Market economic systems stress individual planning and private ownership of property.

Economic Systems

Lesson 2

"Students should learn about alternatives to the market system, such as traditional and command economies . . . (they) should study the strengths and weaknesses of each society and its values regarding the objectives of an economic system."

California State History/Social Science Framework

ASSUMPTION:

Understanding the core values and assumptions of other economies, as well as our own, contributes to the goal of developing cultural literacy. It also stimulates the imagination and fosters experimentation, helping students envision how an economy could be organized.

DESCRIPTION:

Economic systems reflect the values, assumptions and goals of a particular culture. Subsistence economies, which prevail in the more remote and less industrialized areas of the world, place much value on ecology and living in harmony within the natural limits of their environment. Capitalist and Socialist economies both share the goal of generating material wealth but differ in their approach. Capitalist economies emphasize individual freedom while Socialist economies emphasize social equality. The Buddhist economic system, as described by E.F. Schumacher and livedby some Eastern countries, is centered on the goal of human fulfillment and the development of character.

This lesson introduces each of these economies and then asks students to develop an economy based upon their own shared values and priorities.

ACTIVITY 2-1

Brief supplementary readings are provided on subsistence, capitalist, socialist, and Buddhist economies. Students are asked to work in cooperative groups to study and teach each other about these different

systems. They are then asked to work individually to imagine what a typical day, and then a special occasion, might be like for a person living in an economy different from their own. Finally, they are asked to compare this with the way they spend their own time.

ACTIVITY 2-2

The Island Game gives students the opportunity to create their own economy based upon what they value and what they view the goal of their economy should be. All of the small groups are asked to develop the basic outline of their economy and then each group is given a problem scenario to solve. All groups report to the whole class how they have chosen to deal with their problem. Students can then be tested on their understanding of basic economic concepts using "The Evaluation of Your Island Economy."

BACKGROUND FOR THE TEACHER

Since the end of the Cold War, there has been a subtle and often unchallenged assumption that in the battle between capitalism and socialism, capitalism has won. The question most publicly debated is how to integrate formerly socialist economies (i.e. Eastern Europe) into a capitalist world economy. This way of framing recent history negates the positive contributions of socialist values and institutions. It also fails to question the ultimately materialistic goals of both capitalism and socialism.

Subsistence economies, far from being "primitive" and outdated, have much to teach us about living in balance with our

environment. Subsistence farmers all over the world rotate their crops, lay fields fallow periodically, and intercrop nitrogen rich and nitrogen poor plants so that their soils will remain in balance and productive for many generations to come. This is in contrast to the one crop (monoculture) farming, practiced by agribusiness, where huge amounts of chemical fertilizers and pesticides are required for maintenance, leading eventually to the decay and disappearance of the fertile topsoils. The awareness that human beings are inter-dependent with, and not independent of, the rest of nature is an important contribution of subsistence societies to the modern world.

Adam Smith, the"founder" of the capitalist political economy, has much to contribute to the discussion of contemporary global issues. Smith believed that humans were by nature interested primarily in their own gain and hypothesized that the common good could be attained if everyone sought what was best for her/him individually.

However, he opposed the idea of monopoly and would probably not approve of the modern day corporation because people are liable to become more corrupt when they are in charge of more than their own money and property. Adam Smith believed strongly in the freedom of individuals to act in their own interest, but he would not have extended those same rights to the corporation as our society now does.

Karl Marx, the "founder" of communism felt that the capitalist system only exaggerated the injustice of earlier feudal society. Those who profited most from the production of goods were those who owned the means of production. In order to achieve more equality among peoples and avoid creating one class of people that worked to create goods and another class of people that profited from the sale of these goods, he suggested that there be no private property: that all property be owned equally by the

members of society. Karl Marx would look at the situation in Ethiopia where the country is exporting grain while its people are starving and say that it is a result of the fact that the farmers that grow the grain do not own the property and so cannot decide what will be done with it.

E.F. Schumacher wrote a book in 1973 called "Small is Beautiful: Economics as if People Mattered." In his chapter "Buddhist Economics" he describes an economic system that is concerned primarily with an individual's right and ability to live a full and meaningful life. He makes a distinction between mechanization that enhances a persons skill and power and that which degrades a person to be a slave of the machine and perform dull and repetitious movements. He says the goal of a Buddhist economy is to maximize well-being with a minimum of consumption. This economy would chose to use its renewable resources so as not to drain its capital, the non-renewable resources. Simplicity and non-violence are the main goals of the economy. The Buddhist economy is very much like the simple living advocated by Thoreau.

