Key Issues of the Book
In Paul De Grauwe’s “The Limits of the Market”, analyzes the historical shift between of power between the market and the government. It is translated by Anna Asbury and published by Oxford University Press in 2017. Debate was trending in the 1980s whether markets or governments managed economies better. The question of “market vs state” was the key question with each side convinced it was the best, and it had to be one or the other. Since then a number of lessons have been learnt such as a centrally planned working government does not work. From previous examples such as the Soviet Union it has not succeeded in creating material prosperity for its people leading to the collapse of the communism system in 1980s.
The book postulates that ideal market systems do not exist. The established systems today are a combination of the market and government-led structures. The reason is a pure market system is not a guaranteed structure of material prosperity for the wider population or the vulnerable in society. Consequently, pure markets do not exist and with a good reason. Similarly, pure government-led systems do not exist either. Neither the market economy nor the government-led economies succeed in creating material prosperity for their general population. The people do not accept either system either unless enforced by dictators such as in North Korea. Therefore, the old adage of the “market vs the state” is outdated and cannot be either one or the other, and, therefore a mixture is the ideal.
The only question that is left for the scholars is the extent of the mixture between market and the government control. The role of each is also in dispute. These are the questions that the book strives to answer. The book formulates the questions in this way in order to avoid ideological problems of the past. There is no either that is better than the other, but ultimately what matters is people’s prosperity. That’s the main aim of the two systems. Consequently, the book proposes there is no need to prefer absolute markets or governments, but to two just as equally important. The author, although, suggests that the optimal mix of both is difficult to achieve. It is an arduous and sometimes difficult process that is always changing. There are periods in the recent decades that the power has shifted between the markets and the government. In the other periods there were pure government dominance and in others the markets leading to disruptive events in history.
Assessments of the validity of the arguments by Author
The cyclical movements of the last decades’ exhibit shift of power between the government and the market. In the nineteenth century, the capitalist system flourished. Great Britain was the first world power to embrace capitalism in the eighteenth century with more and more countries adopting the system by dismantling internal restrictions inhibiting their entrepreneurs. The entrepreneurs took advantage of the free market system to adopt flourishing systems that were to the advantage of the wider populace in terms of material prosperity.
The gain in material prosperity was evident with the production of goods and services increasing three-fold in the countries that embraced capitalism. Material prosperity measured in terms of per capita gross domestic product (GDP) in America and Europe with entrepreneurs continuously searching for investing opportunities. The resulting technological progress led to the development of important facilities today such as the railway system, the electrical grid, and communication systems (Daniela, 2015). It resulted in increase in the material prosperity in two parts of the world namely Europe and America.
The shackles were off in two parts of the world in the 1800s. However, the limits of the growth became evident in the twentieth century during the First World War. After the war, the growth was set to continue but the Great Depression of the 1930s set in leading to massive unemployment. The capitalism embracing countries suddenly saw massive unemployment. Crucial events in this period include a rise in political extremism and violence leading to a breakdown of democratic political systems. World War II was a result of this trend of extremism and political violence (Bebbington, 2018).
The system had shifted with the market systems with many in the world blaming their miseries on rising capitalism. The Soviet Union was the first to breakdown the market systems and established dictatorships. In the twentieth century, market systems shrank in many countries with many establishing government-led systems. Leaders in the world sought to consolidate power back to the markets such as the president Franklin Roosevelt led initiative for massive investment in the economy and the NAZI government in Germany in 1933.
Nationalization of key industries was the trend and countries barring international trade. The future of market-led systems was bleak. However, the trend would not shift after World War II mainly due to the western countries. They were leading the growth process through investment in construction and social security systems. The vulnerable in society now had a place in that they felt valued in society. The governments were spending increasingly to stimulate growth after the war. In the period between 1950 and 1980, taxes on the rich and the wealth increased substantially rising up to ninety percent (Metcalfe & Warde, 2003). The view during this period was that the rich did not contribute substantially to material prosperity.
