Capitalism

Definition

Capitalism is an economic system where private individuals or businesses own capital goods and are responsible for producing goods and services for profit. This system promotes competition, innovation, and the free market, significantly influencing various historical contexts and developments.

5 Must Know Facts For Your Next Test

1. Capitalism emerged in Europe during the late Middle Ages, gaining momentum with the Commercial Revolution as trade expanded and markets evolved.
2. The transition from feudalism to capitalism led to the rise of a merchant class that played a crucial role in the economic landscape of Europe.
3. The Industrial Revolution was a turning point for capitalism, as it introduced mass production and new technologies that transformed industries and economies.
4. Capitalism encourages competition, which can lead to innovation but also creates disparities in wealth and power within societies.
5. Key figures like Adam Smith championed capitalism by promoting the idea of the 'invisible hand,' suggesting that individual self-interest drives economic prosperity.

Review Questions

• How did capitalism influence economic practices during the Commercial Revolution?
  • During the Commercial Revolution, capitalism transformed economic practices by promoting trade expansion, leading to increased market activity and the emergence of merchant capitalism. The focus shifted from subsistence agriculture to market-oriented production, allowing merchants to accumulate wealth through trade. This shift laid the foundation for modern capitalist economies by fostering competition and encouraging innovation in trade practices.
• Discuss how the Industrial Revolution exemplified the principles of capitalism and its impact on society.
  • The Industrial Revolution exemplified capitalism by showcasing advancements in technology and mass production methods that revolutionized industries. Factories became the center of production, leading to urbanization as workers moved to cities for jobs. This shift not only increased productivity but also highlighted issues like labor exploitation and wealth inequality, prompting discussions about workers' rights and economic reforms within capitalist societies.
• Evaluate the long-term implications of capitalism on global markets and political structures from the 20th century to present day.
  • Capitalism has had profound long-term implications on global markets and political structures since the 20th century. The rise of multinational corporations and global trade networks reshaped economies worldwide, increasing interdependence among nations. Politically, capitalism has influenced democratic governance models while also fostering inequalities that have sparked movements advocating for social justice and regulatory reforms. The fluctuations between free market capitalism and state intervention highlight ongoing debates about the best balance for sustainable growth and equity in the 21st century.

Related terms

Mercantilism: An economic theory that emphasizes government regulation of a nation's economy to augment state power, often through a favorable balance of trade and accumulation of wealth.

Industrial Revolution: A period of rapid industrial growth and technological advancement that began in the late 18th century, leading to significant changes in production, transportation, and society.

Free Market: An economic system where prices are determined by unrestricted competition between privately owned businesses without significant government intervention.