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© 2003 McGraw-Hill Ryerson Limited
The History of
The History of
Economic Systems
Economic Systems
Chapter 2 Appendix
Chapter 2 Appendix
© 2003 McGraw-Hill Ryerson Limited
2A - 2
Laugher curve
Laugher curve
◆
Socialism is the longest path from
capitalism to capitalism.
© 2003 McGraw-Hill Ryerson Limited
2A - 3
Evolving Economic
Evolving Economic
Systems
Systems
◆
Capitalism and socialism have not
existed forever.
◆
Capitalism came into widespread
existence in the mid-1700s; socialism
came into existence in the early 1900s.
© 2003 McGraw-Hill Ryerson Limited
2A - 4
Evolving Economic
Evolving Economic
Systems
Systems
◆
Before capitalism and socialism other
forms of economic systems existed:
◆
Feudalism dominated the Western world
from about the 8th to the 15th century.
●
Feudalism is an economic system in
which traditions rule.
© 2003 McGraw-Hill Ryerson Limited
2A - 5
Evolving Economic
Evolving Economic
Systems
Systems
◆
Feudalism gave way to mercantilism.
●
Mercantilism is an economic system in which
government determines the what, how, and for whom
decisions by doling out the rights to undertake certain
economic activities.
© 2003 McGraw-Hill Ryerson Limited
2A - 6
Evolving Economic
Evolving Economic
Systems
Systems
◆
Mercantilism remained the dominant
economic system until the Industrial
Revolution.
●
Industrial revolution – a time when
technology and machines rapidly
modernized industrial production and
mass produced goods replaced
handmade goods.
© 2003 McGraw-Hill Ryerson Limited
2A - 7
Evolving Economic
Evolving Economic
Systems
Systems
◆
Capitalism evolved from the Industrial
Revolution in 1700s.
◆
Industrial revolution led to a decrease in
power of small producers and increase
in power of capitalists.
© 2003 McGraw-Hill Ryerson Limited
2A - 8
The Need for
The Need for
Coordination in an
Coordination in an
Economic System
Economic System
◆
Every economic system needs
coordination.
◆
In his 1776 classic, Wealth of Nations,
Adam Smith argued that markets could
coordinate the economy without the
active involvement of government.
© 2003 McGraw-Hill Ryerson Limited
2A - 9
The Need for
The Need for
Coordination in an
Coordination in an
Economic System
Economic System
◆
Markets coordinate economic activity by
using the price mechanism to direct
individuals' self-interest into society's
interest.
© 2003 McGraw-Hill Ryerson Limited
2A - 10
Evolutionary Changes
Evolutionary Changes
Within Systems
Within Systems
◆
Both capitalism and socialism are
constantly evolving with changes in
social customs, political forces, and the
strength of markets.
[...]... Limited 2A - 13 A Blurring of the Distinction Between Capitalism and blending of x Recent events point to a Socialism economic systems © 2003 McGraw-Hill Ryerson Limited 2A - 14 A Blurring of the Distinction Between Capitalism and 21st century x If this trend continues, the Socialism will see the emergence of a single general type of economic structure; it will be a mix of socialist and capitalist... - 15 Feudal Society: Rule of Tradition Feudalism developed in the 8th and 9th century x The Lord of the manor was the protector; serfs were working the land x Feudalism was a tradition based society © 2003 McGraw-Hill Ryerson Limited 2A - 16 From Feudalism to Mercantilism Mercantilism developed with the development of trade and markets in the 15th century x The power of the society shifted from manors... Socialism The best known critic of capitalism was Karl Marx, a German philosopher, economist and sociologist x Marx developed an analysis of the dynamics of change in economic systems, in the 19th century x © 2003 McGraw-Hill Ryerson Limited 2A - 25 From Capitalism to Socialism x Marx saw an economy marked by tensions between economic classes q The proletariat class – the working class and q The capitalist... Capitalism The economic power base shifted from the guilds to industrialists x Coordination of the economy by government was deemed necessary by the craftsmen x Industrialists considered the market capable of coordination on its own – no government was needed x © 2003 McGraw-Hill Ryerson Limited 2A - 20 From Mercantilism to Capitalism Laissez-faire policy is an economic policy of leaving coordination of individuals’... - 22 The Industrial Revolution Eventually, modern economic institutions replaced guilds x Modern capitalism evolved by the 19th century x © 2003 McGraw-Hill Ryerson Limited 2A - 23 From Capitalism to Socialism Capitalism was marked by significant economic growth but also by human abuses of the working class who were producing for the elite few x This led to criticism of the capitalist market economic. .. created – a system based on central planning and command x © 2003 McGraw-Hill Ryerson Limited 2A - 29 Economic Transition x In the 1990s most Eastern European socialist economies started a path of transition to a market-based economic system © 2003 McGraw-Hill Ryerson Limited The History of Economic Systems End of Chapter 2 Appendix © 2003 McGraw-Hill Ryerson Limited ... Within Systems x Capitalism evolved into welfare capitalism—an economic system in which the market operates but government regulates markets significantly © 2003 McGraw-Hill Ryerson Limited 2A - 12 Evolutionary Changes Within Systems The opposite took place in some socialist nations in the 1980s— socialism integrated capitalist institutions into its existing institutions x In the 1990s, most of the former... wants to be controlled by the market x Adam Smith’s invisible hand theory supported the industrialists’ view x © 2003 McGraw-Hill Ryerson Limited 2A - 21 The Industrial Revolution The invisible hand worked; capitalism thrived x Machine production began to increase enormously in the late 18th century, almost totally replacing hand production x This phenomenon has been termed the Industrial Revolution... From Capitalism to Socialism The capitalist class made profits by exploiting the working class x Marx believed that this exploitation would lead to revolt by the proletariat who would overthrow the capitalists x © 2003 McGraw-Hill Ryerson Limited 2A - 27 From Capitalism to Welfare Capitalism? However, evolutionary changes brought about regulation to protect the working class x Economic safety net was developed... mercantilism, traders supported the king, who in turn protected their interests x The role of government increased during this period x © 2003 McGraw-Hill Ryerson Limited 2A - 18 From Mercantilism to Capitalism Industrialists or capitalists were the business people who have acquired large amounts of money and use it to invest in business x Craft guild members were artists in their own crafts x © 2003 McGraw-Hill . Limited The History of The History of Economic Systems Economic Systems Chapter 2 Appendix Chapter 2 Appendix © 2003 McGraw-Hill Ryerson Limited 2A - 2 Laugher curve Laugher curve ◆ Socialism is the. existence in the early 1900s. © 2003 McGraw-Hill Ryerson Limited 2A - 4 Evolving Economic Evolving Economic Systems Systems ◆ Before capitalism and socialism other forms of economic systems existed: ◆ Feudalism. certain economic activities. © 2003 McGraw-Hill Ryerson Limited 2A - 6 Evolving Economic Evolving Economic Systems Systems ◆ Mercantilism remained the dominant economic system until the Industrial
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