In the trickle-down theory, the many poor citizens benefit from the few rich who have the assets to generate wealth. Therefore, the rich are a crucial resource that should be protected. However, the Great Depression disapproved this theory. Many people in this period were in favor of the government controlling the economy. For example, in the kitchen debate of 1959 between the vice president of the United States and the leader of the Soviet Union, Nikita Khrushchev, they declared that the union would catch up with the GDP of the US by the end of the decade. Paul Samuelson, a Nobel Prize and a writer of many influential economics books indeed developed a model that this would happen. However, his prediction would not come to pass because the Soviet Union collapsed in the 1990s (Zhang, 2020).
The collapse of the Soviet Union was partly due to the remarkable return of the market system in the 1980s. Once again the pendulum would swing against government-led systems. The countries that were purely led by the governments were experiencing systematical problems in that they were immensely behind technologically to those in the west that had embraced capitalism. The companies run by the governments were experiencing huge losses and stagnating due to lack of innovation. There were widespread shortages in essential goods and services and the public opinion was clearly in favor of dismantling of the government-led systems.
The system was such that instructions for production of goods were issued centrally, the number of workers to employ, where to sought raw materials, how many salaries to pay, and ultimately the prices to charge. The organizational models had two catastrophic flaws. The first flaw was the availability of information such that in order for the central authority to issue useful instructions they had to be privy to all the information. It was difficult to obtain this information of all manufacturing information combined with consumer preferences and choices. In reality this was not possible. The second problem was the starveling of innovation in that employees were to follow instructions to the letter (Grauwe & Asbury, 2017). There were no new products or services coming through the line ultimately leading to technological stagnation as compared to their western counterparts.
Evaluating the key aspects
Within the late 1980s research indicates that intense debates regarding the dynamics of each university are the ones that had the propensity of determining the mechanisms that could have been used for the purpose of managing government and market mechanisms. In this case, the mechanisms that were improvised by the state are the one could have been perceived to have the propensity of improving the perspectives of influential supporters. From the various lessons that could have been learned from what could have been encountered, the economy had the propensity of establishing sufficient material abilities for the entire population (Grauwe & Asbury, 2017).
In case of ensuring that the market economy has reaped from the abilities that were harvested from the introduction of the old system, it was important to create material and the acquisition of resources by each person. The will have to be based on the dynamics of society. As a result of that, it was it can approve that the perspectives of the majority of individuals entailed accepting and rejecting the dictatorship that could have existed. In this case, it was found out that the age-old discussions that were made were ultimately based on the outdated milestones of the state versus the market organizations. Because of that, research indicates that it was important for the state and the market to come up will analyses that will ensure that such dynamics were mixed to make them functional (Tirole & Rendall, 2017).
According to the analysis conducted, it can be argued that potential investors are the ones who could have to take advantage of the existing economic systems. The reason for that is because it was later realized that there was the development of multiple developmental activities. Accordingly, the evolution of external impediments is what resulted and enhanced the free movements of goods and services to oversee countries. Because of that, there was the need of ensuring that such movements have been limited. The restrictions that were imposed were aimed at ensuring that each country has come up with the mechanisms that will enable them to specialize economically (Paul, 2014). Regardless of the flourishing of various international economic systems, it was found out that was a continued increase in the provision and exportation of goods and services. The exportation of such commodities and services was found to increase in countries that had been deregulated by using the same economic system (Zhang, 2020).
Another point of contradiction is the fact the pure market system had not elements to grow. As a result of that, all the economic systems that were to be viable were found out to be a mixture of governmental control and market based irrational reasons. It can, therefore, bewas understood that a pure market system is the one that warranty material prosperity for the majority of the individuals and the entire community at large. The reason for that is because to use his or her means to counter the effect of their fate (Zhang, 2020). Due to the fact that pure marked is something that is purely centrally planned, it implies that it was difficult for the system to make an impact in the real world. Ideally, such reasoning was based on the same primary reasons.
