Chapter 3  Characteristics of Market
System Capitalism and Political Economy

I. Basic Characteristics of Capitalism  1 video 
II. Modern Capitalism 
2 videos
III. Criticism of Modern Capitalism
6 videos
IV. How Markets Work: The Circular Flow
V. Other Economic Systems
3 videos 

VI. Political Systems
9 videos
VII. Politics in the U.S. Democratic Republic 1 video

VIII. Conclusion 1 video
IX. Market System Capitalism & Political Economy all chapter Videos
X. Quiz on Economic Systems              Please 

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 as practiced in 18th century England. 
2. For more visit
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 from the revolution.
    c. Francois Quesnay popularized 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 of capitalism. 
    b. Change involves the creation of technology, 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 since the great recession. 
    f. Carnival of Creative Destruction: a futurist predicts change
g. Rust Belt Almanac  Mid-West decline and Creative Destruction

h. Editor's comment concerning free trade
        Free trade increases supply which forces price down
        resulting in some combination of lower profit or lower 
        cost. Owners and managers are good at maintaining 
        profit and will try to lower the cost of materials, labor
        or overhead. Workers often bear brunt of this process.

8. The Success and Price of Capitalism
Video 61 min 


II. Modern Capitalism has many additional features
A. Complex Market System Setting Prices
B. Importance of Capital Goods and Technology
C. Specialization
1) Complexity limits product lines.
2) Division of Labor allows specialization by ability and 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 min 
c. Hunter Lewis on crony-capitalism 30 min video 
d. Geithner and Summers accused of being Crony Capitalist

3. Money Manager Capitalism: money managers dominate
    savings and investing and markets impacting economy's
4. State Capitalism: economy driven by the state, less
    reliance on markets, practiced in China. Editors Question: 
Will China's system morph into Democratic

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"

5. Democratic Capitalism vs. Capitalistic Democracy
is about cost effectiveness of democracy.
6. Patrimonial Capitalism is living off of inherited wealth.
7. Capital in the Twenty-First Century was a very popular
    2014 book by Thomas Pikett.
    a. Capitalism vs. Democracy editorial 1/28/14
b. Capitalism in the Twenty-First Century 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
Calvin and Hobbes Explain Modern Capitalism

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. Current Political Economy Questions stem from the criticism.  
C. Why is Chinese Capitalism Better than American Capitalism?  
D. Why Intellectuals Hate Capitalism by Robert Nozick
E. American Politics Are we a Democracy? A Republic? A Polyarchy?
    Noam Chomsky breaks down American Politics today and
    American Politics that our founders envisioned.

F. Is Capitalism Moral? A Commonwealth Club Podcast Debate
G. Hoodwinked  An Economic Hit Man Reveals Why the
    World Financial Markets Imploded--and What We Need 
    to Do to Remake Them, by 
John Perkins
H. Coercive power of capitalism
I.  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 United States.
    Inequality is a political question. It is the responsibility of
    voters through politicians to equitably distribute production
    without substantially limiting the productive capabilities of
    capitalism which has coped well with the Balance Sheet 
    Recession known as
The Great Recession. See   

People Not Voting Their Pocketbook is Literally Killing the Poor
J. How Will Capitalism End 6/14
K. Has Capitalism Reached a Turning Point concerning reform
     Forbes, 9/26/14
L. Videos
1. The Crisis of Capitalism, The Critique from the right
2. Unfettered Capitalism | Chris Hedges & Michael Moore 8:44
3. Capitalism in Crisis 1:40 is well-done. 
M. Readings and Videos
1. The Fall of Rome reviews the market system of the Roman 
    empire and how the author believes government failures caused
    its demise.
Blackstone's Byron Wien, successful capitalist
     states lessons of his first 80 years

Blackstone's Byron Wien, successful capitalist
     states lessons of his first 80 years 

3. Revisiting Old Argument About Impact Capitalism  Economist 4//14
4. Economic system has many concise definitions.
5. Business Isn't Capitalism 5/3/14
6. Economic Report of the President 2014

7. The Great Recession Using Quick Notes
8. has a somewhat conservative view of capitalism.
9. The Shared Capitalism Institute  a somewhat liberal view
10. Great Economists: Classical Economics and its Forerunners free course.
11. Alexis de Tocqueville wrote about capitalism and 
      democracy in 19th century America. See

Democracy in America-Vol 1
12. Sequester Capitalism, Democracy and Money Theories
13. American Misconceptions about Capitalism 6/13
14.  Current U.S. Political Economy Controversies  
       provides data to assist analysis.           

