BJU Economics Chapter 6 - Economic Systems (control civilizations)

Money and Wealth

- Money is not wealth. - Money only enables someone to purchase wealth (provides no utility) - Wealth = provides a measure of utility (food, clothing)

Problems with Centralized Socialism*

- No incentive (profit) to develop new products - Leveling wages ruins the incentive for workers to work harder and better (Atlas Shrugged) - Controlling prices leads to shortages and the growth of a black market

Two economic systems with state (government) control?

1. Capitalism 2. Communism

What are the 5 points in the five-point program associated with Mercantilism?*

1. Exploration - to gain new sources of gold and silver 2. Trade - goal to maintain a "favorable balance" with more exports than imports 3. Domestic Manufacturing - was for export rather than for domestic consumption so the country could acquire more gold and silver 4. Colonization - conducted to gain new factors of production, resources that would only be sold to the mother country 5. Alliances, Treaties, Conquests - foreign relations tools aimed at decreasing or eliminating competition

What are the three forms of capitalism?

1. Radical 2. Classic Liberal 3. State

Three types of Socialism:

1. Social Democracy 2. Centralized Socialism 3. Communism

The 3 economic questions of every economic system

1. What will the nation produce? (output question) 2. How will the nation produce the goods? (input question) 3. Who will receive what the nation produces? (distribution question)

Questions that must be answered to determine if an economy is Capitalistic or Socialistic*?

1. Who owns the factors of production? 2. Who answers the 3 economic questions?

3 Functions of Government according to Adam Smith

1. protect its citizens from foreign aggression (military) 2. protect its citizens from infringement by others (legal system - laws - lawbreakers) 3. provide public goods (public schools, military, courts)

The Wealth of Nations

A book published by Adam Smith in 1776. Insisted that individual self-interest, even greed, was compatible with society's best interests. **Claimed an "invisible hand" of supply and demand naturally brought both interests in line.

The Communist Manifesto

A book written by Karl Marx and Frederich Engels in 1848. It suggested that there would be a social revolution in which the working class would overthrow the upper class (business owners) and then set up a classless, socialist community. This book was the blueprint for communist governments around the world. **Manifesto - a public declaration of one's political or social beliefs and intentions

Social Democracy

A form of socialism in which the state takes possession of the economy's major industries (transportation, communications, energy, finance, health care) but allows some private enterprise and decision-making - the government only allows ownership of small, non-essential businesses and highly regulates them - a TRANSITIONAL economic system bridging the gap between capitalism and socialism

Welfare State

A nation under extreme state capitalism in which high taxes are used to provide wide social programs to care for citizens

Father of Laissez-Faire Economics

Adam Smith

Who wrote "The Wealth of Nations" and what Economic system did it promote?*

Adam Smith, Classic Liberal Capitalism

Mercantilism

An economic philosophy commonly held in Europe from the 16th to 18th centuries that advocated the accumulation of gold and silver as national wealth **to be the wealthiest one on the continent **led to political discontent and economic distress **stockpiling money is not the same as accumulating wealth

Socialism

An economic system in which a central authority, committee, or the people in common generally own the factors of production and answer 3 economic decisions.

Capitalism

An economic system in which private individuals own most of the factors of production and answers the 3 economic decisions.

What economic system rose in response to Mercantilism?*

Classic Liberal Capitalism - with the idea that governments should leave citizens to conduct their economic affairs in their own best interests

How is Communism flawed? How does that related to the Bible?

Communism assumes that man is basically good and will seek the good of his fellow man. --> directly contrary to Bible where many is sinful and will seek his own good and not that of others.

Favorable balance of trade

Condition experienced when a nation sells more goods abroad (exports) than it purchases from foreign nations (imports).

State Capitalism

Form of capitalism in which the vast majority of the factors of production are owned by private citizens, but the gov't intervenes widely in economic decisions to ensure economic and social goals are carried out -- an extreme form of this creates a welfare state -- best describes the Unites States

Public Goods

Goods and services which private firms cannot create at a profit so the government steps in to create -- for benefit of all or nearly all nation's people - i.e. highways, national parks, public schools, military operations - did not include hospitals or healthcare

Nationalization

Government's acquisition of the ownership of major industries on a large scale.

Similarity between Radical Capitalism and Communism

Ideally there is no need for government

Communism

In the economic sense, the most extreme form of socialism - Marx believed that after eradicating capitalism and adopting centralized socialism: 1. the government would happily disband and 2. turn the factors of production over to the people and 3. personal income would be voluntarily redistributed - all individuals voluntarily contribute their labor for the good of society while taking from the economy only the goods and services that they truly need.

Adam Smith (laissez-fair) thought on Mercantilism

It was not the accumulation of god and silver that makes a nation wealthy but rather the economic prosperity of its people -- it was illogical. **would lead to destroying a country's land for goods to sell to other countries for gold. **gold>country's people and resources

Who wrote The "Communist Manifesto" and what Economic system did it promote?*

Karl Marx, Centralized Socialism as a stepping stone to Communism.

Adam Smith

Scottish moral philosopher and a pioneer of political economics. Seen today as the father of Capitalism. Wrote On the Wealth of Nations (1776) One of the key figures of the Scottish Enlightenment.

Standard of Living vs. Real Income

Standard of Living = measure of the quality of life Real Income = what a person's income can buy

Classic Liberal Capitalism

The form of capitalism that arose from the writings of Adam Smith (The Wealth of Nations) - accepts the existence of government for 3 reasons - allows the government only minimal ownership of resources and decision-making power

Privatization

The government's selling of nationalized businesses back to private owners.

Laissez-faire liberalism

The idea that govt should generally leave the economy of a nation alone and allow the people to seek their own profit **LIMITED GOVT and PERSONAL RESPONSIBILITY **traits include personal responsibility, limited government and profit seeking **free economies are lead by an "invisible hand" that promotes the public interest **invisible hand = self regulating of the free marketplace

"From each according to his own ability, to each according to his need"

The main idea behind Communism which portrays the ideal that every member of society contributes, and in turn each gets what they need - according to Carl Marx

Radical Capitalism

The most extreme form of capitalism in which private citizens (individuals) own all factors of production and make all economic decisions and the economic market is free from government interference/regulations - denies the legitimacy of government - exists ONLY IN THEORY

When does a economy cross the line into socialism?

When the governments actually step in and takes possession of the majority of the principal businesses.

Centralized Socialism

a form of socialism in which the government is both the central owner and the decision maker in all economic affairs of the state - what Carl Marx envisioned for the world as a stepping stone to a perfect society