Economic Systems Lecture (part 3)

ECONOMIC SYSTEMS

Unit 1, Topic 2

THE

RISE OF CAPITALISM AND THE

RISE OF MARXISM

• Traditional economies existed in different forms around the world. Characterized by:

1. Based on hunting, gathering, or agriculture

2. Use or barter 3. Limited trade, if any, with other

communities

What did the world look like before capitalism?

• Around the time of the Middle Ages (500 -1500 C.E.), while the majority of people remain as poor laborers/farmers, some merchants rise to power.

• Merchants invest their money on trade ventures, but there is no uniformity (sometimes they would barter, other times pay in gold/silver)

• The number of people involved in profit making is very small and restricted.

What did the world look like before capitalism?

• Mercantile economies developed as kingdoms grew larger, and as modern nations started to form. (Mercantilism)

• In a sense, it’s an early form of capitalism. • Based on the idea that there is only so

much wealth in the world, and that powerful nations should attempt to gain as much wealth (through trade, colonization) as possible.

What did the world look like before capitalism?

• Mercantile economies seek wealth in the form of bullion - that is solid gold and silver.

• The goal of Mercantilism is to export as much as possible, allowing the nation to acquire more gold and silver.

What did the world look like before capitalism?

MERCANTILISM VS. CAPITALISM

• Very heavy government regulation of trade: economic ventures should serve the good of the country

• Some government regulation of trade to protect individual rights. (As individuals seek wealth, the county as a whole will naturally become more wealthy)

• Priority: good of the nation • Priority: good of the individual

• Advocates monopoly formation (monopolies closely working with the government)

• Advocates a competitive business environment (and often tries to prevent monopoly formation)

• Discourages consumer spending because it can cause money to flow to other countries

• Encourages consumer spending because the process of buying and selling makes the economy grow

…was the start of capitalism as we know it today. 1800s in Great Britain: new technology

allowed investors to create factories that could produce more goods and cheaper goods than

individual craftspeople could produce.

The Industrial Revolution

• Wealth begins to develop in non-noble families, and the ability to increase wealth become easier than in the past

• Due to increase in factories and products, consumerism increases:

The Industrial Revolution

Industrialization spread throughout Europe, and eventually to

European colonies/former colonies all over the world. Suddenly, a new culture is created where business

owners accumulate wealth, laborers work in their businesses, and the workers themselves keep

the whole system going by spending their wages on the

products that are produced by all of the existing businesses.

The Industrial Revolution

What are some downsides of capitalism?

• Laborers see the reality of their situation: that with the wages they receive, they will never have enough money to become “investors” of wealth.

• They notice that very, very few people actually hold most of societies’ wealth.

How have people reacted against

capitalism?

• The French Revolution (1789): An attempt to overthrow feudalism in France (a system in which noblemen control land, wealth, and power). The monarchy was overthrown, and thousands of nobles were executed.

• The French economy before the revolution was not truly capitalist (it was feudal), but this revolution against the wealthy inspired future communist revolutions.

How have people reacted against capitalism?

• The father of communist thought.

• German philosopher who lived 1818 - 1883

• He saw the world like this:

Karl Marx

“Capitalists” (bourgeoisie)

Workers (proletariat)

Wealth $

societies progress through class struggle.

Karl Marx:

TimeCapitalism … Socialism … Communism!

1. Tensions between rich and poor within capitalism will lead to a collapse of that system as workers begin to demand more and more rights over time.

2. Capitalist societies gradually progress to become socialist societies, which, as tensions between rich and poor continue, will turn into communist societies.

3. Marx’s theoretical communist society was a society without class, where everyone has equal rights, opportunities, and wealth.

Vladimir Lenin created “communist” governments as we know them today by promoting the idea of a vanguard party: a political party that would start a revolution in order to forcibly push a society from a state of capitalism/socialism to the perfect state of communism.

His party overthrew Imperial Russia and created the U.S.S.R.

Revolution?

The U.S.S.R. believed it was a socialist state in the process of becoming a pure communist state. This is why Western nations referred to this former country as a “communist state” or “communist nation.” No country in the world has reached Karl Marx’s utopian state of pure communism. !

!

!

Although they technically have an extreme form of socialism, countries that we call “communist” today include: Cuba, Laos, Vietnam, North Korea, and China.

Union of Soviet Socialist Republics

Capitalism Socialism Communism

Command Free Market

“Planned” “Unplanned”

Understanding the difference between terms: Please remember that forms of communism, socialism, and capitalism exist in the real world. “Command” refers to government command, or control,

of the economy. “Free Market” refers to how free from government control the market is: in other words, how much the economy is allowed to

respond freely to consumer demand. All systems that exist today are a mixture of command (planned) and free market (unplanned).

It is often hard to agree on which “ism” a country should be called.