Should the government take an active role in the management of national economies?

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Should the government take an active role in the management of national economies?

In the 15th and 16th centuries with the growth of trade, industry and banking, capitalism became more prominent. The Industrial Revolution brought changes to the economies of many countries. Factory owners did not want governments to control trade. They wanted to run their companies by themselves. Adam Smith suggested a laissez-faire approach should be followed, leaving consumers and producers to make their own decisions and thus gain maximum benefit from all of the market system.  During this period countries produced more and more products and goods and many capitalists became rich. However, normal workers did not earn very much and had to work long hours.

World War I lead to the destruction of the four factors of production: land, labour, capital and enterprise. Socialism after the war was promising and people thought of it to be a more just society. The principle being that fairness and equality determine government policy. The German suggested that the government should take over and control the economy. It should own all the land, the factories and companies. In a socialist economy the government tries to spread money evenly among the workers. Many countries followed these socialist ideas, which later on led to .

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Ludwig Van Mises thought markets like people needed to be free from government meddling. Van Mises predicted that the new soviet socialistic economy would never work, precisely because the government controlled wages and prices. What Van Mises said is that the great flaw of socialism is that is doesn’t have a functioning price system to send all the signals to consumers and producers as to what something is worth. That these prices are the very heart of what makes a functioning economy work.

Moscow, 1992, in Soviet Russia, it seemed as if Van Mises predictions were coming true. There ...

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