. Private ownership and control of property and

economic resources.2. Free Enterprise3. Competition among business4. Freedom of choice5. The possibility of profits

Capitalism

• Free Market: Buyers and sellers are free to make unlimited economic decisions in the marketplace.

• Adam Smith: Scottish Philosopher and economist that developed a philosophy to describe capitalism in 1776 in his book The Wealth of Nations.

• Laissez-Faire: French for “to let alone” or “hands off approach. The government should keep its hands off the economy.

Socialism

• Government owns the basic means of production, determines the use of resources, distributes the products and wages, and provides social services such as education, health care, and welfare.

• Three Main Goals of Socialism1. Distribution of wealth and economic opportunities equally

among people.2. Society’s control, through its government of all major

decisions about production.3. Public ownership of most land, of factories, and of other

means of production.• Democratic Socialism: People have some control

through free elections and a multi-party system. The government still owns the basic means of production and makes most economic decisions.

Karl Marx

• Over time a smaller and smaller group of capitalists would control all means of production, and all wealth.

• Eventually this would lead to violent revolution as the workers would rise up and overthrow the capitalists.

• Over time socialism would develop into communism, one class would evolve, property would be held in common, and no need for government.

• “Working men of all countries unite!” 1848

Communism

• Developed my Karl Marx, he advocated for violent revolution. He studies the conditions of his time and concluded that the capitalist system would collapse.

• 1848 he published The Communist Manifesto.• 1867 Das Kapital• Believed that society was divided into two basic classes.

– Bourgeoisie: The ruling class of capitalist that own the means of production and impose their will on workers.

– Proletariat: The Workers, who do not receive compensation for their work because the owners keep the profits from the goods workers make. Marx believed that wages would never rise above a subsistence rate.