The American Economy—An Overview - Defining The American Economy

Capitalism

The American economy was first described as "capitalist" by the nineteenth-century German economist Karl Marx (1818–1883), who used the term to describe an economy in which a small group of people control the capital, or money available for investment, and, by extension, control the power within the economy. Marx and his followers advocated socialist economies, in which the capital is controlled by the workers. They were highly critical of capitalist economies, maintaining that those economies—particularly that of the United States—concentrate power in the hands of wealthy business people who are more focused on their profits than on the well-being of their workers.

Market and Mixed Economies

The term "market economy" describes an economy in which the forces of supply and demand dictate the way in which goods and resources will be allocated and what prices will be set. The opposite of a market economy is a "planned economy," in which the government determines what will be produced and what prices goods will be sold for. In a market economy, producers anticipate what products the market will be interested in, and at what price, and they make decisions about what products they will bring to market and how they will be produced and priced on that basis. Market economies foster competition among businesses, which typically leads to lower prices and is generally considered beneficial for both workers and consumers. A planned economy, on the other hand, is directed by a central government that has a far greater degree of influence over prices and production, as well as tighter regulation of industries and manufacturing procedures. The United States is a "mixed economy," in which the principles of capitalism combine with those of planned economies to create a system with a high degree of market freedom along with regulatory agencies and social programs that promote the public welfare.

GOVERNMENT REGULATION AND DEREGULATION. Since the late 1970s the federal and many state governments have lessened their restrictions on certain industries. Called

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deregulation, this process allows industries to set their own standards and control their own systems of pricing and other business functions. For example, beginning in 1938 the airline industry was regulated by a federal body called the Civil Aeronautics Board (CAB), which controlled airlines' schedules, flying routes, and prices. In order to stimulate

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competition in the industry, Congress passed the Airline Deregulation Act (PL 95–504) in 1978. The industry experienced a flood of new airlines offering low fares to compete with the established airlines. Although deregulation has actually caused some problems with larger airlines having too much control (or monopolizing) the industry and with overly crowded flight routes, most economists agree that the

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end result has been an air transportation system that offers some of the lowest costs and safest flights in its one-hundred-year history. Other industries that have experienced some degree of deregulation include electric utilities, telephone services, trucking, railroads, and banking.