15. Videos and Audios
a. The Successes and Price of Capitalism 1 hour Video
b. The End of Capitalism
BBC audio on the History of Capitalism
   d. The Private Sector against corruption 30 min
e. Great Recession from a Classical-Keynesian View
from Roger Farmer Pepperdine School of Public Policy
1.  Who are the Academic Sc 9.11
  2. Refining Classical Economics 9.29
       3. Effect of the Great Depression 9.14 
        4. 1970's oil shock shocks the world of economics 8.52
        5. How bad is the economy and where is it going 7.41
16. Center on Capitalism Columbia University is a great source
      of information.

Question! Are questions raised here 
economic or political?





Some Criticize Dramatically

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

Ida M Tarbell crop.jpg

Ida Tarbell an  investigative journalist called a Muckrakers known. She exposed Standard Oil Trust. Working for McClure Magazine and other monthly magazines they help educated the public from 1890 to 1929 in what is known as the Progressive Era.




IV. How Markets Work: The Circular Flow

Our Free Internet Libraries
 improve grades and careers.


 V. Other Economic Systems       Please 

    A. Pure capitalism as described by Adam Smith never
       B. Recent economic systems 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
              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
                      teaching the basics.
2. Laissez fair Capitalism vs. Socialism Video
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.
c. The  Paris Commune of 1871 along with the French
                  Revolution explains why so many feared change
                  promised by new liberal economic systems.
             d. Some equate communism with a totalitarian political
                 system as there has never been a democratic


         4. Fabian Economics  The Fabian Society is a
             British socialist organization whose purpose is 
             to advance socialism as 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
             economic 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 officials. Russia?
      10. 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

  11. Readings
            a. Using Two Cows 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.
5 Questions Economic Systems Must Answer
            e. Book Collections
Classics of Political Economy

Classics of Political and Military Science
12. Videos
Economic Systems Capitalism vs. Communism  13 min
b. Capitalism and Socialism is more of an editorial. 14 min 
 When Capitalism is Great and Not So Great
              d. Milton Friedman Versus A Socialist   4 min

Degrees of Socialism










Ten-Minute Video

Country Economic Policies
1. 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

2. 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.

3. Current Political Economy Controversies create difficult policy questions.


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

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. Prime Minister Margaret Thatcher pushed Great Britan 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 Britan has fared better than more socialistic continental European as 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.
VI. Political Systems
A. The Basics Video 3:28
B. Republics exist when governmental power resides in
the a constitutionally determined
government which 
is ruled by elected leaders run according to law (from
Latin: res publica) resulting in individual and minority
protected from the majority
1. There are many application of Republican concept. In the
    U.S. property rights are strongly associated with a Republic.
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
        of majority rules. This move would make many
        founding fathers unhappy because they feared
        anarchy especially after the French Revolution.
    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. The Supreme Court follows 
            the  democratic majority rule principle.
        2. People make up the electorate which has changed
            continually both legally and in practice making our
            Republic somewhat dynamic. Editors Note: Voter
            rules are again a
hot topic in 2015.

        3. In United States v. Cruikshank (1875) the court ruled
            that the "equal citizens" were inherent to the idea of a
C. Democracy exists when governmental power resides
     in the a constitutionally determined electorate with
     equal say
in determining the majority. It 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 their power. 
    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
    from and is held accountable to the legislature (parliament).
a. The executive and legislative branches are thus
    b. Head of state is normally a different person from 
        the head of government 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. W. Wilson Contrasts Democratic Republic

         and a Parliamentary Democracy
3. History of Democracy

    a. Overview from Wiki
    b. Magna carta at 800, still enjoying freedoms won
          c. Origin of Democracy video from Documentary Films
    d. Athens-The Truth About Democracy video from DF
    e. The War On Democracy video, DF
4. Is democracy, like communism, a failed 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
Documentary Film
       2. After Democracy Documentary Film
       3. Legalize Democracy Documentary Film

               4. Republic vs. Democracy
           a. 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.
           b. Republic vs. Democracy and other governments
           c. An Important Distinction: Democracy vs. Republic
           d. Republic vs. Democracy
           e. Why faster growth with a democratic presidents-
               timing is everything
                       f. Building a Democratic Republic
        5. Democracy and Capitalism
           a. Pyramid Theory Looks at Capitalism as Practiced in
               the US Democracy.
b. Trading Democracy for Corporate Rule Part 1  
Documentary Films
D. 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.
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. Some call this passing debt to our
    children but it has been 100 years and none has been
    paid so far, 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. This practice
    continues today.
E. Sundry Systems 
1. Commonwealth is a political community founded for
    the common good.
2. Oligarchy
power effectively rests with a small number
    of people.
a. US an oligarchy Northwestern study concludes
    b. German Oligarchs financed Hitler.
3. Polyarchy has decentralized rule where many smaller
    governments tailored to the needs and desires of the
    local populations.
4. 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.
5. Totalitarianism the state holds total authority over
    society and seeks to control all aspects of public
    and private life.

