Chapter 7 Achieving economic goals Three Basic Economic Principles Market Exchange Market exchange refers to the exchange of resources between two parties where the two parties agree that the exchange involves resources or currency of equal value Can take a variety of forms people livestock food water alcohol cigarettes labor knowledge Most are voluntary Currency some form of money that we both agree can temporarily hold the value of what I get from you until you find something else you wish to exchange the money for The Western system of fixed prices is based on the underlying belief that goods and services have some intrinsic value based on their quality the associated prestige value and or other considerations Prices are set partly on the basis of how many there are of an item supply and how many people want the item and what they are willing to pay for it demand Market exchanges are relatively impersonal o These conditions increase the potential for fraud and deception as both partners in the exchange may be trying to get more value than they give Redistribution Redistribution involves gathering together of resources from many varied sources in a central location then some publicly recognized author is charged with collecting storing organizing processing and repackaging these resources then the resources are sent out again redistributed to a number of recipients Resources are sent out to those who couldn t afford to contribute to the system Serves as a way to spread out the wealth of the society and reduce disparities in income and standard of living Leveling mechanism a way of reducing economic differences between people Examples of economic transactions in redistribution All levels of government taxation in the United States including federal taxes state taxes country and local taxes and local property Charities medical charities girl scouts seamen s center of Wilmington Insurance companies University campuses Pot luck dinners Reciprocity Generalized reciprocity simply means doing things for others with no expectation of payment or any other form of return directly from the recipients Culture logic behind it involves two steps o ONE People who have resources that others can benefit from and help out those in need whenever they can o TWO If enough people participate in the system and put good deeds out into the world then the world will be a better place and eventually each person who contributes will end up receiving something in return Hunter and gathering people do this The key point for distinguishing generalized reciprocity from other forms is that the giver does not expect to be paid back by the recipient rather the giver expects the recipient to play the role of giver to someone else in the future whenever and however he is able Balanced reciprocity both people who have a positive social relationship provide resources to the other when needed and both parties will benefit Differs from market exchange because the two partners have ongoing social relationships resources flow back and forth at different times and no one keeps an exact accounting of the balance on either side Doesn t necessarily involve equal value in terms of the monetary value Negative reciprocity where one partner to the exchange tries to cheat the other partner by offering something of lesser value by failing to repay the favor in a timely manner or by contributing less than 50 percent to the relationship The Flow of Wealth The Western Pattern Wealth tends to flow down the generations resources of all kinds tend to be passed from parents to children and grandchildren These patterns of behavior stem from a number of widespread cultural beliefs 1 That childhood is special time 2 That a child s main job is to go to school do homework study 3 That it is the parent s responsibility to provide everything that the household and the children need 4 That children will remain financially dependent on their parents 5 That children do not have to pay their parents back for all of this investment of resources but rather will pay it forward to their own children someday The Non Western pattern Significant resources flow up and across the generations Starting as young as three or four years of age children are taught to contribute both domestic and productive labor to the best of their abilities These patterns of behavior stem from a number of widespread cultural beliefs 1 That childhood doesn t exist as a separate and distinct phase of life 2 That the main job of children is to help their parents and other members of the extended family and do whatever they are asked 3 That it is everyone s responsibility to contribute to the needs of the household 4 That as they get older children will gradually become more and more useful to the family and become income producers 5 That children will be repaid for their labor when they are adults and have children The more children the family has the greater the resources they have to share Money The notion of money was created to facilitate economic transactions whenever two parties to an exchange didn t have resources of equal value and or mutual exchanges couldn t take place simultaneously Repository of value a way to measure value to store value over time and to easily transport value over space money acts as this Currency o Coins made of metal paper bills o Numerous local municipalities businesses and organizations produce their own currency that can only be spent in restricted areas and or for special purposes o Commodity money Commodities generally agree on and which can be pressed into service for use as money refers to any objects or goods whose value people Cowrie shells Venetian trade beads Cigarettes Electronic Data o Direct deposit or paychecks o Online bill payments other mechanisms for shuttling value around include credit cards debit cards and electronic benefit transfer cards o Has disadvantages Many people find it much easier to spend electronic money than value embodied in currency or commodities can get into serious debt Some forms of electronic funds transfer are not accepted in some places Concepts of Ownership What can be owned Land and Water o Takers and Leavers Leavers include all hunting and gathering peoples from the origins of human culture some two million years ago to contemporary foragers Their fundamental principle is Man belongs to the Takers have a different philosophy starting from the Neolithic Revolution when they started to domesticate