Capitalism
The history of Money
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• 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
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• 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
Self-Interest
Economic
Freedom
Individualism
All of
Society
Benefits
Profit
Market
Economic
Darwinism
Review
• Capitalism is known by a number of names
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Private enterprise
Laissez Faire
Price System
Market System
Supply and demand system
Free enterprise