The Mixed Economy (I)

Fortunately, a community does not have to make a complete choice between these two extremes. Instead it can compromise, allowing the State, to act, not as a dictator, but more like a wise parent who gives children much personal freedom but plans ahead to avoid many of the pitfalls into which they may stumble. Thus, in an attempt to get the best of both worlds, the UK has a 'mixed economy' in which three-quarters of production is carried out by private enterprise through the market (though subject to varying degrees of government control), while for the other quarter the government is directly responsible through the public sector. Moreover, chiefly by income redistribution and subsidies, the government influences the allocation of the goods and services produced.

The objectives of government economic policy in the UK fall into three broad categories: allocation of resources, stabilization of the economy and redistribution of wealth and income.

The Mixed Economy (II)

The government may influence the allocation of resources by producing goods and services itself. This occurs when they would not be provided adequately by the private sector, as with community goods, or when they can be produced more efficiently by the State, as with certain nationalized industries, e.g. postal services and activities of local authorities, such as the provision of roads and libraries. But other defects of the market mechanism are often dealt with by influencing the operation of the price system either by physical controls or by market intervention. The most rigid form of physical control is legislation. Controls can be flexible, however, when the authorities under general powers conferred by Act of Parliament administer them.

Alternatively, the government can avoid the rigidity of physical controls by intervening in the market itself. Thus it can adjust its own demand and supply to affect the price, as with agriculture, Treasury bills and foreign exchange rates. It may also influence demand, supply and price by indirect taxes and subsidies.

Markets (I)

'I am offered £650 for this heifer. No more offers? For the last time of asking, any advance on £650? Going at £650, going, gone.' Down comes the hammer. 'Sold at £650 to Mr. Giles on my right.' This is the local cattle market. On his stand above the cattle ring is the auctioneer. Inside the ring, a black and white heifer is appraised by local farmers and dealers. Some are buyers, some sellers. The market fixes the price at which those who want something can obtain it from those who have it to sell.

Of course, prices are not always fixed by auction. This is the method usually employed where there are many buyers but the seller only comes to the market infrequently, or wishes to dispose of his goods quickly. If there are few buyers and sellers, e.g. in the purchase of a house or a secondhand car, the final price may be arrived at by 'higgling' - the seller meeting the prospective buyer personally and bargaining with him. But where goods are in constant demand the above methods take too long. Thus most goods, such as foodstuffs, clothing and household utensils are given a definite price by the shopkeeper. But buyers will still influence this price. If it is too high, the market will not be cleared; if it is too low, the shopkeeper's stocks will run out.