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Identify and explain the broad goals of economic policy such as freedom, efficiency, equity, security, growth, price stability, and full employment.
Women Factory Workers, George Andrew Reid, 1918
Topics on the Page
Wages and Salaries
Dramatic Event: Irish Potato Famine
Inflation vs. Deflation
Range of Employment
Invisible Hand Theory
What is Economics
Top 1% of Wage Earners in the U.S. by occupation. Graph by Justin Ormont
A system based on private property and free markets. Economic freedom is historically associated with libertarian ideals.
The formula for economic freedom contains
freedom to compete in international markets
the protection of people and their property.
Wages and Salaries
To see the how much money people earn in different jobs and occupations, go to the
Bureau of Labor Statistics
Occupational Employment Statistics, May 2014
on the earnings for workers
Median Yearly salaries for Selected Occupation
Registered Nurse: $65,950
Major League Baseball Umpire: $141,000
Flight Attendant: $38,820
Hotel Maid: $16,900
Construction Worker: $29,730
CEO Pay averaged 24 times the pay for the President of the United States ($400,000) in 2013, although from the 1930s to the 1970s, Presidents earned more than most heads of companies. See also,
CEO Pay: Highest Salaries Equal 3,489 Years for Typical Worker
from the Huffington Post, May 25, 2012.
Minimum Wage by States
for the United States from the website Find the Data. See also
The Great Divide
, a series of inequality in America from The New York Times.
Economic Independence Calculator
from the Crittenton Women's Union, a Boston-based policy organization.
In Massachusetts in 2013, a single parent with one school-age child and one preschooler would need to earn at least $65,800 to cover basic food, housing, transportation, and child care. That figure is four times the state's minimum wage.
Your Guide to the Federal Poverty Level
. Click here for the
2013 Poverty Guidelines
from the U.S. Department of Health & Human Services.
Key Concepts and Individuals
Engraving of Adam Smith, 1790
For more, see
World History II.5
Adam Smith, pictured the following market-driven environment:
- Economic freedom, which he expressed in his book
The Wealth of Nations
- Opening up new markets for surplus goods; providing some commodities from abroad at a lower cost than at home
- Laissez-faire economics (French for leave it alone)
of the Marketplace will cater to the needs of the free market and of investors.
- Competition is essential, and the marketplace should allow fair competition to develop
- People pursue their natural economic self-interests
- The government's purpose is to stop monopolies from developing (thus destroying competition), collect taxes to maintain non-profitable activities (such as road repair), and to maintain areas that should not be fore profit (such as treaty negotiation, military expenses, etc.)
- The government's purpose should not be what Mercantilism proposed: artificially maintaining a trade surplus on the erroneous belief that doing so increased wealth.
Example of Classical Liberalism: Great Britain's response to The Irish Potato Famine 1846-1849
See Dramatic Event Page:
The Irish Potato FamineI
See a Delicious bundle on
the Economics of the Irish Famine
to better understand how laissez-faire economics influenced reactions to the famine.
The Man at the Crossroads by Diego Rivera, 1934
The relationship between the ends and the means.Economic Efficiency refers to the state of the economy where every resource is allocated to benefit individuals while also minimizing waste and inefficient modems of production.
In an efficient economy, changes made in favor of one party would almost certainly have adverse affects for another party.
Is the U.S Economy Getting More Efficient?
The main goal of equity is a fair distribution of income and wealth in a society. Almost everyone wants a fair distribution. However, what constitutes a fair and equitable distribution is debatable. Some might contend that equity is achieved when everyone has the same income and wealth. Others contend that equity results when people receive income and wealth based on the value of their production. Still others argue that equity is achieved when each has only the income and wealth that they need.
Economic security is accomplished when one builds a stable source of financial income that allows one to maintain his or her current standard of living and make improvements in the future.
Economic growth occurs whenever people take resources and rearrange them in ways that make them more valuable. Generally speaking a free-market economy should see at LEAST 3% growth in order to be considered healthy.
U.S Economic Growth from 1990 to 2015 (Note the Great Recession)
Price stability is when prices do not change over a long period of time. A stable economy has price stability because it will suffer neither from inflation nor deflation.
Inflation vs. Deflation
While inflation represents an upward price
movement of goods and services, deflation acts adversely.
Historical Cases and Causes of hyperinflation
In terms of currency (where the term "inflation" is most often heard) inflation represents a DECREASED value of currency (historically due to an INCREASE in the AMOUNT of currency in circulation). Likewise, deflation represents an INCREASED value of currency (historically due to a DECREASE in the AMOUNT of currency in circulation, or a sudden influx of a new material).
Part 1 "What is inflation?"
Range of Employment
The percentage of individuals who were ONCE EMPLOYED but are currently without a stable job. Note that individuals who have NEVER BEEN EMPLOYED are not considered unemployed.
The estimated percentage of individuals who are employed in positions inferior to their level of training, education, or ability. This ONLY applies to people who are CURRENTLY EMPLOYED. For example, a college graduate working as a fry cook is considered to be "underemployed" despite having a job.
State of economy in which all eligible people who want to work can find employment at prevailing wage rates. However, it does not imply 100% employment because allowances must be made for frictional unemployment and seasonal factors. It is implied that in full employment under employment is at a minimum.
National Employment Monthly Update
from the National Conference of State Legislatures
The Employment Act of 1946
Signed into law by President Harry Truman on February 20, 1946
Adam Smith and the Invisible Hand Theory
In Wealth of Nations, Smith states,
Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it ... He intends only his own gain, and he is in this, as in many other cases, led by
an invisible hand
to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.
Smith theorizes that the Invisible Hand is a natural phenomenon that will guide the free market through the peaks and troughs of the evolving capitalist economy. But over time, the Invisible Hand theory has been manipulated to benefit and serve the leviathans of Wall Street, especially when applied to government regulations.
The Treatment of Smith's Invisible Hand
While Smith was very influential to early theories of political economy, modern economists are somewhat split on how to apply his theories. Columbia University Economics professor, former World Bank chief economist, and Nobel Prize winner Joseph Stiglitz said this about Smith's "nvisible Hand:
Adam Smith, the father of modern economics, is often cited as arguing for the "invisible hand" and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there. Whenever there are "externalities"—where the actions of an individual have impacts on others for which they do not pay, or for which they are not compensated—markets will not work well. Some of the important instances have long understood environmental externalities. Markets, by themselves, produce too much pollution. Markets, by themselves, also produce too little basic research. (The government was responsible for financing most of the important scientific breakthroughs, including the internet and the first telegraph line, and many bio-tech advances.) But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always. Government plays an important role in banking and securities regulation, and a host of other areas: some regulation is required to make markets work. Government is needed, almost all would agree, at a minimum to enforce contracts and property rights. The real debate today is about finding the right balance between the market and government (and the third "sector" – governmental non-profit organizations.) Both are needed. They can each complement each other. This balance differs from time to time and place to place
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