Volume 47, Number 5 · March 23, 2000
Welfare: The Cheapest Country
By Robert M. Solow
The Real Worlds of Welfare Capitalism
by Robert E. Goodin, by Bruce Headey, by Ruud Muffels, by Henk-Jan Dirven
Cambridge University Press, 358 pp., $22.95 (paper)
In the early pages of any elementary economics textbook, the beginning student sees a rudimentary plumbing-like diagram that illustrates the 'circular flow' in every capitalist market economy. There is a business sector and a household sector, connected by two pipes. Business firms employ workers; and these businesses arrange to use the accumulated wealth of households to finance plant, equipment, inventories, and other productive assets. Through one of the pipes passes a flow of purchasing power from firms to households, in the form of wages, rent, interest, and dividends, payments for factors of production. Households buy the goods and services produced by the business sector; so a return flow of purchasing power goes from households to firms through the other pipe. Later on, the student learns how financial intermediaries, governments, and foreigners can be included in this picture.
Review, 4338 words
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