Chapter 3
Characteristics of Market System Capitalism
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I. Characteristics of Capitalism

II. Modern Capitalism

III Other Economic Systems

IV. Country Economic Policies

V. Visual Informatics

Chapter 4 Demand and Supply

Chapter 2 Allocating Economic Resources

Macro Review 1 Ch 1-7

Ch 3 Lecture Notes
1-page printable lecture notes

 I. Basic Characteristics of Capitalism (market economy).
     A. Economic systems determine what to produce, how to produce and who will receive production.
     B. An economic system must also have the ability to adapt to changing economic environments. 
         Example, How will America's economic system adapt to changes caused by 9/11?
     C. Adam Smith described the beginning of market based capitalism 1776
         Wealth of Nations: An Inquiry into the Nature and Causes of the
         Adam Smith on the Morality and Markets
     D. Basic characteristics described by Adam Smith
          1. Private property -the right to own resources and bequeath property
          2. Freedom of enterprise-own a business
          3. Freedom of economic choice-work/not work, spend/not spend ...
          4. Role of self-interest
              a. People are by nature economic creatures
              b. Self-interest is a fundamental characteristic of people
Competitive Market System
             a. Many buyers and sellers with little control over price
             b. Competition performs the organizing and controlling functions for a market economy
Limited government ("Laissez-faire ") Balance Countervailing Forces
required to guide capitalism to maximum benefits
              a. Government should let markets be with a hands-off philosophy
              b. Acceptable government involvement has become an important
                  political question in the United States from the revolution.
              c. Francois Quesnay
popularized term laissez faire.
              d. Free Anne was an influential limited government author.

Political Economy 

Political Economy Basics
Economic Systems

Growing a Constitution
Constitutional History of United States



Bullish on U.S. Economy

Capitalism in Crisis

Crisis of Capitalism

Crisis of Capitalism

Seven Bad Ideas

Private Sector against corruption 

     E. Advantages and Disadvantages of Capitalism.
           1. Advantages
               a. Economic freedom helps political freedom
               b. Government ownership often leads to a powerful state and
                    less political freedom. see 1984 audio book Spark Notes video
               c. Maximum economic success requires efficiency
               d. Economic growth required for efficiency
               e. Most successful economic system to data
           2. Disadvantages
               a.  Monopoly power over product and labor markets limits advantages.
               b. Social costs (pollution) and benefits (health care) often ignores.
               c. Inherited Wealth can lead to inequality and social unrest
               d. Diminishing utility from wealth accumulation means society's total
                   wealth is not maximized
               e. Prone to boom and bust cycles causing much hardship
. Capitalism leads to Creative Destruction
         1. First described by 20th century sociologist and economist
             Joseph Schumpeter, it was an important new idea of capitalism. 
         2. Change involves creation of technology, improved economic structures,
             the destruction of inefficient economic structures.
         3. Capitalism allows this destruction to take place causing participant insecurity,
             political dissatisfaction and a move toward authoritarianism.   Think Trump



II. Modern Capitalism Has New Features
      A. Tangible/Intangible Capital Goods and Technology important
      B. Specialization
           1) Complexity limits product lines.
           2) Division of Labor allows specialization by ability, training.
      C. Modern Capitalism has many "rent seekers" trying to increasing profit through politics
1. Corporate Capitalism marketplace characterized by the dominance of hierarchicalbureaucratic corporations
           2. State Capitalism:
is driven by the state, less reliance on markets as practiced in China.  China's State Capitalism
Money Manager Capitalism
: managers dominate savings, investing and markets.
Crony Capitalism or Corporate Welfare has been around from the beginning.
Neoliberal Capitalism began with the Reagan era of deregulation.

