THEORIES ON THE ECONOMY

COMMUNISM Overview of Communism

Equal shares of the benefits of worker’s labor

Poor get equal financial and social status of middle class landowners

To achieve equality, wealth must be redistributed

Means of production controlled by the State

Fredrick Engels and Karl Marx masterminds

Marxian Utopia – stateless/classless – 3 phases Revolution to overthrow existing govt.

Dictator gains absolute control of workers – collectivization of property and wealth

Utopia occurs when non-communists are destroyed

3 ECONOMIC QUESTIONS

Output Question – what will the nation produce?

Consumer goods or capital goods

Input Question – how will the nation produce its goods?

Labor intensive v. capital intensive (machines)

Distribution Question – who will receive what the nation produces?

Goods and services – how to divide the nation’s limited goods and services

OUTPUT QUESTION AND A COMMAND

ECONOMY Powerful individual or committee determines what

is produced

Decision too important to be left to unstable economic market

Savings can be bad because they can cause unemployment, so spending on production is encouraged

INPUT QUESTION AND A COMMAND ECONOMY

Labor or machine intensive depends upon the decision of the powerful individual or committee

Most will choose labor intensive to keep labor employed and happy

Provides a near fully employed work force

Henry Hazlitt criticizes saying:

Maximize production to have full production

Most fully employed nations tend to lack modern production methods

Full employment achieved through less than desirable means of coercion, child labor, lack of retirement and forcing women into the workplaceEconomics in One Lesson p. 56-58

DISTRIBUTION QUESTION AND A

COMMAND ECONOMY Egalitarian fairness – each person has an equal right to

part of the nation’s wealth because they are part of that society

Economic leveling – equal distribution of nation’s wealth despite level of contribution

Must maintain a “safety net” to protect people from economic hardship

Taxes are a means to redistribute wealth

Group Question:

How do you see the tenets of Communism reflected in the Command Economy’s view on the 3 Economic Questions?

COMMUNISM QUIZ

1. Equal shares of the benefits of _______ are distributed in a communistic system.

2. How will the nation produce its goods is the _______ question.

3. For the Input Question, most Command Economies will choose ___________to keep labor employed and happy.

4. Each person has an equal right to part of the nation’s wealth because they are part of that society is part of the _________ Question.

5. ______ get equal financial and social status of middle class landowners

Worker’s labors

Output

Labor intensive

Distribution

The Poor

COMMUNISM QUIZ (CONT.)

6. In a _______ a powerful individual or committee determines what is produced.

7. According to Henry Hazlitt, most __________ tend to lack modern production methods.

8. For communist or socialist countries, _______ are a means to redistribute wealth.

9. In a Marxian Utopia, the main goal was a stateless, classless society and would take ________ phases.

10. According to Hazlitt, most command economies struggle because they fail to maximize _________ never achieving full production.

Command economy

Fully employed nations

Taxes

Three

Production

TYPES OF SOCIALISM

SOCIALISM3 TYPES

Centralized Socialism

Government should be the central owner and decision maker in all economic affairs of the State

This is categorized as Marxian Socialism

All money recovered from the sale of goods rightfully belongs to the employees who created the goods

Tools of production belong to the State who ensure that everyone would be employed at a fair wage

No one would ever be used as tool of profit for someone else

Worker Management Socialism

Government owns all businesses to prevent workers from being enslaved

Since the State can’t manage all businesses by themselves, workers of each firm are given the task of managing the business

Workers decide what is produced, number’s produced, styles, etc.

Workers are paid a base wage that increases as their individual productivity does

European Social Democracy

This is a transitional system between capitalism and socialism

The State takes possession of those industries that are cornerstones of the economy (transportation, communication, energy production, finances and healthcare) – process is called “nationalization” – (the reverse is “privatization” )

Private ownership of individual nonessential businesses is tolerated but heavily regulated

