Lesson 2
Economic Systems

"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."


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.


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 lived by 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.


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.


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."


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.


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?



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