Question

Historically, the US economy has been oriented on the ideology of free market capitalism. The Keynesian Neo-capitalism has developed a new concept since the great depression in the way and manner the American Government should intervene in the free market system that would allow it work better for the citizens. In what ways can you differentiate what pure market capitalism and neo-capitalism (Keynesian economics) represent in the American economy today? For the future, do you believe American capitalism is falling apart or gaining strength? Use your learning so far from your text and other sources to articulate your points. Requirements: 1. Leave a post of at least 360 words 2. List your references

Answer 1

Early Historical Capitalism Development:-

Capitalism grew out of European feudalism. Up until the 12th century, less than 5% of the population of Europe lived in towns. Skilled workers lived in the city but received their keep from feudal lords rather than a real wage, and most workers were serfs for landed nobles. However, by the late middle Ages rising urbanism, with cities as centers of industry and trade, become more and more economically important.

The advent of true wages offered by the trades encouraged more people to move into towns where they could get money rather than subsistence in exchange for labor. Families’ extra sons and daughters, who needed to be put to work, could find new sources of income in the trade towns. Child labor was as much a part of the town's economic development as serfdom was part of the rural life.

In this sense, the American economy became predominantly capitalist only by 1900. The earlier years fall into three periods. The first, from 1600 to 1790, is characterized by handicraft-subsistence production alongside elements of a semi-capitalist economy stemming from commercial production of tobacco.

Definition of Capitalism:-

Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy.

Functionally speaking, capitalism is one process by which the problems of economic production and resource distribution might be resolved. Instead of planning economic decisions through centralized political methods, as with socialism or feudalism, economic planning under capitalism occurs via decentralized and voluntary decisions.

Definition of Free Market Capitalism:-

Capitalism and free market are often seen as synonymous. In truth, they are closely related yet distinct terms with overlapping features. It is possible to have a capitalist economy without complete free market, and possible to have a free market without capitalism.

Any economy is capitalist as long as private individuals control the factors of production. However, a capitalist system can still be regulated by government laws, and the profits of capitalist endeavors can still be taxed heavily.

"Free market" can roughly be understood to mean economic exchanges free of coercive government influence. Although unlikely, it is possible to conceive of a system where individuals choose to hold all property rights in common. Private property rights still exist in a free market system, although the private property may be voluntarily treated as communal without a government mandate.

Many Native American tribes existed with elements of these arrangements, and within a broader capitalist economic family, clubs, co-ops, and joint-stock business firms like partnerships or corporations are all examples of common property institutions.

Economic Growth considering the Capitalism:-

By creating incentives for entrepreneurs to reallocate away resources from unprofitable channels and into areas where consumers value them more highly, capitalism has proven a highly effective vehicle for economic growth.

Before the rise of capitalism in the 18th and 19th centuries, rapid economic growth occurred primarily through conquest and extraction of resources from conquered peoples. In general, this was a localized, zero-sum process. Research suggests average global per-capita income was unchanged between the rise of agricultural societies through approximately 1750 when the roots of the first Industrial Revolution took hold.

In subsequent centuries, capitalist production processes have greatly enhanced productive capacity. More and better goods became cheaply accessible to wide populations, raising standards of living in previously unthinkable ways. As a result, most political theorists and nearly all economists argue that capitalism is the most efficient and productive system of exchange.

US as a Free Market Capitalism:-

It Came in the First Ships: Capitalism in America. The Virginians in Jamestown, the Puritans in Massachusetts Bay, the Quakers in Pennsylvania and other early settlers of what later became the United States all brought with them elements of capitalism, precursors of the future nation's market-driven direction.

The United States is a capitalist society where means of production are based on private ownership and operation for profit. The United States is not a totally capitalist society, however, because the economy has regulations, taxation, and some subsidization.

The United States is the world's premier free market economy. Its gross domestic product is greater than any other country that has a free market. China has the world's largest economy, but it relies on a command economy. The U.S. free market depends on capitalism to thrive.

The U.S. is a mixed economy, exhibiting capitalism and socialism characteristics. Such a mixed economy embraces economic freedom when it comes to capital use, but it also allows for government intervention for the public good.

As the New Deal took shape, Franklin Roosevelt was accused of undermining capitalism. His response was that he was saving capitalism, not least from itself. And he turned out to be right. Today, in the midst of another economic crisis, cries of “socialism” once again abound. There is every reason to believe that these charges, too, will prove to be overwrought. Even if all of Barack’s Obama’s proposals were adopted, the United States would remain a capitalist country.

Let’s be clear what we mean. Roughly speaking, capitalism implies that markets and market transactions are the principal drivers of economic activity. But this activity takes place within a system of public rules that define property, transactions, and everything else that gives shape to markets. And these rules must be enforced through public power. As we have seen recently, when the rules are inadequate, ill-conceived, or poorly enforced, markets malfunction badly,causing great damage. Regulatory institutions are not antithetical, but rather essential to a well-functioning modern capitalist system.

Experiences teaches, moreover that public institutions other than regulators enhance modern capitalism. For example, after a series of financial panics in the late 19th and early 20th centuries, government and business leaders agreed that a decentralized financial and banking system could not direct monetary policy effectively. The result was the establishment of the Federal Reserve Board, which influences interest rates and the supply of capital, tries to limit the severity of the business cycle, seeks to preserve the dollar as a reasonably stable store of value.

Capitalism also implies that agents other than the state are the principal owners of the means of production and other sources of wealth. To the extent that governments own energy resources or control banks, for example, their economies are a blend of capitalism and other systems. But it makes a difference whether government ownership is temporary or permanent. During the banking crisis of the 1930s, and again in the savings and loan crisis of the 1980s, the government took control of failed or failing institutions for a time, shutting some of them down and returning others to private hands. Temporary state control of private institutions during emergencies does not transform a capitalist economy into something else.

Even the staunchest defenders of markets acknowledge that there are some goods that markets do not supply, at least in adequate quantities. For example, a modern economy depends on an educated and trained workforce, which the private sector will not produce. The reason is simple: if a firm invests in training workers, it cannot be sure that another firm will not hire those workers and get the advantage of their skills without paying for them. Government finances education and training because it must, not because it wants to control these activities. Again, there is no contradiction between capitalism and the public provision or subsidy of public goods.

Nor, finally, is there a contradiction between capitalism and measures to assure that workers receive a wage adequate to support their families and to maintain the purchasing power on which a sustainable market economy depends. For example, Republicans and Democrats alike have long favored the Earned Income Tax Credit, which uses the tax system to subsidize low-wage work.

These are old debates, which many of us thought had been resolved during the New Deal. The fact that they are being revived today testifies both to the gravity of our economic ills and to the persistence of longstanding misconceptions—rooted in doctrine rather than observation—about how modern market economies actually work.