I.

Introduction

Capitalism, economic system in which private individuals and business firms carry on the production and exchange of goods and services through a complex network of prices and markets. Although rooted in antiquity, capitalism is primarily European in its origins; it evolved through a number of stages, reaching its zenith in the 19th century. From Europe, and especially from England, capitalism spread throughout the world, largely unchallenged as the dominant economic and social system until World War I ushered in modern Communism (or Marxism) as a vigorous and hostile competing system.

The term capitalism was first introduced in the mid-19th century by Karl Marx, the founder of Communism. Free enterprise system and free market economy are terms also frequently employed to describe modern non-Communist economies. Sometimes the term mixed economy is used to designate the kind of economic system most often found in developed nations.

The individual who comes closest to being the originator of contemporary capitalism is the Scottish philosopher Adam Smith, who first set forth the essential economic principles that undergird this system. In his classic An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith sought to show how it was possible to pursue private gain in ways that would further not just the interests of the individual but those of society as a whole. Society's interests are met by maximum production of the things that people want. In a now famous phrase, Smith said that the combination of self-interest, private property, and competition among sellers in markets will lead producers “as by an invisible hand” to an end that they did not intend, namely, the well-being of society.