Capitalism
Capitalism, also called free market economy is an economic system where the investment of capital, and production, distribution, income, and prices are determined not by government (as in a planned economy) but through the operation of a market where all decisions regarding transfer of money, goods (including capital goods), and services are voluntary rather than regulated and mandated by government.
Since the fall of communism, and the advent of information technology, capitalism is becoming increasingly widespread.
Adam Smith described the operation of capital accumulation through the productive powers of labor as such,
| “ | Whatever a person saves from his revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner. [1] | ” |
Smith goes on to describe how the productive powers of labor employed by the owner of a capital allow laborers to reproduce with a profit the value of their maintainance, over and above their own consumption, which then allows for an additional set of hands to be employed. [2] Sadly, however, most critics agree that since the advances of neo-liberalism, profits rather go to the higher class of society than to the creation of jobs.
References
- ↑ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book II, Chapter 3, Paragraph 15, Of the Accumulation of Capital, or of Productive and Unproductive Labour, First Edition 1776.
- ↑ Smith, 'Wealth of Nations, Book II, Chapter 3, Paragraph 22.