The History of Economic Systems

1. The History of Economic Systems Chapter 3 Appendix

2. Feudal Society: Rules of Tradition • Feudalism was the predominant economic system in Europe about the 8th to the 15th century. • Feudalism is an economic system in which traditions rule.

3. Feudal Society: Rules of Tradition • There was no central government and no unified system of law. • Most individuals lived in walled manors belonging to the manor lord.

4. Feudal Society: Rules of Tradition • Although the lord provided protection, tradition ruled the manor more than the lord did.

5. Problems of a Tradition-Based Society • By dictating who did what, tradition prevented individuals from being employed at what they did best. • Tradition doesn’t work well when society must undergo change.

6. Problems of a Tradition-Based Society • Serfs who fled the manor could safely escape to towns or cities. • Cities were less governed by tradition than were manors.

7. Problems of a Tradition-Based Society • Markets broke down tradition. • Money greatly expanded the possibilities of trading.

8. From Feudalism to Mercantilism • Traders and merchants became more wealthy than feudal lords. • They threw their support to the king, enabling the king to expand his power over the lords. • Power shifted from the manors to cities and towns.

9. From Feudalism to Mercantilism • The government became an active influence on economic decision making. • The government encouraged growth by legitimizing and financing a variety of activities. • The government limited growth by protecting monopolies.

10. From Mercantilism to Capitalism • Industrialists competed with the guilds to change the existing system. • Craft guild members were artists in their own crafts. • Industrialists devised machines to replace hand production by craftsmen.

11. From Mercantilism to Capitalism • Industrialists supported and financed democratic reform movements limiting the power of kings.

12. The Need for Coordination in an Economy • Craftsmen argued that government needed to coordinate economic activity.

13. The Need for Coordination in an Economy • In his book, The Wealth of Nations, Adam Smith developed the concept of the invisible hand. • He argued that markets could coordinate the economy without active government involvement.

14. The Industrial Revolution • Beginning about 1750, technology and machines rapidly modernized industrial production. • Mass produced goods replaced handmade goods.

15. The Industrial Revolution • By the 1800s, the Industrial Revolution, democracy, and capitalism had become Western institutions.

16. From Capitalism to Welfare Capitalism • Capitalism was marked by long workdays, low wages, child labor, and dangerous working conditions.

17. Marx’s Analysis • The best-known critic of capitalism was Karl Marx. • Marx argued that workers would revolt and that capitalism would be replaced by a socialist economic system.

18. The Revolution That Did Not Occur • Governments stepped in to stop the worst abuses of capitalism. • In the late 1930s and the 1940s workers dominated the political agenda.

19. The Revolution That Did Not Occur • Capitalism became welfare capitalism – an economic system in which the market operates but government regulates markets significantly.

20. From Feudalism to Socialism • Capitalism did not evolve into socialism as Marx predicted it would. • Socialism took root instead in feudalist Russia, a society largely bypassed by the Industrial Revolution.

21. From Feudalism to Socialism • Russian socialists created state socialism. • State socialism – an economic system in which government sees to it that people work for the common good. • Central planning agencies were created to coordinate economic activities.

22. From Feudalism to Socialism • Since the late 1980s, Soviet-style socialism has fallen apart. • Workers lacked incentives to work. • Production was inefficient. • Consumer goods were either unavailable or of poor quality. • High Soviet officials exploited their positions.

23. The History of Economic Systems End of Chapter 3 Appendix