© 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