The liberty principle for this Freedom Friday is America’s economy and why it works so well. When the Constitution of the United States was being written, the Founders were striving to create a political system that would bring true liberty to Americans, and they knew that they would have to find a balance between order and freedom to do so. They knew that people could handle only so much freedom and that they would reach a point of anarchy if granted too much freedom by the government. On the other hand, there would be tyranny if the government exerted too much control over the people. They knew that they had to get the balance exactly right, and they struggled with it. They apparently accomplished their goal because the Constitution has guided the United States for more than 200 years without either anarchy or tyranny taking hold of the government.
The true liberty granted by the Constitution is only part of the story of the many freedoms that Americans enjoy today. Another part of the story involves the American economic system. This system provides general financial success seldom seen in other countries, and most Americans have enough to satisfy their needs, wants, and sometimes luxuries. Needs are defined as those items – such as food, clothing, and shelter – that are needed to sustain life. Wants are defined as those items that would be nice to have to make life more comfortable – such as beds, tables, cell phones, and other objects that are neither needs nor luxuries. Most Americans have their needs and many of their wants supplied because of the capitalism in the United States.
There are three economic strategies that are used to ensure that the correct levels of production and distribution are employed in a society. The three types are generally known as the traditional, command, and market strategies. A traditional economy involves family and relationships and sometimes lasts through several generations. The family produces goods and services and then distributes them to those people with whom they have relationships, such as other family members, friends, and neighbors. This type of economy was used in the Native American communities before the arrival of European traders.
A command economy includes any form of authority being used to determine what is produced and how it is distributed. This kind of economy requisitions the money and labor to build projects bigger than an individual or family could handle, such as roads, bridges, and schools. Sometimes a command economy brings changes, such as Stalin’s industrialization of the Soviet Union and Mao’s Great Leap Forward for China. A command economy takes most of the freedom out of the marketplace, but it deals well with changing social and economic conditions.
A market economy – sometimes known as capitalism or free enterprise - is one where there is a free exchange of goods and services and where the production and distribution of goods and services is determined by the laws of supply and demand. This type of system gives people freedom in determining what they will produce and consume and how much, but it also rewards or punishes them according to their choices. They are rewarded for the right economic choices and punished for the wrong ones. Thus, it gives an incentive to choose wisely, and it also deals well with changing social and economic conditions. A down side to this system is that it allows people to become greedy or corrupt in their attempt to become successful economically.
According to Adam Smith in his The Wealth of Nations, “self-interest,” or incentive or the desire to be successful, is the engine that drives the market system. It is self-interest that motivates a man or woman to turn their idea into a successful business with long hours, hard work, and personal sacrifice. He explains that it is not the love for other people that motivates a butcher to sell meat or the baker to sell bread. They work to satisfy their own self-interest, and they satisfy the needs of others while doing so. Everyone benefits as many people make choices about what they produce and what they desire to consume in order to satisfy their own self-interest. This benefit also causes the standard of living to rise for the society as a whole.
Some people consider “self-interest” to be the same as “selfishness” or “greed,” especially that kind of greed that comes from pride. It is not. People who are greedy are the same ones who campaign to change the laws, changes that would destroy property rights and markets. In today’s world self-interest encourages manufacturers to increase productivity in their attempt to increase profits.
Smith gives the following three reasons why a market system delivers a systematic answer to the problems of production and distribution: 1) Self-interest is the motivation that powers the engine of production, 2) Changes in the desires of society direct what and how much is produced – generally known as the laws of supply and demand, and 3) competition in the market keeps the price of goods and services at a reasonable level.
The consumer is the one who controls what is produced. If an item continues to be high on the list for the consumer – such as the iPhone, the producer will continue to make it. Apple continues to make better and more powerful iPhones for the simple reason that the consumer will pay for the next generation of phone – and the next.
The strengths of the market system are numerous: 1) It operates in an atmosphere of freedom as to production and consumption and thus offers satisfaction. 2) It motivates people to work and to create. 3) It uses the system of exchange to increase the standard of living for everyone. 4) It works with human nature as people are motivated to work in order to fulfill their wants and needs. 5) It works to allocate resources in the best way possible. 6) It controls prices and profits through the laws of supply and demand.
There are, however, weaknesses in the market system. One of the weaknesses of this system is the main reason why people think that socialism works better than democracy. This weakness is the unequal distribution of wealth. This inequality comes about because the market system allows for greed and dishonesty in a way that threatens economic virtue, price stability, and production instability.
Greedy people will always do whatever they can to become more successful than anyone else, even if it means breaking the law or going against the norm of society. Only a truly righteous society will be rid of greed. For this reason, capitalism shouts a critical question: What is the correct balance between initiative and incentive and the characteristics of greed? There is a balancing point or line that divides the two areas, and greed should always be guarded against by both individual and corporations. This balance point seems to be difficult to find.
In spite of the weaknesses of capitalism, it continues to prove that it is the best system to control production and consumer demands and to provide for the needs and wants of all people who are willing to work within it. It is a system where the poorest of citizens can become wealthy by changing an idea into a successful business. Many of the millionaires and billionaires in America today were just ordinary citizens who did so, and Steve Jobs is just one of the many.
Capitalism works well for the United States and provides for many freedoms enjoyed by Americans and others who reside within the nation’s borders.