Why American economy is regarded as the most powerful economy of the world ?

American economy is regarded as the most powerful economy of the world. However, for an understanding of the func­tioning of the American capitalistic system, we shall again harp on some of the fundamental elements of outstanding importance.

Easy Money Being Drawn Out Of The Economy! :

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1. Giant economy :

An important characteristic of the American economy is its bigness America happens to be a vast country with vast population. It is. built on bigness—big business, big consumer and big labour. The typical American slogan is “Produce more, earn more and have more This fondness for something big is reflected in every walk of the American life.

2. Private ownership economy :

As in any other capitalistic economy, in the U.S. also the means of production and distribution are owned, controlled and directed by private or corporate persons. Private individuals use this property and are themselves responsible for any profit or loss that might arise from their operations.


However, private ownership is not complete. Natural monopolies or basic public services are under the ownership of the state. Even 30 per cent of ail land, mostly in the West and Alaska, is owned by the govern­ment. Berle has given an interesting interpretation of private-cum-public ownership in the American Economic Republic, According to him, a modern giant American corporation is more “public” than “private”. As in the U S. two-thirds or more of the industrial activity is carried on by 500 or 600 giant corporations, has questioned the appropriateness of the old concept of private enterprise under modern conditions.

In the U.S private ownership is not a mania but a robust instinct, without which there would be little incentive to efficiency and hard work. An inherent part of private ownership of properly is the right of inheri­tance or the right of bequest. Till 1918, property could be transmitted from generation to generation almost intact- But at present estates are subject to a maximum marginal rate of 77 per cent, when the value .exceeds $ 10 millions.

In the following section, we shall examine the ethical side of the institution of private ownership, but it goes without saying that private ownership and decision-making have served as powerful forces in promo­ting incentives, efficiency and ail-round freedom in the American, economy.

3. Free enterprise economy :

Traditionally, the American economy has been and still continues to be predominantly of free-private enterprise. Privately owned business enterprises turn out about 98 per cent of the total output of goods and services. This is accomplished through the free play of the market forces. The state imposes certain limitations on these market forces no doubt, still, the privately owned enterprises are free to take up the production of any commodity that they like. No field is barred to them. They are free to select the methods of business finance, to determine the volume of output, to fix their prices, to enjoy the profits earned by them and to carry on innovations. In short they are free to make all the economic decisions themselves, as regards to production, distribution and exchange.


According to Warren W. Unna, “The free enterprise system govern­ed how America began, grew and flourished. And the words signify how Americans think of themselves for now and the indefinite future.”

4. Competitive economy :

Another salient feature of the American economy is the element of all-pervasive competition. We have seen that competition in Economics stands for economic rivalry. In the initial stages of economic development in America, one could witness competi­tion in the literal sense of the term. It was a system characterised by a large number of small enterprises engaged in business operations. With the passage of time and technological development such competition became extensive as well as expensive. The cut-throat competition among a multitude of producers very often led to bankruptcies on a multi-million dollar scale. There was a tendency, therefore, to eliminate this type of self-destructive competition through the formation of ‘Pools’ ‘gentleman’s agreements;’ or ‘cartels’ etc.

In fact today, the very structure of the contemporary market has undergone a vast change, as one may notice an overwhelming importance of the giant corporations. At first glance the American economy would reveal that centralization of capital and concentration of economic power are the dominant facts of economic life. As Strachey has observed, “the competitive process, by its own ruthless strength and in accordance with, its own inner logic continually creates bigger and fewer units with which to fight out the competitive battle. It does so because on the whole and in the end, the larger units prove to have superior competitive power.

5. Market economy :

Market is the characteristic institution of capitalism. Rightly the American economy may be termed as a market economy. It is the most fundamental as well as the most complex of all the important elements of American capitalism. la a socialist economy the economic decisions are arrived at in accordance with a comprehensive central plan. But in the U.S. all economic decisions are determined at the market through the market and by the market.


The most important thing is that it is the independent private individuals or corporations who make their own economic decisions Prices are important as guides to rational economic action. The prices reflect the demand and supply conditions in the whole of the economy. In no other system prices are so regular and so widespread as in capitalism. There is a tendency for the whole-economic system to function rationally when every producer and consumer is guided by the prices and acts rationally.

Market mechanism promotes political liberty and consumer sove­reignty. Prices express the economic significance of goods and services to the consumers Prices act as a barometer reflecting consumer’s choices and likes and dislikes. Producers in their own self-interest will undertake the production of that commodity for which the consumers are prepared to pay a higher price. Through the market mechanism personal greed is harnessed to serve social purposes in the automatic manner. A competitive market transmits signals to the manufacturers the market has proved to be an efficient organizer of production in practice as well as in theory The long-term record of U S. economic growth and process has confirmed many of the properties of the market models.

