Chapter 3 
Characteristics of Market  System Capitalism and Political Economy

I. Basic Characteristics of Capitalism
  1 video 

II. Modern Capitalism 

III. Criticism of Modern Capitalism 3 videos

IV. Capitalism Reading 3 videos

V. How Markets Work: The Circular Flow

VI. Other Economic Systems
3 videos

 VII. Political Systems 9 video

VIII. Politics in the U.S. Democratic Republic 1 video

 IX. Political Systems Sundry Materials

X. Conclusion 1 video

XI. Quiz on Economic Systems

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
    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
             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 during the great
                 recession. National Review. 2/6/12
f. Carnival of Creative Destruction: a futurist predicts change
g. Rust Belt Almanac  Mid-West decline and  Creative Destruction
        8. The Success and Price of Capitalism - Documentary Video 1:02


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 video
  c. Hunter Lewis on crony-capitalism 30 minute video 
 d. Geithner and Summers accused of being Crony Capitalist 2/16/15
     3. Money Manager Capitalism: money managers dominate savings and
             investing and markets impacting economy's performance
4. State Capitalism:
economy driven by state, less reliance on markets,
practiced in China
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

             a. Capitalism vs. Democracy editorial 1/28/14

Capitalism in the Twenty-First Century   editorial 3/25/14

             c. Taking on Adam Smith and Karl Marx NYT 4/19/14

Capitalism is Not to Blame for Middle-Class Plight

     8. Capitalism is a concise overview from

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
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 U.S. 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

IV. Capitalism Readings and Videos
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
The Great Recession Using Quick Notes
     H has a somewhat conservative view of capitalism.
I 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
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.

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 and other investigative journalists were called Muckrakers known today as investigative journalists. 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.

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)
 Democratic Capitalism vs. Capitalistic Democracy 
          1. Socialism  emphasizes collective ownership and 
              management of economic resources that are more equally
          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 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.
         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,
         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

         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
              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?
Theocracy: deity is officially recognized as the civil ruler and official
               policy is governed by officials regarded as divinely guided. 
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

5 Questions an Economic System Must Answer
              e. Book Collections
Classics of Political Economy

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 

 When-Capitalism- s Great and Not So Great

               d. Milton Friedman Versus A Socialist     4 minutes
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.   Some 30y years later Thatcher's Great Britan has fared better than more socialistic continental Europe 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.
VII. Political Systems
     A. The Basics Video 3:28

     B. Republics exist when governmental power resides in the a consti-
         tutionally determined
government 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

          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
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
                   closer to being a Republic as the electorate for a larger group of
              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 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
              of citizens" were inherent to the idea of a republic.
C. 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
               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
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
               c. W. Wilson Contrasts Democratic Republic & 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. After Democracy video from Documentary Film
                   3. 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 
          c. An Important Distinction: Democracy vs. Republic
          d. Republic vs. Democracy
          e. Why faster growth with democratic presidents-timing is everything
Building a Democratic Republic
       6. Democracy and Capitalism
          a. Pyramid Theory Looks at Capitalism as Practice the US Democracy.
b. Trading Democracy for Corporate Rule Part 1 video from

 Documentary Films
. 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.
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. The US is an oligarchy this 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 the society and 
                seeks to control all aspects of public and private life wherever possible.

            6. 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.


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


In the U.S. democracy the rights of the minority are protected, though not perfectly, by a strong constitution interpreted by the Supreme Court. Democracy and a Republic 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



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 1:03 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
10 American Misconceptions About Democracy
    K. Eric X. Li: A tale of two political systems

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.

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. 
Presidential Politics: Party Politics and Presidential
           Elections from 1788 to 2012
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?

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?


2015 Political Economy Controversies







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.


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.


e-mail suggestions to Walter Antoniotti

1. Educating the Class of 2030 for Employment and Creaativity

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  Infographics 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?