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Chapter 3 Characteristics of Market System Capitalism Return to  Economics Notes Table of Contents               Please  ShareThis
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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 capitalism.           1. His book, The Wealth of Nations, was the first description of capitalism.          2. Published in 1776, it described capitalism as it was practiced in 18th century England.          3. For more visit http://www.econlib.org/library/Enc/bios/Smith.html    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.     E. Modern Capitalism has additional features         1. Complex Market System Setting Prices         2. Importance of Capital Goods and Technology         3. Specialized             a. Complexity requires company produce limit their product lines             b. Division of Labor allows specialization by ability ad training.      F. Corporate Capitalism describe a capitalist marketplace characterized by the            dominance of hierarchical, bureaucratic corporations.      G. Crony Capitalism has been around from the beginning, its new name is Corporate Welfare.       H. Creative Destruction described by 20th century sociologist and           economist Joseph Schumpeter           was an important addition to the idea of capitalism.          1. Change involves the creation of improved economic structures based on              technology and the destruction of inefficient  economic structures.          2. Capitalism allows this destruction to take place.          3. The fight between labor and management has also brought much            4. 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      I.  The Fall of Rome reviews the market system of the Roman empire and how the author believes          government failures caused its demise..      K. Blackstone's Byron Wien, a successful capitalist,  Discusses Lessons Learned in his First-80-years