Law, Business and Society
13th Edition by Tony McAdams
Complete Chapter Solutions Manual
are included (Ch 1 to 18)
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, Chapter 1
Capitalism and the Role of Government
Chapter Goals
This chapter serves as an introduction to the two fundamental questions examined throughout the entire
book: What is the proper role of business, both in America and in the global society? In addition, how
much government regulation is necessary or optimal to achieve that role for business? Students are
doubtlessly familiar with the broad features of the capitalist–collectivist continuum, but their experience
suggests that a brief refresher may be helpful. The most fundamental role of this chapter, however, is
simply to clarify for the students the cause-and-effect relationship between economic philosophy and law.
The law springs from its roots in political economy (among other sources) and, in turn, the law works to
preserve that economic system. Characteristically, the students do not think of the law as an expression
of fundamental economic and philosophical choices. The relationship between capitalism and the
particular legal system is not clear to most Americans.
The chapter begins with an introduction to American Capitalism. It discusses the economic challenges
such as the Great Recession, subprime mortgages, banks that are too big to fail, and globalization and its
impact on American Capitalism. It describes the moral challenges in American Capitalism through issues
such as Wall Street abuses and fairness in pay. This is followed by a discussion of whether America as a
nation is headed for a decline due to these economic and moral challenges. Next, the chapter discusses
the purpose of the textbook, and it explains the roles of markets and governments and law in a nation.
Then, the chapter describes how the proper balance between open markets and government intervention
remains perhaps the central public policy debate in American life. This is followed by a discussion of
privatization of some industries such as space travel and toll roads, parking meters, and congestion
pricing in America. It also discusses privatization of schools and its success.
Then, the chapter goes on to discuss communism and communist principles. It also describes socialism
and socialists’ goals. It illustrates the economic and the political challenges of communism in China. Next,
it illustrates the economic and political challenges of socialism in Russia. Then, it discusses mixed
economy and illustrates the economic and the political challenges of mixed economy in mixed economy
such as Sweden. This is followed by a discussion of whether America’s more libertarian “cowboy
capitalism” is better adapted to the globe’s demands than the “coordinated, stakeholder capitalism”
characteristic of much of Europe or not. Then, the economic future of America and factors such as the
overall quality of life, poverty, the gaps (i.e., income gaps and wealth gaps), the decline of social
connections, and the expanding socioeconomic gap between the children of educated parents and the
children of parents barely clinging to economic survival in America is discussed. The chapter concludes
with a discussion of whether America should improve the market through judicious regulation or whether
it should return to a “purer” form of capitalism with dramatically reduced government.
Chapter Learning Objectives
After completing this chapter, students will be able to fulfill the following learning objectives:
1. Describe capitalism and its relationship to individual rights.
, 2. Discuss the theory and practice of privatization.
3. Compare capitalism and collectivism.
4. Differentiate between communism and socialism as collectivist philosophies.
5. Discuss the current state of capitalism in China and Russia.
6. Evaluate arguments regarding government’s proper role in the American economy.
7. Describe the primary characteristics of a “mixed economy.”
8. Analyze the impact of capitalism on equality, fairness, and community in American and global
society.
9. Describe the income and wealth gaps in America.
Chapter Outline
Part One—Introduction
Examining the relationship between government and business is the core of the text. Since the fall of the
Soviet Union and the general decline of communist influence, free market reasoning has dominated
worldwide economic discourse. Indeed, noted political theorist Francis Fukuyama argued that capitalism
and Western democracy have so thoroughly proven their worth that the capitalism/collectivism debate is
over. Events, however, have challenged Fukuyama’s bold thesis. The COVID-19 pandemic, theGreat
Recession, including the subprime mortgage crisis, the stunning power of the Wall Street banks, and the
continuing centrality of governments in economic decision making, have raised doubts about the
economic reliability and dominance of capitalism. Donald Trump's ascendance to power in America
seemed to spring, in part, from doubts about the success and fairness of free–market liberal democracy.
Those nationalist/populist sentiments favoring the "common people" and pushing back against the “elite”
have also blossomed in other democratic strongholds–including the United Kingdom, France, Italy,
Spain, and Austria.
A False Promise?
Renowned French economist Thomas Piketty has recently strengthened the anticapitalist
argument by attacking the crucial claim that a healthy market generates a rising economic tide
inevitably lifting the welfare of all. Yet Piketty has acknowledged that markets are vital to
efficiency and freedom.
I. American Capitalism Challenged: Economics
A. Financial Crises: COVID-19 and The Great Recession
COVID-19 At this writing, the federal government is pouring several trillion dollars in aid into the coronavirus-
crippled American economy. Some big businesses and many small enterprises face ruin. State and local
governments are reeling from sharply reduced tax revenue and the heavy costs of dealing with the pandemic.
Clearly, the market alone could not adequately respond to the crisis, and federal intervention came very quickly.
In late 2008, America’s financial markets seemed near collapse. Lending had essentially frozen.
Fearing another Great Depression, the George W. Bush and Barack Obama administrations flooded
the market with cash, took on much of the debt held by endangered banks, and, through the Troubled
Asset Relief Program (TARP), bailed out failing giants such as Goldman Sachs, General Motors, and
Chrysler: companies that were deemed “too big to fail.” Critics, however, say the bailouts were illegal
extensions of federal power, dramatically increased the federal deficit, expanded the size of the
