Capitalism, the Free Market & Free Enterprise Capitalism Rocks!

Adam Smith on Free Markets  Self-Interest concept Incentive for personal gain motivates markets Incentive for personal gain motivates markets Spurs on competition Spurs on competition Encourages innovation Encourages innovation Produces efficiency Produces efficiency  “Invisible Hand” The force resulting from the above, which regulates The force resulting from the above, which regulates the market without any central direction. the market without any central direction. Capitalism Rocks!

Characteristics Economic Freedom People can choose their… Occupation Hours Occupation Hours Employer Employer Work for themselves Work for themselves Not work at all Not work at all Businesses can choose their… WorkersProducts/services to offer WorkersProducts/services to offer LocationPrice of goods sold LocationPrice of goods sold Capitalism Rocks! Capitalism Rocks!

Characteristics Voluntary Exchange Buyers and Sellers willingly trade - make market transactions Both earn a profit – they are better off than they were before. Both believe they have something worth more than they had before…money or a product. Capitalism Rocks! Capitalism Rocks!

Characteristics Private Property Right and privilege to control possessions - Physical items, skills, talents, brain power Can keep, sell or trade property Prospect of gain gives people incentive to work, save and invest Capitalism Rocks!

Characteristics Profit Motive Profit – the extent to which people or organizations are better off after a transaction period, than they were before it. Free Enterprise rewards people who risk resources intelligently in business ventures, with a profit. Keeps free enterprise alive and well. Capitalism Rocks! Capitalism Rocks!

Entrepreneurs Drive the Free Enterprise system by starting new businesses. Combine the other factors of production…land, capital & labor to seek the reward of a profit. Create jobs, supply wants and needs for consumers, pay taxes. Starts a chain of events leading to new products, higher quality and lower prices of needed goods and services. Capitalism Rocks!

Consumers Role “ Consumer is King!” “The customer is always right!” Control what is produced by accepting or rejecting products and services. Control what is produced by accepting or rejecting products and services. Dictate prices with willingness or unwillingness to buy. Dictate prices with willingness or unwillingness to buy. Capitalism Rocks!

Laissez-Faire…to a point Mostly markets operate efficiently w/o government. “Invisible Hand” Since free market guided by incentives…some things would never get done – schools…roads…parks. Some freedoms could be trashed…property rights.. contracts… So governments create laws to protect those & to act in the interest of the people (corporate citizens too!) Balance is important Capitalism Rocks!

Government’s Role Protector of the Consumer  Laws against false ads, impure food, unsafe products and environmental hazards  Protects property rights, fairness & enforces contracts Capitalism Rocks!

Government’s Role Producer and Consumer Itself  Produces services, (Defense, Healthcare, Education)  Consumes products in performance of this role.  In many ways acts like a business itself Capitalism Rocks! Capitalism Rocks!

Government’s Role Regulator  Preserves competition so Capitalism doesn’t “implode”.  Oversees interstate commerce, communications, banking, the investment business and nuclear power  Local Government “zones” business areas, and controls commercial permits to preserve competition and quality of life. Capitalism Rocks!

Government’s Role Promotes National Goals  Empowers agencies/corporations that modify the economy or alter consumer behavior. Federal Reserve Board – manipulates interest rates. Federal Reserve Board – manipulates interest rates. Sallie Mae – lends money to students Sallie Mae – lends money to students HUD – promote low interest mortgages HUD – promote low interest mortgages  Creates safety nets for the public so they can remain a part of the economy. Capitalism Rocks!

How much Government is enough?

Modern Economy - Mixed Economy Capitalism has matured to the point Capitalism has matured to the point where we see that elimination of where we see that elimination of competition will ruin the system. competition will ruin the system. We now accept some elements of We now accept some elements of “Command” in order to preserve the “Command” in order to preserve the integrity of the system. integrity of the system. The debate remains lively about how The debate remains lively about how much “Command” is enough. much “Command” is enough. Capitalism Rocks!

Economies in Transition  Moving from “planned” central to market BRIC…. Brazil, Russia, India and China  Retain some elements of “planned” economies  Growth is managed  Money supply is controlled  Specific sectors are targeted for expansion