Lesson 1: Socialism Defined

Introduction

This lesson introduces students to the political economy of socialism and its goals.  By using the Polish socialist experiment as a case study, students discover the four consistent problems of socialism: the control problem, the knowledge problem, the incentive problem and the pathologies of privilege. 

Key Terms

Control Problem The difficulty central planners have in controlling human wants and desires.

Incentive Problem The problem that occurs with central planning when individuals and central planners are not incentivized to serve the general interest.

Knowledge Problem The idea that the information for economic planning is distributed across individual members of society and cannot be known by central planners.

Markets A place or situation where buyers and sellers come together to voluntarily exchange goods and services.

Pathologies of Privilege The problem that occurs in central planning when bureaucrats gain power, and some are privileged over others. 

Price System A decentralized system in which the forces of supply and demand determine the prices of goods and services.

Property Rights Legal protection for the ownership of tangible or intangible resources.  Property rights give the holder the ability to do with that property what they choose, including holding on to it, selling it or transferring it to someone else.

Socialism A society in which the state controls resources and makes decisions about production and equitable distribution.

Objectives

Students will be able to 

• Define socialism.
• Identify the goals of socialism.
• Explain the problems of knowledge, incentives and control that are present in centrally planned economies.

Voluntary National Content Standards in Economics

CONTENT STANDARD 8: Role of Prices

Students will understand that prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives. 

• Benchmark 4: Scarce goods and services are allocated in a market economy through the influence of prices on production and consumption decisions.

CONTENT STANDARD 9: Competition and Market Structure

Students will understand that Competition among sellers usually lowers costs and prices, and encourages producers to produce what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. 

• Benchmark 1: The pursuit of self-interest in competitive markets usually leads to choices and behavior that also promote the national level of well-being.

CONTENT STANDARD 10: Institutions

Students will understand that Institutions evolve and are created to help individuals and groups accomplish their goals. Banks, labor unions, markets, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy. 

• Benchmark 1: Property rights, contract enforcement, standards for weights and measures, and liability rules affect incentives for people to produce and exchange goods and services.

Time Required

45 minutes