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Chapter 3 Characteristics of Market System Capitalism Return to Economics Notes Table of Contents |
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Editors Note:
McConnell Economics Books, including the 18th edition,
are one of many sources of material included in this chapter.
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
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
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.
E. Modern Capitalism has additional features
1. Complex Market System Setting Prices
2 . Importance of Capital Goods and
Technology
3. Specialized
a. Complexity
requires company produce limit their product lines
b. Division of
Labor allows specialization by ability ad training.
F.
Creative Destruction described by 20th century
sociologist/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.
Joseph Schumpeter's biography
II. The Circular Flow of Money
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III. Economic Systems
A. Pure capitalism as described by Adam Smith
never existed.
B. Recent economic systems have
been Mixed Economies (a mixture of Capitalism
and Socialism)
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
(1981-89).
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, i.e., a
Planned Economy
c.
Harvey - Is Marxism Relevant Today? Video
C. A Traditional Economy, one in which
customs determine the operation
of the economy, is practiced by many
developing countries.
IV. 5 Key Economic Questions an Economic System Must Answer are the topic of chapter 5.
V. 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.
Wikipedia 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.
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