Download When the Market Was Not Free Economics Name: E. Napp Date

When the Market Was Not Free
Economics
E. Napp
Name: __________________
Date: __________________
Economic Concepts Needed for This Lesson:
Traditional Economy:
a) A traditional economy relies on habit, custom, or ritual to decide what to produce,
how to produce, and for whom to produce.
b) In a traditional economy, sons learn the same jobs as their fathers.
c) Traditional economies do not encourage innovation or change.
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Prove that a modern economy is not a traditional economy.
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Command or Centrally Planned Economy:
1) Government officials decide what to produce, how to produce, and for whom to
produce.

Identify one society that currently has or had a command or centrally planned
economy. State one disadvantage of this economic system.
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Free Market:
a) In this economy system, economic decisions are made by individuals.
1- Individuals are free to buy and free to sell.
b) The government does not regulate or intervene in the market.
1- This concept is best summarized by the French term “Laissez-faire” or “Let
them do as they please”.

State two ways a free market differs from a traditional economy.
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Reading: Excerpted and Adapted from The Worldly Philosophers by Robert L. Heilbroner
“Since he came down from the trees, man has faced the problem of survival, not as an
individual but as a member of a social group…Over the centuries man has found only
three ways of guarding against the calamity of a community breaking down.
1- He has ensured his continuity by organizing his society around tradition, by
handing down the varied and necessary tasks from generation to generation
according to custom and usage: son follows father, and a pattern is
preserved. In ancient Egypt, says Adam Smith, ‘every man was bound by a
principle of religion to follow the occupation of his father, and was supposed
to commit the most horrible sacrilege if he changed it for another.’ Similarly
in India, until recently, certain occupations were traditionally assigned by
caste; in fact, in much of the unindustrialized world one is still born to one’s
métier [occupation].
2- Or society can solve the problem differently. It can use the whip of
authoritarian rule to see that its tasks get done. The pyramids of ancient
Egypt did not get built because some enterprising contractor took it into his
head to build them, nor did the Five Year Plans of the Soviet Union get
carried out because they happened to accord with hand-me-down custom or
individual self-interest. Both Russia and Egypt were authoritarian societies;
politics aside, they ensured their economic survival by the edits of one
authority and by the penalties that supreme authority saw fit to issue.
[For countless centuries man dealt with the problem of survival according to
one or the other of these solutions. And as long as the problem was handled
by tradition or command, it never gave rise to that special field of study
called ‘economics.’]
3- For the economists waited upon the invention of a third solution to the
problem of survival. They waited upon the development of an astonishing
arrangement in which society assured its own continuance by allowing each
individual to do exactly as he saw fit – provided he followed a central guiding
rule. The arrangement was called the ‘market system,’ and the rule was
deceptively simple: each should do what was to his best monetary advantage.
In the market system the lure of gain, not the pull of tradition or the whip of
authority, steered everyone to his (or her) task. And yet, although each was
free to go wherever his acquisitive nose directed him, the interplay of one
person against another resulted in the necessary tasks of society getting done.
It was this paradoxical, subtle, and difficult solution to the problem of
survival that called forth the economists. For unlike the simplicity of custom
and command, it was not at all obvious that with each person out only for his
own gain, society could in fact endure. It was by no means clear that all the
jobs of society – the dirty ones as well as the plush ones – would be done if
custom and command no longer ran the world. When society no longer
obeyed a ruler’s dictates, who was to say where it would end?
It was the economists who undertook to explain this puzzle.
But until the idea of the market system itself had gained acceptance, there was no puzzle
to explain. ”
Questions:
1- How is tradition or custom used to organize a society and ensure that the needs of
the society’s members are met?
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2- According to Adam Smith, how did the religion of Ancient Egypt ensure that
tradition dictated a person’ occupation?
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3- What institution in India ensured that tradition dictated a person’s occupation?
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4- What do the pyramids of ancient Egypt and Stalin’s Five-Year-Plans have in
common?
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5- How does an authoritarian society address the needs of the community?
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6- Why were economists NOT needed before the rise of a market economy?
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7- What is a unique feature of a market economy?
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8- How does self-interest benefit the individual but also the society?
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9- What ensures that all jobs are done in a market economy?
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1- A centrally planned economy is
A) Always the most efficient
economic system.
B) An economic system in which the
government makes all the
decisions about production and
consumption of goods and
services.
C) A form of free enterprise with
minimal government
involvement.
D) An economic system that has no
government involvement.
2- In a centrally planned economy, the
three key economic questions are
answered by the
A) Central government alone.
B) Central government with input
from industry.
C) Marketplace alone.
D) Marketplace with some
government involvement.
3- In the study of economics, the
definition of a market is
A) The concentration of the
productive efforts of individuals
and firms on a limited number of
activities.
B) An arrangement that allows
buyers and sellers to exchange
things.
C) A place to buy groceries and
other household items.
D) A place where producers display
their wares for sale
4- Something, like a reward or bonus,
that encourages people to behave in a
certain way could be called
A) An incentive.
B) Self-interest.
C) Competition.
D) Laissez faire.
5- Why do markets exist?
A) Because people are not selfsufficient and need goods and
services produced by others
B) Because people are naturally
competitive
C) Because everyone enjoys trade
and business
D) Because most people are
entrepreneurial
6- Authoritarian means
A- Requiring strict obedience to an
authority, such as a dictator.
B- Ruling authority is granted to
individuals by the government.
C- Requiring acknowledgment of
authorship.
D- Ruling by aristocracy.
7- Laissez faire is
A- The doctrine that states that
government generally should not
intervene in the marketplace.
B- A period of change in which an
economy moves away from a
centrally planned economy toward a
market-based system.
C- A social and political philosophy
characterized by its fair distribution
of wealth.
D- A philosophy that states that
government should control the
marketplace.
8- In a traditional economy, economic
decisions are based largely on
A- Custom.
B- Science.
C- Socialism.
D- Technology.
Analyze the following images:
Why do you think most modern
economies today are mixed
economies? Support your
answer with specific examples
about why sometimes
government preferences or
consumer preferences should
determine decisions regarding
production and consumption.
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Analyze the following image:
Explain the meaning of this post-Soviet cartoon.
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