Capitalism, the
Free Market &
Free Enterprise
Capitalism Rocks!
Adam Smith on Free Markets
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Self-Interest concept
Incentive for personal gain motivates markets
Spurs on competition
Encourages innovation
Produces efficiency
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“Invisible Hand”
The force resulting from the above, which regulates
the market without any central direction.
Capitalism Rocks!
Characteristics
Economic Freedom
People can choose their…
Occupation Hours
Employer
Work for themselves
Not work at all
Businesses can choose their…
Workers
Products/services to offer
Location
Price of goods sold
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!
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!
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.
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
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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
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Produces services, (Defense, Healthcare,
Education)
Consumes products in performance of
this role.
In many ways acts like a business
itself
Capitalism Rocks!
Government’s Role
Regulator
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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.
Sallie Mae – lends money to students
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
where we see that elimination of
competition will ruin the system.
We now accept some elements of
“Command” in order to preserve the
integrity of the system.
The debate remains lively about how
much “Command” is enough.
Capitalism Rocks!
Economies in Transition

Moving from “planned” central to market
BRIC…. Brazil, Russia, India and China
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Retain some elements of “planned” economies
Growth is managed
Money supply is controlled
Specific sectors are targeted for expansion