American Free Enterprise

Chapter 3 Section 1

Benefits of Free Enterprise

American Free Enterprise

• Objectives:– Describe the tradition of free enterprise in the

US and the constitutional protection that underlie it.

– Explain the basic principles of the US free enterprise system.

– Identify the role of the consumer in the US free enterprise system.

– Describe the role of the government in the US free enterprise system.

American Free Enterprise

Famous Americans

John D. Rockefeller Andrew CarnegieAndrew Carnegie Bill Gates

American Free Enterprise

• Some of the most famous Americans have not been politicians, sports figures, or actors.

• John D. Rockefeller – Standard Oil Company • Andrew Carnegie – Carnegie Steel • Bill Gates – Microsoft.• Each of these people started with an idea and

through persistence, vision, and effort built that idea into a huge business success.

• They became some of the richest people in the world and they helped fuel the economy.

American Free Enterprise

• A Tradition of Free Enterprise:– There are over 18 million unincorporated businesses

in America.– Most of these were started by a single entrepreneur.

American Free Enterprise• A Tradition of Free Enterprise:

– People have considered America to be the “land of opportunity” a place where anyone from any background could achieve success through

hard work.– One reason for this success by people is the

American Free Enterprise system.

American Free Enterprise• Constitutional Protections:

– The Bill of Rights guarantees certain individual freedoms, such as freedom of speech and freedom of religion. The Constitution also guarantees important rights that allow people to engage in business activities.

– Property Rights –• This is the most important of the rights.• It is part of the 5th Amendment Rights.• 14th Amendment allowed for due process – the government

cannot take your property except if there is a public reason. Even under those circumstances, the

government must pay you fair value for your property.

American Free Enterprise

• Constitutional Protections:– Taxation –

• There are basic rules for taxation that are outlined in the Constitution.

• The government can only tax the way the Constitution allows it to.

• Direct taxes have to be apportioned

by population so that everyone

will pay he same amount.• Constitution allows people and

businesses to make binding

contracts.

American Free Enterprise

• Basic Principles of Free Enterprise:– Our free enterprise economy has several key

characteristics.• A. Profit Motive –

– The American economy rests on a recognition of the importance of the profit motive – the force that encourages people and organizations to improve their material well-being.

– This system rewards innovation by letting creative companies grow and it improves productivity by allowing more efficient companies to make more money.

American Free Enterprise

• Basic Principles of Free Enterprise:– Our free enterprise economy has several

key characteristics.• B. Open Opportunity –

– This is the concept that everyone can compete in the marketplace.

– We accept that different people and different companies will have different economic outcomes, depending on their success in the marketplace.

– No matter how much money you start out with, you can end up wealthier or poorer that you

started.

American Free Enterprise

• Basic Principles of Free Enterprise:– Our free enterprise economy has several key

characteristics.• C. Economic Rights –

– We have a commitment to legal equality – by giving the same legal rights, we allow everyone to compete in the economic marketplace.

– Also includes the Private Property Rights – people have the right to control their possessions as they wish.

– Right of free contract – allows people to decide what agreements they want to enter into.

– Right of Voluntary Exchange – allows people to decide what and when they want to buy and sell at particular times.

– Competition among buyers and sellers.

American Free Enterprise• The Role of the Consumer:

– The fundamental purpose of the free enterprise system is to give consumers the freedom to make their own economic

choices.– Consumers make their desires known through their

economic dealings with producers.– When consumers buy products, they signal to producers to

produce more of that particular item.– Consumers can also make their wishes known by joining interest

groups – private organizations that tries to persuade public officials to act or vote according to the members’ wishes.

• Usually form around issues like taxation, aid for farmers, and land use.

American Free Enterprise• The Role of the Government:

– We expect the government to carry

out its constitutional responsibilities to protect property rights, contracts, and other business activities in our free enterprise system.

• We also believe that the government should protect us from harmful things like pollution or unsafe food.

American Free Enterprise

1. Information and Free Enterprise –- Consumer habits determine what gets produced.- Consumers will not be able to make informed

decisions if they cannot get basic information about the products.

- Known as Public Disclosure Laws – companies are required by law to give certain information to the public about their product.

- Usually associated with food items.

American Free Enterprise

2. Protecting Health, Safety, and Well-being –- Federal and State agencies regulate industries

whose goods and services affect the well-being of the public.

- Businesses must follow certain environmental protection laws.

- i.e. Gas stations must dispose of used motor oil properly and ensure that gas tanks cannot leak into the soil.

American Free Enterprise

3. Negative Effects of Regulation –

- Government regulations can have a negative effect on both business and consumers.

- In the 1960s and 1970s some industries became heavily regulated – i.e. the telephone company and the airline industry.

- These regulations were costly to implement and they cut into the profits of the company.

American Free Enterprise

REVIEW:1. Explain the importance of the following terms in the US free enterprise system:

* profit motive * voluntary exchange* private property rights * competition

2. What constitutional guarantees underlie the American free enterprise system.

3. Explain at least three benefits of the free enterprise system?4. What are some opportunity costs of a greater government role in the economy?