Economic Philosophers Creators of Market and Command Economies

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Economic Philosophers Creators of Market and Command Economies

Economic Philosophers Creators of Market and Command Economies

Reasons for New Ideas • Reaction to mercantilism: tightly controlled economic system where governments

Reasons for New Ideas • Reaction to mercantilism: tightly controlled economic system where governments heavily regulate production and trade • Exports are greater than imports to seek wealth • Dominant system in 1600 -1700 s • Government benefits, not the people

Adam Smith • disliked mercantilism because he felt that the working class was not

Adam Smith • disliked mercantilism because he felt that the working class was not benefitted • Developed capitalism (market system; also called free enterprise) • Author of The Wealth of Nations (1776) • “Father of Modern Economics”

Main Beliefs of Adam Smith • Laissez-faire • • economics: “hands-off”; the least government

Main Beliefs of Adam Smith • Laissez-faire • • economics: “hands-off”; the least government in the economy is the best government Division of labor; dividing tasks into smaller parts to increase productivity (specialization) Invisible hand: selfinterests lead to good for all; competition will naturally occur so that all are benefitted

Karl Marx • Known as “Father of • Communism” Author of the Communist Manifesto

Karl Marx • Known as “Father of • Communism” Author of the Communist Manifesto and Das Kapital • German philosopher 1818 -1883

Karl Marx Main Ideas • Believed that capitalism would fail because a division would

Karl Marx Main Ideas • Believed that capitalism would fail because a division would be created between the owners (capitalists) and the workers (proletariat) • Workers would eventually overthrow the system • Developed the command economy

Karl Marx Ideas Continued • Communism: all private property has been abolished • and

Karl Marx Ideas Continued • Communism: all private property has been abolished • and turned over to the state (government owns and controls all) – Goal: equitable distribution of wealth – Also called authoritative socialism Socialism: an economic system where the government owns the essential factors of production and controls how they are used (exs. Railroads, communication, utilities) – Privately owned smaller industries are usually allowed to exist – Democratic socialism (Sweden)

Problems with Marx ideas • He ignored the importance of incentives • Workers have

Problems with Marx ideas • He ignored the importance of incentives • Workers have shared in the wealth – standards of living are higher • More economic freedom means growth • Workers are protected by laws such as minimum wage and safety

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