Throughout the history of mankind, economic systems have evolved in every society to deal with the economic choices that were forced upon man by the scarcity of resources. One type of economic system that has evolved is the system of pure market capitalism. Forms of capitalism existed as early as the Middle Ages in the Middle East and parts of Europe (Buchholz, 1999; Capitalism, 2007; The History of Capitalism, 2007).
Modern industrial capitalism had its beginnings in the middle eighteenth century with the beginning of the industrial revolution which began in Britain and spread from there to other parts of the world. In his 1776 book, The Wealth of Nations, Adam Smith touted the benefits of the individual pursuing his own self-interest in a capitalistic market system. According to Smith, by pursuing his own self interest in a market economy man “intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.”
By the end of the 19th century, the evolution of capitalism gave rise to the corporate form of ownership, a rise in the size of business firms, and a decline in competition. Beginning in the 1870s industrialized economies began to experience wide swings in the the level of economic activity. Periods of economic prosperity were followed by periods of recession and depression. The business cycle was born. Beginning in 1929 and continuing through the 1930’s the entire capitalist world was plagued by a prolonged period of economic depression. Followers of Karl Marx confidently predicted the demise of capitalism during much of this period (Buchholz, 1999; Capitalism, 2007; The History of Capitalism, 2007).
It appeared that the prophecy of the Marxists might indeed become a reality with the occurance of the Russian Revolution in 1917. Eventually, this revolution lead to the creation of a statist socialist system. Private ownership and control of the resources was abolished and the state established total control over the economy. By the late 1940’s various types of statist systems were established in the countries of Eastern and Central Europe and in China (Buchholz, 1999; Capitalism, 2007; The History of Capitalism, 2007).
Between the mid 1940’s and 1989 (the period known as the “Cold War”) there was intense competition between U.S. market capitalism and Soviet style statism. However, by the end of the 1980’s, Soviet style statism or socialism collapsed. In the 1990’s the trend nearly everywhere has been toward the adoption of the capitalistic market economic system (Heyne, Boettke, & Prychitko, 2006).
In this assignment we will review the article entitled Capitalism: Theory by Houman Shadab to become familiar with the main characteristics of capitalism. Then we will go to the Heritage Foundation’s Index of Economic Freedom. We will first examine the factors that the Heritage Foundation uses to determine the degree of economic freedom in a country. Then we will look at the degree of economic freedom in Slovakia compared to other countries in the world.
Thinking About It As An Economist
After reading the article Capitalism: Theory by Shadab answer the following questions:
1. What does the author mean when he says that capitalism is based on the principle of individual rights?
2. According to the author, how does the individual benefit others when he pursues his own self-interest?
3. According to the author, why is capitalism the only moral social system?
4. According to the author, what is the proper role of government in a capitalist economic system?
5. According to the author, what are the only acceptable limits that can be placed on man’s freedom in a capitalist economic system?
6. According to the author, what type of economic system is the opposite of the capitalist economic system? How does the author describe this system?
Go to the Heritage Foundation’s Index of Economic Freedom site and click on the tab entitled “Explore The New Methodology” on the left hand side of the page. After reading this selection answer the following question:
7. List and briefly describe the 10 economic freedoms that the Heritage Foundation uses to create the Index of Economic Freedom.
Go to the Heritage Foundation’s Index of Economic Freedom site and click on the tab entitled Executive Summary and answer the following questions:
8. Refer to Chart 4. What is the relationship between economic freedom and GDP per capita?
9. Refer to Table 1. What percentage of all countries are free, mostly free, or moderately free?
10. Refer to the table entitled Index of Economic Freedom World Rankings.
a. Which five countries are the most economically free?
b. Which five countries are the most economically unfree?
11. Refer to the table entitled Index of Economic Freedom World Rankings. Where does Slovakia rank in terms of the economic freedom index?
12. Refer to the table entitled Index of Economic Freedom World Rankings. Using the 10 measures of economic freedom compare Slovakia with the Czech Republic, Hungary, and Austria, and Ireland.
13. Download the English language version of the report. Go to pages 335-336 of the report. Answer the following questions:
a. In what areas of economic freedom does Slovakia rank high?
b. In what areas of economic freedom does Slovakia rank low?
References
Buchholz, Todd G. (1999). New Ideas From Dead Economists. New York: Penguin Putman.
Capitalism. (2007, October 22). In Wikipedia, The Free Encyclopedia. Retrieved October 23, 2007 from http://en.wikipedia.org/wiki/Capitalism.
Heyne, Paul, Boettke, Peter, & Prychitko, David. (2006). The Economic Way of Thinking. Upper Saddle River, New Jersey: Pearson/Prentice Hall.
Kane, Tim, Holmes, Kim R. & O’Grady, Mary Anastasia. (2007). 2007 Index of Economic Freedom. Retrieved October 21, 2007 from The Heritage Foundation Web Site: http://www.heritage.org/research/features/index/index.cfm.
Shadab, Houman. (2007). Capitalism: Theory. Retrieved October 23, 2007 from http://www.civilitas.gr/books/ok/Capitalism.pdf.
Smith, Adam. The Wealth of Nations. The Literature Network. Retrieved October 20, 2007 from http://www.online-literature.com/author_index.php.
