Zak Newbart

October 17, 2016

Economic Justice

927 words

Adam Smith on the State of the Modern American Economy

The foundation of our economic structures in the United States rests on Adam Smiths

arguments for a free-market capitalist society. Smiths ideas for individual and state wealth

accumulation through unrestrictive measures of trade and labor are the core principles of the

American economy. Capitalism and the free-market have driven our economy to great

innovations and growth; there is a reason the United States is the wealthiest nation in history!

One cannot doubt the profound success that capitalism has brought for the American

economy.

However, the capitalist success story has its share of problems as well. For example,

labor laws (including child labor) protecting workers were enacted out of the consequences of

free-market businesses mistreating and exploiting their employees to maximize their profits.

Environmental issues including climate change and clean water came at the expense of

economic growth. These issues are still present in the discourse of achieving an ever-expanding

economy. Arguably the biggest and most consequential issue with our capitalist economy is

the rising level of economic inequality. Huge gaps in income and between socio-economic

classes have been increasing since the 1980s. The upper-class has experienced large amounts

of economic growth and wealth while the middle-class has experienced stagnated wages less

economic opportunity. Political discourse is dominated by this economic disparity and the

majority of Americans are unhappy. In light of this economic disparity, is Americas highly
touted free-market economy actually a system that Smith would have supported? The short

answer is no. Smith would argue that the current level of economic inequality undermines the

fundamental aspects of the free-market capitalism he advocated for countries to adopt. We

need to examine what Smith had to say about his version of the free-market economy and how

it addressed economic inequality to explore possible solutions for todays economy.

Smiths proposed free-market economy in The Wealth of Nations was provided as an

alternative to the feudalist and mercantilist economies found in countries throughout Europe.

He observed how those systems propped up social classes that allowed for a select few to reap

the economic benefits while the vast majority of people were exploited and poor. With the

ongoing industrial revolution, Smith envisioned a transition to a free-market economy with

specialized labor as the best way for more people to work toward economic growth and

output. This would mean dividing labor into specific tasks that allowed for workers to master

a skill and maximize productivity. This great multiplication of the productions, [] in

consequence of the division of labour, which occasions, in a well-governed society, that

universal opulence which extends itself to the lowest ranks of the people, (Cahn, 496). Free-

market capitalism was Smiths system that addressed the feudal and mercantilist economies

that concentrated wealth in the hands of the elite. The free-market was going to revolutionize

the economy and bring everyone more wealth and better livelihoods.

Social and economic classes did not necessarily matter to Smith; he claimed that a

philosopher and street porter have mutual benefits to gain from one another by interacting

through the free-market. What is important is that people who have the means are able to

exchange, trade, or barter free of those constraints. This said, Smith did not outright call for

total economic equality. He did claim that an economic system providing access for more
people to participate and prosper, would address the gross inequality experienced through

feudalism and mercantilism.

Another aspect of Smiths free-market capitalism examined the states role in this

economic structure. Smith understood that there was going to be some economic inequality

that people experienced in the free-market. Two distinct purposes of the state included the

ability to provide a plentiful revenue or subsistence for the people, and to supply the state

or commonwealth with a revenue sufficient for the public services, (Cahn, 501). To temper

economic inequality and maintain the free-market he state was to establish and maintain public

institutions like education, arts, and commerce. Smith did not want the State to have a huge

role in the free-market, but saw the necessity in providing opportunities to compensate citizens

for their lack of material wealth. For example, public education would help poorer people

learn a variety of skills so they could enter the workforce and provide for their families.

Knowing now what Smiths main principles for his free-market economy are, we have

a clearer perspective in examining our current capitalist economy and its inherent inequality.

Smith would observe how our free-market is running and would see that it has gone beyond

the path of what he anticipated. The free-market is supposed to bring together all sorts of

people regardless of their socio-economic status, not further entrench economic inequality

and immobility. The big corporations and Wall St. banks have accumulated most of the

countrys wealth while middle-class and poor people have been increasingly excluded and

pushed out of the economy. Much of this is because of government policy. Smith would argue

that the government is not adequately providing assistance to those most vulnerable. To Smith,

the government needs to do a better job to ensure people have the opportunities to participate

and thrive in the free-market.

 Having studied capitalism and its critiques, I have come to the conclusion that

economic inequality in inevitable in a capitalist structure. However, I agree with Smiths

sentiments that the current level of economic inequality is detrimental to our society because

it does not always allow for everyone to compete and participate in the free-market. Todays

high levels of economic inequality can often resemble much like what Smith was arguing

against the feudal economic structures of the past.