Per capita gross domestic product was some of the parameters that were based on the production of the community. With the increase in the production and the production of commodities, it was important to counter the effect of industrial uncompetitive advantages. Because of that, it can be justified that such growth was enhanced by the search being conducted by capitalists and entrepreneurs. The search conducted entailed ensuring that they have found new mechanisms that facilitate them to produce more goods and services. This scenario is the one that made the pure markets and the state to encounter to profound competition between potential investors. Extraordinary dynamic technological advancement evolved thus making the economy to be frustrated (Daniela, 2015). The competition that happened is the one that is perceived to have affected the evolution of modernized electricity, railways, as well as other technological signs of progress.
The abive limits were considered to have a huge impact on the economic development of each country within the 20th century. Ideally, the temporary interruptions that happened were based on the wrangles that had happened during the World War I. considering the inexpressible sufferings of the majority of individuals who were involved during that time; there was the evolution of capitalism. The capitalism movements, movements, and opinions are the one that is perceived to have made nations to encounter economic difficulties (Metcalfe & Warde, 2003). When the great depression was experienced, the prosperity of many countries dropped significantly. Unemployment rates also rose to unprecedented levels. The majority of the individuals, especially in America and Western Europe ended up losing their livelihood. This is because they were plunged into numerous depths as a result of the economic frustrations that they had gone through. This scenario is what ended up creating a breeding ground for the evolution of violence from political extremists. Due to that, various nations encountered economic and democratic collapses of the well-established systems (Paul, 2014).
Even though that could have been perceived to be one of the factors that could have resulted in a horrifying war, the triumphal procession, and progression of the prevailing market system is the one that was regarded to halt it. The economic misery that was experienced is what people and their community used as the basis for blaming capitalists. Typically, the manner in which various economies were used by governmental authorities is the one made people and the community to lose faith with the prevailing market system. The main domains of the market shrank are based on the shrinking of the principles that were used by governments. Some of the programs that were put forward id the ones that had the propensity of the milestones of each economy. When the great depression occurred, such programs were the ones that had the propensity of securing the economic wellbeing of each state. The decisions that were based on such programs are the ones that made the government to make more investments in the pure market economy (Paul, 2014). The nationalization of the key industries is the one that made industries to close its economic borders. These governmental perspectives were based on the fact it was important to control the principles that were laid upon in controlling the development of the pure market economies.
The methods that were invested by each state are the one could have been perceived to have the tendency of humanizing the perspectives of influential supporters. The motor of investment was the supports and the mechanisms that the government had implemented. Construction of social security and public investments is the one that enabled the government to have the potential of improving the wellbeing of society. With regard to the economic systems that were being utilized, it was found out the market system had failed to protect the requirements of each person. The existence of the precious market systems is what perceived to make the society to encounter increasing levels of disablement, sicknesses, and unemployment (Metcalfe & Warde, 2003). The government expenditures were also realized to have the propensity of increasing the post-war governmental spending.dur to the fact that each country was the members of economic co-operation and development (OECD), there was an increase in the taxation rates. Some of the prominent countries such as the United States (US) and United Kingdom (UK) ended up encountering the minimization of the incomes that were directed to the community. Due to the fact that such perspectives were considered to one of the parameters that do not contribute to the growth of the community, there were various changes in existing pure market economics. The initiatives that were provided by various governmental agencies are the ones that were considered to have the propensity of assisting the welfare of the community, especially poor individuals (Tirole & Rendall, 2017). Some of the parameters that were taken into consideration are the need for protecting such individuals from societal manipulations.
The government involvement is the one that is perceived to have made people be devastated. Thus, with the increase in the production and the production of commodities, it was important to counter the effect of industrial uncompetitive advantages. Because of that, it can be justified that such growth was enhanced by the search being conducted by capitalists and entrepreneurs. The realm of economic history in the last two hundred years has been shaped by cyclical movements that have transferred power from the government to the markets, and then from the government detrimental to the markets again. The nineteenth century was characteristic of protracted by the expansion of the capitalist system rather than the communist. The system was a borrowing from the liberalization system started by Great Britain in the eighteenth century (Bebbington, 2018). Increasingly, other countries followed the trend dismantling internal restrictions, which limited the initiative of budding entrepreneurs. The merchants capitalized on this trend to develop new trades and make a flourishing economy.
