Chapter 3 
Characteristics of Market  System Capitalism
 and Political Economy

Related Chapters
8) Measuring Total Economic Activity 
9) The Business Cycle
13 Money, Banking, and the Creation of Money
See
Financial Crisis and The Great Recession

16) Stagflation % Rise of Supply-Side Economics
17) Budget Deficits
See Democratic Capitalism vs. Capitalistic Democracy 
30) Public Goods Help When Markets Fail
31) Government Externality Intervention
32) Antitrust and Other Government Regulation
33) Distributing Income

I. Basic Characteristics of Capitalism  
II. Modern Capitalism
III. Criticism of Modern Capitalism
IV. Capitalism Reading and Videos

V. How Markets Work: The Circular Flow
VI. Other Economic Systems 
 VII. Political Systems
VIII. Politics in the U.S. Democratic Republic
 IX. Political Systems Sundry Materials

X. Conclusion
XI. Quiz on Economic Systems
  XII. Class Discussion Questions 
Discussion Questions
Homework Questions
Macro Reviews  
Test 1     Test 2      Test 3

Micro Reviews    Test 1     Test 2      Test 3
 Free Economics Books
Economics Video Lectures

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 market based capitalism.

         1. His 1776 book The Wealth of Nations
first described of capitalism. 
         2. It described capitalism as it was practiced in 18th century England.
         3. For more visit 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.
         7. Characteristics of capitalism lead to
Creative Destruction
             a. First
described by 20th century sociologist and economist
                 Joseph Schumpeter, it was an important new  idea for
                 capitalism. 
             b. Change involves the creation of technolodgy improved economic
                  structures and the destruction of inefficient  economic structures.
             c. Capitalism allows this destruction to take place.

             d. The fight between labor and management has also brought much  
             e. 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
            
f. Carnival of Creative Destruction: a futurist predicts change
            
g.
Rust Belt Almanac rMid-West decline and  Creative Destruction
 

A sketch of a Adam Smith facing to the right

In the News
For Gender Equality, You Can't Beat Capitalism WSJ

The Capitalist's Dilemma Harvard Business Review

How Capitalism Has Gone Off the Rails Der Spiegel

Capitalism and Inequality  CFR
What the Right and the Left Get Wrong

Two Sources of
Creative Destruction

Genome

 Sites of Interest

Library of Economics and Liberty

Ayn Randlexicon

Mises Institute

Roubini Global Economics

Brad DeLong’s Semi-Daily Journal

Top 100 Economics Blogs

Podcasts

NPR’s Planet Money

Video and Audio Lectures London Sch. Econ.

Econtalk

 

II. 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: 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

           
 d. Geithner and Summers accused of being Crony Capitalist 2/16/15
   
     3. Money Manager Capitalism:
money managers dominate savings/investing and
             markets impacting economy's performance
         
4. State Capitalism:
economy driven by state, less reliance on markets, practiced in China
      
  5.
Democratic Capitalism vs. Capitalistic Democracy is about cost effectiveness.
        
6. Patrimonial Capitalism is gentry living off of inherited wealth.
        
7. Capital in the Twenty-First Century is very popular by Thomas Pikett, book review
             a. Capitalism vs. Democracy editorial 1/28/14
             b.
Capitalism in the Twenty-First Century   editorial 3/25/14
             c. Taking on Adam Smith and Karl Marx NYT 4/19/14
             d. Capitalism is Not to Blame for Middle-Class Plight

         8. Capitalism is a concise overview from reference.com

Sources of Economic Rent Seeking
(Increasing Wealth Through Politics)

"rent-seeking is expending resources on political activity to increase one's share of existing wealth without creating wealth"

Crony Capitalism Index

III. Criticism of Modern Capitalism
     A. Crises Capitalism is a concise video contains ideas about capitalism resulting from 
     
    The Great Recession of 2008-2009.
     B. Why is Chinese Capitalism Better than American Capitalism? 1/2/11
    
C. Why Intellectuals Hate Capitalism by Robert Nozick
     D. American Politics Are we a Democracy? A Republic? A Polyarchy?
          Noam Chomsky breaks down American Politics today and American
          Politics that our founders envisioned.
     E. Is Capitalism Moral? A Commonwealth Club Podcast Debate – 10/ 22, 12
     F. Hoodwinked  An Economic Hit Man Reveals Why the
          World Financial Markets Imploded--and What We
          Need to Do to Remake Them
, by 
John Perkins
     G. Coercive power of capitalism
     H. 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
          production without substantially limiting the productive capabilities of capitalism which
          has coped with the Balance Sheet Recession known as with
The Great Recession 3/12/13
         See People Not Voting Their Pocketbook is Literally Killing the Poor

