Capitalism The history of Money

Page 2 Capitalism reflects the view that people desire to operate relatively free from economic restrictions and control. This means that people should be able to work where they want, start a business, and make a profit. A capitalist wants to be as free as possible from government interference.

A little history Before the development of capitalism there was an economic system called mercantilism. This system was in effect from approximately the 15th C to the 18th C. During this time many of the heads of state in Europe were monarchs. Their sole aim was to make the nation as wealthy as possible, even if it meant exploiting other smaller nations. The monarch would grant certain merchants, friends, relatives or companies a license to operate their business enterprises. Granting privileges to operate businesses created monopolies with unfair economic advantages. Competition was almost non-existent. The monarch raised money by selling licenses and taxing the merchants and companies that were making large profits through mercantilism

Page 4 One might think that government was too involved in the economy under mercantilism. There was too much intervention, according to one man named Adam Smith.  Profit Motive. Businesses will try to make as much money as possible. They will only be able to do this by providing the goods and services that the people in the society want and need.  Adam Smith, the famous free market economist, called this "the invisible hand" which guides individual businesses to serve the best interests of society by providing the goods and services demanded by the people.

Smith agreed with the Americans that the British economic system of mercantilism was wrong. This was an economic system in which empires placed heavy controls on the economies of their people and colonies abroad. Adam Smith believed that an economic system worked best if people had the right to choose what they bought and sold. He believed that when people looked out for their own self interests, without government interference, the economy would work itself out to everyone's benefit.

The consumer would be willing to pay a reasonable price or nobody would make it. Left alone, the desire to make and save money would regulate the economy like an "invisible hand"

The Americans were the first country to accept Adam Smith's ideas. If you can picture yourself living back in the days of empires, you might better understand Smith's ideas. In Adam Smith's time, the economy was dominated by small firms or individual proprietors. He could not have foreseen our modern economy, dominated by large corporations whose many owners are not legally accountable for the corporation's actions. Adam Smith also did not foresee the production of goods that would be harmful to the society.

Smith felt that society would always benefit if people were left alone--economically. Finally, Smith assumed that demand for a product was based on a need. Smith also assumed people would be able to decide what they most wanted and needed.

Social Darwinism A further theory which helped in the development of capitalism was social Darwinism. This theory was put forward by a man named Herbert Spencer. Spencer viewed society and man’s position in society as being the result of evolutionary progression, or in simple terms,”the survival of the fittest.” The idea of social Darwinism, when examined in an economic situation, becomes economic Darwinism. Success or failure is measured in terms of profit. Those who fail go out of business.

The impact of individualism An important value of capitalism is individualism. Mercantilism placed restrictions on the freedom of the individual. There was a need for an economic system which recognized that all people were individuals. Under capitalism people were allowed to enter freely into the market. The beliefs of capitalism gave the individual person the freedom to either succeed or fail.

Review of the invisible hand Economic Freedom Individualism Self-Interest Economic Darwinism All of Society Benefits Profit Market

Review Capitalism is known by a number of names  Private enterprise  Laissez Faire  Price System  Market System  Supply and demand system  Free enterprise