Chapter 4: Political Economy

Economic freedom

Economic freedom

refers to the degree to which individuals and private firms are free to own property and make decisions about how to use, consume, or invest it without interference from the state.

economic equality

prefer to move more toward a society in which neither poverty nor extreme wealth exists, but rather the resources of the society are collectively used to eliminate the struggles of poverty through redistributive state actions.

market

is the common term used to describe any setting in which supply and demand (sellers and buyers, workers and firms, etc.) interact with one another.

subsidy

a payment from the state to assist consumers in purchasing the product or a payment directly to the producer to help them keep prices lower.

black market

continues to operate illegally despite the laws of the state.

Property

is quite simply, ownership of goods and services.

Public goods

are those goods and services that are provided to citizens, either free of charge or at heavily subsidized rates, by the state.

Social expenditures

are similar to public goods, in that both involve the state providing some kind of economic good or service to their people, but public goods are provided to all people regardless of their status.

Taxation

is the process of collecting money from individuals, businesses and other entities to fund public services like schools, roads, infrastructure and more.

Tax

is typically collected in the form of income tax (on wages), property taxes (on real estate) or sales tax (applied to purchases).

Money

is an extraordinarily complicated topic that will not be covered in full detail in this course, but for a brief explanation, it is essentially some item that a society has generally agreed upon to be universally accepted as payment for all other goods and services.

Central banks

have a core responsibility to ensure that the money supply is growing just fast enough to accommodate an expanding economy and growing population without growing the money supply so much that inflation occurs.

Regulations

are directives from the government that control the activities of people and firms in the market.

Social democratic systems

similarly value the benefits that come from private property ownership and using markets as the mechanism for resource allocation, but they also attempt to correct for the economic inequality, which by necessity accompanies a liberal capitalist system.

Karl Marx

the author of the Communist Manifesto, who decried what he saw as the oppression of the working-class laborer by the industrial capitalist during the Industrial Revolution in the nineteenth century.

Vladimir Lenin

developed a Marxist–Leninist ideology of democratic centralism, which would centralize political decision making into a small revolutionary elite who would make all decisions on the basis of benefiting the common man as much as possible (thus making it theoretically “democratic,” in his view).

Mercantilism

emerged in the seventeenth century in association with the rise of absolute monarchies in Europe, establishing state-owned manufacturing and trading companies with the aim of bringing gold, prestige, and power to the kingdom.

gross domestic product (or GDP)

is the total value of all goods and services produced within a country for a given period of time (usually measured per year).

GDP per capita

is a measure of the standard of living of the average person in the economy.

Gini index

is a coefficient that attempts to measure the degree to which income is distributed from the top to bottom of a society.

Extreme poverty

may seem like a subjective term, but it is often defined as living below the equivalent of two dollars per day, which can be a good indicator of the degree to which daily survival is difficult for a number of people in a country.