Economic and Political Systems

Question 1

What is Capitalism?

Answer 1

An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

“an era of free-market capitalism”

Question 2

What are the Main Features of a Capitalist Economy?

hint: there’s 6

Answer 2

(i) Private Property
(ii) Price Mechanism
(iii) Freedom of Enterprise
(iv) Sovereignty of that consumer
(v) Profit Motive
(vi) No Government Interference

Question 3

What are (arguably) the top 5 most capitalist countries in the world?

Answer 3

Germany
USA
China
India
Japan

Question 4

What is a Market Economy?

Answer 4

A market economy is an economic system controlled, regulated and directed by market prices.

Order in the production and distribution of goods is entrusted to this self-regulating mechanism.

Question 5

What assumptions and expectations are present for a Market Economy?

Answer 5

1. A market economy derives from the expectation that human beings behave in a way to achieve maximum money gains.
2. It assumes that in the market, the supply of goods and services at a certain price will equal the demand at that same price.
3. It assumes the presence of money, which functions as purchasing power in the hands of its owners.
4. Under these assumptions, order in the production and distribution of goods is ensured by prices alone.

Question 6

What things depend on prices in a Market Economy?

Answer 6

Production is controlled by prices

The profits of those who direct production depends on prices

The distribution of the goods also depends upon prices
- As prices form incomes, and these incomes distribute the goods produced amongst the members of society

Question 7

In a free market economy;
what is produced?,
how is it produced?, and
who is it produced for?

Answer 7

What is produced: determined by what the consumer prefers

How to produce it: in a way for producers to get profits

Who is it produced for: whoever has the greatest purchasing power in the economy, and is therefore able to buy the good

Question 8

What is Communism?

Answer 8

A society based on the common ownership of the means of production; which would lack social classes, money, and a state.

Question 9

What are the Features of theoretical Communism?

Answer 9

Abolition of property in land and application of all rents of land to public purposes.

A heavy progressive or graduated income tax.

Abolition of all right of inheritance.

Confiscation of the property of all emigrants and rebels.

Equal liability of all to labour.

The combination of agriculture with manufacturing industries.

The gradual abolition of the distinction between town and country. This will be achieved by a more equable distribution of population over the country.

Free education for all children in public schools. Abolition of children’s factory labour. The combination of education with industrial production.

Centralisation of credit in the hands of the state. It would own a national bank with state capital and an exclusive monopoly.
The state would control communication and transportation.

Question 10

What are the Characteristics of Communism?

Answer 10

No private business.

All means of production are under state ownership and control.

The forces of demand and supply are balanced by central planning.

The abolition of revenue, interest and private profit puts the system of distribution of wealth on a just and fair basis.

State is responsible to provide work and compensation.

Question 11

What are (arguably) the Top 5 most communist countries in the world?

Answer 11

People's Republic of China
Democratic People's Republic of Korea (North Korea)
Socialist Republic of Vietnam
Lao People's Democratic Republic (Laos)
Republic of Cuba

They aren’t necessarily pure communism but are transitioning from socialism. The country that adheres most strictly to communist principles is North Korea.

Question 12

What is Institutionalism?

Answer 12

The Institutional school emphasises the role of institutions in economic life. According to the Institutional school, economic life is regulated by economic institutions and not by economic laws.

It looks at how structures become established as authoritative guidelines and constraints for the social behaviour of individuals.

Question 13

What are Institutions?

Answer 13

Well-established arrangements and structures that are part of the culture or society.

The term “institution” includes customs, social habits, schemes, laws, norms, ways of living, routines, and modes of thinking.
Examples also include competitive markets, the banking system, kids’ allowances, customary tipping, and a system of property rights

Question 14

What is the Old/Original Institutionalism?

Answer 14

An approach to the study of politics that focuses on formal institutions of government

Question 15

What is the Neo-Institutionalism?

Answer 15

The institutionalism that emerged in the 1980s

Focuses on developing a sociological view of institutions — the way they interact and the way they affect society.

It provides a way of viewing institutions outside of the traditional views of economics by explaining why and how institutions emerge in a certain way within a given context.

It explores how institutional structures, rules, norms, and cultures constrain the choices and actions of individuals when they are part of a political institution.

Question 16

What is neo-institutionalism also known as?

Answer 16

New Institutionalism,

Neoliberalism

Question 17

What does Institutional Economics focus on?

Answer 17

Focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour.

Question 18

What is institutionalism in International Relations?

Answer 18

A group of differing theories on international relations, which have in common their focus on the social and organisational orders, mechanisms and structures of the international system

Question 19

What is Historical Insitutionalism?

Answer 19

A social science method of inquiry that uses institutions as subject of study in order to find, measure and trace patterns and sequences of social, political, economic behaviour and change across time and space

Question 20

What is Neoliberalism?

Answer 20

Neoliberalism is the 20th-century resurgence of 19th-century ideas, associated with laissez-faire economic liberalism and free market capitalism.

Question 21

What does Neoliberalism aim to do?

Answer 21

It aims to increase the role of the private sector in the economy and society.

It does this via privatisation, austerity, deregulation, free trade, and reductions in government spending

Question 22

When did neoliberalism/neo-institutionalism come into prominence, and what did it shift from?

Answer 22

Neoliberalism came into prominence in the 1980s

This happened after paradigm shift away from the post-war Keynesian consensus which lasted from 1945 to 1980. Keynes flopped

Question 23

What are some of the Types of Institutionalism that are studied?

Answer 23

Main Three:
Rational choice institutionalism.
Historical institutionalism.
Sociological institutionalism.