6. Dictatorship rules by a few or one person. Germany had
    Hitler as a dictator, he controlled a few advisors, and they
    instituted a strongly nationalistic totalitarian state.

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, a biography by Jon Meacham as summarized by Walter Antoniotti

Democracy and a Republics are often used interchangeably. Source


Current Political Economy Questions may substantiate that democracy could not control government spending.











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




Alexis de Tocqueville
toured the U.S. and made some salient observations about democracy.

Alexis de Tocqueville
On Majority Rule and Mediocrity


VII. Politics in the U.S. Democratic RepublicPlease 
        A. U.S  Voting Rights Timeline
        B. 20th Century U.S. Political Economy
        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 serving democracy.
        F. The End Game for Democracy
             Moyer's 3 minute video on all aspects
             of public and private life.
       G. A Republic No More Video 1:03 
explores of U.S. Democracy and
           the concept of a Republic.
H. Political Systems Sundry Materials

                      1. Political Systems are about control.
          2. Tenth Amendment (Amendment X)
              to the United States Constitution, 
              which is part of the Bill of Rights
was ratified on December 15, 1791.[1] 
              a. The Tenth Amendment states the
                  Constitution's principle of
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.
             b. This requires
judicial interpretation.
                3. The Civil War was a power struggle over
            federal power and the 2000 federal
            election is a good example of the 
            struggle over power.
        4. Libertarianism wants to limit power.
        5. Rights vs. Freedoms       
6. We the Intelligent People of the U. S.
                          provides insight into American 
           democracy. by Frank Li, Ph.D.4/23/14
       7. Book Summaries Internet Library's
reviews Hoodwinked, a international
           corporations are altering capitalism as
          practiced today.       
      8. Origins of Democracy and the Citizenship 
          of Athens c. 440 BC – 430 BC is about
          the beginning of government.
Misconceptions About Democracy
10. Eric X. Li: A tale of two political systems

VIII. Conclusion: Four Horsemen 1:39 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.

Editor's Note: The democracy we enjoy today has been built over 250 years. Part 2 of Turning Points in American History Explores the Journey.


Building a 
Democratic  Republic

7. A Nerve With The 1773 Boston Tea Party

8. A Hesitant Reluctant 1776 Nation Seeks Freedom

9. The French Save the Day

10. 1786 Shays' Tax Rebellion Leads to Constitution

12. First Peaceful 1800 Transfer of a Power by a
      Democratic System  

13. Marshal Creates a Third Separate Power

15. "We the People..." Who Are they?

23. Who Protects Unalienable 1866 Rights of 

25. The 1870's Takes Away Unalienable Rights

33. Government's 1930's Safety Net Deficits Like
      War Deficits Prove Affective

42. Civil Rights Goes Fast Track in 1963


Market System Capitalism and Political Economy Videos
X. Quiz on Economic Systems
A. Provided with answers from steponicseconom cs
Exam Strategies +  has comprehensive testing advise.

Class Discussion Questions/project #1 6/15

  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 
for the economic and 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
. 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
20th Century U.S. Political Economy: An
nteraction of Politics and Economics.

E. Give examples of current political discussions
         designed to move the U.S. toward or from a
     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
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.



Is This Divergence an Economic or Political Issue?


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






More Project Data For many years, Americans have worked 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


For Those Wanting to Improve Education

1. Educating the Class of 2030 for Employment and Creativity

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 


Return to Last Chapter     Discussion Questions     Homework Questions      

Next Chapter Demand and Supply     Table of Contents       Economics Internet Library




Calvin and Hobbes Explain Modern Capitalism
from The Daily Beas















Here is a visual version of the well-known cow based analogy of capitalism.

from  Infographic and Daily Global  Economic Intersection Newsletter WikiMoney Explains Capitalism Around The World - An Infographic from WikiMoney


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?


Market System Capitalism and Political Economy Videos