Capitalism Also Called Free Market Economy

7/29/2019 Capitalism Also Called Free Market Economy

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capitalism also calledfree market economy

, orfree enterprise economy

Main

economic system, dominant in the Western world since the breakup of

feudalism, in which most of the means of production are privately owned and

production is guided and income distributed largely through the operation of markets.

A brief treatment of capitalism follows. For full treatment,seeeconomic systems:

Market systems.

Although the continuous development of capitalism as a system dates only from the

16th century, antecedents of capitalist institutions existed in the ancient world, and

flourishing pockets of capitalism were present during the later European Middle Ages.

The development of capitalism was spearheaded by the growth of the English cloth

industry during the 16th, 17th, and 18th centuries. The feature of this development that

distinguished capitalism from previous systems was the use of the excess of production

over consumption to enlarge productive capacity rather than to invest in economically

unproductive enterprises, such as pyramids and cathedrals. This characteristic was

encouraged by several historical events.

In the ethic encouraged by the Protestant Reformation of the 16th century, traditional

disdain for acquisitive effort was diminished, while hard work and frugality were given

a stronger religious sanction. Economic inequality was justified on the grounds that the

wealthy were also the virtuous.

Another contributing factor was the increase in Europes supply of precious metals and

the resulting inflation in prices. Wages did not rise as fast as prices in this period, andthe main beneficiaries of the inflation were the capitalists. The early capitalists (1500

1750) also enjoyed the benefits of the rise of strong national states during the

mercantilist era. The policies of national power followed by these states succeeded in

providing the basic social conditions, such as uniform monetary systems and legalcodes, necessary for economic development and eventually made possible the shift from

public to private initiative.

Beginning in the 18th century in England, the focus of capitalistdevelopment shifted from commerce to industry. The steady capital accumulation of the
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preceding centuries was invested in the practicalapplication of technical knowledgeduring the Industrial Revolution. The ideology of classical capitalism was expressed in

Adam SmithsInquiry into the Nature and Causes of the Wealth of Nations (1776),

which recommended leaving economic decisions to the free play of self-regulating

market forces. After the French Revolution and the Napoleonic Wars had swept the

remnants of feudalism into oblivion, Smiths policies were increasingly put intopractice. The policies of 19th-century political liberalism included free trade, sound

money (the gold standard), balanced budgets, and minimum levels of poor relief.

World War I marked a turning point in the development of capitalism. After the war,

international markets shrank, the gold standard was abandoned in favour of managed

national currencies, banking hegemony passed from Europe to the United States, and

trade barriers multiplied. The Great Depression of the 1930s brought the policy of

laissez-faire (noninterference by the state in economic matters) to an end in most

countries and for a time cast doubt on the capitalist system as a whole. The performance

of capitalism since World War II in the United States, the United Kingdom, West

Germany, and Japan, however, has given evidence of its continued vitality.

Related Links

Aspects of this topic are discussed in the following places at Britannica.

Assorted References

major treatment ( in economic systems: Market systems )

development

Argentina under Videla ( in Videla, Jorge Rafal )

early modern Europe ( in Europe, history of: Economy and society; in Europe,

history of: Landlords and peasants )

18th century Europe ( in Europe, history of: Innovation and development )

Latin America ( in Latin America, history of: Capitalism and social transitions )

mercantilism ( in mercantilism )

modern society ( in modernization: The West and the world )

Netherlands, The ( in Low Countries, history of: Economic structure )

Russia ( in Russia: Economy; in Russia: Economic and social development )

South America ( in South America: The economy )

Sweden ( in Sweden: Principal reforms )

urban culture ( in urban culture: Urban cultures since the capitalist world

system )

economic system

business cycles ( in economic growth: Role of the entrepreneur)

market ( in economics: The unintended effects of markets)

labour
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alienation ( in alienation )

trade unions ( in organized labour: Origins in Britain; in organized labour:

Origins of craft unionism )

work and employment ( in work; in industrial relations: The United States )

religion

comparative studies ( in religion, study of: Comparative studies )

John Paul II ( in John Paul II: First year of travels )

Protestant ethic ( in Europe, history of: Political and cultural influences on the

economy )

Roman Catholicism ( in Roman Catholicism: Economic views and practice )

theorists

Hayek( in Hayek, F.A.: The critique of socialism and the defense of classical

liberal institutions )

Lenin ( in Lenin, Vladimir Ilich: Formation of a revolutionary party )

Marx ( in Kapital, Das )

Smith ( in classical economics; in Smith, Adam: The Wealth of Nations )

Weber ( in Weber, Max )

theory

anarchism ( in anarchism: Revolutionary syndicalism )

