The American Enterprise System
The American enterprise system is generally thought of as a form of modified free enterprise. Under pure capitalism, individuals possess (a) the freedom to own property, (b) freedom of choice, (c) freedom to compete, (d) freedom to determine their own personal incentives and goals, (e) the opportunity to use the profit motive to their personal gain, and (f) complete freedom from government influence. The American economic system, for the most part, also grants these freedoms. There are, however, restrictions imposed on some of them, the most significant of which arise out of the unique relationship of government and business.
The most significant difference between pure capitalism and the American "modified" capitalism, is the role of government in the economy. Under pure capitalism, government has no role whatever in the resolving of economic problems. Under the American economic system, the government does have a role, but it is restricted by the American Constitution to one of protection and limited regulation. For example, the income tax tends to restrict the individual`s ability to retain profit, since the more profit he makes, the higher the tax he must pay. Likewise, because some of our industries are regulated for the public welfare, individuals owning them do not have total freedom of operation. For the most part, however, the characteristics of pure capitalism are evidenced in the American enterprise system.
Business, by definition, involves all of the activities that play a part in bringing goods and services to the ultimate consumer of those goods. People engage in business because they see the opportunity to make a profit by marketing the product or service they produce. We can state, therefore, that business is primarily concerned with the satisfaction of human wants in return for a profit.
Profit can be viewed as the difference between the cost of producing or providing the product or service and the actual charge made to consumers of that product or service. If the goods and services provided by the businessman are, in fact, purchased by the consuming public, the businessman will profit. If, on the other hand, the entrepreneur is not successful at marketing his products, he will suffer a loss. This element of risk, or uncertainty of profit, is an inherent obligation that the entrepreneur must accept in a capitalistic economy.
Business enterprises can be classified in various ways. They can be classified by function and/or by industry. First, businesses can be of a type called processing or extractive enterprises. Examples would be agricultural companies and mining companies. Second, business firms can be manufacturing companies, such as automobile and appliance makers. Facilitating enterprises, such as finance companies, transportation companies, and communication enterprises are a third type. A fourth type, the marketing enterprise, is typified by business firms engaged in the retail and wholesale trade.