Free Enterprise System

I. Free Enterprise (Capitalism, Free Market, Market Economy)**

A. Free Enterprise and The Three Economic Questions
. !hat "oods !ill #e $roduced%
&. 'o( !ill These "oods #e $roduced%
). For !hom !ill These "oods #e $roduced%
#. Fi*e Features o+ Free Enterprise
. $ri*ate $roperty
2. Choice (Workers have a right to choose what work
they will do and for whom they will work!!
). ,oluntary E-chan.e
". Competition (#ntitr$st!!
/. Economic Incenti*es (Adam 0mith1s +amous 2uote)
II. $ro+it and 3oss
A. $ro+its in a Free Enterprise Economy
. Total 4e*enue minus Total Cost
&. $ro+its 0er*e as 0i.nals to the Firm
). 0i.nal to Firms 5ot 6et in the Market
#. $ro+it is 5e*er "uaranteed
III. The Ethics o+ a Free Enterprise Economy
A. Ethics7 The Moral Issues
. Allo(s Indi*iduals to Choose Their 8(n 8ccupations!!
&. $roduces "oods and 0er*ices $re+erred 9y #oth the
Ma:ority and Minority
). 4e(ards or $unishes $roducers #ased on 'o( !ell or
$oorly They 4espond to the $u9lic
;. 0upports the 4i.ht o+ an Indi*idual to 9e Free
/. $ro*ides an 8pportunity +or Indi*iduals to 0tren.then and
<e*elop Their A9ilities
I,. Entrepreneurs
A. It is 5ot Easy to 9e an Entrepreneur
. A person (ho searches out and takes ad*anta.e o+ ne(
9usiness opportunities= sees pro+it opportunities that
no9ody else does
&. <e*elops 5e( $roducts
). <e*elops 5e( !ays o+ <oin. Thin.s
#. 'a*in. Entrepreneurs Means 'a*in. More Choices o+ "oods and
0er*ices
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Free Enterprise *. Command Economies
I. T(o ,isions 0hape the T(o Economic 0ystems
A. Free Enterprise and 0ocialistic Economic 0ystems
. Most nations are actually mi-ed economies
2. %he &.S. is '(% a free enterprise system
#. T(o ,isions and the Market
. $rice
a. The capitalist thinker sees price as doin. a :o9
(.) 4ations "oods and 0er*ices
(&.) Con*eys In+ormation
().) 0er*es as an Incenti*e +or #uyers and 0ellers to
4espond to In+ormation
9. The socialist thinker *ie(s price as 9ein. set 9y
9usinesses (ith *ast economic po(er. There+ore, they
are more (illin. to control prices.
&. Competition
a. The capitalist thinker 9elie*es that competition is
intense under +ree enterprise and that the competition
9et(een producers (ill +orce them to o++er the hi.hestA
2uality product to consumers +or the lo(est price.
9. The socialist thinker *ie(s the market place as 9ein.
controlled 9y 9i. 9usiness (hich dictates (hat people
(ill 9uy and at (hat price
). $ri*ate $roperty
a. The capitalist thinker places hi.h *alue on pri*ate
property and a.rees (ith "reek philosopher Aristotle
(ho said, B(hat is common to many is least taken care
o+, +or all men ha*e .reater re.ard +or (hat is their o(n
than +or (hat they possess in common (ith others.C
9. The capitalist thinker also 9elie*es that ha*in. pri*ate
property encoura.es indi*iduals to use their resources
in a (ay that 9ene+its others.
c. The socialist thinker 9elie*es it (ould 9e 9etter +or
.o*ernment to o(n most o+ the nonla9or property in the
economy (such as +actories, ra( materials, and
machinery). "o*ernment (ould make sure that this
property (as used to 9ene+it the many instead o+ the
+e(.
;. E-chan.e
a. The capitalist thinker 9elie*es that #8T' the 9uyer and
seller 9ene+it +rom *oluntary e-chan.e
9. The socialist thinker *ie(s e-chan.es as DeroAsum
.ames.
C. The T(o ,isions and the "o*ernment
. The capitalist thinks .o*ernment decision makers
respond to (ellAor.aniDed special interest .roups
&. The socialist thinker sees the .oal o+ .o*ernment decision
makers as doin. the ri.ht thin., (hereas the capitalist
thinker sees it as .ettin. elected and reelected to o++ice.
). Accordin. to socialist thinkers, mistakes made 9y
.o*ernment decision makers occur 9ecause they do not
ha*e all the +acts. (58 EI<<I5"@)
;. Friedrich 'ayek, an economist in the #$strian school o+
economics, made the point that socialism +ails 9ecause
the decision makers in .o*ernment (ould ne*er ha*e all
the rele*ant +acts to make proper decisions.