The goal of this lesson is not to convince students that one system is superior to the rest, but to give them a wider range of choice in putting together the elements of their own ideal economy.

QUESTIONS TO EXPLORE:

What are the assumptions about human nature of each of the economic systems?

What are the core values of each?

Since the world economy is now heavily based on the market system, why do we need to understand any economy other than our own?

Activity 2-1

Objective

· Gain an understanding of the values and assumptions of different economic systems

Materials

Student Handouts:

Subsistence Economy

Capitalist Economy

Socialist Economy

Buddhist Economics

A Day in the Life . . .

Time

Two class periods plus homework

Evaluation

Students understanding of different economic systems should be reflected in the essay resulting from the "A Day in the Life" assignment and from oral participation in groups.

Vocabulary

subsistence competition

barter monopoly

surplus

Suggested Procedure

1. Divide students into five groups of 6 (based on class size of 30)

2. Assign each group one of the economies about which to read and answer the discussion questions. Give every member of the group the appropriate handout.

3. Then, create 6 groups of five, making sure that each group has one member representing each of the five economies.

4. Ask each of the five students to give a mini report (2-3 minutes) to the other four on the economic system with which they have become familiar. All students must end up with notes on each of the economies. In the report, students can include the characteristics and goals of each economic system.

5. Have a class discussion debriefing the 4 economic systems.

· What are the goals of each?

· What are the key differences between the systems?

· Is there a superior system?

6. Assign the "A Day in the Life . . ." assignment for homework

Alternative Procedure:

Have all the students read all the handouts and do the assignment individually.

A) Subsistence Economy

"How can you buy or sell the sky the warmth of the land? The idea is strange to us. Yet we do not own the freshness of the air or the sparkle of the water. How can you buy them from us? Every part of the Earth is sacred to my people. Every shining pine needle, every sandy shore, every mist in the dark woods, every clearing and humming insect is holy in the memory and experience of my people."

Chief Seattle in response to an offer by President Franklin Peirce to purchase the Suwamish tribe's land in the state of Washington, 1855.

Chief Seattle was a Native American and like some Native Americans today lived in a subsistence economy. In a subsistence economy, enough is grown, hunted and crafted to provide for the basic needs of the people. A surplus is only created if there is a need or a desire to trade with neighboring people. For instance, in the Southwest, the Navajo and Hopi people live very close to one another. The Navajos are a nomadic people who raise sheep to eat and to use in the production of clothing and rugs. The Hopi live in permanent settlements and grow corn, beans and squash. Each tribe produces a surplus so that they may trade: the mutton and textiles of the Navajo are exchanged for vegetables and legumes of the Hopi.

The goal of life for the Navajo, as with most Native American peoples, is to become a well balanced person. It would not matter to a traditional Navajo if you had many times more sheep than he or she if you were arrogant, or cold-hearted or were not willing to sacrifice your ego for the chance to acquire wisdom. And because the Navajo are concerned for the welfare of future generations, they would think it foolish if you took more from the Earth than it could replenish. The LaKota people in South Dakota follow a "seven generations" principle. Decisions on resource use are based on ensuring there will be enough for the next seven generations. The success of the Navajo and LaKota cultures is measured by the health of the people and their ability to sustain themselves generation after generation.

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Discussion Questions:

Why does Chief Seattle consider it strange that the American government would want to buy the land on which the tribe is living? What is his view of this land?

How do you think a person in the Navajo culture attains status? How does this compare to how someone in our society attains status?

What is the relationship of the people with natural resources?

Why do you think subsistence economies have historically been unable to cope well with being geographically displaced, e.g. being put on reservations far from their original homes?

HANDOUT 2-1

B) Capitalist Economy

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.

Adam Smith, The Wealth of Nations, 1776.

Adam Smith was the 'forefather' of capitalist thinking. His assumption was that humans were self serving by nature but that as long as every individual were to seek the fulfillment of her/his own self interest, the material needs of the whole society would be met. Therefore, there was no need for the government or any outside force to interfere or try to regulate the market. Privately held property and making profit would be the norm and help provide incentive.

Society would only benefit, Smith believed , if there were no monopolies so that competition could operate unrestricted. So, for instance, if one baker in your neighborhood decided to charge ten dollars for a loaf of bread, he would not get away with it as long as there were another baker willing to sell his bread for a more reasonable price. You, acting in your own self interest would go to the cheaper baker (competition). If however, one person owned all of the bakeries in your neighborhood (monopoly) and he raised the price, you would have no choice and would have to pay or go without bread.

