Ways in which a Purely Market Economy may differ from a Mixed Economy

By: Eduardo R. Zayas-Quiñones

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Hall & Lieberman (2001) Introduction to Economics, 1st ed., pp 39 tell us that in a Market Economy, free choices determine which goods or services are produced, how these are produced and gets them. The first thought that came to mind as I read this definition was "utter chaos". However, the authors went on to say that there are limitations in choice and provisions to ensure "an orderly, just and productive society." In contrast, a mixed economy is one that combines a regulated market economy and a "limited number of social institutions" (www.wikipedia.org) like social security, labor regulation, environmental regulation and public education. The greatest factor, one that in the end distinguishes pure market from a mixed economy, is that in a market economy individuals are constrained by the resources they control. Inherited wealth, intelligence and beauty would indeed lend far more choices to those individuals who possess these qualities. The fundamental difference between these two is that social institutions attempt to bridge the gap in available resources through social programs, affirmative action and even public education.

In regard to technology, I believe the example provided in the textbook depicting a law whereby the government would reimburse the cost of purchasing cars and the resulting chain of events best describes the influence that increased government influence would have on the economy. An immediate result of increased government control would be a proportional increase in bureaucracy and all the associated evils like higher taxes to support government and inefficiency - it boils down to the three questions asked by economists, who are the decision makers, what are they maximizing and what constraints are they face. As the government's role becomes more of a decision maker and the one determining what is to be maximized then clearly the economy would face the same constraints the government faces in regards to the cost and advancement of technology, at the cost of stifling the creativity and ingenuity of individuals, organizations and sectors.

In terms of currency, I believe managing and balancing trade between countries is very important. Here, government regulation and oversight would be of great benefit at the macroeconomic level. I don't think addressing trade deficit and currency exchange rates could be managed any other way (even when we are presently experiencing one).

Consumer choice and customer expectations are recently becoming a driving force in how we produce our goods and provide services. The relationship between suppliers and manufacturers has become highly dynamic - there is a high degree of collaboration in the supply chain and increased profit levels have been achieved by the application of free market economy. Any deviation or control by a government institution in this area would result in decreased quality and efficiency in the way goods are manufactured or services delivered to customers. Furthermore, government intervention would adversely affect any industry's ability to react to changes in the market environment seeking new venues of revenue.

In reading through the textbook, I am left with the feeling that success in this art of economy depends a great deal on balance. I would like to think that in America, we have come close to achieving the best possible mix. However, sometimes it seems that government and market are at odds and in constant conflict and competition to prevail. Well, maybe that's not so bad after all.


References:

Hall & Lieberman (2001) Introduction to Economics, 1st edition [University of Phoenix Print Version]. South-Western College Publishing, OH: Thomson Learning Inc.

http://www.wikipedia.org/wiki/Mixed_economy

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