   D. Capitalism and Business
1. Reimagining Capitalism: Documentary of the Week
Chinese Capitalism Better than American Capitalism
          3. How Will Capitalism End
Has Capitalism Reform Reached a Turning Point Forbes
 5. Revisiting Old Argument About Impact Capitalism
          6. Economic Report of the President 2024
          7. The Great Recession looks at a recent capitalistic failures
          8. Chicken Shit Club:  Why Justice Department Fails to Prosecute Executives

III. Other Economic Systems
     A. Introduction
         1. Pure capitalism of Adam Smith never existed.
         2. Recent economic systems are Mixed Economies
             (a mixture of Capitalism and Socialism) See
Quick History of Economics
video 10 min.
    B. Mercantilism
        2. Mercantilism explained
3 min video
3. Mercantilism 5 min video
Socialism has collective ownership and
          management of economic resources that
          are more equally distributed.
          1. See
A Concise History of Socialism
          Socialism-What You Should Know About
          2. Democratic Socialism as practiced in Western
              Europe has public ownership of key industries such
              as transportation and communication.
              a. Economic systems of Europe began moving away
                  from socialism toward capitalism in the late 1970's.
              b. Margaret Thatcher former prime minister of England 
                  started this trend.
              c. Ronald Reagan agreed and stressed the market
                 system during his presidency. 
              d. Social Market Economy is a social and economic
                  system combining free market capitalism which
                  supports private enterprise, alongside social policies
                  which establish both fair competition within the
                  market and a welfare state and strong anti-inflation
             e. Democratic Socialism in America is a negative view
             f.  Fabian Economics "came from a British socialist
organization whose purpose was to advance 
                 socialism as gradualist.
3. Capitalism and Socialism
                a. Capitalism and socialism a 14 min video from
                    Crash Course Video in World History
#33 uses humor teaching the basics.
                b. Laissez fair Capitalism vs. Socialism Video
  see Social Democracy
                c. What is China's State Capitalism?
                   Question: Will China's system morph into Democratic Socialism?
              d. Marxism 101 How Capitalism is Killing Self video

     D. Communism is command driven practicing Marxian.
1. 19th century philosopher Karl Marx created the political system.
               a. Marx extensively criticized Capitalism
               b. Mark described a Utopian worker's world.
               c. He was not concerned with getting from a to b.
          2. Wealth is collectively owned and managed in this
command economy.
3. The  Paris Commune of 1871 along with the French 
              Revolution explains why so many feared change
              promised by new liberal economic systems.
          4. Some equate communism with a totalitarian political 
              system democratic communism has never existed.
          5. This very left pro-labor anti religious economic
               philosophy was despised by most Western Oligarchs
               many of whom Nazi Fascism over any brand of

6. How Marx Got On The Wrong Side Of History
7. In 1917 Bolsheviks who wanted immediate revolution
              defeated the evolutionary oriented

     E. Corporate Fascism
         1. Similar to
Plutocracy-rule by wealthy 
 Plutocrats vs. populist is a controversial topic. 
         3. American Dynasty
 summarizes Bush family plutocracy 

     F. Less Dominate Systems
        1. Feudalism structures society around relationships the
            holding of land in exchange for service or labor
New Feudalism refers to a theorized contemporary
                  rebirth of policies of governance, economy and 
                  public life reminiscent of a U.S. ?

            b. Feudalism Then and Now
        2. Traditional economy is directed by custom. 
        3. Kleptocracy government exists to increase the
            personal wealth and political power of officials Russia? US?
Antitrust and How Kleptocracy Corrupts What Markets Are Supposed to do Well
        4. Theocracy deity is officially recognized as the civil ruler
            and official policy is governed by officials regarded as
            divinely guided  see
 Vatican City  Iran and Sikyong

     G See The History of Economic Thought  1 hr 37 Min

Ronald Reagan and Margaret Thatcher at the White House,
16 November 1988 
Click to enlarge.

