The historical economic development of most nations is related closely to the principles they follow. International trade offers an extrinsic view of the economic operation of nations. Nations hold different policies some of which are related to what was successful for them in past years, while others adopt changes in their policies. Although the government has key roles to play in economic matters, some economists as Adam Smith argue that it is only profitable for people to be given economic freedom through free enterprises, markets and competition. The nations that believe in centralized economic planning and government control base their arguments on protection of the people. The basic perspective would be to gauge on the effectiveness of the policies held by different nations. Comparisons of India and Japan not only justify the use of the free enterprise and competition, but also provide a clear explanation for the growth and global dominance of the United States economy with consideration for changes in the market mainly through globalization.
Summary of “The Tyranny of Control”
This is the work of Milton Friedman, a true believer of the concepts of Adam Smith. Milton focuses on international trade with the justification of the need to embrace free enterprise market system. Friedman emphasizes that although free enterprise is based on selfishness and competition with the pursuit of profit as the motivating factor, common welfare is achieved. He argues that while sellers seek the best and highest prices for their products, buyers seek to get their needs met at the lowest price with the invisible hand of supply and demand relationship taking root. Friedman uses the economies of India and Japan and focuses on their weaving industry to give more support to his assertion. He opposes government control due to its backward manner of perception and instead proposes the need of the invisible hand in modern economy.
Analysis and Outlook of the United States Economy
The history of the 19th century characterized by revolution influenced the American economy mainly through immigration, urbanization and industrialization movements. The political, economical and social history of America is embedded in the ideologies of the frontier which characterizes America as a country that has no boundaries, has economic and social mobility as well as the principles of equal and unlimited opportunity (Hughes and Cain 235). The American ideologies are founded on its policy of encouraging immigrants and opening up of its market to accord same opportunities and treatment to immigrants and the American citizens.
The rapid industrialization of the 19th century as well as the free enterprise system enabled foreigners to set up industries in their home countries. The experience gained by the foreigners in their home countries created the foundation for industrial growth of the United States (Hughes and Cain 235). The massive immigration allowed due to the ideologies of the frontier saw the development of infrastructure in the U.S. which in turn led to the growth of other services such as insurance, banking, and education among others. This was largely as a result of the influence of the invisible hand of demand and supply that saw a need in the market and sought to meet it (Buchan 231). Friedman asserts that economic aspects such as the exchange market grew with the need for foreign exchange. The free enterprise system allowed people to set up businesses, carry out research and technological developments that they could not do in their home countries due to rigid government control. This was also emphasized by increased scholars thus forming the foundation for educational institutions to teach people trade and other economic aspects which further fueled the economic growth of the U.S. These systems led to the migration of many people of different races to the U.S. Through their culture, they were able to engage in their own cultural trades, thereby increasing production and diversity of the U.S.
Competition had been present in the U.S. from as early as the 19th century. Some Americans felt that there was a need to protect themselves from poor working conditions and lower wages due to the increasing numbers of immigrants. However, competition meant that the manufacturers had to produce quality products due to “the free entry and exit of the market” (Hughes and Chain 500). The increasing population and diversity allowed the buyer to make a choice from diverse selection of products and services. Sellers had to find ways of lowering costs by increasing speed and efficiency, and lowering prices because of the stiff competition. Competition increased the quality of goods and services and also enabled producers to produce for the international market through the advancement of technology. Smith argues that buyers always seek the lowest price at the highest quality (Buchan 97). This increased the demand for products from buyers located in other countries thereby increasing returns and growth. Competition also enhanced research and technological developments that were applied in the economy. This created a competitive advantage for the U.S. globally and boosted its economic growth and dominance.
This paper has reviewed the concepts of the free enterprise, competition and the “invisible hand” propounded by Adam Smith. Emphasis has been laid on the need for a free enterprise system as described by Friedman as well as its application in modern-day economies. Analysis and evaluation of the American economy has been done to link its dominance with the adoption of the free enterprise, competition and the “invisible hand” concept of Adam Smith.
Buchan, James. The authentic Adam Smith: His life and ideas. London: W.W. Norton Publishers, 2006.
Friedman, Milton. PBS Free to Choose 1990 Vol. 2 of 5 – The Tyranny of Control, 2008. Web.
Hughes, Jonathan, and Louis Cain. American Economic History. 7th ed. New York: Addison Wesley, 2006.