unsold small sizes, would be of no significance. Conversely housing
was rented and cheap – but there was no incentive to build more
housing and gross overcrowding resulted.
The argument is, therefore, that a free-market economy enables
individuals to allocate resources in such a way as to maximise every-
one’s satisfaction. The introduction of a market economy in which all
are free to spend their money income as they please enables a painless
‘swap’ of the whisky ration for fishing tackle. Better, factories
manufacturing rayon pants when such items are out of fashion will
go out of business to be replaced by weavers of kilts (or whatever is
currently in demand). Further the sports car enthusiast may give up
leisure to earn extra resources in (say) overtime payments in order to
secure a faster car than almost anybody else, whilst the keen fisher-
man or woman may decide to live simply in a remote area on the
proceeds of only part-time employment. As Adam Smith described,
the ‘invisible hand’ of the market balances supply and demand to the
satisfaction of all in the marketplace.
As global economic systems, capitalism and state planning have
influenced international relations. These can be between systems,
such as during the Cold War when the West and the Soviet Bloc
argued which economic system was the more efficient and effective.
But there are also subtle differences of emphasis and tone within the
proponents of particular systems. For example, since the 1980s the
USA and UK have taken a more ‘market economy’ approach to
capitalism and Germany and France a more ‘statist’ approach. Both
approaches agree on the need for a capitalist economy, but in the
‘market economy’ approach the state seeks to take less of a role,
whereas in the ‘statist’ approach government tries to play a more
direct management role in the operation of capitalism. One of the
interesting outcomes of the 2007 French presidential election is that
the winner, Nicolas Sarkozy, is committed to moving the French
economy towards a more ‘market economy’ approach.
Problems of market decision making
With its superior productivity and response to consumer demand, the
market mechanism might appear to have justified itself. Yet the
inadequacies of raw capitalism seem hardly less than those of raw
centralised planning.
POLICIES 213