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What is a social market economy? I have provided the definition below....But I still don't get it.?
03-28-2014, 09:47 AM
Post: #1
What is a social market economy? I have provided the definition below....But I still don't get it.?
This means the state guarantees the free play of entrepreneurial forces, while at the same time attempting to maintain the social balance. The central idea of the social market economy is to protect the freedom of all market participants on both the supply and demand side, while simultaneously ensuring social equity.

Can you please elaborate on what this whole paragraph means exactly? I'm so confused. In other words can you just simplify this and explain it differently(explaining it piece by piece would be ideal but if you can just tell me what it means overall that would be great too) Thanks!?

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03-28-2014, 10:00 AM
Post: #2
 
It means the invisible hand will provide competition which will lead to efficiency. But competition should mean that all player are capable to response to the change in demand. It should be the same as the competition of the soccer teams which have referee and linemen to ensure fairness.So it has to deal with imperfect market in which players have factors and technology to be in the competition, or the market should be oligopoly, not perfect competition.Competition however, will yield winner and looser. Looser has still to feed the family. That is why the state has to overtake the social dimension of competition. Based on Hayek, it is called safety-net.
The social market economy was developed by the Freiburg school, and put in use by Ludwig Ehrhard. It has contributed to the economic miracle in Germany significantly.

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03-28-2014, 10:07 AM
Post: #3
 
1. Capitalists talk about the importance of "economic freedom" as if that is the ultimate value. In social market economies, what counts is results. As Adam Smith noted:

"Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer." - The Wealth Of Nations, Book IV Chapter VIII, v. ii, p. 660, para. 49.

and

"What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable." - The Wealth Of Nations, Book I Chapter VIII, p.96, para. 36.

2. Competition is good:

"In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so." - The Wealth Of Nations, Book II, Chapter II, p.329, para. 106.

but the established producers don't want to compete:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices" - The Wealth Of Nations, Book IV Chapter VIII, p. 145, para. c27.

and

"To widen the market and to narrow the competition, is always the interest of the dealers…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." - The Wealth Of Nations, Book I, Chapter XI, Conclusion of the Chapter, p.267, para. 10.

So governments have to intervene to maintain competition.

Also, left to themselves, producers would tend to cut corners and cheat: poisoning customers, destroying the environment and the economy, etc.
http://rortybomb.wordpress.com/2010/10/0...he-stakes/
http://inversesquare.wordpress.com/2010/...sure-mess/
http://www.nytimes.com/2011/02/04/nyregi...loves.html
http://www.nytimes.com/2011/04/18/business/18plane.html
http://www.npr.org/templates/story/story...=127561853

So government has to regulate heavily to make sure firms compete in creating wealth, instead of just stealing it.
http://www.interfluidity.com/v2/2669.html
When it doesn't (remember Reagan ushered in the era of deregulation in the U.S.)
http://en.wikipedia.org/wiki/Reaganomics
you get the sort of disasters the U.S. has seen recently.

You also get a poorer economy. The U.S. used to have the highest standard of living in the world, the greatest economic mobility, the best educated workforce, etc. Now it has none of those.
http://streetlightblog.blogspot.com/2011...r-two.html
http://www.prosperity.com/Ranking.aspx
http://www.scientificamerican.com/articl...fare-state
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