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Chapter 3 Characteristics of Market System Capitalism

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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. 
         For example, How will America's economic system adapt to changes 
caused by September 11?
    C. Adam Smith described the beginning of capitalism.

         1. His book, The Wealth of Nations
, was the first description of capitalism. 
         2. Published in 1776, it described capitalism as it was practiced in 18th century England.
         3. For more visit http://www.econlib.org/library/Enc/bios/Smith.html
    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
         5. Competitive market system
             a. Many buyers and sellers
             b. Market participants, buyers and sellers, have little control over price
             c. Competition performs the organizing and controlling functions for a market economy
 
         6. Limited government ("Laissez-faire ")
            
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 during the last few decades.
              c. Francois Quesnay
popularized the term laissez faire.
    E
. Creative Destruction described by 20th century sociologist and 
          economist
Joseph Schumpeter was an important addition to the idea of capitalism. 
         1. Change involves the creation of improved economic structures based on 
             technology and the destruction of inefficient  economic structures.
         2. Capitalism allows this destruction to take place.

         3. The fight between labor and management has also brought much  
         4. Let Us Now Praise Private Equity explores the application of creative destruction
             to the poor job creation during the great recession. National Review. 2/6/12

    G. Sundry
         1. Modern Capitalism has many additional features
              a. Complex Market System Setting Prices
              b. Importance of Capital Goods and Technology
              c. Specialized
                  1) Complexity requires company produce limit their product lines.
                  2) Division of Labor allows specialization by ability ad training.
    
        d. Unique descriptions of Modern capitalism
                
1. Corporate Capitalism describe a capitalist marketplace characterized by the
                     dominance of hierarchical, bureaucratic corporations.

                 2. Crony Capitalism has been around from the beginning
                  
  a) New name is
Corporate Welfare
                  
  b)
How crony capitalism corrupts the free market 30 minute vide 12/22/13
                 
   c. Hunter Lewis on crony-capitalism 30 minute vide 1/25/14

   
             3. Money Manager Capitalism:
money managers dominate savings/investing markets impacting
                     economy's performance.
                
4. Patrimonial Capitalism
gentry living off of inherited wealth see also
                 5. Capital in the Twenty-First Century
book review
                     a.
Capitalism in the Twenty-First Century Editorial editorial 1/28/14
                     b.
Thoughts on Capitalism in the Twenty-First Century   editorial 3/25/14
                     c. Taking on Adam Smith and Karl Marx NYT 4/19/14
 
        2. Readings
             a.
The Fall of Rome reviews the market system of the Roman empire and how the author believes
                 government failures caused its demise..
            
b.
Blackstone's Byron Wien, a successful capitalist,  Discusses Lessons from his First-80-years
            
c. Coercive power of capitalism

             d. Hoodwinked  An Economic Hit Man Reveals Why the World Financial Markets Imploded--and
                 What We Need to Do to Remake Them
, by 
John Perkins Buy the Book
             e. Revisiting old argument about impact capitalism Economist Magazine 4/4/14
         
   f.
Pyramid Theory-Version-3 looks at capitalism as practice the US democracy.
          
  g. Economic system has
many concise definitions.
            
h. Business isn't capitalism
        
3. Free Course Great Economists: Classical Economics and its Forerunners

Adam Smith from Wiki

 

 

 

 

 

 

 

 

 

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François Quesnay

 

 

 

 

 

François Quesnay - Wiki

 

 

 

 

 

 

 

 

wiki on Joseph_Schumpeter

II. The Circular Flow of Money 

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III. Other Economic Systems 
      A. Pure capitalism as described by Adam Smith never existed.
      B. Recent economic systems have are Mixed Economies  (a mixture of Capitalism
           and Socialism) See
 Democratic Capitalism vs. Capitalistic Democracy 
          1. Socialism  emphasizes collective ownership and management of economic 
              resources that are equally distributed.
          2. Democratic Socialism, as practiced in Western Europe, has public ownership
              of key industries such as transportation and communication 
              a. The 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. See Social democracy
          3. Communism  is the ideal of those practicing a "Marxian system." 
              a. Named after 19th century philosopher Karl Marx
              b. The public owns almost all wealth which is centrally managed, a
                  planned economy sometimes called a command economy.
          4. Fabian Economics  T
he Fabian Society is a British socialist organization
              whose purpose is to advance the principles of socialism via gradualist and
               reformist, rather than revolutionary, means.[1][2]
          5.  Feudalism is a
a system for structuring society around relationships derived
               from the holding of land in exchange for service or labor.
              a. New Feudalism
refers to a theorized contemporary rebirth of policies of
                  governance, economy and public life[2] reminiscent of those present in
                  feudal society
              b. Feudalism Then and Now

