Chapter 3 Characteristics of Market System Capitalism
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I. Basic characteristics of capitalism
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
1. Modern Capitalism has many additional features
a. Complex Market System Setting Prices
b. Importance of Capital Goods and Technology
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
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 1/28/14
b. Thoughts on Capitalism in the Twenty-First Century editorial 3/25/14
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
II. The Circular Flow of Money
Please Blog Friends About This Free
III. Other Economic Systems
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
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 The Fabian Society is a British socialist organization
whose purpose is to advance the principles of socialism via gradualist and
reformist, rather than revolutionary, means.
5. Feudalism is aa 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 reminiscent of those present in
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?
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.
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
5 Key Economic Questions an Economic System Must Answer
Class Discussion Question. Has President Obama been a Democratic Socialist?
|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.||
Universal male suffrage began in 1884 France and was an important milestone in the history of democracy.
|XI. More discussion questions.
A. Something happened about 30 years ago to disconnected wage growth from productivity
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.
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
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
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.
3 Homework Questions