The developing system also cut back on barriers to free trade of goods and services encouraging specialization of what countries produced best rather than being a Jack of all trades. In turn, international trade flourished to the advantage of the market system that was visible in many countries. Dismantling the barriers enabled the production of goods and services to increase tremendously in the jurisdictions that cut back on internal barriers. There was an overnight increase in the gross domestic product (GDP) of the regions that embraced capitalism such as Western Europe and America leading to material prosperity (Metcalfe & Warde, 2003).
As the capabilities of the entrepreneurs whose power had been unleashed increased, it, in turn, led to technological development that translated to an increase in capitalism. The development of the railway system, the electrical grid, and communication systems such as the telegraph was as a result of the competition between entrepreneurs. These resulted in progress in material prosperity in the regions that embraced capitalism by the turn of the nineteenth century compared by pure economists. The shackles were off and prosperity was full steam ahead (Social advantage and disadvantage, 2016).
The barriers to free trade were, however, to become clear in the twentieth century that provided a clear contrast between the countries that had embraced capitalism and communism. World War I temporarily impeded further material progress and led to massive suffering and losses in human life and property. The expansion of capitalism after the war was in full throttle and appeared not to suffer any further setbacks. However, the Great Depression of the 1930sset in, and was massive unemployment and the capitalist system suffered immensely (Brett & Leonard, 2006). The result was the growth of political extremism such as that led to the populism of the NAZI party in Germany. It led to an unprecedented collapse of the democratic systems, which led to World War II, the most devastating war in history characterized by countries exhibiting their technological capabilities.
The development of the market system came to a certain halt because the opinion was that the massive miseries occurring were a direct result of the unimpeded expansion of capitalism. One country that capitalized on this is the Soviet Union that dismantled free-market systems and established systems led the government. They were the pioneers of the communist system that shrank free-market systems and established systems predominantly led by the government. The response from the west was that President Franklin Roosevelt launched a new initiative to rescue the world economy from the increasing government influence (Mossberger et al., 2015).
The government-led system led to increased taxes on entrepreneurs earning high incomes. Their incomes were completely wiped out in the US and the UK with tax rates of up to ninety percent on highest income earners. Marketing thinkers were on board with the thinking such that they thought the biggest gainers contributed the biggest share of prosperity. The trickle-down theory portends that the poor in the country benefited from government support than the few who amassed large wealth for themselves. The theory was rendered null and void during the period of the Great depression such that government support was inevitable and guaranteed. History once again took a different turn (Brett & Leonard, 2006).
In this period it became increasingly clear that governments controlled the economy and were at its ends. Countries that embraced communism were at their ends and were experiencing difficulties in achieving growth in their economies. The setbacks in technological progress by nationalizing their companies and vital sectors suffered massive losses through loss in revenues due to tax short-falls. For example, economies in Eastern Europe and within the Soviet Union stagnated and were in a serious shortage of vital goods and services. In the instance, it became clear that government-led policies were not working (Social advantages and disadvantages, 2016).
The majority of states had been realized that they had continued to embrace Marxism were at their ends and were encountering complexities in realizing the growth of their economies. The trickle-down hypothesis foreshadows that the poor and the vulnerable individuals in each state could have an advantage from government support than the few who amassed large wealth for themselves and benefit from the close circle of friends. Such presumptions were initially had been perceived to be unacceptable and emptiness during the time that the Great depression had occurred. The reason for that is because such that government support and the use of the various governmental supports were considered to be inherently predictable and guaranteed (Knoop, 2004).
The development of capitalism after World War I was in full strangle that the people had gone through. The majority of the people who were involved in such tragedies were regarded as being suffered from the same attacks. Conversely, the Great Depression of 1930 set in came into existence and resulted in massive devastations of the community. Such a scenario was ultimately enhanced by the substantial unemployment rates and the capitalist systems that the governments had embraced. This is what resulted in the expansion and the development of political extremisms that led to the populisms of the NAZI party in Germany and the principles that were being utilized. The system was borrowed from the liberalization systems started and implemented by Great Britain in the 18th century (Paul, 2014). The trends that were followed by various countries are the ones that were perceived to dismantle the internal restrictions of the contemporary community. Such alienations are the ones that restricted the initiatives that potential budgeting entrepreneurs had utilized (Mossberger et al., 2015). From the analysis that was being conducted, it can be argued that the prevailing merchants had the potential of capitalizing on these trends so as to develop and come up with new trades that will make each economy to flourish (Daniela, 2015).
