In the mid-19th century, a great system of economics, which would change our lives forever, was formed. That system was called capitalism. Capitalism is an economic system that was created by combining many parts of many other economic systems. Capitalism was based on the idea that private individuals, and business firms would carry out all factors of production and trade. They would also control prices and markets on their own. Mercantilism was the pre cursor to Capitalism although each of them different in many ways.
Mercantilism was for the wealth of the state, while the motive of capitalism was for the wealth of the individual. There were many outlines for this new system called capitalism, which would make it different from any other economic system we have ever seen. What made capitalism different from all other economic systems was that production facilities, land, and capital were all privately owned. What made capitalism different was the government did not control the economy entirely. Capital is based on the idea of free economic decisions for the people; basically the people were free to spend their money how they like.
Companies on the other hand were able to decide what they wanted to produce and how much to charge. In a capitalistic society, the prices of products were regulated by the competition. This means that as long as the markets stay competitive prices would have to also. The system of capitalism was different than any other because non-profit organizations, like churches could also flourish. Capitalism introduced us to the idea of consumer sovereignty, which means that producers will have to best serve their customers in order to stay in business.
Government would be used minimally as a tool to help to prevent injustices from being done to the people. Government would protect the people from foreign attack, to guarantee contracts, and to uphold the peoples right to private property. Adam Smith was a British economist who helped to create the system of capitalism that we use today. Adam Smith was one of the major critics of the old system of mercantilism as was seen in his book The Wealth of Nations. He was against mercantilism because he felt like the people worked to make the place where they lived rich and not themselves.
Mercantilism was based on a few major points, most important was that the state must have a favorable balance of trade, which means that they must export more than they import. As you can see in our nation today our balance is not in our favor but yet we remain to be the richest country ever. Mercantilism also focused on the idea of bullionism, which was having hard currency in gold and silver to back up trade. Smiths idea was that they would take parts of mercantilism and create this new system capitalism.
He felt that in a society with free enterprise people would be able to pursue profit themselves, and this would also benefit the society as well. Smith advocated the new system of capitalism to replace mercantilism. Smith created this idea of the invisible hand which was a theory that stated by each person pursuing their own well being they would in the end actually improve the well being of the whole society. Where Adam Smith left off other economists with the same beliefs like Thomas Robert Malthus picked up.
Malthus was most famous for his book entitled An Essay on the Principle of Population where he stated his philosophy on population growth in relation to food consumption. He believed that food production increased arithmetically (2,4,6,8,10), but population tended to double every generation. Although this was not definite because every so often population would check itself. The action of checking itself could come in many different forms like war, plagues, and famine. Malthus felt that we must voluntary limit population growth by late marriage, which would lead to people having fewer children.
Malthus believed that population grew the most when food was abundant. I believe that Thomas Malthus saw overpopulation and starvation as the future of humanity. Karl Marx and Friedrich Engels were also two economists from this time, but their beliefs were very different from that of Smith and Malthus. Marx and Engels were both communists in that they believed that land and capital should be owned by the society, and the fruits of their labor would be distributed equally among all the individuals of the society. Marx knew that capitalism would have to exist as well as communism otherwise no one would survive.
Marx believed that the capitalist class would be overthrown, and that it would be eliminated by a worldwide working-class revolution and replaced by a communist society. Capitalism has evolved since its early introduction by Adam Smith and other early economists. Adam Smiths view of having a complete laissez faire society did not come true in todays world because our government is very much involved in our lives, and defiantly has a greater presence in business. Malthuss prediction also did not come completely true as we today that overpopulation is not our main problem at least in the United States.
As for Marxs and Engels philosophies they did not take off because people do not want to be limited in the amount of money they could earn. Although communism did develop in countries like Cuba and China they did not develop in the way they were supposed to. Capitalism appears to be the best form of economy right now, but who is to say what lies ahead in the future. As for now our country still remains to be growing even with an unfavorable balance of trade. Everyday new ideas and invention are created which help to impact our economy. The basis that allows for all of this growth and opportunity is capitalism.