         6. Traditional economy, is where customs determines the economy activity
         7. Oligarchy is when
a few people distinguished by royalty, wealth, family ties,
             education, corporate, or military have control
         8.
Plutocracy is rule by the wealthy is practiced by many developing countries.
              a. plutocrats vs. populist is a controversial topic.
              b. American Dynasty summarizes
the plutocratic nature of the Bush family.
         9. Kleptocracy
government exists to increase the personal wealth and political
             power of its officials. Russia?
       10. Readings
              a. Using Two Cows to explore using resources, Infographic 3/1/13
              b.
Harvey - Is Marxism Relevant Today? Video
            
 c. Presidential Courage explores how Ronald Reagan deplored Communism.
        11. Videos
                a. Economic Systems compares Capitalism and Communism, 13 minutes
                b.
Capitalism and Socialism is more of an editorial  14 minutes 
                c. Milton Friedman Versus A Socialist     4 minutes   


IV. Political Systems
      A. Democracy 
          
1.  All eligible citizens have an equal say in the political decisions that affect their
                lives
           2. Majority’s power is absolute and unlimited
        
  3.
Parliamentary Democracy differs from a Presidential system
           3. Dfference between Polyarchy and democracy

               a. American Politics Are we a Democracy? A Republic? A Polyarchy?
                   Noam Chomsky breaks down American Politics today and American
                   Politics that our founders envisioned.
               b. 10 American misconceptions about democracy from econintersect
          
    c. This summary of Presidential Courage
depicts great presidents saving democracy.
            4. History of Democracy
          
 5. The End Game for Democracy
Bill Moyers 3 minute video
     
B. Republic
          
1.
a republic is a state that does not practice direct democracy but rather has a
              government indirectly controlled by the people
           2. Offices of states are directly or indirectly elected or appointed rather and are
               not granted primarily based upon family, military, or business connections.
           3.
In United States v. Cruikshank (1875), the court ruled that the "equal rights
               of citizens" were inherent to the idea of a republic
    
 
C. Federalism divides powers between member units
          1. Federalism in the United_States
         
2. Federalism: National vs. State Government
          3. A conservative look at Federalism video
          4. A liberal look at Federalism
          5. Revolution of 1800 began a 200 plus year battle concerning
              Federal Government power
     
D. Commonwealth is a political community founded for the common good,
      E. Political Systems have to do with control.
          1. The Tenth Amendment (Amendment X) to the United States Constitution
              which is part of the Bill of Rights, was ratified on December 15, 1791.[1] 
          2. 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.
          3. The Civil War was a power struggle over federal power and the 2012 federal
              election is to some degree, a continuation of this struggle over power.
       F.  Additional Reading
            1. An Important Distinction: Democracy vs Republic
            2. Republic vs Democracy
            3. In a republic the sovereign is the individual, in a democracy, sovereign is
                 the group


 V. Supplemental reading materials
      A. Crises Capitalism video contains ideas about capitalism resulting from 
           the Great Recession of 2008-2009.
      B. Why is Chinese Capitalism Better than American Capitalism? Time, 1/20/11
      C. Alexis_de_Tocqueville wrote about capitalism and democracy in 19th century 
          America. See Democracy in America-Vol_1
      D. Sequester-capitalism-democracy-and-money-theories 3/1/13
      E.
Democratic Capitalism vs. Capitalistic Democracy 
      F
. American misconceptions about capitalism 6/13
      G.
The Predoitor State Video Part 1     Part 2   1/14

VI. Four horsemen
video is a collection of today's greatest in sociological, political
      and economic voices that analyze and puts into perspective the decisions and
      results of our economic and political systems into historical perspective.

VII. Sundry Information
    
 A. For a somewhat conservative view of capitalism, visit Capitalism.org.
     
B. For a somewhat liberal view of capitalism, visit  The Shared Capitalism Institute.
      C. Interesting Links from Reference.com
        
 1. reference.com on Capitalism
       
  2.
Why Do Intellectuals Oppose Capitalism? by Robert Nozick
      
D. Current Events Internet Library has an interesting economics section.
      
E. The Book Summaries Internet Library political section reviews Hoodwinked, 
            a book by John Perkins who feel international corporations are altering capitalism
            as practiced today.