Persona thought regarding the findings in the book
From what is explained in the book, it means that the superiority complex was evident in the government-led economies. For instance, Richard Nixon the Vice president of the US and Nikita Khrushchev, the leader of the Soviet Union declared that the union would catch up with their utmost adversary before the end of the century. Many in the Soviet Union were indeed convinced that this would happen. A famous American economist by the name of Paul Samuelsson indeed prophesied through showcasing contrast of GDP data that the Soviet Union would catch up and exceed the US's GDP by the end of the century. The author even received a Nobel Prize for the initiative for his influential texts in economics books. One of the editions included an exploration of the US GDP's data against that of the Soviet Union and his prediction was right six years after. Controlling the perspectives and the principles that were used to enhance the development of the control principles are the ones that improve the development of society.
The involvement of the government is the one that is considered to have made people and their community at large to be devastated and become poorer. With the continued increment in the manufacture and the production of merchandise, it was imperative to counteract the effects of industrial mutually respectful advantages of expansion. It can be reasonable that such growths were fostered by the search that was being conducted by potential capitalists and entrepreneurs. In connection with that, the initiatives and the strategies that were offered and implemented by various governmental authorities are were considered to have the inclination of enabling the welfare of the public, particularly poor individuals to improve. Ideally, such parameters and governmental programs are the ones that were perceived to have the likelihood of protecting vulnerable individuals. The nationalization of the key industrial mechanisms that were used is the ones that considered having the likelihood of enabling each person to prosper.
Despite of the perspectives of the existing pure market economies, the method in that different economy by the governmental establishment is the one made the society to lose confidence with the existing market systems. The main domains of the pure market economy that contracted are based on the decrease in the principles and doctrines that were used by existing government authorities. The programs stated above were implemented for the essence of improving the propensity of the milestones of each economy and the wellbeing of society.
Conclusion
The book investigates the consequences and dangers of these events in the history of humankind. In the current trends, markets play crucial role in globalization. With the financial crisis and the growing inequality in incomes and wealth should the government play a greater role. These are the tenets that guide the authors of the book. Will the capitalist system last, or will the general populace prefer government-led systems? In their choices will the general populace achieve material prosperity? These among many questions are what the authors in book strive to answer, which are also topical questions witnessed in the book by the intense debate in book whether to not to tax the wealthy rich more.
At one moment the author believed that the market could offer a solution to the many problems that plague the world. However, the author has since changed the position. The author suggests a programmatically and ideologically driven approach to establishing an optimal system. It enables them to think objectively. The publishers at Lannoo play a crucial role in enabling the writer to bring the ideas to fruition. The book is also a translation from Dutch with a chapter added in which the author discusses other philosophers and economist’s views between influence of state and government on the economy. The book also pays special tributes to Anna Asbury for translations and footnotes found in the book.
The cause of the failure was not evident a few decades ago although it is now. The state planned companies planned on how much they produced, whom the vital raw materials came from, machines to use, workers to employ, how much salaries to pay, and ultimately how much the customers paid for the products. The organizations in the Soviet Union ran into problems because of two issues. The first is that in order for this model to work all manufacturing options and methods had to be centrally available combined with consumer options and preferences. They struggled with the enormous amount of data and changes constantly. In reality, this was virtually impossible and the consequence was those products and serviced were produced by manufacturers that the consumers did not need. The second issue was that the linearization initiatives led by Western Countries held a firm grip on the economy. They privatized their economies, railways, banks, channels while the communists' countries nationalized theirs.
References
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In Metcalfe, J. S., & In Warde, A. (2003). Market Relations and the Competitive Process. Manchester: Manchester University Press.
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