      I. How Will Capitalism End 6/14
     J. Has Capitalism Reached a Turning Point discussions on needed reforms Forbes, 9/26/14

IV. Capitalism Readings and Videos
     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, successful capitalist, states lessons of his first 80 years
  
   C. Revisiting Old Argument About Impact Capitalism Economist Magazine 4/4/14
     
D. Economic system has many concise definitions.
     
E. Business Isn't Capitalism 5/3/14
    
F. Economic Report of the President 2014

    
G.
The Great Recession Using Quick Notes
     H Capitalism.org. has a somewhat conservative view of capitalism.
    
I For  The Shared Capitalism Institute  a somewhat liberal view of capitalism visit.

     J.. Free Course Great Economists: Classical Economics and its Forerunners
     K. Alexis_de_Tocqueville wrote about capitalism and democracy in 19th
         century America. See Democracy in America-Vol_1
  
  L. Sequester Capitalism, Democracy and Money Theories 3/1/13
  .  M
.
American Misconceptions about Capitalism 6/13
    
N.
Current Events Internet Library has an interesting economics section.
     O. Videos and Audios
      
   1. The Successes and Price of Capitalism
1 hour Video
         
2. The End of Capitalism

          3. BBC audio on the History of Capitalism
     P. Center on Capitalism Columbia University is a great source of information.

Question!
Are questions raised here economic or political?

Send thoughts to Walter Antoniotti at  antonw@ix.netcom.com

Some Criticize Dramatically

Some Question his motives.
Michael Moore's estimated net worth
is 50 million dollars.

 

 

 

 

 

 

 

  Sam Walton went from doing farm choirs to remaking U.S.
retailing.
                                          But, 15.8 million children lived in food-insecure households in 2012 and 20 percent or more of the child population in 37 states and D.C. lived in food-insecure households in 2012, according to the most recent data available. New Mexico (29%) and Mississippi (29%) had the highest rates of children in households without consistent access to food.


 

V.  How Markets Work: The Circular Flow

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VI. 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 more 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. Capitalism and Socialism
                 
1. Capitalism vs. Socialism Video from Crash Course in
                      World History
#33 uses humor for basics.
                 
2. Laissez fair Capitalism vs. Socialism
              e
. See Social democracy
         3. Communism is the ideal of those practicing a "Marxian system" Those
             wanting immediate revolution became known as known as Bolsheviks.
             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
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. U.S. ?
         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.
Theocracy: deity is officially recognized as the civil Ruler and official
               l policy is governed by officials regarded as divinely guided. see
Vatican City
                Iran and
Sikyong
        11. Readings
              a. Using Two Cows to explore using resources, Infographic 3/1/13
              b.
Harvey - Is Marxism Relevant Today? takes a while to load
              c. Presidential Courage explores how Ronald Reagan deplored
                  Communism.
              d.
5 Questions an Economic System Must Answer  from chapter 5
              e. Book Collections
                  1)
Classics of Political Economy

                  2)
Classics of Political and Military Science
       12. Videos
               a. Economic Systems Capitalism vs. Communism, 13 minutes
               b. Capitalism and Socialism is more of an editorial  14 minutes 
               c
 When-Capitalism- s Great and Not So Great
               d. Milton Friedman Versus A Socialist     4 minutes   

Degrees of Socialism

Karl Mark and John Keynes

Country Economic Policies
Colonialism
is where one nation assumes political or economic control over  another. The practice has occurred throughout history and has been compatible with all economic and political systems.
See Greece and the Endgame of the Neocolonial Model of Exploitation

Mercantilism is economic nationalism to build a  wealthy powerful state. It is system of political economy designed to enrich the country by restraining imports and encouraging exports.
Some feel Neomercantilism is practices by Japan, China and Germany.

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.