Micro D3

Free Markets? Is the U.S. economy, or any economy, a "free market" economy?

Competition is a driving force in our economy. As firms compete with each other for consumer
dollars, society benefits from the variety of products and services businesses provide while they
are produced at otherwise lower costs and offered at affordable prices. At the same time,
consumers drive demand which puts upward pressure on prices as consumers compete with
each other for scarce goods and services. Firms increase their quantities supplied to meet
growing demand while new firms may enter markets as long as conditions are conducive for
profit generation. In all this, society benefits through markets allocating resources efficiently in
answering the fundamental questions. But all of this is an idealized picture where it is assumed
all actors have perfect information and all information is available freely. Describe in 200 to 300
words what can go wrong if we leave markets and businesses to do what they do without any
governmental interference in light of the fact that information is incomplete, uncertainty exists,
and information is asymmetric or unevenly distributed between businesses, investors,
consumers and governmental entities. In this "real life" scenario, what are the consequences of
no governmental interference in business in light of the fact businesses, investors, consumers
and governmental entities are never fully informed and information is not freely obtainable?

My response:

A pure market is one that exists without any government involvement or oversight. The only
time this might have existed is when a human civilization existed without government. A closed
market is one that is completely controlled by the government. This has been tried and tested,
by China and Russia for example but has failed. In a closed market, there is no ownership of
goods, without ownership, trade will fail.

The US operates using a mixed market meaning uses parts from both a pure market and a
closed market. However on a scale of 1 10, 1 being a closed market and 10 being a pure
market, I would say we are a 6.5. The US economy was originally created for new companies to
flourish or fail because of their own business practices. However, our current economic climate
is suffocated new start up companies and making market sharing for new companies as difficult
as possible.

This is a perfect real life scenario of what would happen in a 100% pure market. Without laws
and oversight, greed in humans would collapse the economy. The amount of laws and oversights
is what differs us from countries that have more control such as China and Russia.

Veronica Compton

Christopher Guajardo

Florentino Sosa

Valentin Schafer

Michael De La Cruz

Jesse Canales

Irma Munoz
At the end of the day there is one thing that everyone needs to accept about
corporations and the business industry as a whole. And that is that the bottom line
comes first. The goal of any business is to make money. If a business can increase its
profit, it can expand into other avenues, increase production of its current product,
advertisement etc. It is only natural that business, if given the opportunity would abuse
any loophole that would allow them to make more. That is why they cant be allowed to
police themselves. Bigger businesses would swallow smaller, newer ones whole without
any concern for the ramifications. The market would become stagnant as no new
companies could enter the field. And monopolies would control everything coming and
going out. There is this type of situation going on to some extent with cable companies.
There are really only two of them and they make sure to stay out of each other territory.
Because of this people cant fight back if the company's employees are rude or if their
actual cable is connection is poor. They dont have any other options. Companies even
slow down the internet for certain websites or streaming services they might have
problems with. It is a big issue that needs to be properly addressed. They are allowed to
do this because there is so little oversight for cable companies. In the past it was an
even bigger issues with oil and railroad tycoons completely demolishing competitions.
Monopolies stop not only economic growth but also social growth. Because young
upstarts cant have their chance, new and innovative ideas get pushed to the wayside.
Society can;t grow of the old doesn't make way for the new. The government needs to
intervene to make sure this doesn't happen. Regulations and laws have to be put in
place to stop companies from monopolizing any given area. Just like when the Sherman
Anti-Trust act was created to stop past monopolies we need the government to make
laws now in order to prevent future ones. Or to prevent issue like the housing crisis,
which could have need avoided with proper over sight and care. Though there are
several laws in place now to prevent such as thing from happening again.

I agree with you and really appreciated your point when you said,

Bigger businesses would swallow smaller, newer ones whole without any
concern for the ramifications. The market would become stagnant as no
new companies could enter the field.

I also agree with you regarding Monopolies stopping growth, I think you made an
excellent point that the government does need to be involved. I would like to add that the
U.S. operates using a mixed market meaning uses parts from both a pure market and a
closed market. The US economy was originally created for new companies to flourish or
fail because of their own business practices. However, our current economic climate is
suffocated new start up companies and making market sharing for new companies as
difficult as possible.
Some weeks ago we discussed the two types of economies in class. We had the 'pure
market' economy, which is where there is zero government involvement in how business
operates. Then there is a complete control economy where governments either directly
or very closely control how businesses operate within their country. The U.S. economy is
a 'mixed economy,' where companies are allowed to operate within given government
regulations. That being said, the U.S. economy falls under the definition of a 'free
market' because companies are allowed to compete with each other. However, if
companies were to operate in a purely unregulated environment then several things
would happen that are detrimental to the consumer base, and the economy as a whole.
One such consequence would be the establishment of monopolies. A monopoly would
allow a company to operate without having to worry about competition, and could
establish itself as a monopoly by undercutting their competitors. Once competition has
been either eliminated or bought out, the company could freely operate however they
choose, which could mean price-gouging consumers for their product. This would be
especially effective for companies that have a product that is essential to the operation
of every day society, such as a gas company. Consumers would not be able to shop
elsewhere as any potential competition could either be bought out or undercut until they
close. In this case, demand as an economic factor would no longer exist, and our
economy would begin to break down. Demand would be absolute, and would not affect
price.