Editors Note: Most unbiased observers would feel uncomfortable calling U.S. Democratic social radical. Followed by many of the great countries of Europe after WWII, it did very well but some would feel it drifted toward communism. by trying to redistribute too much wealth from the top toward the bottom. Prime Minister Margaret Thatcher pushed Great Briton toward capitalism by selling many large state owned industries and instituted  business deregulation. Ronald Reagan followed suit in the U.S. though he concentrated on deregulation. Some 30 years later Thatcher's Great Brittan has fared better than more socialistic continental European where politicians have allowed government spending and borrowing to get out of control. Conservatives in America feel they must stop U.S. politicians from doing the same thing.



IV. Country Economic Policy
         A. Colonialism where one nation assumes political or economic control
          over another nation is imperialistic.
The practice has occurred throughout
          history and has been compatible with all economic and political systems.
. Economics of Colonialism

. Settler Colonialism

Colonialism Maps


            3. Greece, Endgame of Neocolonial Exploitation
4. Teaching Decolonization Resource Collection

    B. Federalism divides powers between member units so that political order
 is constitutionally decentralized between at least two units. Each level has
         some final authority and has some areas of self government.
Federalism in the United States protects states rights with a concept
Dual Federalism but hardships caused by the Great Depression led
             some toward the concept of
Cooperative Federalism
         2. A conservative look at
3. The political Revolution of 1800 entailed Jefferson's Republicans
             taking over for the Federalist Washington, Hamilton and Adams. It
             began a 200 plus year battle concerning Federal Government power.  
Incorporation of the Bill of Rights enhanced the movement away form Federalism
a. "Originally the Bill of Rights only protected the rights it enumerated from federal
                  infringement, allowing states and local governments to abridge them.
             b. In 1868 the
Fourteenth Amendment began the process of
                 supplying all right to all people. Citizenship for blacks was first.
            the Supreme Court in held that the First and Second Amendments 
                 did not apply to state governments. See
United States v. Cruikshank
. In 1897 Supreme Court ruled that federal property rights applied to state and local laws.
Chicago, Burlington and Quincy Railroad v. City of Chicago

             d. This began the long process of applying all federal rights to all states and localities.


     C. Readings for Other Economic Systems
Two Cows explore using resources. Infographic 3/1/13

          2. Economic system has concise definitions.

          3. Is Marxism Relevant Today? takes a while to load.

          4. Presidential Courage explores how Ronald
              Reagan deplored Communism.

          5. Questions Economic Systems Must Answer

          6. Book Collections
Classics of Political Economy
Classic Books of Political and Military Science

See Current Political Economy Controversies







D. Making Laws in a Democracy
Direct Democracy also known as pure democracy has the
       on policy initiatives.
Indirect democracy or representative democracy is when the
          electorate chooses officials to make laws on their behalf.
Initiatives and Referendums exist in some U.S. States.
         a. Part of the early 20th century
Progressive Movement
         b. Allowed voters to put a proposed law on the ballot for
            approval and also to void existing state law. 
        c. D.C. and 27 states have this direct democracy tool.
Referendumania Direct democracy is spreading
            across Europe, not always a good thing. 5/21/16
Brexit was Democracy in its Purest Form 7/16
Constitutional Amendments expanded "We" of
       "We the people..." which moved U.S toward Republicanism.
       a. The 1911
17th Amendment changed the election of U.S.
           Senators from the House of Representatives to voters.
       b. The 1919
19th Amendment gave women voting rights.
       c. The 1971
26th Amendment lowered voting age to 18.
       d. Eliminating the Electoral College would move the process
           closer to the people, Republicanism and a direct democracy
           majority. See
Athens-The Truth About Democracy video
The War On Democracy Video
Republican Principles
developed during Jefferson's presidency.
US Voting Rights Timeline
Walt Whitman shows the spirit and his energy sort of
       define America “
Democratic Vistas.

E. Republic vs. Democracy
     1. In a republic, the sovereign is the individual, it is government of the people.
         In a democracy, the sovereign is the group, the majority, it is government by the people.
         a. Liberal Democracy try to maximizes the represented cohorts
ex. U.S.
         b. Illiberal Democracy limit cohorts
ex. China is modified Marxism
Republic v. Democracy and other governments
An Important Distinction: Democracy v Republic
Republic v Democracy
Why faster growth with a democratic presidents-timing is everything.
Building a Democratic Republic
Book Summaries Internet Library's reviews Meacham's biography of
        Jefferson and other political economy writings.

