Economic Concept of Capitalism

The economic concept of "capitalism" as theorized today is a relatively recent phenomenon in the history of humankind, dating back little more than two centuries to the 1776 publication of Adam Smith's The Wealth of Nations. Capitalism as expounded by Smith carries within it ideals of "free trade," free market" and "market freedom" that explicitly place the capitalist economist's faith in the individual and business, rather than in government and regulation (Lekachman and Van Loon 42-43). Conversely, policies and theories relating to government control over an economy predate capitalism by a considerable period of time; perhaps the monarch Croesus (d. 546 B.C.), seeking to standardize Lydian trade by stamping his image on all coinage in his realm, represented best the ancient world's government concern with the economic health of its peoples. It has been the 20th Century dilemma to decide which approach is the more efficacious economic policy: free market, "laissez-faire" capitalism or interventionist, government regulation? It is a question whose answers vary with the nation, the decade and the political system.

Economic theory can never be totally divorced from political consideration. Smith's advocacy of free market capitalism was an analysis of the changing British economy as a result of the Industrial Revolution; it was also a call for reform of the prevailing "mercantilist" economic policies of the British Crown and Parliamentary government (McKay, Hill and Buck

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market - capitalists will correct their practices and products in response to the demands of the marketplace - and Smith, viewing the contemporary mercantilist status quo of his times, saw interventionist government as the nemesis of his ideals (Heilbroner 73). The United States of America, new and unfettered by the past, became the primary testing ground for capitalist policy during the 1800s; western Europe followed a close second, but the conflicting pulls of Bonapartist wars, traditions of class and institution, and nascent socialism never allowed the possibility for anything approaching "pure" capitalist policies to be enacted. How, then, did a free market in the wilderness nation fare? Ironically, it soon developed that Smith had underestimated both the vitality of capitalist expansion - and the cancerlike grip of "special interests" seeking to undermine free market equities once they had achieved a modicum of advantage over their competitors. The vitality of capitalism existed on two planes: the pragmatic and the emotional. Pragmatically speaking, because the young nation-builders had few restrictions impeding them, experiments in development outran the more-developed, more-government controlled European economies.

Category: Economics - E