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THE USA AS A FREE MARKET SYSTEM
1. The American economy is a dynamic, free-market system that is constantly developing out of the choices and decisions made by millions of citizens who play multiple, often overlapping roles of consumers, producers, investors and voters. The United States is generally believed to be a mixed economy, which is to say that even though the great majority of productive resources are privately owned, the federal government does play an important role in the market place.
2. The ‘New Deal’ programs of the 1930s brought the greatest expansion of the government role. New laws were passed regulating many economic activities – from sales of stocks to the right of workers to form unions. Moreover, the government began to provide workers with a measure of economic security in their old age.
The Social Security program, enacted in 1936, still ensures that retired people have a regular income each month, and has been expanded to help them meet their medical costs.
3. But the pendulum has also swung the other way. In the 1970s and 1980s, with taxes steadily rising and the US economy standing, new national leaders were determined to cut government spending and levels of taxation, and in other ways to reduce government influence over the private sector. Their goal was to stimulate the private sector initiative and investment which is the engine that drives free-market economies.
4. Once a nation of farmers, the United States was chanted dramatically by successful adaptation of the machinery and production processes of the Industrial Revolution.
5. Beginning in 1870 and lasting for around a century, the United States became the world's manufacturing power-house leading the world in the production of steel, automobiles and other products. Since the 1960s, another transformation has been taking place, as new service-based and information-processing industries gradually replace some of the old branches of the traditional industrial base. By the 1990s, advances made in such fields as chemistry, electronics and biotechnology were producing goods and services ranging from semiconductor circuits to laser surgery. Similarly, new farming technology has transformed the American agricultural sector, allowing more food and fibre to be produced by a constantly dwindling number of farmers.
THE US ECONOMY
1. Every economic system tries to anticipate and then meet human needs through the production and distribution of goods and services. The economic system is the mechanism that brings together natural resources, the labor supply, technology, and the necessary entrepreneurial and managerial talents. Although the type of economic system used by a nation is the result of a political decision, it is also in even larger part the result of a historical experience that, over time, becomes a national culture.
2. The first ingredient of an economic system is the natural resources from which goods are produced. The United States is a land rich in mineral resources and fertile farm soil, together with a moderate climate.
3. Second, the amount of available labor helps determine the health of an economy. Generally, the United States has been fortunate in having enough people to provide the labor necessary for a constantly expanding economy.
4. Although the United States has sometimes experienced periods of acute unemployment or the reverse, labor shortages, on the whole, immigrants came when work was plentiful. The US economy usually grew fast enough to absorb the newcomers, provided they were willing to work productively at slightly less than the wage rates paid to acculturated workers. Overall, immigrants prospered, earning far more than they would have in their native lands, and the economy of the nation prospered as well.
5. Large blocks of resources must be available for major investments. In America, entrepreneurs accumulate money and then invest in projects – buy supplies, hire workers and sell products that seem to give a high return on the original investment. This is determined on the basis of an assessment of the wants and needs of those who buy goods and services – what is known as consumer demand.
6. In the United States, the corporation has proved to be an effective device for accumulating funds for investment. This is а voluntary association of owners, known as stock-holders, who form a business enterprise that is marked by limited liability. The first entrepreneurial investment of capital having been made, modern America has developed a chain of managerial command whose job is to see that the business runs smoothly and efficiently.
THE US AS A MIXED ECONOMY
1. The economic system of the United States is principally one of private ownership. This system often referred to as a ‘free enterprise system’, can be contrasted with a socialist economic system, which depends heavily on government planning and public ownership of the means of production.
2. Yet government has to some extent always been involved in regulating and guiding the US economy. At the same time, US citizens have always had the freedom to choose for whom they will work, and what they will buy. Most importantly, Americans vote for officials setting economic policy.
3. In the US economic system, consumers, producers and the government make decisions mainly through the price system. The dynamic interaction of these three groups makes the economy function. The market's primary force, however, is the interaction of producers and consumers; this has led analysts to dub the US economic system a 'market economy'.
4. As a rule, consumers look for the best values for what they spend, while producers seek the best price and profit for what they have to sell. Government, at the federal, state and local levels, seek to promote the public safety, assure reasonable competition, and provide a range of services which are believed to be better performed by public rather than private enterprises. Some of these public services include the administration of justice, education (although there are many private schools and training centers), the postal (but not the telephone) service, the road system, social statistical reporting and, of course, national defence.
5. In this system, with economic forces being unfettered, supply and demand establish the prices of goods and services. Entrepreneurs are free to develop their businesses. In theory, unless they can provide goods or services of a quality and price to compete with others, they are driven from the market, so only the efficient and those who best serve the public remain in business. In practice, government regulations can interfere with pure competition in order to promote other national policy objectives such as price and income stability, regional development for environmental preservation. Similarly, businesses can interfere with pure competition, through price fixing or other monopolistic practices, in order to maximize profits.
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