The economic system of the United States is principally one of private ownership. This system, often referred to as a "free enterprise system," can be contrasted with a socialist economic system, which depends heavily on government planning and public ownership of the means of production. Yet government has to some extent always been involved in regulating and guiding the U.S. economy. At the same time, U.S. citizens have always had the freedom to choose for whom they will work, and what they will buy. Most importantly. Americans vote for officials who set the economic policy.
In the U.S. economic system, consumers, producers and the government make decisions on a daily basis, mainly through the price system. The dynamic interaction of these three groups makes the economy function. The market's primary force, however, is the interaction of producers and consumers: this has led analysts to name the U.S. economic system, a "market economy."
As a rule, consumers look for the best values for what they spend, while producers seek the best price and profit for what they have to sell. Government, at the federal, state and local levels, seek to promote the public safety, assure reasonable competition, and provide a range of services believed to be better performed by public rather than private enterprise. Some of these public services include the administration of justice, education (although there are many private schools and training centers), the postal (but not the telephone) service, the road system, social statistical reporting, and national defense.
In this system, when economic forces are unfettered, supply and demand establish the prices of goods and services. Entrepreneurs arc free to develop their business. In theory, unless they can provide goods or services of a quality- and price to compete with others, they are driven from the market, so only the most efficient and those who best serve the public remain in business. In practice, government regulations can interfere with pure competition in order to promote other national policy objectives such as income stability, regional development or environmental preservation. Similarly, businesses can interfere with pure competition, through price fixing or other monopolistic practices, in order to maximize profits.
While consumers and producers obviously make most decisions that mold the economy, government activities have at least four powerful effects on the economy:
Direct services – Examples of federal direct services are the postal system and the military establishment. On the state level the government provides services such as highway construction and public education.
Police and fire protection are generally part of local government institutions.
Regulation and control - The government regulates and controls private enterprise in many ways in order to ensure that business serves the best interests of the people as a whole. Regulation is usually considered necessary in areas where private enterprise has been granted a monopoly, such as in electric or phone service, or in other areas where there is limited competition, as with the railroads. Often control is used to protect the public, for example when the Food and Drug Administration bans harmful drugs, or requires standards of quality in food. In the 1970s and 1980s, Americans became increasingly divided on the issue of government regulation of the economy. Proponents argued that government regulation was needed to protect consumers, workers and the environment; critics insisted that regulations interfered with free enterprise, increased the costs of doing business and thus contributed to inflation. This debate eventually resulted in the deregulation of a pair of important industries - the transportation and communication industries.
Stabilization and growth - Branches of government, including Congress and such entities as the Federal Reserve System, attempt to control the extremes of boom and bust, and of inflation and depression, by adjusting tax rates, the money supply and the use of credit.
Direct Assistance - The government provides many kinds of help to businesses and individuals. For example, tariffs permit certain products to remain relatively free from foreign competition; imports are sometimes taxed or limited by volume so that American products can better compete with foreign goods. Government also provides aid to farmers by subsidizing prices they receive for their crops. In a different area, government supports individuals who cannot adequately care fur themselves by making grants to low-income parents with dependent children, by providing medical care for the aged and indigent and through social insurance programs that assist the unemployed and retirees. Government also supplies relief for the poor and help for the disabled.