CHAPTER FIVE
Government's Role in the Economy

Study

The relationship between government and the economy is more complex than most people realize. However, the need for government involvement in the economy is demonstrated clearly by the so-called tragedy of the commons. This useful concept demonstrates that although people may know that overexploiting a common resource or abandoning a common effort is not in their best interest, individual calculations may suggest that not cooperating is the more rational individual choice because other people’s actions must be taken into account as well. Although industrial capitalism had many advantages over the feudal system it replaced, it also had many flaws. Karl Marx exposed many of laissez-faire capitalism’s imperfections, particularly its exploitation of workers and its inherent contradictions. While Marx recognized many of capitalism’s problems, he did not foresee the defects in his own socialist prescriptions, which undervalued the role of human motivation. Students should learn two very important lessons from this chapter. First, there are no purely socialist or capitalist systems in the world today; most countries try to find a balance between these two economic ideals. Second, if you ever go stag hunting, make sure you really trust the people who go with you.

STUDY QUESTIONS