The Benefits of Capitalism Top ten things you should know

1 Capitalism was a response to the high level of government controls in mercantilist economy Mercantilist focus was on gaining wealth (gold) for the aristocracy seen as power (can afford to wage a war)

Social and political environment 2 Social and political environment Enlightenment = people are questioning the role of government in the economy Protestant revolution = God is okay with you making money and thinking for yourself Early years of Industrial Revolution = people are making amazing inventions that are changing the marketplace

The Industrial Revolution “The most far-reaching, influential transformation of human culture since the advent of agriculture eight or ten thousand years ago…The consequences of this revolution would change irrevocably human labor, consumption, family structure, social structure, and even the very soul and thoughts of the individual.” Richard Hooker

3 Adam Smith Wrote “The Wealth of Nations” Argued that strength of nations rested on goods produced, not gold laws and restrictions hindered, rather than promoted economic growth

Smith’s argument for laissez-faire 4 Smith’s argument for laissez-faire government should interfere only to protect the country against foreign enemies ensure competition maintain law and order protect individual property rights otherwise let people compete with each other for private property (land, capital)

Without government controls, how will the economy stay organized? 5 Without government controls, how will the economy stay organized? Smith’s response Individuals are selfish and want best for themselves When people seek out own self-interest, they meet needs of others = economy will organize itself (invisible hand)

Key characteristics of a market economy 6 Key characteristics of a market economy Self-reliance, initiative, hard work Necessity of private property Profit motive

More key characteristics of a market economy 7 More key characteristics of a market economy Price system (supply and demand) Competition Inequalities of wealth

8 Advantages Market gives producers an incentive to produce goods the public wants Market provides an incentive to acquire useful skills A wide variety of goods and services is available There are incentives to use resources efficiently Competition encourages good quality at lower prices Productivity is rewarded by higher profits Fosters self-reliance Possible to become very wealthy

Examples of why it’s awesome 9 Examples of why it’s awesome Growth of middle class and “nouveau riche” during Industrial Revolution The rapid industrialization around the world promoted by ability to profit from innovations The growth of the US and other consumerist countries compared to those nations with high levels of socialism (like North Korea) The current technological revolution has been spurred by the benefits of competition

Extreme views – Social Darwinism 10 Extreme views – Social Darwinism Malthus – do not help the poor (The Theory on Population) Ricardo – do not have minimum wage (Iron Law of Wages)

2006