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

VII. Political Systems
     A. Republics exist when governmental power resides in the a constitutionally
          determined electorate
so that the rights of the individual and minority are
          protected
from the majority.
          1. In practice there are many application of Republican concept.
          2. To John Adams it was
"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."[27]
          3. Law
may be determined with a direct democracy also known as pure
              democracy
in which voters vote on policy initiatives directly or an
              indirect democracy
or representative democracy as in the U.S. where
              citizens elect officials to make on their behalf.
              a. The 1911 17th Amendment
 moved the election of U.S. Senators from
                  the house of Representatives to voters which was a movement toward
                  direct democracy. The 1919 19th Amendment and 1971 26th Amendment

                  expanded the electorate thus moving the U.S. closer to being a Republic
                  as the electorate for a larger group of "people"
              b. Removal of the Electoral College from the presidential election process
                  favored by some would move the process closer to the people which is
                  Republicanism. It would be a move toward direct democracy because
                  majority rules. This move would make many founding fathers unhappy.
              c. The U.S. is basically a Republic though process often allows a democratic
                  majority to rule.
                 1. The Constitution protects the minority which is a Republican principle using
                     using a democratic majority rules principle in the Supreme Court .
                 2. People make up the electorate which has changed continually both legally
                     and in practice making our Republic somewhat dynamic.
          4.
In United States v. Cruikshank (1875), the court ruled that the "equal            
              rights of citizens" were inherent to the idea of a republic.

     B. Democracy exists when governmental power resides in the a constitutionally
          determined electorate with equal say
in determining the majority which makes
          political decisions such that the majority’s power is absolute and unlimited.
        
  1. Types of Democracy
         
     a. Presidential Democracy has a president and the legislative
                   body and their functions are separated providing checks and
                   balances to limit the power of both the chief executive and the legislature. 
               b. Ten American Misconceptions about Democracy from econintersect     
          2. In a Parliamentary Democracy as practiced in Great Brittan,
                  the executive branch derives its legitimacy from and is held
                  accountable to the legislature (parliament).
                 
a. The executive and legislative branches are thus interconnected. 
                  b. The head of state is normally a different person from the 
                      head of government who is often called a prime minister and is appointed from
                      the majority party or from a coalition of parties needed to form a  government.
                      Heads of state have varying digress political responsibility. It England the Queen
                      has ceremonial responsibilities.
               c. Woodrow Wilson Contrasts a Democratic Republic and Parliamentary Democracy

          3. History of Democracy
              a Overview from Wiki
 
              b. Origin of Democracy video from Documentary Films
              c. Athens-The Truth About Democracy video from Documentary Films
              d. The War On Democracy video from Documentary Films
       
   4.  Is democracy, like communism, a failed human doctrine?
               a. Towards An Ideal Form of Government
               b. We, the Intelligent People of the United States ...

               c. Three New Kingdoms.
               d. Videos
                   1. Terminal Democracy
video from Documentary Film
                   2. Terminal Democracy video from Documentary Films
                   3. After Democracy video from Documentary Film
                   4. Legalize Democracy from Documentary Film
         5. Republic vs. Democracy
               a In a republic the sovereign is the individual, in a democracy, the sovereign is
                  the group, the majority.
               b. Republic vs. Democracy and other forms of government video 10.35 minutes
             
 c. An Important Distinction: Democracy vs. Republic
               d. Republic vs. Democracy
              
e
. Why faster growth with democratic presidents-timing is everything
         6. Democracy and Capitalism
             1. Pyramid Theory Looks at Capitalism as Practice the US Democracy.
           
 2. Trading democracy for Corporate Rule  video from Documentary Films
    
C
. Federalism divides powers between member units so that federal political
          order is non-centralized, often constitutionally, between at least two levels so
          that units at each level have some final authority and can be self governing
          in some issue area.
          1. Federalism in the United States
          2. States' Rights Controversy
          3. Federalism: National vs. State Government
          4. A conservative look at Federalism video
          5. A liberal look at Federalism
          6. Revolution of 1800 began a 200 plus year battle concerning
              Federal Government power.
Editors Note: Secretary of the Treasury
              Alexander Hamilton orchestrated the first federal tax (on imports in 1789)
              to pay Revolutionary War debt piled up by both state and federal
              governments. Relative to GDP, it was the largest federal debt to exist until
              1933 when a revenue collapse caused D3 (deep-do-do). Hamilton began
              the practices of increasing taxes (though not enough) to pay for war, paying
              interest and paying principle over a number of years. The practice of
              refinancing principal began after WWI.  The practice of not increasing taxes
              to pay for war started with  Bush II when he cut taxes while starting two wars
              and increasing Medicare. Hamilton (to the dismay of Jefferson) also began
              the practices of the federal government paying state debt with many states
              showing their appreciation by telling the federal government to stay out of
              state business.
Source       
     
D. Commonwealth is a political community founded for the common good
      E. Oligarchy
power effectively rests with a small number of people
          .The US is an oligarchy this Northwestern study concludes

           2.German Oligarchs financed Hitler
      F. Polyarchy has decentralized rule where many smaller  governments
            tailored to the needs and desires of the local populations.
      G. 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.
      H. Totalitarianism the state holds total authority over the society and seeks to control
         
all aspects of public and private life wherever possible.[1]
       I. Dictatorship rule by a few or one person. Germany had Hitler as a dictator,
          he controlled  a few advisors, and they a strongly nationalistic totalitarian state,
  
