Chapter 3 -- How Markets work -- Norton August.pdf
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Chapter 3 -- How Markets work -- Norton August.pdf

Chapter3--HowMarketswork--NortonAugust.pdf

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CHAPTER3THECAPITALISTMARKET:HOWITISSUPPOSEDTOWORKFinaldraft,August2009TheAmericaneconomyisaspecialcaseofcapitalism.InordertounderstandhowtheAmericaneconomyworks,therefore,wewillneedtospendsometimetalkinginmoregeneraltermsaboutthenatureofcapitalismasaneconomicsystem,andthisinturnmeanswewillhavetodiscussanumberoffairlyabstractideasanddevelopanumberoftheoreticaltools,manyofwhichcomefromeconomics.Thiswillbethemaintaskofthischapterandthenext.Inthischapterwewillbeginbydefiningcapitalismasaneconomicsystemandthenexaminethecentralargumentsinfavorofcapitalismbyitsdefenders.Thiswillgiveusapictureofhowcapitalismissupposedtowork.Inthefollowingchapterwewilldiscusssomeofthedilemmasandproblemsofcapitalismasaneconomicsystemwhichexplainsitslimitationsandfailures.Thechapterswhichfollow,then,applytheseideastoanumberofmorespecificproblemsintheAmericaneconomytoday:theenvironment,transportation,healthcare,consumerism,andtraining.Thecentralthemeineachoftheseanalysesishowtheover-relianceoncapitalistmarketsintheAmericaneconomyproducesinefficientoutcomes.OurexplorationoftheAmericaneconomyconcludesinChapter9byoutliningarangeofinstitutionalinnovationswhichmightcontributetoresolvingtheseproblemsbystrengtheningtheroleofdemocraticgovernanceandcollaborativeproblemsolvingovereconomicprocesses.I.WhatisaCapitalistFreeMarketEconomy?Economiclifecanbeorganizedinmanyways.Thisisacrucialidea:historycontainsanenormousvarietyofwaysoforganizingeconomicactivityand,undoubtedly,therearepossibilitiesthathavenotyethappenedbuteventuallywill.Thefirststepingivingmoreprecisiontoourunderstandingofcapitalismasaspecificwayoforganizinganeconomyistogetsomeappreciationofthisbroadervariation.Hereareafewexamplesofnon-capitalisteconomicstructures:Feudalism.InFeudaleconomies,thekeyeconomicresourceisland.Differentclassesofpeoplehavedifferentkindsofrightsandrelationshiptotheland.Peasantsare“tied”totheland:theydonothavetherighttosimplyleave.Theyhavetherighttofarmtheland,butinordertodosotheyhavetogi