TYPES OF SOCIALISM REVIEW

1. Government should be the central owner and decision maker in all economic affairs of the State

2. The State takes possession of those industries that are cornerstones of the economy

3. Government owns all businesses to prevent workers from being enslaved

4. Workers of each firm are given the task of managing the business

5. All money recovered from the sale of goods rightfully belongs to the employees who created the goods

6. Tools of production belong to the State who ensure that everyone would be employed at a fair wage

7. This is a transitional system between capitalism and socialism

CS

ESD

WMS

WMS

CS

CS

ESD

SOCIALISM QUIZ

1. Private ownership of individual nonessential businesses is tolerated but heavily regulated.

2. The State can’t manage all businesses; workers of each firm are chosen to manage the business.

3. Government should be the central owner and decision maker in all economic affairs of the State

4. Workers are paid a base wage that increases as their individual productivity does

5. This is a transitional system between capitalism and socialism

ESD

WMS

CS

WMS

ESD

6. All money recovered from the sale of goods rightfully belongs to the employees who created the goods.

7. This is categorized as Marxian Socialism.

8. The State takes possession of those industries that are cornerstones of the economy.

9. Government owns all businesses to prevent workers from being enslaved.

10. Tools of production belong to the State who ensure that everyone would be employed at a fair wage.

CS

CS

ESD

WMS

CS

TYPES OF CAPITALISM

STATE CAPITALISM

Vast majority of natural resources, financial capital and labor is owned by private citizens

Govt intervenes in the decision making process

Goal is to ensure egalitarian goals are carried out

People can own things like houses, the govt makes decisions of numbers to be built, who builds, where they can be built and safety requirements for building

Individuals own businesses, but govt sets goals for racial equality, wages and who can do which jobs

Also known as Welfare State – taxes very high and redistributed so citizens are cared for “cradle to grave”

CLASSIC LIBERAL CAPITALISM

Adam Smith is the mastermind behind

Govt must exist but can only have minimal ownership of resources – minimum decision-making power in performing its responsibilities

Limitations of Govt – can only do three major duties

Protect citizens from foreign aggression – maintains national defense system

Protect rights of citizens from infringements Due to mankind’s depravity, if left unrestrained, free

market would destroy itself

Need a legislature to enact just laws, police force to restrain lawbreakers, courts of law to judge and punish

CLASSIC LIBERAL CAPITALISM (CONT.)

Limits on Govt (cont.)

Provide public goods Goods and services that private firms can’t create and

make a profit

Roads, national parks, monetary system, etc.

If not provided by the govt, these necessary goods and services would not be available

RADICAL CAPITALISM

Most extreme – least govt control

Private citizens own ALL the factors of production

Private citizens make ALL the decisions for the input, output and distribution questions

Free market works with no govt interference

Allows for no govt at all

Unscriptural because denies that govts are legitimate

Individuals are own govt with no governing force denying them whatever they wish to do

RADICAL CAPITALISM (CONT.)

Impractical

There needs to be some govt control

Some regulation actually helps the free market economy

Laws keep people working well with each other when they normally wouldn’t choose to do so

Govt provides national defense and police protection Too expensive to provide privately

If ignored, leads to foreign invasion or internal breaches of the peace

TYPES OF CAPITALISM REVIEW

People can own things like houses, the govt makes decisions

Free market works with no govt interference

Govt must exist but can only have minimal ownership of resources

Private citizens make ALL the decisions for the input, output and distribution questions

Individuals own businesses, but govt sets goals for racial equality, wages and who can do which jobs

Private citizens own ALL the factors of production

Vast majority of natural resources, financial capital and labor is owned by private citizens

SC

RC

CLC

RC

CLC

RC

SC

OUTPUT QUESTION AND A MARKET ECONOMY

Market senses need of what should be produced – capital or consumer goods

Regulation of the interest controls flow of money from households to businesses using the financial markets

Too low – too much spending/borrowing – little savings – consumer goods purchased

Businesses have to borrow in order to meet the demand – they buy capital goods

Banks raise interest rates on savings encouraging people to want to save – less spending on consumer goods – lessening demand means no need to buy new machines

The reverse occurs when too much is invested in capital goods

The market will naturally balance itself and the people will be satisfied

INPUT QUESTIONS AND A MARKET ECONOMY

Each firm takes into consideration its own needs – human labor or machine?

Free market usually chooses a mixture of both – whichever is going to lower its costs and be more competitive in product pricing

DISTRIBUTION QUESTION AND A

MARKET ECONOMY Wealth is distributed to those who successfully satisfy the

needs of others

Those who cannot/will not create products/services don’t deserve a portion

Libertarian fairness – only economic right citizens are entitled is right to own and use property free of govt interference

Accumulation of wealth is the responsibility of the individual

Education, etc. necessary to improve one’s lot is the responsibility of the individual –marketable skill

Often called “economic Darwinism” –survival of the economic fittest

BIBLICAL VIEWPOINT OF THE DISTRIBUTION

QUESTION To help the poor or not help the poor – that is the

question

Christian Economic Principles

One must work to earn an income

Doesn’t mean those who are unable to work – responsibility for the poor

The church should step in to help those in need – falls to the government when the people fail to follow God’s instructions

If someone is able to work, workfare is totally acceptable