Written by Emin Yasul
Capitalism is an ideology based on private business and the free market. Contrary to popular myth Capitalism isn’t a political ideology, because Capitalism isn’t content with social or political issues. That’s why Capitalism is an economic ideology.
Creation History of Capitalism
Capitalism was created by Adam Smith who is known as the Father of Economy. Adam Smith is a Scottish philosopher and economist. His most popular book is Wealth of Nations. In this book he defined Capitalism. The first country to embrace Capitalism was Britain in the late 18th century. Smith was influenced by Jean-Jacques Rousseau, Francais Quesnay, and Gottfried Wilhelm Leibniz. Adam Smith died in 1790.
What is Capitalism
Some specific topics for Capitalism are private business, free market, personal property, and variety in the market. These create competition in the market and therefore high quality and lower product prices. Let me explain this loop with an example (2):
Suppose there are 6 bakeries in a town. All bakeries will compete for customers but how? They must meet customer criteria: Quality and Prices. So they will compete for the best quality and lower product prices and people of the town will have access to cheap and high-quality breads.
But if there is 1 bakery in a town this bakery can produce low-quality and expensive bread because townspeople are obliged to buy this bread. We can see the influence of monopoly and competition with this example.
One of private business and the free market’s influence is new sectors. A person who has enough capital can start a new sector but the state can’t. The state can’t take risks because the money in the hands of the state is the people's taxes, that is, the people's money. On the contrary, an owner of enough capital can take risks.
Capitalism has a solution for unemployment too. Let me explain this solution with an example about the production of needles. In this example, producing 1 part of the needle takes 1 minute(3).
If you assign 1 worker to make the entire needle, that is the head, body, and packaging parts, the production time of the needle will take 3 minutes(3).
But if you assign 1 worker to make the head part of a needle, 1 worker to make the body part, and 1 worker to make the packaging part, the production time of 1 needle will only take 1 minute(3).
This solution is not only for unemployment. Because the quality difference between the needle made by 1 worker and the needle made by 3 workers is large. The needle made by 3 workers is 3 times higher quality than the needle made by 1 worker(3).
Thanks to this solution, customers can access high-quality products, the unemployment rate in the country decreases and the production time of 1 product is reduced(3).
Capitalism in Recent History
Capitalism was the power that was used against the Warsaw Pact (Soviet Union, People's Republic of China, and countries that were influenced by the Soviets, Communism, or Socialism) during the Cold War. Capitalism was the main ideology of Western Block (United States of America, United Kingdom, and countries that were influenced by the United States of America, United Kingdom, Liberalism or Capitalism), in other words, NATO and NATO’s allies. In 1991 after the Dissolution of the Soviet Union, capitalism was in its golden age. It maintained its influence and place in the world even after the Cold War. The biggest example of this is China's transition to a capitalist economy, albeit slowly(1).
Still, Capitalism is not secure today because there are some dangers to Capitalism like Social Liberalism. Social Liberalism is a mixture of 2 opposing ideologies named Liberalism and Socialism. Original Social Liberalism is not a danger to Capitalism but today's implementation of Social Liberalism is based on leftist ideas. Social Liberalism is rising in Europe and North America which continents are the base of Capitalism. For instance Olaf Scholz in Germany, Jonas Gahr Støre in Norway, and Pedro Sánchez in Spain (1).
References:
Peter J. Boettke, & Robert L. Heilbroner. (1998, July 20). Capitalism | Definition, characteristics, history, & criticism. Encyclopedia Britannica. https://www.britannica.com/money/topic/capitalism
What is capitalism? Definition of capitalism, capitalism meaning. (n.d.). The Economic Times. https://economictimes.indiatimes.com/definition/capitalism
3. SMITH, A. (2000). The wealth of nations. Adam Smith.
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