 F. Democracy and Capitalism
1. Capitalism is in Constant Conflict with Democracy 8/8/20
Pyramid Theory looks at Capitalism as Practiced in the US Democracy.
Alexis de Tocqueville wrote about capitalism and democracy
         in 19thnd democracy America. Read
Democracy in America
Trading Democracy for Corporate Rule Part 1
         video from Documentary Films
Capitalism Will Eat Democracy
Democracy Is a Threat to Any Power System- Noam Chomsky 84 Min Video
Democracy is an Insurance Policy for the Rich,
they aren't paying
         for the policy.
12 min

G. Is democracy, like communism, a failed doctrine?
After Democracy Documentary Film
Legalize Democracy Documentary Film

H. Tenth Amendment to the United States Constitution
     is part of the
Bill of Rights as ratified on December 15, 1791.
    1. The Tenth Amendment states the Constitution's principle of
federalism by providing that powers not granted to the
federal government nor prohibited to the States by the
        Constitution are reserved to the states or the people.
    2. This requires
judicial interpretation.
Tyranny of the Status Quo - Part 1 - Beneficiaries


I. Building A Democratic Federalist Republic
    1. The Early Colonial Period
    2. Determining Political Power and "We the People"
3. Increasing We" of "We the People"
    4. Thomas Jefferson Leader of the Opposition

    5. Constitutional History of a Democratic Federalist Republic
6. Capitalistic Democracy
Profitable Government
J. Growing a Republic  selected links




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V. For Visual Learners

Political Book Summaries     American Evolutions   Economic Systems     Quick Notes Specially Courses

Cow Based Analogy of Capitalism    Calvin and Hobbes Explain Modern Capitalism


American Evolutions

Part 1: From Sears to Google 

Part 2: From Order to Disorder… in America.

Part 3 Beyond Democrats and Republicans


Economic Systems


Economic Reasons for Colonialis by 1870s countries developing second industrial revolution facing double problem:

1 need to sell overproduction, new markets

2 need to buy larger amounts of raw materials at cheapest price

Besides: wish to invest surplus of capital in places with cheaper hand labour in order to get larger profits

RESULT:  most developed countries occupied territories esp. in Africa and Asia – areas with weak political and economic structures. This is known as colonialism.

Main countries: Britain, France, Germany,  Belgium, Italy  later also the United States and Japan


Population excess of industrialised countries: search better living conditions creating  colonies in areas having similar climate, i.e. South Africa, Australia, Algeria.

RESULT:  millions of Europeans emigrated to colonies preventing further social discomfort  to the  metropolis i.e. strikes, stoppage or workers rioting

POLITICAL the “national pride”  forcing to increase the number of colonies

MILITARY  need to occupy  ports,  build strategic canals to guard commercial routes in competition with nations aiming the same


Some countries mentioned moral or ethical reasoning: Europe’s civilising mission: due to technological supremacy + religious = sanitary, educational, improving lifestyles, social peace,… 

Joseph Rudyard Kipling (December 30, 1865January 18, 1936) was an English author and poet, born in Bombay, British India, and best known for his works The Jungle Book (1894), The Second Jungle Book (1895

However, later in life Kipling also came to be seen (in George Orwell's words) as a "prophet of British imperialism." Many saw prejudice and militarism in his works

(The heavy responsibility of the white man)

"The White Man's Burden" is a poem by the English poet Rudyard Kipling. I

RESULT: ideas lead to racism: white man superior to other races

JUST only a few intellectuals and socialist leaders opposed colonialism charging brutal and inhuman exploitation in colonies.




The Economist

"The East India Company foreshadowed the modern world in all sorts of striking ways. It was one of the first companies to offer limited liability to its shareholders. It laid the foundations of the British empire. It spawned Company Man. And—particularly relevant at the moment—it was the first state-backed company to make its mark on the world.