VIII. Politics in the U.S. Democratic Republic
        A. U.S  Voting Rights Timeline
        B. 20th Century U.S. Political Economy History           

        C. Money in U.S. Politics Using 40 charts.
        
D Presidential Politics is a 5-page concise summary of Presidential Elections.            
        E. Presidential Courage depicts great presidents saving democracy.
        F. The End Game for Democracy
Bill Moyers 3 minute video  all aspects
             of public and private life wherever possible.
       G. A Republic No More Video explores of U.S. Democracy and the concept of a Republic.

IX
. Political Systems Sundry Materials
      A.
Political Systems have to do with control.
      B. Tenth Amendment (Amendment X) to the United States Constitution
           which is part of the Bill of Rights was ratified on December 15, 1791.[1] 
      C. 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.
      D. The Civil War was a power struggle over federal power and the 2000 federal
           election is a good example of the struggle over power.
      E. Libertarianism wants to limit power.

      F. Relationship between Rights vs. Freedoms 9/1/14
  
   G.
We the Intelligent People of the United States provides insight into
           American democracy. by Frank Li, Ph.D.4/23/14
     
H. The Book Summaries Internet Library's political section reviews Hoodwinked, 
          a book by John Perkins who feel international corporations are altering capitalism
          as practiced today.
     I.
Origins of Democracy and the Citizenship of Athens c. 440 BC – 430 BC
 

Free Book Summaries- 3 New York Times Bestsellers

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

Thoughts of our Founding Fathers toward a
Democracy varied dramatically.
Federalist George Cabot of Massachusetts feared ..."the terrible evils of democracy," and felt Jefferson was unstoppable, From p368 of Thomas Jefferson The Art of Power, 2012, by Jon Meacham an 8 page summary

 

Free Business Book Summaries Including New York Times
Best Sellers


FREE 2-5 Page Book Summaries

Presidential Courage Brave Leaders and How They Changed America 1789-1989, by Michael Beschloss, read an 8 page summary or Buy this Book

Presidential Politics is a 5-page concise summary of Presidential Elections.

20th Century U.S. Political Economy: an interaction of politics and economics

Generations and The Fourth Turning William Strauss and Neil Howe read an 2 page summary or Buy the Book

Second Chance Three Presidents and the Crisis of America Superpower, by Zbigniew Brzezinski, read an 6 page summary, or Buy this Book

American Dynasty Aristocracy, Fortune, and the Politics of Deceit in the House of Bushby Kevin Phillips, read an 6 page summary or  Buy the Book See also Welcome the Hackocracy, a look at Bush 2's appointments that made a difference.

Don't Know Much About History Everything You Need To Know About American History But Never Learned, by Kenneth C. Davis, read an 6 page summary or  Buy the Book

Please    

Alexis de Tocqueville

Alexis de Tocqueville
On Majority Rule and Mediocrity

 

Nolan Chart an example of
the political spectrum

Conclusion Four Horsemen video is a collection of today's greatest sociological, political and economic voices that analyze and put into historical perspective the decisions and results of our economic and political systems.

XI. Quiz on Economic Systems
     with answers from steponicseconomics

XII. Class Discussion Questions updated 2/14/15
   
  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
          How were the economic and political issues faced by
          President Adams at the turn of the 18th century similar to
          those face by the U.S. early in the 21st Century.
         These questions can be applied to most of America's presidents.

     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 current economics
          and politics. How accepted are political and economic concepts?
          What did suffrage have to do with this accusation. 
           See
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 ago to
           disconnected wage growth from productivity growth. Using
           concepts explored in this chapter and this course Investigate
             1. Competition
             2
. Energy cost
            
3. How is 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 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.

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Is This Divergence an Economic or Political Issue?

 

Try 3 Free Business Book Summaries Including New
York Times Best Sellers

More Project Data

 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

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

From static4.businessinsider.com

   e-mail suggestions to Walter Antoniotti

Educating the Class of 2030 An Economic Prospective/Student Manifesto
1. Economic Principles Lead to Shorter School Day, Year Round School, Economic Efficiency, Employable Students
2. How Germany, Our Chief Competitor, Educates Toward Student Employability and Self-Esteem

3. Economist Lower Wage Predictions Came True
4. Individualized Curriculums for a Complex World   

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Calvin and Hobbes Explain Modern Capitalism from The Daily Beast

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?