Running head: THE WEATH OF LIBERTY The Wealth of Liberty Adam C. Petzold University of Maryland University College 1 THE WEATH OF LIBERTY 2 The Wealth of Liberty Since even before John Maynard Keynes published his General Theory of Employment, Interest, and Money in 1936 there has been a lot of debate about how economies should be controlled in order to best improve the lives of the people, primarily through how the generation of wealth should occur. To describe the opposing theories, Market and Command economies, coincidentally creates a spectrum of sorts that closely aligns with the freedom people have in the choices they make. Market economies base investment and production levels on the markets supply and demand curves leaving the consumers to determine pricing of goods and services; command economies control the levels of investment and production, while also setting the price for goods and services on behalf of the consumer. There are many variations of these broad economic models, both have economists and politicians claiming one is more capable or efficient than the next. All of this aside, I feel that when you give people more liberty to choose the things they want and freedom to make mistakes, they will guide the investment and innovation of an economy effectively. Others will have you believe that a small group of people setting prices and directing production in a command economy, and its many variations, from up in their ivory tower and who want for nothing are more capable of understanding the needs of the people. Wealth generation is important in any economy regardless how it’s ran, I dare say that is the whole reason to have one, yet we have so many failing economies still relying on barter systems and black markets springing up in heavy handed, restrictive economies that it’s easy for someone to call that a failure. Model Differences Market and Command economies have their own variations of how they are implemented, both strengths and weaknesses, as well as a range of adulation from their admirers. THE WEATH OF LIBERTY 3 In an effort to simplify the discussion, I will list the different types of economies used through the centuries. These excerpts from Gemma should hopefully give some context to the discussion for those who are not familiar with economic theory. Traditional The many old ways for the means of production has to be categorized and this is the term that best describes it without being too vague. These economies are usually based on, well, tradition. The people of these economies make products that are part of their beliefs and customs. In these economies production of goods rarely produce waste as resources are typically gathered through sweat equity. Most often, barter is the means of distribution with precious metals later being used once a monetary system was created. A great example of this economy would be the Native Americans before European settlers came to the Americas. (Gemma, 2014) Command This economy is usually the system that comes after the traditional economy. A government begins regulating resources, the means of production and how it can be traded. These markets control the means of production through a centralized government body. The government and the economy are very much one and the same. This system of course is plagued by greed and power, the officials controlling the resources tend to live better lives than the ones who are generating the wealth. A good example would be a monarchy; or in more recent history, communism. (Gemma, 2014) Market This is a system where the government does not regulate resources or control any part of the economy. Industry determines the allocation of resources and capital investment, essentially running the economy efficiently in order to meet the needs of the people. Though not a free THE WEATH OF LIBERTY 4 market, these economies have regulations to support fair trade, societal morals, and the prevention of monopolies. Even though you will see the government involved in these economies, the two are separate unlike the command economy. A look back a hundred years in the United States will show you a fond example of what a market economy looked like. (Gemma, 2014) Mixed A mixed economy is just as it sounds, a mixture of command and market economies. It’s a balance of free markets being strongly controlled by the government. Though control is the verb used, it would be more accurate to say that it is heavily regulated and influenced using monetary and fiscal policy since the value of currency is generally controlled by the government. The ownership of property still belongs to the private sector; however, laws and regulation restrict growth and innovation. This system is best described as the current economy that the United States employs. (Gemma, 2014) The Iron Fist Command economies require a lot of coercion, it’s at the core of the system. I paraphrase Harrison in his paper as he distinguishes coercion and repression; coercion directs the labor of producers and the choices of consumers and punishes disloyalty to the state’s economic interests (Harrison, 2002). Coercion will always bring in diminishing returns on productivity regardless how well organized a governing body may appear. Coercion creates tensions between the leaders and the lead and given a long enough timeline, they will resent each other. This resentment will lead to violence, causing a decline in production and the eventual decline of the system. THE WEATH OF LIBERTY 5 The Invisible Hand The free market is a vastly different system than any that has come before it. The consumer ends up reigning supreme in this economy since every entrepreneur, acting in their own self-interest, works towards producing products for the consumer. This self-interest ultimately drives innovation and there-by the quality of life for everyone. The only way diminishing returns occur will be if the entrepreneur chooses to stop innovating and no new competition comes into the marketplace to fill the gaps created by those not willing to meet market demands. Quality of Life It’s best to define quality of life; Arechavala defines quality of life as “a set of objective and subjective factors: objective factors refer to external conditions of an economic. Sociopolitical, environmental, and cultural nature, while subjective factors refer to individuals/ perception of their own life and the satisfaction reached in its various dimensions” (Arechavala, Espina, & Trapero, 2015). This means that factors such as (real) income, household, work, health, society, physical environment, safety, education, and happiness are contributors towards the calculus to determine quality of life according to Arechavala. A requirement of a command economy is that the state will need to monitor production to validate output, this means that the freedom of the people is severely hampered by oppressive laws and little privacy. In a market economy the people are making decisions for themselves that improve their own perception of quality of life, which as stated before, makes for a high level of efficiency. THE WEATH OF LIBERTY 6 Bibliography Arechavala, N. S., Espina, P. Z., & Trapero, B. P. (2015). The Economic Crisis and its Effects on the Quality of Life in the European Union. Soceal Indicators Research, 120(2), pp. 323343. doi:10.1007/o11205-014-0595-9 Gemma, W. (2014, May 19). Udemy. Retrieved October 9, 2018, from The 4 Types Of Economic Systems Explained: https://blog.udemy.com/types-of-economic-systems Harrison, M. (2002, August 1). Coercion, compliance, and the collapse of the Soviet command economy. The Economic History Review, 55(3), pp. 397-433. doi:edsjsr.3091673
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