/. !hat 0hould "o*ernment <o Accordin. to #dam
Smith%
a. $rotect 0ociety +rom ,iolence and In*asion ($olice,
Military)
9. Court 0ystem (re+eree)
c. Esta)lish Certain *$)lic Works and +nstit$tions
(roads, )ridges, ed$cation!!
II. 0ocialism in the Former 0o*iet >nion
A. Command Economy 0ocialism
. "o*ernment !as In*ol*ed in Almost E*ery Aspect o+
the Economy. "o*ernment 8(ns all the 5on3a9or
4esources= It <ecides !hat !ill #e $roduced and in
!hat Quantities= It 0ets $rices and !a.es.
&. "osplan (as the a.ency the made economic BplansC +or
more than &FF,FFF 0o*iet enterprises.
#. The Case A.ainst Central *lanning
. The $lanners Cannot Take into Account as Much
4ele*ant In+ormation as the <ecentraliDed Market <oes
C. 0ettin. $rices
. "o*ernment !ould 0et $rices Too 'i.h (Creatin.
0urpluses) or Too 3o( (Creatin. 0horta.es). This
Created an Incenti*e +or #lack Markets to Emer.e.
F+'#- '(%E. When Co$ntries #re /anked as to 0ow Free %hey #re, %he
Evidence Shows %hat %he Co$ntries %hat #re /anked %he Freest have the
0+10ES% Standard of -iving and Economic 1rowth.
2EF+'+%+('S
C#*+%#-+S3. Capitalism can 9e descri9ed as a free-market system o+ economics.
Economic li9erty is the cornerstone o+ the +reeAmarket system. Economic li9erty entails
+reedom +rom unnecessary .o*ernment inter*ention in the market place, le.al protection
o+ pri*ate property, and the +reedom to 9uy and sell almost anythin. at any time.
FreeAmarket thou.ht has its ori.in in se*eral sources includin. Adam 0mith. Classical
economics later de*eloped into *arious schools o+ economic thou.ht. Three prominent
schools include the Austrian school, the Chica.o school, and the ,ir.inia school
(sometimes called the $u9lic Choice school. The sin.le de+inin. characteristic uni+yin.
all three schools is a tireless de+ense o+ human li9erty, particularly, economic li9erty.
Force+ul admonitions a.ainst direct .o*ernment in*ol*ement into the economy unites
e*ery +reeAmarket economist re.ardless o+ 9ack.round and theoretical *ie(point. FreeA
market economists a.ree that, (hile the intentions o+ .o*ernment may 9e honora9le,
inter*ention disrupts market processes 9y curtailin. li9erty and spontaneous
de*elopment. Eey thinkers include Adam 0mith*, 3ud(i. *on Mises, Friedrich 'ayek,
Milton Friedman, and Games #uchanan
C(33&'+S3. Communism may 9e descri9ed as a social order that com9ines socialist
economics (ith collecti*e and totalitarian politics. 5ot all socialists are communists, 9ut
all communists are necessarily socialists.
3+4E2 EC('(35. A mi-ed economy is one (here elements o+ socialism and
capitalism are present. The dominatin. theme o+ a mi-ed economy is statism. 0tatism is
mani+ested in the economic sector throu.h e-cessi*e .o*ernment re.ulation and
inter*ention. 0tatists think that, i+ le+t to itsel+, the market (ill (reck li*es, e-ploit
indi*iduals, and de*astate +amilies. Ad*ocates o+ a mi-ed economy 9elie*e that
.o*ernment inter*ention in economic matters can success+ully achie*e desired results
(ithout leadin. to socialism. A mi-ed economy is purported to 9e a third (ay 9et(een
the +ree market and socialist control o+ the means o+ production. The >nited 0tates is an
e-ample o+ a mi-ed economy.
S(C+#-+S3. Socialism is an economic system in (hich all the means o+ production
(i.e., land, machinery, and tools) are held in common. 4adical +orms o+ socialism seek to
a9olish pri*ate property entirely, 9ut moderate +orms permit indi*iduals to o(n and use a
limited amount o+ .oods +or pri*ate purposes. >nder socialism the means o+ production
are the property o+ the community. It is the community alone that determines ho( the
means o+ production are employed. It .oes (ithout sayin. that in order to utiliDe this
discretionary po(er the community must set up a special re.ulatory 9ody +or :ust that
purpose. The .o*ernment typically o(ns, administers, and controls the common means o+
production. Eey thinkers include Earl Mar-.