The Economy as a

Social Institution

The economy is the institution that provides for the production
and distribution of goods and services, which people in every
society need. Sometimes they can provide these things for
themselves, and sometimes they rely on others to provide them.
When people rely on others for goods or services, they must
have something to exchange, such as currency (in industrialized
societies) or other goods or services (in non-industrialized
societies). The customs surrounding exchange and distribution of
goods and services shape societies in fundamental ways.

Macrosociology vs. microsociology

Sociologists use two approaches when studying society. In
macrosociology, sociologists analyze large-scale social forces,
such as institutions. They identify and analyze the structure of
societies. The second approach sociologists use is
microsociology, the study of social interaction. These
sociologists focus on face-to-face interaction, how people act
around others. This method is focused more on individuals than
groups.

Economic Systems

The two dominant economic systems in the world are capitalism
and socialism. Most societies have varying blends of the two
systems. Common hybrids of capitalism and socialism are welfare
capitalism and state capitalism.

Capitalism

Capitalism is a system under which resources and means of
production are privately owned, citizens are encouraged to seek
profit for themselves, and success or failure of an enterprise is
determined by free-market competition.

Example: The United States is one of the most purely capitalistic
societies in the world. Most U.S. businesses are privately owned,
but the government does regulate business practices.

Socialism

Socialism is a system under which resources and means of
production are owned by the society as a whole, rights to private
property are limited, the good of the whole society is stressed
more than individual profit, and the government maintains
control of the economy.

Example: China is a socialist country. The government owns and
controls almost all natural resources.

Welfare capitalism

Welfare capitalism is a system that features a market-based
economy coupled with an extensive social welfare system that
includes free health care and education for all citizens.

Example: Sweden allows private business ownership, but the
government controls a significant part of the economy. High taxes
support an extensive array of social welfare programs.

State capitalism

State capitalism is a system under which resources and means of
production are privately owned but closely monitored and
regulated by the government.

Example: South Koreas government works closely with the
countrys major companies to ensure their success in the global
marketplace.

Socialism vs. Capitalism No one economic system has succeeded
in satisfying all the needs of its citizens. Several economic studies
over the past few generations have shown that, in general,
citizens in societies with capitalist economies enjoy a higher
standard of living than those in socialist societies.
Marxs Economic Theory Philosopher and historian Karl Marx
believed that the economy was the basic institution of society
and that all other institutions, such as family and education,
served to fuel the economy. As societies became more
industrialized, he theorized, they also became more capitalistic.
Marx disliked the fact that capitalism created a two-tiered system
consisting of factory owners and factory workers, in which the
groups were constantly in conflict with each other. Factory
owners wanted to pay their workers as little as possible to
maximize profits. Factory workers, on the other hand, wanted to
make as much money as possible. The advantage was always
with the owners, who could choose to fire workers who wanted
too much and hire workers who would work for less. Marx was a
conflict theorist, believing that in any capitalist society there was
always conflict between the owners of the means of production
and the workers. He believed that the only way to resolve the
conflict was for workers to unite, mount a revolution, and
overthrow their oppressors. Marx believed that once the dust
settled after the revolution, all societies would be communist,
meaning that all the means of production would be owned by
everyone and all profits would be shared equally by everyone. His
ideas inspired the Russian Revolution of 1917.

Economic Trends The ways the world and the U.S. economies
work are changing rapidly. There are several important trends:
Globalization: The expansion of economic activity across many
borders characterizes the global economy. Poorer, developing
nations now produce the raw materials for the worlds
multinational corporations. These multinational companies
control most of the worlds economy.
Demand for educated professionals: The postindustrial economy
is driven by trained professionals such as lawyers,
communications professionals, doctors, and teachers.
Self-employment: New, affordable communications technology
has allowed more people to go into business for themselves.
Diversity in the workplace: Once the bastion of white males,
professional offices are heavily populated by women and
minorities in todays society.
SPECIFIC FUNCTIONS OF ECONOMY
1. Provide methods for the production of goods and services.
2. Provide methods for the distribution of goods and services.
3. Enable societys members to consume goods and services
which are produced