SOCL 2001 : EXAM 3 NOTES
The Barter System
▪ The oldest form of economy we know of. It is based on exchange of goods (you
have cotton and we have salt so lets exchange). For simpler societies the barter
system tended to be pretty sufficient but it has some major drawbacks also. It is
limited also by how much a person can carry around. The system is limited by what
can be accumulated and what can be stored (some goods can not be stored so you
have to trade them off in a hurry).
Money Economies
▪ When societies got more complex we saw money economies where we developed
some system where things can be exchanged for a wide variety of things. As long as
there was some systematic way of every one agreeing on the system (I agree and
you except that a dollar is a dollar). You could use the money to buy whatever you
wanted.
Command Economies
▪ These are economies which the government tries to regulate most aspects of the
economy
▪ Feudalism
o An agrarian system based on large scale agriculture. It was based on how
much land nobility had and how much land they could accumulate. These
wealthy land owners pretty much owned all the needs for production. The
majority of people were surfs (peasants bound to the land by law to work the
land for the landlord). They would usually have the right to keep some of
what they raised. Some of what they produce has to go to the landlord and
they can’t leave. This developed and became common in Europe. It still exists
in various forms in parts of the world today. In the early ages the system
was based on barter more than money (people couldn’t get their hands on
money easily). With an increase in trade money became more available. And
the surfs could pay the landlords instead of working. This rise in money leads
to the decline in feudal system.
▪ Mercantilism
o Under this system individuals (or privately owned businesses) took care of
the production of goods, but the distribution of goods was regulated by the
government. We see in Europe not only the rise of states but the rise of
monarchies. They would make their money to import and export taxes. Any
flow of goods in to or out of the country they had to pay taxes. European
powers began to develop oversea colonies. Any goods produced in a colony
had to be sent back to the other colony which caused them to have to pay a
tax. Monarchs were very much important because it was up to parliament to
pass laws about internal taxes (and they would get the revenue).
▪ Adam Smith disagreed with this and in his book called the wealth of
nations- he said this wasn’t a way for your county to get rich.
▪ John Hancock smuggled rum. All the rum had to go to the mother
country first to collect tariffs (import and export). This put a glitch
in his business and wasn’t happy with the king.
▪ These laws brought about and regulated the flow of goods and led to
the American Revolution. For the most part American colonies did
not pay a lot of attention to these laws because they were so far
away. In the French and Indian war England decided that because
they had to defend the French, American colonies needed to be
paying more for their orders. American colonies said they had
already paid for it with money and through their own blood. John
Hancock and many others were angry. Started saying taxation
without representation. They finally decided they didn’t want to pay
any taxes to England. They did away with them all except for the one
with tea. This lead to the Boston tea Party (Americans threw British
tea overboard). This put an end to the mercantile system and it
pretty much faded away after that.
▪ Socialism/ “Communism”
o Under socialism the government owns the major means (big businesses,
banks, farms) of production. They regulate wages in prices also.
o Karl Marx
▪ Socialism societies are based on many of the ideas of Karl Marx. He
lived at a time when Western Europe was becoming industrialized.
This caused massive changes in society (the rise of big farms, closing
lands, and the rise of factories in their cities). These were causing a
lot of poverty. People were working like 16 hours a day for a few
pennies. For Marx a person’s position in society is based on their
relation to the means to production.
• Bourgeoisie- big business owners were known as this. These
are people that make their living off of other people’s labor.
• Proletariat- people who have to make their living by selling
their labor to capitalist. They have to sell their product at a
higher cost to make a profit. This is by its very nature an
exploit of the system.
o Capitalism- It is the best way we’ve found yet for producing goods because
as long as there is a demand there, there is an incentive to produce the
goods
o According to Karl, Capitalism is based on competition because there is always
competition to sell your product at a lower cost. The easy way to reduce your
cost is to reduce your labor. The more and more capitalism goes on the more
workers are going to be exploited. There will come a time when these labors
realize they can’t get ahead because of this system. Once they realize this
fact the proletariat is going to come together and rise up against the
bourgeoisie and take over the production for themselves and distribute the
money themselves. This was Karl Marx’s society known as Communism. Marx
said this will not be an easy process. There will be a lot of people in society
that will not want to change the way things are done. He said there needs to
be a phase in-between capitalism and communism where the government
controls the means of production (socialism). When we look at countries
today and say they are communism they really are not, they are socialism.
We also have a tendency to confuse these economic systems with political
systems.
Free Market Capitalism
▪ Any individual is allowed to engage in any type of economic activity as long as it’s
legal. Adam Smith said private greed will result in the greatest public good. People
are greedy by their own nature. As long as people can find a way to make money they
will do it. The economy will be regulated by the “invisible hand”. If there is a big
demand for goods they will pay more for it and more will be produced. If some good
goes down fewer people want to buy it then they will produce it less. Supply and
demand is based on the assumption of many producers and consumers.
▪ We never see free market or socialism in its purest forms. It is always a mix. There
are plenty of government regulations because both systems have problems. They
both have their strong and weak points.
o Free market-
▪ Strong- is to produce and produce efficiently (low prices) so you can
be in competition with others.
▪ Bad-the distribution of goods is on the ability to pay, not based on
need
• The problem is that it is a very good way to distribute goods
but distribution is based on the ability to pay (not needs). So
if you need something but you can’t pay for it you won’t get
it. All you have to due is look at health care in this case
• Without any government regulations, capitalism tends to have
“boom and bust cycles”-economy is either going full blast and
then you blink your eyes and your in the middle of a
depression.
• Employers without government regulations will exploit their
workers to the farthest extent they can.
• Always a tendency for a monopoly-big business always want
to control cost, reduce competition, production, and maximum
their business (control prices, they can make more money).
o Socialism- a government monopoly on the production of goods; supposed to
be a cure for the problems of capitalism; can’t exist in its pure form either:
▪ Strong-when done right, it is strong because it distributes good
according to need rather than the ability to pay (theory)
▪ weakness- is that there is no incentive for efficiency (no one will be
better to make you do better). You don’t have to control your cost
because you have no competition. There is no pressure to come up
with better ways of doing it. Creates a massive welfare state. Must
have huge bureaucracies. It didn’t make things any more equal for
anyone. State owned businesses have a problem competing in the
global economy. Another problem is that employers want to exploit
Document Summary
The barter system: the oldest form of economy we know of. It is based on exchange of goods (you have cotton and we have salt so lets exchange). For simpler societies the barter system tended to be pretty sufficient but it has some major drawbacks also. It is limited also by how much a person can carry around. The system is limited by what can be accumulated and what can be stored (some goods can not be stored so you have to trade them off in a hurry). Money economies: when societies got more complex we saw money economies where we developed some system where things can be exchanged for a wide variety of things. As long as there was some systematic way of every one agreeing on the system (i agree and you except that a dollar is a dollar). You could use the money to buy whatever you wanted.