This tendency for competition to keep the prices of products in line with the needs of consumers Adam Smith called the "invisible hand." The invisible hand of the market, said Adam Smith, will allow the self interest, of each individual to provide for the overall interest of society.

Adam Smith also described the idea of division of labor. Efficiency is important in a capitalist economy and Adam Smith observed one day in a pin factory that pins could be produced more efficiently if "one man draws out the wire, another straights it, a third cuts it, a fourth points it . . ." and so on. More pins could be produced this way than if one person made the whole pin each time. This was the birth of the modern day industry.

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Discussion Questions:

According to Adam Smith, what is the main thing that individuals should be concerned about in order to make society run smoothly?

Do you agree that people act mainly in their own interest? Do you think this is human nature?

What are the main characteristics of a capitalist economy?

How do you think Adam Smith would view the large corporations of the modern world?

HANDOUT 2-1

C) Socialist Economy

... communists can sum up their theory in the pithy phrase:

the abolition of private property.

Karl Marx, Manifesto of the Communist Party, 1848.

Karl Marx wrote about Communism 75 years after Adam Smith put forward his theories. He had observed capitalist industries in Europe and had concluded that they promoted a great deal of inequality. It was the person who owned the pin factory (to take Adam Smith's example) who gained from the increase of efficiency, not the people who actually made the pins, and Marx felt that this was no better than the unfair feudal system of landlords and serfs that capitalism was supposed to have replaced. Marx believed that if all property were owned in common, and each member of society had an equal share, that it would prevent the division of society into two classes: those who produce and those who gain from the sale of those products.

Because he knew that the rich would be unwilling to give up their privileges and their power, Marx theorized that a transition from a capitalist economy to a communist economy where there would be no private ownership might necessitate a violent revolution. His idea was that if the workers (the proletariat) organized they would be able to overthrow those in power and then they could set up a provisional government that would facilitate a gradual move to communism.

Both Adam Smith and Karl Marx believed that the purpose of the economy is to provide for the material needs of society and they both assumed that for the most part humans acted in their own self interest. Adam Smith's system protected an individual's freedom, and said that the common good could be attained by all individuals seeking their personal interest. Karl Marx's system provided for equality among individuals and relied on a strong central government to provide for the common good, at least during the transition to the ideal communist society.

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Discussion Questions:

What was Marx reacting to when he was creating his idea for the communist society?

List the main characteristics of a socialist economy.

What do you think might be sacrificed in the economy of Marx in order to achieve more equality?

Do you think it is possible to create a more equal society where individuals still have a great deal of freedom and self-determination?

HANDOUT 2-1

D) Buddhist Economics

The keynote of Buddhist economics is simplicity and non-violence. ... For the modern economist this is very difficult to understand. He is used to measuring the "standard of living" by the amount of annual consumption, assuming all the time that a man who consumes more is "better off" than a man who consumes less. A Buddhist economist would consider this approach excessively irrational: since consumption is merely a means to human well-being, the aim should be to obtain the maximum of well being with the minimum of consumption.

E.F. Schumacher, Small is Beautiful: Economics as if People Mattered, 1973.

The economic system described by E.F. Schumacher revolves around the quality of life of everyday people. Work is meant to be meaningful and creative, not a source of stress and distaste. Machines are used to improve a person's work, but not to replace it, or make it boring. Recreation is found more in the spending of time with friends and in nature, rather than in the consumption of resources. The economy is measured by the health and creativity of its members as much as by the amount of things it produces and consumes.

In a Buddhist economy the goals of simplicity and non-violence work together. In an effort to reduce the violence against the earth of extracting fossil fuels, and in the interest of avoiding international conflict over scarce reserves of oil and gas, the Buddhist economist, says Schumacher, would support using more local and ecologically sensitive sources of energy such as solar, wind and hydroelectric. Such an economy doesn't necessarily use what is cheapest on the market, but what serves its aims of simplicity and non-violence best.

Schumacher points out that in such countries there are very few labor saving machines such as kitchen appliances and yet levels of stress are much lower than in a place such as the United States. The idea in such an economy is to produce and consume only as much as is necessary and leave the rest of your time for artistic creativity and self improvement.

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Discussion Questions:

What does it mean for a Buddhist economy to be successful?

What kinds of transportation do you think are most used in a Buddhist economy?

What do you think the assumption about human nature is in a Buddhist economy?

Describe how the members of a Buddhist economy might view nuclear power.