I completely agree with your dissuasion and appreciate how you had an order to your
answer. The last point you made about, demand would be absolute, and would not
affect price is spot on. I would just like to add that the US economy was originally
created for new companies to flourish or fail because of their own business practices.
However, our current economic climate is suffocated new start up companies and
making market sharing for new companies as difficult as possible.
As the discussion question suggests, the data that is gathered is incomplete and uncertainty does exist
within the information that the government is able to obtain from businesses and markets.
However, with the information that is gathered, firms and businesses do their best to stay
competitive and offer the best goods and services they can provide at a price that keeps their
business profiting and the consumer happy. If information was not made available at all with no
governmental interference a number of things could occur. One of those would be that businesses
everywhere could over-price all of their goods and services and essentially cheat out the customer. It
could also lead to more illegal activities within businesses like money laundering or failure to pay
taxes. Also if the government isnt keeping track of how the business is making money the business
could be obtaining the money illegally. Not only will it effect prices of goods, but also make it
difficult for people to have equal rights at work. Even now firms and businesses find ways of getting
around reporting everything to the government. In a free market with no governmental
interference at all, it could easily lead to more illegal activities.

Florentino, I have to disagree with you because your answer seems to stray away from the question at
times. the data that is gathered is incomplete and uncertainty does exist within the information that
the government is able to obtain from businesses and markets, for instance, I have no idea as to
what data you are talking about.

However when you mentioned, One of those would be that businesses everywhere could over-price
all of their goods and services and essentially cheat out the customer. I am assuming you are an
economy without government oversight, such as a free market. In which I agree with you on. A pure
market is one that exists without any government involvement or oversight. The only time this
might have existed is when a human civilization existed without government. A closed market is
one that is completely controlled by the government. This has been tried and tested, by China and
Russia for example but has failed. In a closed market, there is no ownership of goods, without
ownership, trade will fail.
The US operates using a mixed market meaning uses parts from both a pure market and a closed
market. However on a scale of 1 10, 1 being a closed market and 10 being a pure market, I would
say we are a 6.5. The US economy was originally created for new companies to flourish or fail
because of their own business practices. However, our current economic climate is suffocated new
start up companies and making market sharing for new companies as difficult as possible.

This is a perfect real life scenario of what would happen in a 100% pure market. Without laws and
oversight, greed in humans would collapse the economy. The amount of laws and oversights is what
differs us from countries that have more control such as China and Russia.

Lastly, you said In a free market with no governmental interference at all, it could easily lead to
more illegal activities, I would like to add that illegal actives could not exist in a free market because
a government would need to exist in order to create those laws. A free market has no government.
To a degree, the U.S. has a free market economy. A free market economy which decision
regarding production and distribution are based on supply and demand. As prices of goods
and service are determined by supply and demand (the higher the price can lower the
demand). As a price/value of goods or services go up, demand should fall. In a hypothetical
situation, assuming there is a trend of 20% of demand went down, the company would have
to decide, as to whether to provide a products service based on their cost. If there is no
governmental interference, decisions will be made to gain more profits. The more
uncertainty in the market, the more risk and the higher returns needed for investments. The
U.S. doesnt have a pure free market because the government is present in regulations,
subsidies and tax policy. As these interventions in turn affect demand for products, profits
and company investment decisions.

I agree with you on point that the, The U.S. doesnt have a pure free market because the
government is present in regulations, subsidies and tax policy. I would just like to add that
parts of the U.S. economy are free. For example, when Russias economy was collapsing, it
was a fully command market. In such a market no one can actually own anything. How can
trade and growth exist when the consumers and supplies cant actually own anything? Short
answer, it cant which is why it collapsed. Neither a fully command market or a fully free
market can exist for long.
In today's economy, information is readily available. If one wanted to see how well a business is (or
is not) doing, we can easily access that information given that it is a public business. Information is
readily available partly because there are laws in place that demand public businesses to show
progress in the form of financial statements. These records show consumers how businesses are
allocating their resources and how the business is making decisions.