Also:
Normative institutionalism. Empirical institutionalism. 
Actor-centered institutionalism. 
Constructivist institutionalism.
Feminist institutionalism.

Question 24

What are the Features of Institutionalism?

Answer 24

The central theme of economics is group behaviour, not price.

Custom, habit and law are modes of organising economic life.

The economy must be studied as a whole. It is in contrast to the “atomistic” approach of the marginal school.

They advocate the evolutionary approach in economic analysis. The study of the evolution and functioning of economic institutions should also be a central theme in economics.

They reject the idea of “normal equilibrium”. According to them, mal-adjustments in economic life are not departures from normal equilibrium but are themselves normal.

Economic laws are not of universal application. They are relative to time and place. In other words, they believe in the doctrine of relativity.

They reject the classical assumption of harmony of interests. They recognise class conflict.

Question 25

What do Institutionalists Recognise?

Answer 25

They recognise that human behaviour is constantly changing and economic generalisations should be relative to time and place.

They hold that important motives which influence individuals cannot be measured.

Question 26

What is Rational Choice Institutionalism?

Answer 26

Rational Choice Institutionalism (RCI) is a theoretical approach to the study of institutions arguing that actors use institutions to maximise their utility. However, actors face rule-based constraints provided by the institutional environment which influence their behaviour.

It examines institutions as systems of rules and incentives.

Question 27

What is Sociological Institutionalism?

Answer 27

Scholars of this stream view institutional rules, norms, and structures as culturally constructed.

They tend to look at the role of myth and ceremony in creating institutional cultures, as well as the role of symbol systems, cognitive scripts, and moral templates.

Question 28

What is Classic Economics?

Answer 28

poop

Question 29

What was the economy like before Classical Economics?

Answer 29

Before the rise of classical economics, most national economies followed a top-down, command-and-control, monarch government policies system.

Question 30

What was Classical Economy’s Relevance?

Answer 30

Classical economic theory helped countries to migrate from monarch rule to capitalistic democracies with self-regulation.

Question 31

What did classical economists try to explain?

Answer 31

Classical economists provided the best early attempts at explaining capitalism’s inner workings. The earliest classical economists developed theories of value, prices, supply, demand, and distribution.

Nearly all rejected government interference with market exchanges preferring a looser market strategy known as “laissez-faire,” or “let it be.”

Question 32

What are some Features of the Classical school of Economics?

Answer 32

Focus: Classical economics focuses on what makes an economy expand and contract. As such, the classical school emphasises production of goods and services as the key focus of economic analysis.

Analysis: All their analyses and predictions are based on a holistic and wide perspective on the economy as a whole system.

History: Classical economics grounds its analysis in history, specifically the history of the nation or culture of which a certain economic system is a part. History provides a notion of how this economy expanded and contracted in the past, which can then be used to try to predict how it might expand and contract in the future.

Value in Analysis: the school emphasises the inherent value of goods and services. These goods and services are thought to be worth something regardless of who produces them and who uses them.

Question 33

What was the Main Idea of the Classical school of economics?

Answer 33

The main idea of the Classical school was that markets work best when they are left alone, and that there is nothing but the smallest role for government.

The approach is firmly one of laissez-faire and a strong belief in the efficiency of free markets to generate economic development.

Markets should be left to work because the price mechanism acts as a powerful ‘invisible hand’ to allocate resources to where they are best employed.

Question 34

Who are the main Classical Theorists?

Answer 34

Adam Smith (1723-1790)
David Ricardo (1772-1823)
Jean-Baptiste Say (1767–1832)
Thomas Malthus (1766-1834)
John Stuart Mill (1806-1873)

Question 35

What is Say’s Law?

Answer 35

“Supply creates its own demand”.

the aggregate production necessarily precedes an equal quantity of aggregate demand.

Question 36

What is Neoclassical Economics?

Answer 36

• Neoclassical or marginalist economic theories emphasized use value and demand and supply as determinants of exchange value.
• Theorists developed and highlighted the role of marginal utility (and individual utility maximization), as opposed to cost of production, as the key to the problem of exchange valuation.

Question 37

Where does Neoclassical economics Originate from?

Answer 37

The theory was built on foundations laid by classical theorists Adam Smith (1723-1790) and David Ricardo (1772-1823).

Neoclassical economics is grounded in the rejection of Marxist economics and on the belief that the market system will ensure a fair and just allocation of resources and income distribution.

Question 38

What are some Features of Neoclassical Economics?

Answer 38

Neoclassical models assume that everyone has free access to information they require for decision making. Hence, in the neoclassical view, people’s initial ability to maximize the value of output will, in turn, affect productivity and determine allocation of resources and income distribution.

Known also as the neoliberal theory, neoclassical economics asserts that free movement of goods (free trade), services, and capital unimpeded by government regulation will lead to rapid economic growth. This, in the neoclassical view, will increase global output and international efficiency because the gains from division of labor according to comparative advantage and specialization will improve overall welfare.

Neoclassical economics is attributed with integrating the original classical cost of production theory with utility in a bid to explain commodity and factor prices and the allocation of resources using marginal analysis.

Neoclassical or marginalist economic theories emphasized use value and demand and supply as determinants of exchange value.

Neoclassical models assume that everyone has free access to information they require for decision making.

Question 39

What are the 3 central ssumptions of Neoclassical Economics?

Answer 39

1. People have rational preferences between outcomes that can be identified and associated with values.
2. Individuals maximise utility and firms maximise profits.
3. People act independently on the basis of full and relevant information.