Economic Systems: Capitalism, Socialism, Communism

• Study notes on key economic systems, property rights, valuation, capitalism criticisms, Adam Smith, stock market, and banking

Differences Between Capitalism, Socialism, and Communism

• Capitalism involves private ownership of production means with market-driven decisions based on supply, demand, and profit.
• Under capitalism, individuals and businesses operate freely for profit with minimal government intervention.
• Socialism features collective or public ownership of production means, with decisions aimed at fulfilling public needs.
• Socialism includes market regulation and government planning to prioritize equality.
• Communism advocates abolishing private property and centralizing production and distribution under state control.
• Communism aims for a classless society with needs met through collective planning.

Property Rights as a Bundle of Sticks

• Property ownership comprises multiple rights, each represented as a "stick" in a bundle.
• Sticks in the bundle include possession, use, transfer, exclusion, and destroy.
• Possession is the right to use and occupy the property.
• Use is the right to make decisions on how the property is utilized.
• Transfer is the right to sell, lease, or transfer ownership of the property.
• Exclude is the right to prevent others from using the property.
• Destroy is the right to destroy the property.
• Property rights can be separated, altered, or shared, as demonstrated by renting.
• Renters possess usage and exclusion rights but lack transfer or destruction rights.

Four Ways to Determine the Value of Property

• Market Value is the price buyers are willing to pay in an open market.
• Book Value is the original cost adjusted for depreciation and used by businesses to reflect historical value.
• Intrinsic Value is the inherent worth based on invested resources or labor, as per John Locke's labor theory.
• Value to Human Flourishing considers the property's impact on well-being.
• Hegel suggests that the contribution to moral or spiritual growth determines value.
• Market Value is practical as it reflects economic activity and willingness to pay.

Criticisms of Capitalism

• Individual good vs. collective good: Focus on individual success may undermine the collective good.
• Pursuit of efficiency and profit can lead to worker exploitation and inequality.
• GDP vs. GNH: GDP measures economic activity, while GNH (Gross National Happiness) includes well-being factors.
• GNH emphasizes factors like health, education, and leisure.
• Crony capitalism sees businesses influencing political decisions to limit competition.
• Crony capitalism creates unfair advantages for the wealthy, hindering market freedom and smaller competitors.
• Capitalism may prioritize profits over fairness, well-being, equality, and environmental concerns.

Adam Smith’s Principles of Capitalism

• Self-Interest: drives individuals to improve circumstances, benefiting society. Example: A hunter purchasing equipment benefits both themselves and the bow maker.
• Labor: Smith considered labor the true measure of wealth, not just resources.
• The Invisible Hand: Individuals' pursuit of self-interest unintentionally promotes general welfare.
• General Welfare: Smith advocated for workplace safety laws and education to maintain individual and societal well-being.

Three Main Roles of the Stock Market

• Raising Capital for Companies: Companies issue shares to raise funds for growth and expansion.
• Providing Liquidity allowing easy buying and selling of stocks.
• Facilitating Profit for Investors through capital gains or dividends.

Stock Market and Banking System Multiplying the Money Supply

• Stock Market: Companies increase wealth for investors via increased evaluation.
• Banking System: Banks create money through fractional reserve lending.
• Fractional reserve lends money, it gets spent, deposited, and re-lent.
• The banking system significantly influences the money supply and credit availability.