The American economic system is predominantly a market economy that relies primarily on a system of free markets to make basic economic decisions. It is also an example of capitalism. Capitalism is a form of economic organization in which businesses are privately owned and operated and where free markers coordinate most economic activity. Although the American economy is very different from the type of economy that Adam Smith described in The Wealth of Nations, the principle of the invisible-hand still applies to our economy in a modified way. For the invisible hand principle to work, there must be a great deal of competition.
Competition is the controlling mechanism of capitalism.
It prevents individuals and businesses from taking advantage of one another when they peruse their own self interests. The price system is the coordination and communication system of capitalism. It communicates messages between buyers and sellers and between employers and employees. The government serves as rule maker, protector, and referee in the American economy. Government produces collective goods and services, regulates prices and the quality of services of public utility companies, and enacts laws designed to regulate pollution, Make the workplace safer, and prevent employers from hiring children below certain ages for certain types of work.