Capitalsim History Essay

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Capitalism

Capitalism is the name given to the economic system that incorporates free enterprise and a market system by Karl Marx, the founder of communism. By the textbook definition, capitalism is an economic system in which private individuals and business firms carry on the production and the exchange of goods and services through a complex network of prices and markets. (Heilbroner1 13-15) Capitalism is a philosophy that originated in Europe, where it evolved and reached its pinnacle in the nineteenth century. During the nineteenth century capitalism spread throughout the world and to the United States. The United States adopted the ideas of capitalism and put them into practice making capitalism America’s economic system. Capitalism has been for the most part the dominant economic system in the world and has only been challenged on limited occasions by other economic systems such as socialism and communism. (Heilbroner2 36-40)

Capitalism, as does any other economic system, has several key characteristics that define it. First, basic production facilities such as land and capital are privately owned. Second, economic activity is organized and coordinated through the interaction between the buyers and the sellers in markets. Third, owners of the land and capital as well as the workers they employ are free to pursue their own self interest in seeking maximum gain from their resources and labor in production. This means that consumers may spend their incomes in whatever way they wish, which is a principle called consumer sovereignty. This principle reflects the idea that under capitalism, producers will be forced by competition to use their resources in ways that will most efficiently satisfy the desires of the consumers. Thus allowing self-interest to drive the economy. The fourth characteristic of capitalism is that there is a minimum of government supervision required. If competition is present, the activity of the economy will be self-regulating. Government action is only necessary when needed to uphold the rights of private property and to guarantee contracts. The most important characteristic of a capitalistic economic system is its goal. According to Robert Heilbroner, “The elusive goal for a capitalist nation is to secure, simultaneously, high employment and stable prices.” (Heilbroner1 65)

The origination of capitalism took place in Europe mainly during the thirteenth century and onward. The developments society underwent in Europe during the Renaissance and the Reformation were vital in the emergence of the modern nation-state. The nation state provided the essential peace, law, and order that are crucial for capitalism to grow. This growth is achieved through the accumulation of an economic surplus by the private entrepreneur and the funneling of this surplus back into the capitalist system for further expansion. Therefore without some minimum of peace, law and order, this cycle would not continue and capitalism would not be successful. (Heilbroner 147)

As time rolled on capitalism continued to evolve. During the time period between the fifteenth century and the eighteenth century, when capitalism developed in another unique direction called mercantilism. The mercantilist system focused on the interests of the state rather than self-interest. The key idea of mercantilism is a surplus of exports over imports. This idea was the product of the state’s preoccupation with accumulating national wealth. Mercantilism eliminated much of the self-interest needed for capitalism. Therefore mercantilism did not survive when capitalism evolved to the next step. (Heilbroner1 148-150)

Adam Smith, the man who ushered in modern capitalism, attacked the idea of mercantilism. Smith believed in a...

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