Supplementary resources by topic. Economic Systems is one of 51 key economics concepts identified by the Council for Economic Education (CEE) for high school classes.
On this page:
Definitions and Basics
Capitalism, from the Concise Encyclopedia of Economics
Capitalism, a term of disparagement coined by socialists in the midnineteenth century, is a misnomer for “economic individualism,” which Adam Smith earlier called “the obvious and simple system of natural liberty.” Economic individualism’s basic premise is that the pursuit of self-interest and the right to own private property are morally defensible and legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals (alone or with others) are free to decide where to invest, what to produce or sell, and what prices to charge, and there is no natural limit to the range of their efforts in terms of assets, sales and profits, or the number of customers, employees, and investors, or whether they operate in local, regional, national, or international markets….
Socialism, from the Concise Encyclopedia of Economics
Socialism—defined as a centrally planned economy in which the government controls all means of production—was the tragic failure of the twentieth century. Born of a commitment to remedy the economic and moral defects of capitalism, it has far surpassed capitalism in both economic malfunction and moral cruelty. Yet the idea and the ideal of socialism linger on. Whether socialism in some form will eventually return as a major organizing force in human affairs is unknown, but no one can accurately appraise its prospects who has not taken into account the dramatic story of its rise and fall….
Free Market, from the Concise Encyclopedia of Economics
Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services….
Marxism, from the Concise Encyclopedia of Economics
The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx’s masterpiece, Capital (1867). Its basic claim is simple: the value of a commodity can be objectively measured by the average amount of labor hours that are required to produce that commodity….
Fascism, from the Concise Encyclopedia of Economics
In economics, fascism was seen as a third way between laissez-faire capitalism and communism. Fascist thought acknowledged the roles of private property and the profit motive as legitimate incentives for productivity—provided that they did not conflict with the interests of the state….
In the News and Examples
Russ Roberts on the Least Pleasant Jobs. Podcast on EconTalk, April 21, 2008.
EconTalk host Russ Roberts talks about the claim that for capitalism to succeed there have to be people at the bottom to do the unpleasant tasks and that the rich thrive because of the suffering of those at the bottom. He critiques the idea that capitalism is a zero sum game where to get ahead, someone has to fall back. He also looks at the evolution of the least pleasant jobs over time and how technology interacts with rising productivity to make the least pleasant jobs more pleasant….
Economics in democracy: Bryan Caplan on the Myth of the Rational Voter. EconTalk podcast, June 25, 2007.
Bryan Caplan, of George Mason University and blogger at EconLog, talks about his book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Caplan argues that democracies work well in giving voters what they want but unfortunately, what voters want isn’t particularly wise, especially when it comes to economic policy. He outlines a series of systematic biases we often have on economic topics and explains why we have little or no incentive to improve our understanding of the world and vote wisely. So, it’s not special interests that are messing things up but the very incentives that lie at the heart of a vote-based system….
May Day Mourning at EconLog.
This May Day, the able bloggers of Catallarchy have once again assembled a great line-up of short essays on the dark history of Communism. Highlights include a moving vignette by Polish deportee Romuald Lipinsky on his time in Siberia; Clara Magram on Solzhenitsyn’s The First Circle; and Matt McIntosh on quack Soviet biologist Trofim Lysenko. And don’t miss my humble contribution on the moral equivalence of Nazism and Communism….
A Little History: Primary Sources and References
Capital: A Critique of Political Economy (Das Kapital), by Karl Marx. In three volumes.
The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,” its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity….
Socialism, by Ludwig von Mises.
It is a matter of dispute whether, prior to the middle of the nineteenth century, there existed any clear conception of the socialist idea—by which is understood the socialization of the means of production with its corollary, the centralized control of the whole of production by one social or, more accurately, state organ. The answer depends primarily upon whether we regard the demand for a centralized administration of the means of production throughout the world as an essential feature in a considered socialist plan. The older socialists looked upon the autarky of small territories as ‘natural’ and on any exchange of goods beyond their frontiers as at once ‘artificial’ and harmful…. [from the Preface to the Second Edition]
Fabian Essays in Socialism George Bernard Shaw, editor.
ALL economic analyses begin with the cultivation of the earth. To the mind’s eye of the astronomer the earth is a ball spinning in space without ulterior motives. To the bodily eye of the primitive cultivator it is a vast green plain, from which, by sticking a spade into it, wheat and other edible matters can be made to spring. To the eye of the sophisticated city man this vast green plain appears rather as a great gaming table, your chances in the game depending chiefly on the place where you deposit your stakes…..
Is economics a science? Henderson on Disagreeable Economists. EconTalk podcast, July 30, 2007.
David Henderson, editor of the Concise Encyclopedia of Economics and a research fellow at Stanford’s Hoover Institution, talks with EconTalk host Russ Roberts about when and why economists disagree. Harry Truman longed for a one-armed economist, one willing to go out on a limb and take an unequivocal position without adding “on the other hand…”. Truman’s view is often reflected in the public’s view that economic knowledge is inherently ambiguous and that economists never agree on anything. Henderson claims that this view is wrong–that there is substantial agreement among economists on many scientific questions–while Roberts wonders whether this consensus is getting a bit frayed around the edges. The conversation highlights the challenges the everyday person faces in trying to know when and what to believe when economists take policy positions based on research. Is it biased or science?
There are not two Smiths (the economist and the moral philosopher). There’s one. And the same holds for Marx. His efforts in Capital are best understood in light of his 1844 Manuscripts….