HANDOUT 2-1

A Day in the Life . . .

Henry David Thoreau once said that economics comes down to how people spend their time.

1.) Imagine that you are a person in one of the economies described above (other than capitalist). On a separate sheet of paper, write two journal entries as this person.

In the first one, describe a typical day: what is your daily routine, how do you secure your basic needs, what is your attitude toward the work you are doing, what are you thinking about, who do you spend time with, etc.

Then in your second journal entry write about another day, a special occasion. Describe where you go, what you do on a special occasion as a person in this kind of economy. Think about the economy's assumptions about nature, about work, about the meaning of life. Each Entry should be one half page.

2.) Next, describe how you spend your time typically and on a special

occasion. (one half page)

3.) Do these two differ in any way? How?

4.) Imagine yourself in a different economic system and repeat this exercise.

HANDOUT 2-1

Activity 2-2

Objectives

· Analyze the advantages and disadvantages of different systems in the process of designing an ideal economy.

· Engage in problem-solving activities with others that focus on questions that are central to the organization of the ideal economy.

Materials

Student Handouts: The Island Game/Setting up Your Island Society

Problem Solving Cards

Evaluation of Your Island Economy

Time

Three to four class periods

Evaluation

Group record sheets can be turned in and group presentations can be evaluated.

For a more individual evaluation, students can respond to the questions on the handout, "Evaluation of Your Island Economy." This can be used as a test or assessment covering basic economic concepts, including many from Lesson 1 and 2.

Vocabulary

natural resources land, labor and capital socio-economic goals

trade-offs opportunity costs scarcity

Suggested Procedure

1) Divide students into groups of four.

2) Read the Island scenario to the whole class. Have students select roles in their groups.

3) Have each group discuss the questions on the handout Setting up Your Island Economy and record their answers.

4) Then have each group draw one (or more) of the Problem Solving cards from a hat and work out a solution.

5) Ask each group to record their decisions and report back to the whole class how they set up their economy, what their issue was, and how they proposed to deal with it. Use this as a time to facilitate whole class discussion on the questions.

6) Have students prepare for and then individually perform the "Evaluation of Your Island Economy."

Island Game

The Scenario

Take a good look around, because these are the people with whom you have just been shipwrecked on a distant uncharted island.

As far as you know, you are the only survivors of global catastrophe and it is up to you to develop a new society. This society should meet your needs, as you define them, and it should avoid the mistakes of "the old ones", those who died in the recent tragedy.

Use the questions provided to guide your discussion of how you will set up this new society. Record your answers on a separate sheet of paper headed by the name you have given to the island.

This is a beautiful island. It is tropical (average temperature 80°F), it has many sources of food (fruit trees, fish, land for agriculture), and it has a steady wind from the West of about 15 m.p.h.. Remember, this is not a vacation, you have work to do . . so get to it !

Roles

Interrogator

Recorder Record any group response to each question.

Group Make sure answers do not conflict with one another and that they are Conscience consistent with economic plan. Ask questions to help group develop more specific responses.

Map Specialist Keep others aware of geography and natural resources of island to help group develop a realistic economy.

HANDOUT 2-2

SETTING UP YOUR ISLAND SOCIETY

Economic Plan

What will be your economic and/or socioeconomic goals? Choose only most important ones, recognizing trade-offs.

Overall, what will be produced? How will it be produced? For whom will it be produced? Who will make those decisions (government, individuals or a mix)?

How will your island government be involved in the economy?

Directions: Use answers to "Economic Plan" to determine the following. Make sure your responses are consistent with your overall plan.

Land/Distribution/Location

Will the land be privately owned? If so, who gets it and how?

Should the land be owned by everyone together?

Should you divide it up and distribute it?

If so, should it be divided equally? What constitutes equal?

Where on the island should you live? (Draw this on map.)

Should you consider the needs of the environment? How?

Who has rights to the water? How will these be provided for?

Labor

What work must be done?

List the kinds of jobs required to sustain the lifestyle you desire.

Who should do these jobs?

What about the jobs that nobody likes?

Does each person just have one job or many?

Land

What natural resources will be used to produce goods?

Will there be rules governing use of natural resources? Why or why not? If yes, which?

Capital

What kind of capital (tools, machines, etc.) will be used to produce goods? How will this capital be attained?

Basic Needs

Are there some basic needs that you believe should be guaranteed for

all? If so, what are they? Or do you think that individuals should

secure their needs by themselves?

Create a name for your team that reflects the type of system you have developed.

