Hey there!
This is your teacher Mr. H.,
and you’re watching History in a Hoodie.
Today’s episode is about economic systems
where we will learn all about how different
countries approach making money.
I can’t wait to find out!
Well then, let’s get this show started!
What are we learning about today?
The standard for today’s lesson asks the
students to compare how traditional, command,
and market economies answer the basic economic
questions.
We will also explain that countries have a
mixed economic system located on a continuum
between pure market and pure command.
Finally, we will compare and contrast the
economic systems of Israel, Saudi Arabia,
and Turkey.
Before we start, let’s go over some vocabulary
for today’s lesson.
When I was young, I once wondered how the
prices for the items on store shelves were
determined.
Instead of asking a teacher or parent, I came
up with my own understanding.
I thought that the price of everything was
based on how much time it took to make the
product.
It made perfect sense to me… a house takes
weeks to build and is one of the more expensive
things out there to buy.
Cars cost a lot as well, but they’re smaller
and easier to build than houses, so they sensibly
cost less than a house.
I learned later on, of course, that isn’t
the reality for our country’s economy or
any other country either, but I was very interested
to learn that not every country has the same
answer for that question of how price is determined.
Maybe, perhaps, some day when I become the
King of my own country, I will be able to
implement my own pricing system.
No, in fact there are just three main ways
around the world that answer the question
about how products will be sold, and these
answers are tied to the three main economic
systems found around the world – market
economy, command economy, and traditional
economy.
In a market economy, the prices are set by
those who participate in the market: the buyers
and the sellers.
If buyers (called consumers) think something
is too expensive at its current price, then
they won’t buy it and the seller (called
producers) will probably decide to lower the
price.
Also, a producer may not be willing to sell
a product at too low of a price because they
won’t make a profit.
Alternatively, in a command economy it doesn’t
matter what they consumers and producers think
a price should be – they are told what to
buy and sell everything for by government
planners.
Do you want to buy an apple?
You get one for the government-mandated price.
Do you want to sell a car?
You sell it for the government-mandated price.
Do you work in a job for a salary?
You earn the government-mandated salary wages.
Suddenly, it makes sense why this economy
is called command – the government likes
to tell people what to do in these countries.
The market and command style economic systems
are both very modern approaches to running
an economy.
The old-school version that only appears in
small towns and villages in remote locations
is called the traditional economic system.
Instead of using money to buy goods and services,
in a traditional system people barter (or
trade) for the things they need and want.
Does your family need new winter clothes?
Well, I see you have some chickens there,
so I’ll trade you 15 eggs for a set of coats.
So, what?
How do the economic systems compare in terms
of what, how, and for whom to produce?
So, of the three economic systems, which country
is which?
The answer is none of them.
The first and most important fact you need
to understand is that no country’s economy
completely matches the definition of market,
command, or traditional, and none of them
are any close to traditional at all.
Countries’ economies fit somewhere between
market and command.
If draw a line from Command to Market, you
can plot each country in the world somewhere
on that line to represent how close to command
or how close to market they are.
This is called an economic continuum, and
it can compare the economies of the countries
plotted on it.
To demonstrate the continuum, here’s the
United States placed on it.
You’ll notice that the US is not a 100%
pure market or a 100% pure command country,
but it is slightly closer to market than command.
Now, I’ll place a few additional points
of interest on this map.
In 2007, you’ll notice that the country
was even more market than in 2010.
Why did the country’s economy change here?
Well, due to an economic recession, the government
temporarily took over a couple industries
– the automotive and banking industries
– to fix the economy.
Because the government was in charge, that
means it increased the amount of command and
decreased the market of our economy.
After recovering from the recession, the US
returned control of these industries to the
people, so the country inched closer to the
market side once again.
Now, I’ve added the modern countries of
Southwest Asia, Israel, Saudi Arabia, and
Turkey, to the continuum.
You’ll notice that Israel is the nearest
to the market side of the continuum while
Saudi Arabia is nearest to the command side
of the continuum.
How does this information help us understand
these countries?
In Israel, business owners and consumers are
given more freedom to buy and sell as they
please.
Israelis likely have many opportunities to
start businesses and grow personal wealth.
On the other hand, restrictions by the government
in Saudi Arabia probably keep most people
equally poor all around.
The government has much control over many
of the most important industries – especially
the oil industry – and profits from that
industry are not as likely to find the way
into the hands of workers.
So, why isn’t every country completely market
or completely command?
Well, pretty much every country has discovered
that there is a benefit to having a combination
of market freedoms with government rules – also
known as Mixed Economies.
If a country was completely market, that means
that businesses could get away with doing
anything they wanted including paying workers
almost nothing, not paying attention to workplace
safety, and unlimited pollution of the environment.
On the other hand, a completely command economy
gives workers no incentive to work hard or
to come up with inventive ideas that would
benefit everybody, and most people will still
remain equally poor.
Opening up the free market while maintaining
some controls to ensure everybody is safe
and treated properly in the workplace seems
to be the best combination of economic systems
in the world today.
Now, what?
What am I going to do with this information?
There’s an old, probably made up, fable
about what it is like to work in a command
economy.
In a small town there was a factory that made
glass windows, and everyone in that town had
to work in that factory.
They didn’t get to choose what kind of work
they wanted to do, nor did anyone consider
if these people were good at making glass
in the first place.
They just did what they were told to do.
One day, the government planners instructed
the factory that they were expected to produce
1,000 glass windows before the work shift
ended and no one could leave until the windows
were made.
The workers, who didn’t really care about
doing a good job, realized that if they poured
the windows almost paper thin then they would
dry quicker, and they could leave early that
day.
The government planners were obviously not
pleased with the 1,000 thin windows that shattered
on the trucks as they left the factory.
The following day, the government planners
instructed the factory that they must use
all of the mix in the gigantic vats that day
to make their windows and no one could leave
until all of the mix was used up.
The workers, again, realized that they could
make the windows now 6 inches thick and that
would run out the mix much faster.
They left early that day and again the planners
were not pleased with the 15 windows that
weighed a ton and didn’t fit into any window
frames anywhere.
What we learn from this fable is that people
need an incentive to work hard.
No one will just work for the glory of Mother
Russia.
One of the reasons people work so hard in
a market economic system is because their
hard work can result in promotions and raises.
People put in the effort to invent new and
brilliant inventions and ideas in a market
economy because this effort can result in
growing a successful company and making a
lot of money.
That level of enthusiasm for working is almost
never seen in command economies which is why
they often fail.
Wow!
So, learning about countries’ economies
is really important for us to understand.
I’m glad we learned it today!
Are you ready for some review questions?
I hope all of you learned a lot from today’s
episode of “History in a Hoodie” about
economic systems of the Middle East.
If you did, don’t forget to like, subscribe,
and share….
Just kidding, I don’t care about that stuff.
But do make sure you study this lesson.
Bye now!
