Economic law
Laws.
Under capitalism, the people depend on the government to pass laws
that ensure economic fair play. These laws aim at preventing
individuals and companies from taking unfair advantage of each other,
but do not always work very well.
In capitalist economies, many of the most important laws concern
business competition. Other laws ban harmful or misleading
advertising. Still others set standards for proper working conditions,
set minimum wages, and prohibit employers from refusing to hire people
or lend money to them because of their race, sex, or age. In the
1970's and 1980's, many capitalist countries in Western Europe, for
example, introduced regulations to protect the environment from
further damage, particularly from pollutants.
Public utilities are companies that provide services essential to the
public. These services often include electric power, water, gas,
sewage, and telephone services. In many public utility businesses,
competition would be wasteful.
Governments grant legal monopolies to public utility companies so they
may operate without competition. But the prices and standards of
service of most public utilities are usually strictly regulated by
governments.
Public services. Central and local governments provide many services
that could not be furnished as well by private companies. These
services include police and fire protection, schools, national defence,
and roads. Governments also offer medical services, public housing,
and other economic aid to needy people.
All the goods and services provided by government make up the public
sector of the economy. Governments pay for most of the services that
they provide with money they collect in taxes. There are many kinds of
taxes. Individuals and corporations pay income taxes on their
earnings. Consumers pay sales or value added taxes on many items they
buy.
Economic stability. Sometimes a free market economy rises to great
heights of prosperity. At other times, it falls to low levels of
production and employment. Periods of above average business activity
are called booms. Small declines in business activity are known as
recessions. Lengthy and large drops are called depressions.
During a boom, total spending rises. Consumers demand many goods and
services, and companies invest in new equipment that will increase
production. But production cannot always keep up with consumer
spending during a boom. If the supply of goods and services becomes
smaller than the demand for them, a nation may experience a period of
inflation (rising prices). If inflation becomes extreme, prices may
rise so high that many people cannot afford products they need.
The economy does not grow at all during a recession or a depression.
Total spending drops, production slows down, and people lose their
jobs.
Sometimes a government may use its own economic power to help check
inflation and depression. During a depression, a government may spend
more money on goods and services. It may build new public buildings or
improve major roads. This additional government spending aims to
create new jobs for unemployed people. Government spending also
attempts to increase the general demand for goods and services. A
government may also try to increase demand by cutting taxes so that
the people have more money to spend. Inflation generally occurs during
a boom. A government may try to curb inflation by spending less money
and, thus, reducing total demand. Or a government may try to reduce
demand by raising taxes. Then people would have less money to spend on
goods and services.
|
