Capitalism is not dead

1355 Words6 Pages
This essay shall illustrate the point that capitalism is not dead. Capitalism, indeed, has brought on successes, including market failures. A capitalist economy is an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. Centrally planned economies do not bring in decisions of firms and household, thus ignoring what many buyers demand and sellers want to sell. A centrally planned economy does not promote the efficiency of an economy, but tries to address the issue of equity. However, Adam Smith made an important observation which was illustrated in his book— An Inquiry into the Nature and Causes of Wealth of Nations. This observation is that “households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently.” The prices agreed upon by buyers and sellers leads to a more favorable outcome which is an increase in the well-being of a society (Mankiw 83-85). Markets are usually a good way to organize economic activity, however, market failure may result if the market does not allocate resources efficiently, thus, leading to government intervention. The government enforces rules to help prevent market failure. A major impact the government plays in a market economy is enforcing property rights so an individual can own and control scarce resources. The government provides police and courts to enforce people’s rights on goods and services produced or owned by an individual. Market failure may be caused by an externality, which is the impact of one person or firm’s actions on the well-being of a bystander, or market power, which is the ability of a sin... ... middle of paper ... ....nytimes.com. The New York Times, 7 Apr. 2007. Web. 16 May 2011. Mankiw, Gregory. Principles of Macroeconomics. 5th ed. Mason, OH: Worth Pub, 2007. 55-85. Print. Roback, Jennifer. "The Political Economy of Segregation: The Case of Segregated Streetcars." The Journal of Economic History 46.4 (1986): 893-917. Cambridge University Press. Web. 14 May 2011. . Vedder, Richard K., and Lowell E. Gallaway. "Tax Reduction and Economic Welfare." The United States House of Representatives • House.gov. Joint Economic Committee Study, Apr. 1999. Web. 12 May 2011. . Williams, James R. "History and Analysis -Crude Oil Prices." WTRG Economics -OPEC, Crude Oil, Natural Gas, Analysis, Forecasts and Data. West Texas Research Group. Web. 12 Apr. 2011. .
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