Chinese criminology ( in crime: Theories of causation )

communism ( in communism: Critique of capitalism; in economic planning:The nature of economic planning)

criminology ( in criminology: Sociological theories )

economics ( in price system: The basic functions of economic systems)

imperialism ( in colonialism, Western: Historiographical debate)

land reform ( in land reform: Political and social objectives )

liberalism ( in liberalism: Problems of free-market economies )

libertarianism ( in libertarianism: Free markets )

Marxism ( in Marxism: Historical materialism; in Marxism: Marxism in the

West; in political philosophy: Anarchism and utopianism )

19th-century social science ( in social science: Economics )

philosophical anthropology ( in philosophical anthropology: The 19th century ) social class ( in social class )

social democracy ( in social democracy )

socialism ( in socialism )

war finance ( in defense economics: Settling on a standard )

warfare ( in war: Socialist analyses )

External Web sites

Student Encyclopdia Britannica articles specifically written for elementary and high

school students.
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229627http://www.britannica.com/EBchecked/topic/287069/industrial-relations/66889/The-United-States#ref539983http://www.britannica.com/EBchecked/topic/497151/study-of-religion/38063/Comparative-studies#ref420352http://www.britannica.com/EBchecked/topic/305139/John-Paul-II/214819/First-year-of-travels#ref709525http://www.britannica.com/EBchecked/topic/195896/history-of-Europe/58341/Political-and-cultural-influences-on-the-economy#ref310441http://www.britannica.com/EBchecked/topic/195896/history-of-Europe/58341/Political-and-cultural-influences-on-the-economy#ref310441http://www.britannica.com/EBchecked/topic/507284/Roman-Catholicism/43707/Economic-views-and-practice#ref479335http://www.britannica.com/EBchecked/topic/257751/FA-Hayek/236427/The-critique-of-socialism-and-the-defense-of-classical-liberal-institutions#ref834297http://www.britannica.com/EBchecked/topic/257751/FA-Hayek/236427/The-critique-of-socialism-and-the-defense-of-classical-liberal-institutions#ref834297http://www.britannica.com/EBchecked/topic/335881/Vladimir-Ilich-Lenin/60987/Formation-of-a-revolutionary-party#ref360200http://www.britannica.com/EBchecked/topic/311741/Das-Kapital#ref22984http://www.britannica.com/EBchecked/topic/120200/classical-economics#ref220358http://www.britannica.com/EBchecked/topic/549630/Adam-Smith/24187/The-Wealth-of-Nations#ref388297http://www.britannica.com/EBchecked/topic/638565/Max-Weber#ref58594http://www.britannica.com/EBchecked/topic/22753/anarchism/66524/Revolutionary-syndicalism#ref750486http://www.britannica.com/EBchecked/topic/142953/crime/53431/Theories-of-causation#ref932046http://www.britannica.com/EBchecked/topic/129104/communism/276326/Critique-of-capitalism#ref990812http://www.britannica.com/EBchecked/topic/178458/economic-planning/30555/The-nature-of-economic-planning#ref209481http://www.britannica.com/EBchecked/topic/178458/economic-planning/30555/The-nature-of-economic-planning#ref209481http://www.britannica.com/EBchecked/topic/143163/criminology/272204/Sociological-theories#ref952143http://www.britannica.com/EBchecked/topic/475822/price-system/34137/The-basic-functions-of-economic-systems#ref212556http://www.britannica.com/EBchecked/topic/126237/colonialism-Western/25919/Historiographical-debate#ref311526http://www.britannica.com/EBchecked/topic/329193/land-reform/13981/Political-and-social-objectives#ref170023http://www.britannica.com/EBchecked/topic/339173/liberalism/237347/Modern-liberalism#ref842108http://www.britannica.com/EBchecked/topic/339321/libertarianism/234235/Free-markets#ref799943http://www.britannica.com/EBchecked/topic/367344/Marxism/35144/Historical-materialism#ref411965http://www.britannica.com/EBchecked/topic/367344/Marxism/35162/Marxism-in-the-West#ref412058http://www.britannica.com/EBchecked/topic/367344/Marxism/35162/Marxism-in-the-West#ref412058http://www.britannica.com/EBchecked/topic/467661/political-philosophy/10243/Anarchism-and-utopianism#ref366818http://www.britannica.com/EBchecked/topic/551385/social-science/38923/Economics#ref423667http://www.britannica.com/EBchecked/topic/456743/philosophical-anthropology/15064/The-19th-century#ref365463http://www.britannica.com/EBchecked/topic/550940/social-class#ref55313http://www.britannica.com/EBchecked/topic/551073/social-democracy#ref17221http://www.britannica.com/EBchecked/topic/551569/socialism#ref538836http://www.britannica.com/EBchecked/topic/155696/defense-economics/53495/Comparing-burdens#ref510933http://www.britannica.com/EBchecked/topic/635532/war/53517/Socialist-analyses#ref511716


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capitalism

capitalism

This topic is discussed at the following external Web sites.

World Civilizations - The European Enlightment Glossary

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Capitalism Also Called Free Market Economy