Psychology Education

Economic Systems

Economic Systems

In the Island Case Study, we started with a simple one-person economy. But, economies are not usually made up of one person. In fact, I think that most of us would agree we are not designed as a species to live on our own. Those of you who saw the Tom Hanks movie “Castaway” will recall that he was fairly successful at providing for his material needs. But he was willing to sacrifice it all to get back “civilization” with all its traffic jams and annoying cell phones. Poor Wilson just wasn‛t enough. So why do people need to be around other people? I‛m sure my academic colleagues in biology, anthropology, psychology and theology would have much to share in answering this question. But I would contend that people need to be together because they are much more likely to survive if they can work together...work is an economic activity. So, I‛m saying that people are social animals in order to facilitate our economic lives. Why are we more likely to succeed when we work together? Because that is the way we can make use of our differences. One person may be tall, another short, who should pick apples? Who should collect grubs? One person has a “green thumb” while the other loves the hunt. Who should be our gardener? Having different skills and abilities, and then working in those areas where we are comparatively stronger, creates benefits economists call gains from specialization. Adam Smith, the father of modern economics (he‛s the one you can blame for this class), argued in Wealth of Nations that the gains from specialization is the key that makes mankind materially better off. He then argued that the economic system that causes society to make the most of these gains is the market system – but more about this later. The Three Economic Systems The fact is, because we live in groups, we have to figure out some sort of organizational scheme that assigns tasks to its members. Indeed, this scheme must do more than that, it must answer...