Economic Systems Case

I. ECONOMIC SYSTEMS (p. 30 ) [L.O. 1-5]

Economic system: Rules and regulations a society establishes to allocate scarce resources to satisfy unlimited wants; that is, an economic system is a society's response to the economizing problem.

A. Feudalism (9th to 15th centuries) - A localized, tradition-bound system of government in Europe designed for subsistence and mutual protection of different social classes. Functions of government were assumed by the land-owning aristocracy, or lords. Vassals held sections of land; serfs were the workers. Movement to a higher social class was impossible. However, as Europe changed, trade began and trade-based economies developed. This change caused feudalism to evolve into mercantilism.

B. Mercantilism (16th to 18th centuries) - An economic system based on increasing national wealth and power through production, trade and exporting. A strong central government was necessary to control the economy and regulate trade. The goal was to increase wealth through the accumulation of precious metals by encouraging exports and discouraging imports.The laws of supply and demand were not allowed to operate because of the rigid rules regulating trade that were established by the king. But the period of the Enlightenment brought about a period of increased individualism personal responsibility and skepticism of government interference.

C. Capitalism -. As the Enlightenment spread throughout Europe, scientists and philosophers found a natural law in the universe - i.e. that the universe works like a clock without interference by man. In addition, people wanted to free themselves from government control. The Industrial Revolution made capital more important in production.

In 1776, the Scottish philosopher Adam Smith published An Inquiry Into the Nature and Causes of the Wealth of Nations that applied the same ideas (natural law, self-determination, freedom) to economics. Smith believed that by focusing on efficient production of goods and services, nations could accumulate wealth without pervasive governmental regulations. It was the first major work expounding the doctrine of economic freedom. His approach to economics became known as capitalism and has provided the foundation for the study of market economics for more than two centuries.

D. Socialism - Proposed by Karl Marx (mid