1.1 What is government?  (Page 2/25)

Representative government and capitalism developed together in the United States, and many Americans tend to equate democracy    , a political system in which people govern themselves, with capitalism. In theory, a democratic government promotes individualism and the freedom to act as one chooses instead of being controlled, for good or bad, by government. Capitalism, in turn, relies on individualism. At the same time, successful capitalists prefer political systems over which they can exert at least some influence in order to maintain their liberty.

Democracy and capitalism do not have to go hand in hand, however. Indeed, one might argue that a capitalist economic system might be bad for democracy in some respects. Although Smith theorized that capitalism would lead to prosperity for all, this has not necessarily been the case. Great gaps in wealth between the owners of major businesses, industries, and financial institutions and those who work for others in exchange for wages exist in many capitalist nations. In turn, great wealth may give a very small minority great influence over the government—a greater influence than that held by the majority of the population, which will be discussed later.

Socialism is an alternative economic system. In socialist societies, the means of generating wealth, such as factories, large farms, and banks, are owned by the government and not by private individuals. The government accumulates wealth and then redistributes it to citizens, primarily in the form of social programs that provide such things as free or inexpensive health care, education, and childcare. In socialist countries, the government also usually owns and controls utilities such as electricity, transportation systems like airlines and railroads, and telecommunications systems. In many socialist countries the government is an oligarchy    : only members of a certain political party or ruling elite can participate in government. For example, in China, the government is run by members of the Chinese Communist Party. However, socialist countries can have democratic forms of government as well, such as Sweden. Although many Americans associate socialism with tyranny and a loss of individual liberties, this does not have to be the case, as we see in Sweden.

In the United States, the democratic government works closely together with its capitalist economic system. The interconnectedness of the two affects the way in which goods and services are distributed. The market provides many goods and services needed by Americans. For example, food, clothing, and housing are provided in ample supply by private businesses that earn a profit in return. These goods and services are known as private goods    .