Thus, competition is the regulator, a check on self-interest because it restrains my ability to take advantage of my customers. We believe the Federal Reserve most effectively serves the public by building a more diverse and inclusive economy.
Mixed economies are largely a product of the economic trials and tribulations throughout history, and they’ve become more common over time. One early example dates back to the British Corn Laws of the early 1800s, which regulated the import and export of grains. The laws were meant to protect local farmers against foreign competitors. Part of the response was that many economists favored a laissez-faire approach to trade.
This is notable because, under a purely capitalist system, such government interventions wouldn’t exist. Proponents would argue that capitalism incentivizes innovation and competition, offering more choices to consumers. Critics would say that capitalism encourages monopolies and inequality between the rich and poor. Scottish philosopher Adam Smith famously identified the “invisible hand” of rational self-interest and its role in enabling nations to achieve economic success. The “idea that is America” requires an “invisible hand” of common sense, mutually-held values and commitment to community.
That hand must guide the political, economic and other systems that profoundly impact our lives. Ordinary American citizens provide that hand based on how they live and work together. Today, well-resourced corporate and wealthy special interests overwhelm our government and its processes.
The United States runs on a blended economy that combines capitalist policies with government regulation. At the height of the 2008 financial crisis, Congress stepped in by passing the Dodd-Frank Act, which included new regulations in the banking industry. Among other things, the Dodd-Frank Act established requirements for how credit ratings are assigned to bonds. It also expanded the power of the Securities and Exchange Commission, strengthened whistleblower protections, and established the Federal Insurance Office to monitor the insurance industry.
For example, if I were a baker, the only way I would be able to earn your dollars is to produce bread that is better, cheaper or more convenient than the bread produced by the other bakers in town. If I were to increase my price too much, you would likely buy bread from my competitors. If I were to treat you poorly when you enter my store, you would likely buy from my competitors. If my bread were moldy or inferior in any way, you will likely buy from my competitors. In order to earn your money I must provide a high quality good or service at a reasonable price.