Characteristics_of_the_Market_System

Essay 4 List 9 Characteristics of the market system In a market system economy, decision making is widely dispersed. Capitalism by design, fuels itself. There are 9 key features which act simultaneously to enable the continued renewal of the market system. Through private property individuals and businesses are able to obtain, use and dispose of property resources as they see fit. It is the right to private property which allows one to produce goods or services without the fear of another seizing assets or resources that one owns. Through ownership comes a responsibility to maintain and improve upon property thus raising its value. The freedom of enterprise and choice provides both sellers and buyers with fundamental protections in the marketplace. The freedom of enterprise allows that sellers are free to produce items of their choice with whichever resources they deem necessary. Freedom of choice enables a buyer to spend their money as they see fit as well as entering into work for which they are qualified. The motivation of self-interest allows entrepreneurs to maximize profits and minimize losses. The act of self interest is one of give-and-take. In a market place, something of value is traded for another item with an equivalent value. It is self interest that gives direction and consistency to otherwise chaotic economies. In order for economic competition to exist there must be at least two or more buyers and two or more sellers acting independently of each other in a product market or resource. The basis of competition states that buyers and sellers are free to make choices based on the pursuit of monetary gains. Competition destroys the ability for only one buyer or seller to dictate the pricing of a product or resource. Through markets buyers and sellers are brought together in order to exchange goods. Decisions made in these markets help to determine further production and use of resources. Pricing places a value to the items which are exchanged. The system of markets and pricing is a coordinating mechanism of capitalism. The use of technology and capital goods provides efficiency in production. New technologies often bring vast monetary rewards to innovators. It’s this self interest that drives the desire for new items and forms of production. Capital goods offer an exception to the most direct methods of production, which are usually the least efficient. Through the use of these capital goods less production work is wasted while the output is increased. Specialization makes use of differences in abilities of people, firms and nations. By focusing on production of items which have a low opportunity cost to produce, a country can improve its output of such items and gain excess to be used in international trade. The division of labor is specialization when applied to human outputs. This division of labor makes use of differences in abilities, encourages learning and saves time. Money performs as a medium of exchange in a marketplace. While any object can be substituted for paper money, the idea is that any item having a relative value to another person in an exchange for another item is money. Tobacco was once a treated as money in Colonial America and nearly all business transactions is the state of Maryland were conducted in terms of tobacco. As time wore on, tobacco showed weakness as a medium of exchange and was set aside for paper monies. Though the market system is one which is remarkably efficient in its use of resources, there are market failures which need to be addressed. These failures are addressed through an active but limited government. Though the government does not own or operate individual businesses, it places rules and restrictions on the act of commerce. It is because of these laws that fairness is maintained. Ayn Rand has a quote which poignantly describes the justification of the market system. “Capitalism demands the best of every man—his rationality—and rewards him accordingly. It leaves every man free to choose the work he likes, to specialize in it, to trade his product for the products of others, and to go as far on the road of achievement as his ability and ambition will carry him. His success depends on the objective value of his work and on the rationality of those who recognize that value. When men are free to trade, with reason and reality as their only arbiter, when no man may use physical force to extort the consent of another, it is the best product and the best judgment that win in every field of human endeavor, and raise the standard of living—and of thought—ever higher for all those who take part in mankind’s productive activity.” Ayn Rand, For the New Intellectual Page 25