Now, if we are to take the government and laws associated by the government's executive actions
away, this would wreak havoc on the economy simply because business would not be required by
law to disclose how well they are doing and could possibly even fabricate their progress to make
themselves sound greater for investors. In doing this, and consumers seeing what businesses are
doing, they may be reluctant to purchase goods or services from our economy and may invest their
monies elsewhere; which would then, consequently, hurt our economy.

The reason why we have the government regulations in place is just for that; regulation. The
government isn't meant to just take over the businesses' operations. The business owner has that
power to utilize his/her resources in any way that they see fit.

I agree with you on your well-argued point as to why a government is necessary to have longevity in
a healthy and thriving market economy. I would like to add that presently, the U.S. has a mixed
economy. Meaning uses parts from both a pure market and a closed market. However on a scale of 1
10, 1 being a closed market and 10 being a pure market. New companies are encouraged to be
created, and tax cuts are given to then but they must follow the laws and procedures of the
government.

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Wow, what would happen if the free market economic system existed without regulation.
That is a very interesting scenario. I remember, back in the first week, you presented three
economic systems on a linear spectrum. On, the one end, the Command style economic
system and on the opposite end the complete socialist system. I believe that in the middle,
there was a mix system. I gathered from that lecture that the systems on the extreme ends
were more likely to fail than the mixed system in the middle. This is where I believe
government regulation should find itself. Somewhere between over regulation and no
regulation. I would like to believe that this would be the optimum balance.

We have seen, throughout history, in sectors without government regulation

were consumers and young enterprises suffered at the hands of the established structure.
Monopolies existed which controlled pricing indexes to take advantage of the consumer.
They prevented new businesses from being introduced that could alleviate the pressures
exerted, by the controlling majority, on the economic times. Many instances exist were laws
were circumvented, growth was restricted and financial equality was stymied due to the lack
of regulation. It was in response to these moments that many current government agencies
were formed. The formation of these agencies reigned in and did away with monopolistic
business models. Allowing information, opportunity and financial means to be readily
available to the vast majority. Yes, I believe that government regulation is a required. I
believe that without the existing government regulation we would still be experiencing those
same business models. Which would lead to a great disparity in our economic class
structure.

While I do agree with your point, I think you misspoken when you said, On, the one end,
the Command style economic system and on the opposite end the complete socialist
system. I think you meant to say free market instead of command style. While many would
agree that the optimum balance is somewhere I the middle, much debate comes up with
pinpointing that exact place. I agree that though history monopolies have controlled the
market that new or smaller companies vanished.

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Irma Munoz

DQ3
COLLAP SE

A few things can go wrong like over charging of products and leaving consumers in a bind
having to choose between a necessity now or a necessity later. A lot of businesses will
become selfish because the government will not be involved in setting a monopoly, or other
authority of price. So now businesses will set prices amongst the vendors and consumers for
goods and services. It would affect investors because no investment would be made if we are
doing everything for the customer to what they can and can not afford versus if we set a high
price it would affect the investors in a positive way. Information for statistics or any type of
data would not be available because the economy would fluctuate from high to low and low
to high. There would not be a proper number for cost of living or the proper amount a
household needs to make in order to maintain a healthy household and/or a happy
household. At the end of the day I believe we should not become a "free market" society due
to the unbalance lifestyle.

Irma, I disagree with a lot of what you just said. A few things can go wrong like over
charging of products and leaving consumers in a bind having to choose between a necessity
now or a necessity later. A lot of businesses will become selfish because the government will
not be involved in setting a monopoly, or other authority of price. What are you talking
about? My guess is you are trying to describe what would happen to our company if we went
from a mixed market to a free market. If that is the case, I agree but since you didnt state
one way or the other, I disagree with you. You then go on to say, So now businesses will set
prices amongst the vendors and consumers for goods and services. It would affect investors
because no investment would be made if we are doing everything for the customer to what
they can and can not afford versus if we set a high price it would affect the investors in a
positive way. To which I am left guessing again. Did you mean to describe what companies
that monopolize a specific market would do? This pattern continues though the rest of your
discussion so I am going to skip to the last part. You said, At the end of the day I believe we
should not become a "free market" society due to the unbalance lifestyle. We are not a free
market. The U.S. is a mixed market. Meaning parts of your economy are free and parts are
command. For example, we are able to create our own companies but they must follow rules
and guidelines created by our government.

I feel like you had some good things to say that I wanted to agree with. If you clearly define
what you are talking about next time, that would help a lot.

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