Chapter 5 Concepts and Terms

Question 1

socialize

Answer 1

when we spread an individual’s cost or value to society, at large If the state decides that others should receive the benefits of someone’s labor, beyond what they are paid for it, the state is in favor of socializing the individual’s income.

Question 2

The market reflects individuals’ values of goods and services by people paying private costs to receive things they privately value.

Answer 2

When others advocate restricting an individual’s freedom to make market decisions, they must assert that they understand the costs and benefits better than the individual who is paying the costs and receiving the benefits that come with his/her decisions. An advocate of socialism asserts that the individual should act to promote the good of society, not to promote the individual’s wellbeing.

Question 3

Karl Marx

Answer 3

often pointed to as the founder of socialism, said it this way. Production should come “from each, according to his ability, to each, according to his need.”

Question 4

authoritarian choice

Answer 4

whether the state’s decisions are made by a dictator, the peoples’ elected representatives, or by popular vote

Question 5

authoritarian choice

Answer 5

the only alternative to individual economic freedom

Question 6

original rationale for socialism:

Answer 6

that firms have more power than individuals, so they exploit workers. Socialists countered the obvious argument that exploited workers may quit and work for competitors by asserting that society has rigid classes and that firms are not really in competition with one another for the best workers

Question 7

Another original rationale for socialism

Answer 7

fairness. Socialists, viewing class structures as rigid, said that members of the working class are forever disadvantaged by birth and cannot rise above their station. Given that individuals have no control over which class they are born into, the class system is unfair, so society must be controlled to eliminate the class system

Question 8

Marx predicted:

Answer 8

as technology advanced that machines would replace workers, which would leave the masses unemployed, able to choose only between starvation and overthrow of the system.

Question 9

By the 1950s, socialists were giving up on their original ways of selling socialism, since there was no reserve army of the unemployed in non-socialist countries and many perceived that people could materially advance beyond their parents’ material wellbeing. So socialists devised new rationales.

Answer 9

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Question 10

external costs

Answer 10

Some costs naturally spill over to others; Some value also spills over to others

Question 11

A modern rationale for socialism

Answer 11

is that we must socialize individual decisions by state force in order to counter nature’s socializing effects. Some costs naturally spill over to others.

Question 12

externalities

Answer 12

External costs and external benefits

Question 13

externalities rationale

Answer 13

efficient assessment of external costs and benefits must be done by those who have knowledge of all facets of the economy and nothing to gain from the regulatory process

Question 14

fascism

Answer 14

A system under which the state does not take title to property, but orders the use of that property and the individual in any way it wishes

Question 15

Eminent domain

Answer 15

where property is taken for state public use, such as roads, and parks, but the owner is compensated. Recently “state use” takings of eminent domain include taking property, such as homes, because the state would rather sell the property to business interests.

Question 16

Civil forfeiture

Answer 16

where a person is suspected of a crime and that person’s property is seized because it is automatically suspected as having contributed to the crime.

Question 17

The latest socialist rationale

Answer 17

that if the state provides any good from which the individual might derive external benefits—for example, roads, schools, and courts—that no property is private and the state is justified in dictating the use of the individual’s property and income. This rationale of socialism does not take into account the fact that the state originally confiscated individuals’ incomes to build the schools, roads, and courts.

Question 18

The percentage of total spending done by the state is also a measure of the degree of socialism in a nation

Answer 18

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Question 19

Money creates an illusion for us. To ask for co-operation, in the form of money, from all the citizens in a common enterprise is, in reality, to ask of them actual physical co-operation, for each one of them procures for himself by his labor the amount he is taxed . . . . Having the citizens contribute money, and not labor, changes nothing in the general results.

Answer 19

Bastiat

Question 20

the pursuit of happiness

Answer 20

meant the right to hold and use property freely, to choose one’s profession, to make contracts, and to travel

Question 21

incentive problem

Answer 21

Free markets give individuals incentives to voluntarily serve. Socialism divorces consumption from production and, in that way, takes the incentive to voluntarily serve

Question 22

Markets also help solve socialism’s “calculation problem.” As discussed in Chapter 2, markets connect private information about resource scarcity, individual preferences, and production technologies, encouraging conservation of scarce resources by making their prices higher. Similarly, markets encourage development of substitute resources for those that are scarce.

Answer 22

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Question 23

In a free economy, individuals contribute income in order help others and there is competition between nonprofit firms to provide the most and best aid.

Answer 23

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