      F. Capitalism and Inequality (Jerry Z. Miller, Foreign Affairs)  Without social safety
          nets capitalism is doomed through social disorder. Editor's Note: I've seen a lot of
          verbiage blaming Capitalism for the inequality in the U.S. Inequality is a political
          question. It is the responsibility of voters through politicians to fairly distribute
          without substantially limiting the productive abilities of capitalism which have
          quality coped with  the Great Recession. 3/12/13
          See People Not Voting Their Pocketbook is Literally Killing the Poor
      G.
Economic Report of the President 2013
      H. BBC audio on history of camitalism

       I.  Center on Capitalism Columbia University is a great source of information
      J. Is Capitalism Moral? A Commonwealth Club Podcast Debate – 10/ 22, 12
      K.Strange Rebels
 1979 and the Birth of the 21st Century
          is political economics
      L. Libertarianism

 VIII.
Quiz on Economic Systems with answers from steponicseconomics

 IX.  5 Key Economic Questions an Economic System Must Answer  
       
  are the topic of chapter 5.

  XI. Class Discussion Question. Has President Obama been a Democratic Socialist?
        Begin with a nominal definition of Democratic Socialism. U. S. Manhood suffrage
        occurred in 1868. When did the ladies get to vote?

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Editors Note: Most unbiased observers would feel uncomfortable calling Democratic Socialism radical. Followed by many of the great countries of Europe after WWII, it did very well but some would feel it drifted toward communism and the people M. Thatcher pushed it toward capitalism by selling many large state owned industries.  By 2012, some 30y years after Thatcher, it appears Europe politicians have allowed government spending and borrowing to get out of hand. Conservatives in America feel they must stop U.S. politicians from doing the same thing.

 

 

 

 

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James Keir Hardie was an 
early democratic socialist, 
who founded the
Independent Labour Party
in the United Kingdom

Universal male suffrage began in 1884 France and was an important milestone in the history of democracy. 

 

 

 

 

 

 

 

 

 

 

 

 

 

                            Alexis de Tocqueville

 

 

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XI. More discussion questions.
      A. Something happened about 30 years ago to disconnected wage growth from productivity
           growth.
          1. Competition from Japan put the squeeze on corporate profits.
               a. "... the expansion of Japanese car companies into foreign markets in the 1970s further
                   accelerated [Japanese] growth. Passenger car exports rose from 100,000 in 1965 to
                   1,827,000 in 1975."  Automotive industry in Japan 1960s to today
               b.
From 1955 to 1965, Japan experienced a nominal growth rate of 10–20% annually
                   and real growth rates (adjusted for inflation) of 5–12%. In 1968, it surpassed the
                   Federal Republic of Germany  (FRG) to stand second after the United States among
                   non-Communist nations in total value of GNP.  [Editor's note] One of the few major
                   failings of U.S. industry was its slow response to the Japanese miracle, but like
                   politicians, they didn't act until there job was on the line.    
                   from nationsencyclopedia.com/Asia-and-Oceania/Japan-HISTORY
               c. Industrial sunset making north america's rust belt-1969-1984 
           2
. Energy prices increased dramatically and companies that could not pass the higher
               cost to customers felt a profit squeeze.
           3. Companies affected had three choices.
                a. Going out of business was the last choice.
                b. Lower profits mean lower returns and was the next-to-last choice.
                b. Cutting cost was the only choice as higher revenue, due to competition,
                   was off the table.           
           4. Cutting cost comes from higher productivity and lower wages
                a. Germany and Japan also could and did increased productivity
               
b. Wages stagnated and a political problem emerged.
           5. New Normal  for wages because of the Competitive Adjustment from chapter 23. 
     B.
Wrong:
Nine Economic Policy Disasters and What We Can Learn from Them 2013by Richard
          Grossman explores what we can learn from an historical look at  government's fail economic policy

 

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 and people were allowed to what had been a retirement nest egg before they retired. There is nothing wrong with this as long as people realize that they are delaying retirement.

 

 

 B. For many years, Americans have work hard, produce more, and voted to give
      more and more of the income gains to the rich.

Editors Note: A closer look would reveal that these same voters allowed governments to build up debt,  governments and businesses to have large unfunded pension liabilities, and individuals to spend unrealized home equity  using home equity loans.



deleveraging

Edoitor's Note: The recent large decrease in the Household resulted because people defaulted on mortgage debt and the Federal Reserve picked up the tap by printing money.

From static4.businessinsider.com

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