State-controlled companies account for 80% of the market capitalization of the Chinese stock market, more than 60% of Russia's, and 35% of Brazil's."














British-raj-Atrocity Exposed

In the early 19th century, the East India Company (EPIC) , had cut off the hands of hundreds of weavers in Bengal in order to destroy the indigenous weaving industry in favor of British textile imports (some anecdotal accounts say the thumbs of the weavers of Dacca were removed).

The violent deaths inflicted by the British are overshadowed by the excess deaths due to deprivation - the British managed to hold onto India by keeping most of the population (except for public servants, Princes and sepoys or Indian soldiers) in dire poverty on the verge of starvation. 

Torture By French During Algerian War of Independence

Calvin and Hobbes Explain Modern Capitalism  from The Daily Beas

US Produces Most Per Capita

Voters Hire Politicians That Overspend and
 Promise More in the Future at all levels of Government

Cheap Imports Allow Even More Consumption.

We Borrow on Home Equity for Current Consumption.

Yet Many Seem Dissatisfied?










A. How is the concept of creative destruction currently affecting the United States economy?
      B. Explain how the concept of creative destruction has affected European politics: 
          a. in the recent past 
          b. in the near future
      C. Read the John Adams section of Presidential Courage for the economic political issues
          faced by President Adams at the turn of the 18th century. Are they similar to those faced by
           the U.S. early in the 21st Century. Cam these questions can be applied to most of America's
      D. President Obama been accused of being a Socialist? Begin with a nominal definition of
          relevant political and economic terms explored in this chapter and relate them to our current
          economy and politics. How accepted are political and economic concepts? What did
          suffrage have to do with this accusation. 
Presidential Politics: Party Politics and Presidential Elections from 1788 to 2012 and
20th Century U.S. Political Economy: An Interaction of Politics and Economics.

E. Give examples of current political discussions designed to move the U.S. toward or from a Republic.
      F. Class Project can take a day, week, month, term, lifetime! Something happened during the last 30
          years to disconnected wage growth from productivity growth.

     G. Course project/discussion # 2
          Using concepts explored in this chapter and this course Investigate
          1. Competition
          2. Energy cost
          3. How are capitalism and democracy designed to return a normal growth in wages?
      4. Geekability

      5. Other Stuff ">

Answers Class Discussion Questions

Editor's Note: To solve the problem of not enough income for the middle classes in the 1980's capitalism changed the name of Home Improvement Loans to Home Equity Loans.   People were encouraged to immediately spend what had been a retirement nest egg. There is nothing wrong with this as long as people realize that they may be delaying retirement.

More Chapter Stuff

Chapter Videos on One Page

Economic Normality Changed Seven Times 1945-2015
Rising Income
Increased Foreign Competition Began 1970's Wage Stagnation
1980's Bring Less Financial Regulation, Slow Wage Growth
U.S. Financial Bailouts and Economic Recovery
Poverty Stuck at 15% Since 1984
Profit Growth Beats Wage Growth in New Century
Wellbeing Continuing Growing

Building America's Democratic Federalist Republic
1. The Early Colonial Period
2. Determining Political Power and "We the People"
3. Increasing We" of "We the People"
4. Thomas Jefferson Leader of the Opposition
5. Constitutional History of Our
Democratic Federalist Republic
6. Capitalistic Democracy Profitable Government

Political Economy
U.S. Government and Politics
U.S. Political Economy
 Economic Issues    one-page
US Political Economy one page

Updated 12/14/16  

2015 Political Economy Controversies
cover poverty, middle class income and politics in 2015


Suggested Research Project
Economic Need Caused the Current Rise in Populism


New: Liberal Democracy in Peril?

Post WW 2 Global Economic Growth Competitive Adjustments and the Rise of Populism

Post WW 2 Economic Chronology

Neo Liberal Economist Caused Financial Collapse

Democracy Failures Caused Latest Popularism

Understanding Left Right Populism

Populism is the Rise

Trump's New Political Era?