HANDOUT 2-2

PROBLEM SOLVING CARDS

Population and Consumption

You notice that your natural resources are becoming overused and studies indicate that your society is consuming more that can be sustained in the long term. Do you consider the needs of future generations? How do you deal with a growing population and the overconsumptive habits of your society?

Energy

You must come up with an energy policy. Your ship was a nuclear ship and the equipment could be adapted for the production of nuclear power. You also have oil reserves right off your Western coast that you can tap and internal combustion engines from the ship. And you have the capability to build windmills, solar collectors and steam generators. You have your forests and you have a student that has studied energy efficient architecture. What are the pros and cons of each of the sources of energy? For what purposes will you need energy? How will you generate this energy?

International Finance and Debt

Representatives have visited you from another planet. They explain that although they cannot take you to their planet, they can assist you in improving yours. They will lend you the money and machinery to enable you to produce 10 times as much on your fields if in return you will grow and sell the crops needed by their society and if, once you have made enough money, you will repay them at 10% annual interest.

Remember, many of the fields that produce a variety of foods for your people will now get planted with cash crops for export. And these fields, because they are planted with one crop, may require pesticides and artificial fertilizers. Also, the visitors wish to lend the money to the most well off in your society to protect their investment, so the land holdings of these individuals may grow and force others to sell their land and become workers on the big farms. What are the pros and cons of this offer? Do you accept this offer? Why or why not?

Non-material Economy

Some people want to devote themselves to philosophical thinking, poetry, art

and spiritual development. Are these valid ways to make a living in your society? Are they contributing to society? How could such contributions be acknowledged or rewarded? Are there other types of non-material work that should be acknowledged or rewarded? What does it mean to be a healthy and productive citizen?

PROBLEM SOLVING CARDS

Welfare

Some of the members of your group had various social problems, e.g. drug

addiction and mental illness when you arrived. These people do not work very hard, at least for now, and need special medical care and psychological help.

Will the other members of the society provide for these individuals' needs? How and for how long?

Guns and Butter

It is rumored that not far from you is an island of people who are very dangerous. Of all your time and resources, what percentage are you willing to devote to preparing to defend yourselves? What activities, services, luxuries might be cut in order to provide for your defense? Would you want a standing army, armed and ready to fight at any moment? Who would serve in an army were you to need one? What are the pros and cons to having a more "defense based" economy?

Native Peoples

You have just found out that in a remote area of the island (a place

with fantastic groves of mango and banana) there exists a tribe of people native to this island. It is also rumored that the ground underneath this tribe is rich in coal deposits. You could use coal as a fuel for your new machines; what should you do?

Will you ask the tribe to join your culture and share the resources? Will you leave them alone? Will you remain separate but establish peaceful relations? Will you ask them to move? Give them another part of the island? How will you deal with these 'new' people and their resources?

Pollution

Water pollution has become a serious problem. The streams that flow on your island are quickly becoming unsafe for swimming and fishing. In fact, 1/3 of the fish population has died off from pollution. The causes of the pollution are many: pesticide and fertilizer run-off from farms; oil and coolant run-off from cars; waste from factories; erosion and manure from overgrazing cattle; and litter.

How has water been treated as a free good? Develop a plan to deal with water pollution. What are the trade-offs to your plan? Who should be involved in making this plan?

Evaluation of Your Island Economy

SHOW YOUR UNDERSTANDING OF KEY ECONOMIC CONCEPTS BY CLEARLY AND SPECIFICALLY ANSWERING THE FOLLOWING:

1. Describe your group's economic plan BRIEFLY by listing the following:

a. economic and/or socioeconomic goals

b. goods and services produced; methods of production and distribution employed

c. use of land, labor and capital.

d. whether and which basic needs will be guaranteed for all.

e. where decision-making authority lies.

f. level/degree of government involvement

2. Is your system more capitalist or socialist? What type of economic system(market, mixed or command)? Explain referring to evaluation list (items a­ f above).

HANDOUT 2-2

3. Are there any Buddhist or subsistent characteristics to your economy?

If yes, explain which characteristics. If no, explain characteristics that could have been included to make it more Buddhist or subsistent. Be specific.

4. Explain the opportunity cost of pursuing any one of your goals.

5. How do economics and ecology interact in your island society? Are they in harmony or conflict? Explain using specifics from your island economy, particularly use of natural resources and the concept of scarcity.

6. Which problem did you have to address in your island economy? How did you respond? How was it consistent or not with your economic system described above in question #2? Be specific.