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How and Why does the government interact with the economy?
How and Why does the government interact with the economy?
Adam Smith on Capitalism or Free Market Economy
Adam Smith on Capitalism or Free Market Economy
As the Founding Fathers of America were declaring independence from Great Britain, a Scottish economist by the name of Adam Smith published a book called "An Inquiry into the Wealth of Nations." This book championed an economic system that was driven by self interest. He believed that if all people acted in their own self interest, the economy would maintain balance. His philosophy deeply influenced America's Economic system, which began as a free market system. However, as America's territory expanded and population grew, government interaction with the economy evolved. America still has many elements of a free market system today, but now includes elements of a command economy. For a full description, follow the link to Shmoop:
As the Founding Fathers of America were declaring independence from Great Britain, a Scottish economist by the name of Adam Smith published a book called "An Inquiry into the Wealth of Nations." This book championed an economic system that was driven by self interest. He believed that if all people acted in their own self interest, the economy would maintain balance. His philosophy deeply influenced America's Economic system, which began as a free market system. However, as America's territory expanded and population grew, government interaction with the economy evolved. America still has many elements of a free market system today, but now includes elements of a command economy. For a full description, follow the link to Shmoop:
What is the Wealth of Nations all about and how did this book shape American economic policy?
Karl Marx on Communism or Command Economy
Karl Marx on Communism or Command Economy
Nearly 100 years after Adam Smith published "The Wealth of Nations," Karl Marx published a book that explored the problems he associated with capitalism, this book is called the "Communist Manifesto." In his manifesto, Marx explores the conflicts inherent in a Free Market system. These conflicts revolve primarily around the structure of social classes, Wealthy, rich, middle class, and working poor. Marx believed that as long as capitalism operated, people would be put into one of these classes and class conflict would persist.
Nearly 100 years after Adam Smith published "The Wealth of Nations," Karl Marx published a book that explored the problems he associated with capitalism, this book is called the "Communist Manifesto." In his manifesto, Marx explores the conflicts inherent in a Free Market system. These conflicts revolve primarily around the structure of social classes, Wealthy, rich, middle class, and working poor. Marx believed that as long as capitalism operated, people would be put into one of these classes and class conflict would persist.
How does Karl Marx explain social classes in "The Communist Manifesto?"
What is the role of government in the economy? That all depends on the type of economic system of a country. There are four types: Market, Traditional, Command, and Mixed.
Vocabulary #003: Now that you've learned about the different economic systems, click below to practice what the advantages and disadvantages of each system are:
Vocabulary #003: Now that you've learned about the different economic systems, click below to practice what the advantages and disadvantages of each system are:
1. Advantages of Command Economic System- Changes can be made quickly; Mass unemployment can be prevented
2. Advantages of Market Economic System- Increased productivity due to competition; increased incentive to work; increased innovation; increased industrialization
3. Advantages of Traditional Economic System- Everyone knows their role; produce only what is necessary for survival
4. Disadvantages of Command Economic System- No incentive to make a better product; No ability to respond to consumer preference
5. Disadvantages of Market Economic System- Worker exploitation; economic inequality (the gap between the rich and poor becomes larger); increase in economic crimes (corruption to aid the wealthy in keeping more money); reduction in the social safety net (aid for the needy in society); environmental decline
6. Disadvantages of Traditional Economic System- Lower productivity; Society develops more slowly; lower standard of living than other economies
Discussion #010: Why do most countries in the world operate with a mixed economic system, rather than purely market or purely command? List at least one advantage that you recognize in America for mixing both of these economics systems. For example we have a large variety of great products because competition from a market system encourages creativity, but we have a social safety net, which is a characteristic of a command system, ensuring people have enough food to eat if they are struggling to find adequate work.
Discussion #010: Why do most countries in the world operate with a mixed economic system, rather than purely market or purely command? List at least one advantage that you recognize in America for mixing both of these economics systems. For example we have a large variety of great products because competition from a market system encourages creativity, but we have a social safety net, which is a characteristic of a command system, ensuring people have enough food to eat if they are struggling to find adequate work.
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