Agenda

• Bellringer

• Review Questions

• Notes: Economic systems with Index Cards

• Exit Ticket

• Mod 3: Thematic Essay due Friday

Review Questions• Name one negative effect on people caused by

urbanization

• Tenements, disease, crime, poor urban planning

• Name one negative working condition people endured in factories

• No min wage, no safety protocols, child labor, no education

• Name the five factors of production

• Land, labor, physical capital, financial capital, human capital

•What is mercantilism?

• Favorable balance of trade for mother countries, exploiting the colonies

•What was the cottage system?

• Traditional style economy, self sufficient, take care of yourself

Review

Agrarian Revolution

and FOP in GB

Factory system and urbanization

Unhealthy working and

living conditions

Economic theorists look

to solve problems

resulting from market

economy

Government reforms and interventions

take place

Industrialization globalized.

Seeking of new raw materials

Objective

• Students will identify how Karl Marx and Adam Smith believed the problems of capitalism caused by the industrial revolution would be resolved

Economic Systems and Theorists

Remember?

• The industrial revolution brought with it many problems in three areas:

• Factory system: labor issues and safety issues

• Urbanization: living standards, social classes

• Pollution: rivers, chemicals, air

Economic Theorists

• Economic theorists around the world began theorizing how to solve these problems

• Economy is the allocation of resources. An economist studies how to do that. We must allocate resources because of the issue of scarcity.

• Scarcity: unlimited wants yet limited resources

• Allocate: To distribute

Economic Systems

• The economic theorists considered each of the following economic systems and identified what they thought was best and why

• They also offered their ideas for improvements

• The Industrial revolution was an example of a massive shift from a traditional economy to a market economy

Economic SystemsTradition

alMarket Comman

dMixed

Barter

Self Sufficient

Products made based on history, customs, tradition

Ex: manorialism in Europe, Pygmies in Africa, Inuits in Alaska

Currency

Products made based on consumer wants and needs

Private property, choice, competition, no govt regs

Ex: GB after IR

Everyone contributes what they can and receives what they need

Products made based on what the government deems is necessary

Ex: Soviet Union, Cuba

Consumers choose what they want and need

Government has some regulatory power

Tradition dictates some production

Ex: United States

Traditional

AdvantagesNo unemployment

No recession/depression

DisadvantagesNo new ideas

Creativity discouragedLower standard of living

Market

AdvantagesTotal consumer freedom

Incredible varietyLots of new ideas/creativity

DisadvantagesOnly productive people

rewardedUnemployment

CompetitionDepression/recessionsPublic needs sacrificed

Command

AdvantagesPublic needs met

No unemploymentEveryone equal

DisadvantagesWants not considered

No incentivesNew ideas discouraged

MixedAdvantages

Consumers drive economyProducers respond

Gov’t intervenes when necessary

DisadvantagesPublic needs lacking

unemploymentDepressions/recessions

Karl Marx

Karl Marx and Friedrich Engels

• Karl Marx and Freidrich Engels witnessed the treatment of workers in factories during the industrial revolution

• They heard the working class people complaining about the upper class

• They suspected that at some point, the workers will have had enough and will revolt against their bosses and steal their wealth to distribute amongst themselves

Karl Marx and Friedrich Engels

• They wrote their ideas down in a pamphlet called “Communist Manifesto”

• Bourgeoisie: upper and middle class people

• Proletariat: working class and poor people

• The Bourgeoisie controlled the factors of production, while the proletariat labored in terrible conditions and controlled nothing

Karl Marx and Friedrich Engels

•When the proletariat revolted against the bourgeoisie, they redistribute wealth amongst themselves

• This would eliminate class struggle – everyone would be equal

• This new world and government would be called “dictatorship of proletariat”

Communism

• This control of wealth and factors of production by the proletariat is what Marx and Engels referred to as Communism

•Communism: all factors of production will be owned by the people. No private property.

• In the 1900’s we will see many of these communist revolutions…

Communism

•Communism = Command economy = Karl Marx

Index Card

• Please create a new index card for Karl Marx and Friedrich Engels

Karl Marx and Friedrich Engels

•“Communism Manifesto”

•Created idea of communism (command economy)

•Proletariat: poor/working class; Bourgeoisie: upper/middle class

•No private property, no social classes

Adam Smith

“Father of Economics”

Adam Smith

•Wrote “Wealth of Nations”

• Laissez-Faire: The government should not interfere with the economy in any way UNLESS the factors of production are compromised

Adam Smith• Three principles of free-market economics

1.Law of self-interest: people will work for their own good

2.Law of competition: competition amongst people makes better products

3.Law of supply and demand: goods will be produced to meet demand which will equalize prices

Adam Smith

• The principle of supply and demand is also known as the “invisible hand”

• Invisible hand: consumer demand and producer response will self-regulate the economy

• This is called capitalism

Adam Smith

•Capitalism = Market economy = Adam Smith

Index Card

• Create an index card for Adam Smith

Adam Smith

•Market Economy

• Laissez faire: NO government involvement in economy

• Free market principles: Law of competition, self-interest, and supply and demand

• Invisible hand: the market will self regulate because of supply and demand

Exit Ticket

• What type of economy did Karl Marx advocate?

• Command

• What type of economy did Adam Smith advocate?

• Market

• What are the five factors of production?

• Land, labor, physical capital, human capital, financial capital

• What does scarcity mean?

• Unlimited wants and limited resources

• What does laissez-faire mean?

• No government involvement

Who said it?

•On your white boards, tell me who said each of the following ideas: Marx or Smith?

Marx or Smith?

•The proletariat will revolt against the bourgeoisie

Marx or Smith

• The economy will self regulate based on supply and demand. This is called the invisible hand

Marx or Smith

• There should be no government involvement in the economy unless the FOP are compromised (Laissez Faire)

Marx or Smith

•Dictatorship of the Proletariat

Marx or Smith

•Market economy

Marx or Smith

•Command economy

Marx or Smith

•No private property. All FOP owned by the people equally

Marx or Smith

•No private property. All FOP owned by the people equally