Comparing Economic Systems: Capitalism, Communism, and Socialism

Comparing Economic Systems

Until the publication of their 1848 Communist Manifesto, much of the western world followed a course where individuals owned private property, business enterprises, and the profits that resulted from wise investments. Marx and Engels pointed out the uneven distribution of wealth in the capitalist world and predicted a worldwide popular uprising to distribute wealth evenly. Ever since, nations have wrestled with which direction to turn their economies.

Capitalism

Capitalism is based on private ownership of the means of production and on individual economic freedom. Most of the means of production, such as factories and businesses, are owned by private individuals and not by the government. Private owners make decisions about what and when to produce and how much products should cost. Other characteristics of capitalism include the following:

• Free competition. The basic rule of capitalism is that people should compete freely without interference from government or any other outside force. Capitalism assumes that the most deserving person will usually win. In theory, prices will be kept as low as possible because consumers will seek the best product for the least amount of money. Does capitalism allow for government interference?
• The antitrust lawsuit against Microsoft is one way that the government has tried to promote competition. Supporters of Microsoft say that forcing Microsoft to allow companies to bundle arch-rival Netscape's web browser with Microsoft Windows is not unlike making Coca-Cola include a can of Pepsi in each six-pack it sells.
• Supply and demand. In a capitalist system prices are determined by how many products there are and how many people want them. When supplies increase, prices tend to drop. If prices drop, demand usually increases until supplies run out. Then prices will rise once more, but only as long as demand is high. These laws of supply and demand work in a cycle to control prices and keep them from getting too high or too low.

Communism

Karl Marx, the 19th century father of communism, was outraged by the growing gap between rich and poor. He saw capitalism as an outmoded economic system that exploited workers, which would eventually rise against the rich because the poor were so unfairly treated. Marx thought that the economic system of communism would replace capitalism. Communism is based on principles meant to correct the problems caused by capitalism.

The most important principle of communism is that no private ownership of property should be allowed. Marx believed that private ownership encouraged greed and motivated people to knock out the competition, no matter what the consequences. Property should be shared, and the people should ultimately control the economy. The government should exercise the control in the name of the people, at least in the transition between capitalism and communism. The goals are to eliminate the gap between the rich and poor and bring about economic equality.

Socialism

Socialism, like communism, calls for putting the major means of production in the hands of the people, either directly or through the government. Socialism also believes that wealth and income should be shared more equally among people. Socialists differ from communists in that they do not believe that the workers will overthrow capitalists suddenly and violently. Nor do they believe that all private property should be eliminated. Their main goal is to narrow, not totally eliminate, the gap between the rich and the poor. The government, they say, has a responsibility to redistribute wealth to make society more fair and just.

There is no purely capitalist or communist economy in the world today. The capitalist United States has a Social Security system and a government-owned postal service. Communist China now allows its citizens to keep some of the profits they earn. These categories are models designed to shed greater light on differing economic systems.

A funny explanation of Socialism:


Finally, a really good explanation of whether we are Socialists or Capitalists -- or not.

We Are All Socialists

Movie: It's a Wonderful Life

"It's a Wonderful Life" is a movie that was released almost 70 years ago -- in 1946.  It's about an angel who helps a compassionate but despairingly frustrated businessman by showing what life would have been like if he never existed.

At this time of year I show this movie for several reasons:

1. It's a good study of someone who has dreams of what they want to do but situations in life move them in another direction.
2. It's a good example of how finance in a savings and loan situation works.
3. It demonstrates economic principles and how a small town can get caught up in a national crisis.
4. It demonstrates a "run" on a bank.
5. It does a good job of showing how our great grandparents (and great-great grandparents) weren't really so different from us.  Whether we [or they] are willing to admit it or not.
6. It shows how a good, intelligent, hard-working person can still suffer from depression.
7. It reminds us that we don't always know the difference we are making in others' lives.

There aren't a lot of requirements for this movie other than paying attention and completing a simple worksheet for the first and second halves of the movie.  If you would like another copy of the worksheet, you can download it. (Here)

I'll be showing it in class, but here's an online version that you can watch:

I.O.U.S.A.

IOUSA is an interesting, informative, and factual summary of the US financial health up to the end of the Bush era.  It covers the growing deficit and debt of the nation, its effect on Social Security and our heavy dependence on foreign funds.

Worksheet Download: [LINK]

Next I want you to consider how much money we're talking when we say millions, billions, or trillions.

• Imagine that you earn $10/hr. and you work 40 hours per week for 52 weeks per year.  You would earn approximately $20,800 per year (before taxes).  If you began working at 18 and worked until you were 68 (at the same pay rate and hours) and you never took a day off work in that 50 years -- you will have earned $1,040,000 (again, before taxes).  A million dollars for 50 years of work (minus the $200,000 the government takes, of course)
• Now imagine that you want to earn a BILLION dollars.  Easy, instead of working for 50 years, you would have to work for 50,000 years!  Or you could get paid $10,000/hr. and work for 50 years -- of course the government would take a lot more of your income.
• Now imagine that you want to earn a TRILLION dollars.  Well, instead of working 50,000 years (at $10/hr.) you must work 50 MILLION years.  If you were lucky enough to earn $10,000/hr. you would only have to work 50,000 years.  If you found a job paying $10,000,000/hr. you would only have to work 50 years.
• If you simply wanted to count a Trillion dollars a dollar at a time (1 per second), it would take you nearly 2,000,000 years to complete (1,902,588 years).
• Now consider for a moment, that since 2000, our National Debt has grown from about $5 Trillion to about $19 Trillion.  Our government has managed to go into debt an additional $14 Trillion in just 15 years.  Much is blamed on the Gulf Wars, but all of those could have been paid for with $1 Trillion.  Who's getting the money?
• Our National Debt Clock: http://www.usdebtclock.org/

How much is a Trillion -- in $1,000 bills?

