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Unit 2: Free Enterprise in the United States

2.3 Command v. Market Economy

Communism

Command Economies Today...

Shopping in the Soviet Union

Reagan's Soviet Union Jokes

  • In reaction to economic inequality under capitalism, German theorists Karl Marx (1818-1883) and Friedrich Engels (1820-1895) created the economic and political ideology called "Communism".
  • Goal: Create a classless society where everything is public, rather than private, property.

  • Under communism, none of the "factors of production" - factories, land, etc. - are owned by individuals.
  • Instead, the government controls the F.O.P, and all of the people work together.
  • The wealth produced is shared out among the people based on their needs, rather than how much they contributed.

  • Countries that implemented one or another version of communism in the 20th century include Russia (as the Soviet Union), China, Vietnam, Cuba, and North Korea.
  • In every case, communist dictators rose to power in order to enforce the reordering of the political and economic structure.
  • Today:
  • Russia is no longer communist
  • China and Vietnam are politically communist but economically socialist/capitalist
  • Cuba is communist, but has opened up to some market-based reforms
  • North Korea continues to practice communism.

Compare and Contrast!

Anti-Soviet Propaganda

In the following clip, list reasons why "ISM" was appealing to the workers?

"The three P's lead to the three I's"

Name that flag!

Important Faces in Communist History

Mixed Systems

Pillars of a Command Economy

Venezuela, a Federal Presidential Constitutional Republic" is ran by Nicolas Maduro, of the United Socialist Party of Venezuela, has ran the country into the ground with his socialist economic policies

  • Shortages in Venezuela include milk, flour, and other necessities and malnutrition then increasing, especially among children.
  • In 2014, Venezuela entered an economic recession and in 2015, Venezuela had the world's highest inflation rate with the rate surpassing 100%.
  • Long lines for basic necessities such as laundry soap, diapers, and food is the norm rather than the exception. Thousands of people stand in line for 5-6 hours in the hopes that they would be able to purchase a few much-needed items.

http://www.activistpost.com/2016/02/venezuela-is-out-of-food-heres-what-an-economic-collapse-really-looks-like.html

  • Historically, command economies have often been associated with Communist Ideology
  • But, just because a nation has a command economy does not necessarily mean they have a Communist government (Ex. Venezeula)

Karl Marx

Joseph Stalin

Pol Pot

Mao Zedong

Friedrich Engels

Fidel Castro

  • There are no PURE market economies (100%),
  • not even the United States!
  • Mixed Economy- blend of voluntary exchange and gov’t command
  • There may be an emphasis in private ownership, but allow gov’t to play a key role in the lives of citizens.

The Socialist Calculation Problem

  • Gov't:

1. Holds most property rights

(Rather than private property rights)

2. Determines what G/S to produce and

what prices are.

(Rather than products and prices emerging through market competition and interaction b/t buyers and sellers)

3. Owns/Manages the Means of Production

(Rather than individuals and businesses)

  • "COMMAND" b/c gov’t issues orders on what to make, how to make, and for whom to make g/s
  • Gov't prepares detailed plans on how economy should function

"Socialism attempted to replace billions of individual decisions made by sovereign consumers in the market with “rational economic planning” by a few vested with the power to determine the who, what, how, and when of production and consumption.

It led to widespread shortages, starvation, and mass frustration of the population. When the Soviet government set 22 million prices, 460,000 wage rates, and over 90 million work quotas for 110 million government employees, chaos and shortages were the inevitable result. The socialist state destroyed work ethic, deprived people of entrepreneurial opportunity and initiative, and led to a widespread welfare mentality"

- Yuri Maltsev

Senior Researcher, Institute of Economics, Academy

of Sciences, USSR (1987–89)

Pillars of Free Enterprise

Mikhail Gorbachev

Kim Jong Il

Vladimir Lenin

Kim Jong Un

  • Private Property
  • Specialization
  • Voluntary Exchange
  • Price System
  • Market Competition
  • Entrepreneurship

Episode 337: The Secret Document that Transformed China

http://www.heritage.org/index/ranking

In 1978, a group of farmers in a Chinese village called Xiaogang wrote a secret contract and hid it in the roof of a mud hut. They were afraid the document might get them executed. Instead, it wound up completely transforming the Chinese economy.

China and "The Great Leap Forward"

http://www.npr.org/2012/11/10/164732497/a-grim-chronicle-of-chinas-great-famine

  • From 1958-62, Chairman Mao called on the people of China to increase agricultural and industrial output.
  • To make farms more productive, he created communes, groups of people who live and work together.
  • Result= "The Great Famine"... at least 30,000,000 deaths
  • "enormous amounts of investment produced only modest increases in production or none at all. ... In short, the Great Leap was a very expensive disaster"

Yen Jingchang was one of the signers of the secret document.

Trivia: Name the Communist!

https://www.npr.org/sections/money/2018/02/07/583999476/episode-337-the-secret-document-that-transformed-china

China and "The Great Leap Forward"

Secret State: North Korea

A look into daily life in the Soviet Union

Assignment: As you watch, list on a separate sheet of paper the following:

  • 5 unintended consequences you observe a result of their command economy
  • 5 new things you learned about North Korean society

http://kcmeesha.com/2010/02/08/old-photoswindow-shopping-in-the-ussr/

http://www.dailymail.co.uk/news/article-2255693/Last-pictures-life-iron-curtain-collapse-USSR.html

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