Other Topics

Fake News

Students Personal Finance

See Research Paper for assistance

suggestions to


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    V. Political Philosophies>
        A. Introduction
1. Politics is about power and control. See A New History of Power
                 2. Systems consists of a government and politics.

        B. Basic Economic Systems
            1. Commonwealth is a political community founded for the common good.
Democracy. liberal
exists when government power resides in a constitutionally determined electorate
                        each with an equal say in determining majority will. Political decisions are such that majority's
                        power is absolute and unlimited The most difficult issue concerning the success of a democracy
                       concerns controlling the possibility of Majority Tyranny
coming from Majority Factions as explored
The Federalist Papers
        a. Controlling majority factions is more difficult in times of war when freedom of speech is questioned
                           to maximize the state's police powers.
Gilbert v. Minnesota (1920) dealt with a state law prohibiting interference with the military's
                           enlistment efforts. It was the beginning of a movement away from property rights and toward
                           the liberty rights of
Whitney v. California (1927)
dealt with the prosecution of a woman or aiding the Communist
                          Labor Party. It also
furthered the individual
liberty movement.
d. Beginning in the 1950's the movement toward individual liberty morphed into the Civil Rights movements.

           3. Oligarchy: power effectively rests with a small number of people.
             a. US is an Oligarchy Northwestern study concludes
             b. German Oligarchs financed Hitler.
             c. Is America an Oligarchy
             d. The Power Elite: first full-scale study of structure and distribution of power in USA
             e. What the 1% Don't Want You to Know

1. 24 min video
           4. Patrimonial Capitalism leads to Oligarchy Capitalism

           5. Polyarchy has decentralized rule where many smaller governments
             tailored to the needs and desires of the local populations.
          6. Fascism a form of is a form of radical authoritarian nationalism is
            considered by some to be right-wing as it is social conservatism
            and uses authoritarian means to oppose egalitarianism.
          7. Totalitarianism
: the state holds total authority over society and seeks to control all aspects of public and private life.
                 8. Libertarianism  wants to limit power.
                 9. Dictatorship rules by a few or one person. Germany had Hitler as dictator, he
                    controlled a few advisors and a strongly nationalistic totalitarian state resulted.
              10. Populism is not mob rule-Thomas-Frank podcast from the

    C. Republic government
         exists when a constitutionally determined representative
         government of elected leaders operating according to laws to protect individual
         rights which include equality, liberty, property and  necessity of consent.
         1. There are many application of Republican concepts. What constitutes a
             right and their relative importance of rights has been continually debated
         2. John Adams "a government, in which all men, rich and poor,
             magistrates and subjects, officers and people, masters and servants,
             the first citizen and the last, are equally subject to the laws."
        3. In United States v. Cruikshank (1875) the Supreme Court ruled that
            "equal citizens" was inherent to the republic ideal.
        4. Colonial America developed in an untamed wilderness far from the
           mother country. This was a  unique historical circumstance resulted
           in the concept of American Exceptionalism

  D. Kinds of Democracy

     1. Presidential Democracy Are we a Democracy? A Republic? A Polyarchy?
         In this 7.04 video Noam Chomsky breaks down his view of
         politics today and the politics that our founders envisioned.
Current Political Economy Controversies
Parliamentary Democracy as practiced in Great Brittan has an
         executive  branch that derives its legitimacy from and is held 
         accountable to a
legislature (parliament
). The executive and
legislative branches are thus interconnected. 
Head of state is normally a different person from the
head of government. Called a prime minister, they are
             appointed from the majority party or from a coalition of parties
             when no one party have varying digress political responsibility
         b. England's Queen has only ceremonial responsibilities.
Democratic Republic vs. Parliamentary Democracy
        President Wilson's His comparison would make many
        founding fathers unhappy as they feared budget instability
 and anarchy similar to that of the French Revolution.