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 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
d. Capitalism is Not to Blame for Middle-Class Plight
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
i. How will capitalism end
3. Free Course Great Economists: Classical Economics and its Forerunners
a, The Successes and Price of Capitalism Video 1 hour
b. The End of Capitalism
Adam Smith from Wiki
Which is Better
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 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 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 When-Capitalism- s Great and Not So Great
d. Milton Friedman Versus A Socialist 4 minutes
IV. Political Systems
1. All eligible citizens have an equal say in the political decisions that affect their
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
6. We the intelligent people of the United States provides insight into
American democracy. by Frank Li, Ph.D.4/23/14
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. 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 seldom 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 bills 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. 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.
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. Republic vs Democracy
1. In a republic the sovereign is the individual, in a democracy, sovereign is
2. Republic vs Democracy and other forms of government video 10.35
3. An Important Distinction: Democracy vs Republic
4. Republic vs Democracy
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 sociological, political
and economic voices that analyze and puts into historical perspective the
decisions and results of our economic and political systems.
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
VIII. Quiz on Economic Systems with answers from steponicseconomics
5 Key Economic Questions an Economic System Must Answer
Class Discussion Question. Has President Obama been a Democratic Socialist?
Please Blog Friends About This Free Library Using
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