The History of Capitalism. (2007, October 12). In Wikipedia, The Free Encyclopedia. Retrieved October 23, 2007 from http://en.wikipedia.org/wiki/History_of_capitalism.
Modern industrial capitalism had its beginnings in the middle eighteenth century with the beginning of the industrial revolution which began in Britain and spread from there to other parts of the world. In his 1776 book, The Wealth of Nations, Adam Smith touted the benefits of the individual pursuing his own self-interest in a capitalistic market system. According to Smith, by pursuing his own self interest in a market economy man “intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.”
By the end of the 19th century, the evolution of capitalism gave rise to the corporate form of ownership, a rise in the size of business firms, and a decline in competition. Beginning in the 1870s industrialized economies began to experience wide swings in the the level of economic activity. Periods of economic prosperity were followed by periods of recession and depression. The business cycle was born. Beginning in 1929 and continuing through the 1930’s the entire capitalist world was plagued by a prolonged period of economic depression. Followers of Karl Marx confidently predicted the demise of capitalism during much of this period (Buchholz, 1999; Capitalism, 2007; The History of Capitalism, 2007).
It appeared that the prophecy of the Marxists might indeed become a reality with the occurance of the Russian Revolution in 1917. Eventually, this revolution lead to the creation of a statist socialist system. Private ownership and control of the resources was abolished and the state established total control over the economy. By the late 1940’s various types of statist systems were established in the countries of Eastern and Central Europe and in China (Buchholz, 1999; Capitalism, 2007; The History of Capitalism, 2007).
Between the mid 1940’s and 1989 (the period known as the “Cold War”) there was intense competition between U.S. market capitalism and Soviet style statism. However, by the end of the 1980’s, Soviet style statism or socialism collapsed. In the 1990’s the trend nearly everywhere has been toward the adoption of the capitalistic market economic system (Heyne, Boettke, & Prychitko, 2006).
In this assignment we will review the article entitled Capitalism: Theory by Houman Shadab to become familiar with the main characteristics of capitalism. Then we will go to the Heritage Foundation’s Index of Economic Freedom. We will first examine the factors that the Heritage Foundation uses to determine the degree of economic freedom in a country. Then we will look at the degree of economic freedom in Slovakia compared to other countries in the world.
Thinking About It As An Economist
After reading the article Capitalism: Theory by Shadab answer the following questions:
1. What does the author mean when he says that capitalism is based on the principle of individual rights?
2. According to the author, how does the individual benefit others when he pursues his own self-interest?
3. According to the author, why is capitalism the only moral social system?
4. According to the author, what is the proper role of government in a capitalist economic system?
5. According to the author, what are the only acceptable limits that can be placed on man’s freedom in a capitalist economic system?
6. According to the author, what type of economic system is the opposite of the capitalist economic system? How does the author describe this system?
Go to the Heritage Foundation’s Index of Economic Freedom site and click on the tab entitled “Explore The New Methodology” on the left hand side of the page. After reading this selection answer the following question:
7. List and briefly describe the 10 economic freedoms that the Heritage Foundation uses to create the Index of Economic Freedom.
Go to the Heritage Foundation’s Index of Economic Freedom site and click on the tab entitled Executive Summary and answer the following questions:
8. Refer to Chart 4. What is the relationship between economic freedom and GDP per capita?
9. Refer to Table 1. What percentage of all countries are free, mostly free, or moderately free?
10. Refer to the table entitled Index of Economic Freedom World Rankings.
a. Which five countries are the most economically free?
b. Which five countries are the most economically unfree?
11. Refer to the table entitled Index of Economic Freedom World Rankings. Where does Slovakia rank in terms of the economic freedom index?
12. Refer to the table entitled Index of Economic Freedom World Rankings. Using the 10 measures of economic freedom compare Slovakia with the Czech Republic, Hungary, and Austria, and Ireland.
13. Download the English language version of the report. Go to pages 335-336 of the report. Answer the following questions:
a. In what areas of economic freedom does Slovakia rank high?
b. In what areas of economic freedom does Slovakia rank low?
References
Buchholz, Todd G. (1999). New Ideas From Dead Economists. New York: Penguin Putman.
Capitalism. (2007, October 22). In Wikipedia, The Free Encyclopedia. Retrieved October 23, 2007 from http://en.wikipedia.org/wiki/Capitalism.
Heyne, Paul, Boettke, Peter, & Prychitko, David. (2006). The Economic Way of Thinking. Upper Saddle River, New Jersey: Pearson/Prentice Hall.
Kane, Tim, Holmes, Kim R. & O’Grady, Mary Anastasia. (2007). 2007 Index of Economic Freedom. Retrieved October 21, 2007 from The Heritage Foundation Web Site: http://www.heritage.org/research/features/index/index.cfm.
Shadab, Houman. (2007). Capitalism: Theory. Retrieved October 23, 2007 from http://www.civilitas.gr/books/ok/Capitalism.pdf.
Smith, Adam. The Wealth of Nations. The Literature Network. Retrieved October 20, 2007 from http://www.online-literature.com/author_index.php.
The History of Capitalism. (2007, October 12). In Wikipedia, The Free Encyclopedia. Retrieved October 23, 2007 from http://en.wikipedia.org/wiki/History_of_capitalism.
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