What Does One Trillion Dollars Look Like?

Credit Card Research Project

Today we are going to be comparing three different credit offers.  I will provide you with two and your homework is to find a 3rd.

• I will pass out a Credit Card Comparison worksheet [you can download one Here if you need one at a later date].
• Fill in the blanks for your 3 different credit offers.
• Turn in your results page.

Credit Card Offers:

• Offer #1
• Offer #2
• Locate an offer on your own

Next I want you to look at this offer I got in the mail in 2010.  It is not edited to make it look worse -- this is how it came.  It's in a folder pamphlet form (which I will show everybody tomorrow) but I scanned both sides so you could see the details.  You can click the picture to read the small print:

When you are finished with this project, work on getting any missing work turned in.

ADDITIONAL HOMEWORK:  Interview one adult who has [or has had] credit cards using the provided worksheet.

Extra Credit: The Great Thanksgiving Listen

Your extra-credit homework assignment is to interview someone -- a grandparent, an elder in your community, someone who has been through a harrowing experience (war, natural disaster, plane crash, racial tension, immigrating to America, etc.), someone who has experienced a job or other situation which may not exist in the near future (coal mining, living in a house without electric or plumbing, etc.). You can download an app on your phone or laptop or use a recorder or video camera to conduct an interview.

Here's a TED Talk discussing the StoryCorps project: https://www.ted.com/talks/dave_isay_everyone_around_you_has_a_story_the_world_needs_to_hear?language=en 

Please check out StoryCorps: https://storycorps.org/

Note: If you don't have a phone that allows you to download the StoryCorps app, you can do this old school with a recorder or video camera.

Come up with some great open-ended questions that allows the person you are interviewing to talk about things -- and make sure you are listening to the answers, not just moving them from question to question.  For example, asking them "How old were you when you got married?" is going to get a response like, "24" -- while a question like, "Tell me about the day you got married." might bring on a 5 minute story about things that were memorable and important to the person you are talking with.

Some open-ended question examples might include (depending on the person you are interviewing):

• Can you tell me a little bit about your childhood?  What were you like as a child?
• Do you know the story of why and how our ancestors came to this country?
• Who were your grandparents?  Do you have any memories of them?  What kind of work did they do?
• Can you tell me about your grandparents?  Your great-grandparents?  (This can be especially valuable to you if you happen to be interviewing a great-grandparent)
• Tell me a favorite memory of me.
• Can you tell me about one of the most difficult moments in your life?
• Can you tell me one or two people who have been kindest to you in your life?  What if they were here, what would you say to them?
• Can you tell me about one or two people who have been the biggest influences in your life?
• Tell me about a teacher or other adult that has had a big impact on your life when you were growing up.
• Can you tell me one of your happiest memories?
• What are you proudest of -- both personally and professionally -- in your life?
• Can you tell me about some of the most important lessons you've learned in life?
• Can you tell me about a historic event that had an impact on your life?  What are your most vivid memories of that event?  How did it make you feel?  (Topics might include: World War II, the Holocaust, the Korean War, the civil right movement, the assassination of President John F. Kennedy, the March on Washington, 9/11, etc.)
• What are your hopes for me, and someday, for my children?
• If you knew this was going to be our last conversation, is there anything you've never told me that you want to share with me now?  Is there anything you want to ask me that you have never asked me before?
• How has your life been different than how you imagined it would be when you were young.  Do you have any regrets?
• Thinking about your family many generations from now, and knowing that they may hear this recording, is there anything you want to say to them?  Any wisdom or advice you would like to share?
• How would you like to be remembered?

At the end of the interview, take a few moments to tell your partner what they mean to you.

2:3 - Centrally Planned Economies

Chapter 2 Section 3: Centrally Planned Economies

News Story: Cuba Economic Reforms Felt at the Dinner Table

Assignment:

• What are the characteristics of a centrally planned economy? (p.35): Chart
• Checkpoint (p.36): What beliefs did Karl Marx hold about capitalism?
• Checkpoint (p.37): What changes led to economic growth in China?
• Checkpoint (p.38): Why do centrally planned economies tend not to be efficient?
• Section 3 Assessment (p.38): #1 - 10

2.2: The Free Market

Chapter 2 Section 2: The Free Market

• What are the characteristics of a free market economy? (p.29): Chart
• Checkpoint (p.30): Why do markets exist?
• Graph Skills (p.31): #1 & 2
• Checkpoint (p.31): What is the role of firms in the free market economy?
• What are Incentives? (p.32): Choose one example from this chart and explain how positive and negative incentives lead to the same behavior.
• Checkpoint (p.33): Why is competition important in a free market?
• Checkpoint (p.34): Why does a free market economy result in the availability of a wider variety of goods and services?
• Section 2 Assessment: #1 - 9
• Complete this chart, then add your own virtual business (from last week) on the back of the paper.

Circular Flow Model
Circular Flow Model
The Invisible Hand