Question

"America was founded on the principle of property rights, that is, the right of the owner to do whatever he wanted with his property, whether that property was a cow, a slave, or a corporation employing millions. But what about the rights of the slave, the employee or, for that matter, and this is not covered in this course, the rights of the cow? But an economy ruled only by the rights of private property not only had no room for the rights of employees, but, when the free market or laissez faire economy (don’t worry, you will learn the meaning of these words) collapses, what should be the role of the government to bring the economy back to life, or to prevent the next collapse? That brings in the idea of government regulation of the economy, and the debate over the rightness or wrongness, the wisdom or foolishness of government intervention in the economy that has dominated American politics since the days of Hamilton and Jefferson until today’s political struggles between conservatives and progressives. Prepare to have your fundamental ideas about the economy shaken, strengthened, or even changed by the debates you will be following in this last part of the course."

What is the appropriate role of government in a modern capitalist economy?

Answer 1

Capitalist economy refers to an economy that works on the principle of the free market mechanism. It is also termed as laissez faire system. In a capitalist economy, the role of government is very limited and include following :

1. Developing and sustaining the free market mechanism system.
2. Eliminating any kind of restrictions on the working of free competitive market.
3. Increasing the effectiveness of free competitive market system through various measures.

However government should perform additional functions like

1. Regulating and controlling adverse economic situations like inflation, deflation by adopting appropriate fiscal and monetary policies.
2. Controlling Monopolies to safeguard the interests of consumers , to increase competition and to reduce inequality.
3. Prohibiting discrimination among individuals on basis of caste, color and creed and providing them equal educational and employment opportunities.
4. Owning the public utilities like water, electricity, railways which are essential for economy.
5. Putting a check on unfair trade practises and power of trade unions.
6. Proper maintenance of law and order, justice and creating a peaceful and harmonious system for citizens.
7. Handling environmental issues like pollution, growth and conservation of natural resources and controlling population growth.

Therefore, we can conclude that the major role of government in a capitalist economy is to control and encourage the free market mechanism. In addition, the government should encourage private ventures for safeguarding the future of an economy.