6. Consumer-oriented economy :

According to Slichur the Americans have a “dynamic philosophy of consumption”, which is an important characteristic of the American economy. The essence of this American philosophy of consumption is to aspire to live a better life. In a country where material success the measure of status, possessions act as the badge of success. Spending is a national pastime.

This dynamic philosophy of consumption has developed due to rapid expansion and abundant opportunity. This attitude to consumption sometimes gives rise to the wastes or ‘competitive consumption’. But on the whole, this philosophy of consumption has always made the Americans more ambitious, hardworking, efficient and dynamic.

This urge to consumption is very often satisfied by reducing the current rate of saving up the past accumulated savings or even incurring debts. As an expression of this philosophy of consumption, Slichter cites instances of periods from American economic history, when consumption expenditure grew faster than personal incomes after taxes ! A glance into the American economic history would show to what extent the Americans have a consumer- oriented economy. “Between 1869, the output of the American economy amounted to about $ 2800 billions at 1929 price. Of this huge total the flow of commodities and services to consumers accounted for fully 90 percent emphasized.

This emphasis on consumption has led to a vast, consumer-oriented industry, the like of which may not be found else-where.

7. Profit-oriented economy :

As any other capitalistic economy, the profit principle is a basic principle which characterised the American system. The most important objective of private business is to maximize monetary gain. Profit seeking acts as a powerful incentive for enterprises to improve the efficiency of their operations and increase the qualify of their products. Individual firms might pursue goals other than profit such as patriotism, philanthropy, public service, security etc.

But as Berle pointed out, the giant American companies sometimes may project such non-monetary altruistic goals just to shield their vast profit-making power from public suspicion. Krooss has rightly said that the American spirit is “Profit and risk minded, not security and thrift minded. The American innovators never hesitated to assume great innovational risks in quest for profit.

However, American capitalism is not only a profit system. It is also a loss system. In American economic development. if cases of economic to success are plentiful, cases of bankruptcies and failures are less numerous Even great manufacturing giants are not immune to such losses. On the average out of ten firms started in a year five are eliminated in just two years after incurring business losses. In any year five on the average four out of ten companies incur losses.

8. Service economy :

The American economy may be rightly termed as a service economy. The proof of .this statement may be found ? The proof of this statement may be found in the employment trend since end of the second world war. 1947 and 1,69, employment in ‘goods producing sectors,” increased by 5 percent. On the other employment in services increased nt. Immediately after the war, the services increased by 81 percent. Immediately of automation in manufacture. So there was an expansion in advertising, whole sailing, retailing, recreation, restaurants etc.

9. Corporate system :

A century ago the predominant form of American capitalist enterprise used to be either one-man business or part­nership. But today large corporations or joint stocks companies constitute the most important institution of the 20th century economy. A small number of 500-600 giant corporations exercise monopolistic control over production and the markets. As Galbraith humorously observed ”………the heads of the corporations that produce between a third and a half of the national product of the United States seats could be seated com­fortably in almost any neighborhood motion picture theatre.”

By looking at the assets, employment potentiality, sales, profits and income of these large corporations, we can come to an idea about the role and importance of the corporate sector in the American economy.

In 1972, the U.S.. had a GNP of $ 1152 billion, but the top 500 giant corporations had sales of $ 558 billion. It means, they controlled half of the entire GNP in the year, the top 500’corporations again controlled 65 per cent of the total sales of all industrial corporations, 75 per cent of the total profits.

The large Corporation is not only an economic institution. It has been changed into a social institution. It has been regarded as a positive feature of the American way of rife. “As W.T. Gossett wrote about two decades ago, “The modern stock corporation is a social and economic institution that touches every aspect of our lives; in many ways it is an institutionalized expression of our way of life… ……Indeed it is not inaccurate to say that we live in a corporate society.”

Prof. Berle is of the view that the 20th century American capitalism has undergone a vast transformation through the emergence of the corporation. According to him the corporation is a special institution of American capitalism, where the higher management does not work merely to increase the private profit. The corporation works in con­formity with the interests of the people and the society. Its ultimate aim is the promotion of public welfare. “The modern corporation is a soulful corporation.

10. Military economy :

Howard J. Sherman in his recent book entitled ‘Stagflation’ has preferred to designate the American economy as the economy. It has been called as the “Arms Economy”. The military sector comprises the very heart of American capitalism.

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