Basic Economics: A Citizen's Guide to the Economy

By Thomas Sowell | Go to book overview

Chapter 17
The Role of Government

. . . it is not enough to show that a situation is bad; it is also necessary to be reasonably certain that the problem has been properly described, fairly certain that the proposed remedy will improve it, and virtually certain that it will not make it worse.

- Robert Conquest

A modern market economy cannot exist in a vacuum. Market transactions take place within a framework of rules and require someone with the authority to enforce those rules. Governmerit not only enforces its own rules but also enforces contracts and other agreements; among the numerous parties in the economy. Sometimes government also sets standards, defining what is a pound, a mile, or a bushel. And to support itself, governments must also collect taxes, which in turn affect economic decision-making.

Beyond these basic functions, which virtually everyone can agree on, governments can play more expansive roles, all the way up to directly owning and operating all the farms and industries in the nation. Controversies have raged around the world, throughout the twentieth century, on the role that the government should play in the economy. For much of that century, those who, favored a larger role for government were clearly in the ascendancy. Russia, China, and others in the Communist bloc of nations were at one extreme, but democratic countries like Britain, India, and France also took over ownership of various industries and tightly controlled the decisions made in other industries that were allowed to remain privately owned.

During the 1980s, however, the tide began to turn toward reducing the role of government, first in Britain and the United

-237-

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Basic Economics: A Citizen's Guide to the Economy
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface ix
  • Acknowledgements xi
  • Chapter I - What Is Economics? 1
  • Part I - Prices 5
  • Chapter 2 - The Role of Prices 7
  • Chapter 3 - Price Controls 21
  • Chapter 4 - An Overview 39
  • Part II - Industry and Commerce 57
  • Chapter 5 - The Rise and Fall of Businesses 59
  • Chapter 6 - The Role of Profits -- and Losses 73
  • Chapter 7 - Big Business and Government 89
  • Chapter 8 - An Overview 105
  • Part III - Work and Pay 125
  • Chapter 9 - Productivity and Pay 127
  • Chapter 10 - Controlled Labor Markets 149
  • Chapter 11 - An Overview 167
  • Part IV - Time and Risk 173
  • Chapter 12 - Investment and Speculation 175
  • Chapter 13 - Risks and Insurance 193
  • Chapter 14 - An Overview 207
  • Part V - The National Economy 213
  • Chapter 15 - National Output 215
  • Chapter 16 - Money and the Banking System 223
  • Chapter 17 - The Role of Government 237
  • Part VI - The International Economy 267
  • Chapter 19 - International Trade 269
  • Chapter 20 - International Transfers of Wealth 283
  • Chapter 21 - An Overview 297
  • Part VII - Popular Economic Fallacies 303
  • Chapter 22 - Non-Economic Values 305
  • Chapter 23 - Prices and Purchasing Power 315
  • Chapter 24 - Business and Labor 329
  • Chapter 25 - An Overview 343
  • Sources 347
  • Index 359
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