Adam Smith did not invent capitalism, nor did he invent the word. He described trade of goods and services. He also articulated the reason free choice and trustworthy participants underlies sustainability of trade. Most important, he explained in great detail the principles of efficient production by means of: Division of labor, use of tools and economic scale to reduce cost of production and total elapsed time of work. His book, The Wealth of Nationsis the world’s first economic textbook – and Smith the world’s first economist. The Wealth of Nations, published in 1776 during the Scottish Enlightenment, led to abandonment of mercantilism, the economic creed of the day. I believe Karl Marx gave capitalism its name in one of his books in mid-1800. I can’t tell you if Marx read Smith, or not, but what Marx has written does not refute Smith. What Smith wrote about trade and efficient production encompasses all business principles. Those principles of free trade are highly ethical and morally sound. If followed, they increase a nation’s standard of living and wealth; thus explaining the title of Smith’s book. As with any system dependent upon free choice and trustworthiness among its participants, it will be observed that some will violate trust or coerce participants. But where nations, companies or individuals do not act fairly, it becomes government’s role to obtain justice for well-behaved adherents. Notwithstanding this caveat, an economic system based on principles of capitalism is called “free-market capitalism.” A caveat about government is that sometimes what it desires causes interference. Tariffs, subsidies and sometimes regulation favoring only some companies in an industry destroy free trade. The study of free-market capitalism is called “economics.” The study of how government’s actions cause interference is called public choice economics.
Ludwig von Mises filled a book titled Human Actionin which he described economics as the study of human action for the purpose of benefiting one’s self. It is human action that motivates someone to buy, and also human actions’ of numerous persons to create businesses. Mises and Smith agree with each other. Behavioral economicsis mainly the study of differences among human actions that create different effects on trade, but unlike government actions, behavioral differences are a reflection of free choice.
Without capitalism, there is no subject called economics. In a communist country there is little or no public data, only data collected by the state to control production and selling. All communist countries have suffered chronic shortages due to the nature of human and communist dicta on how to control. Communism requires command and control, rather than market freedom. It is said that China instituted an experiment with state-owned farms that continually under-produced their quota. The experiment was to permit the workers to keep and sell for themselves all production above their quota. As a result, workers busted their quotas because they received an incentive to do so. The State prospered from having greater total agricultural production and the number of starving people reduced. Communism, socialism, fascism or whatever, all under achieve because there are no opportunities for people to benefit from incentives creating progress. Free choice enables individual initiative, and the ability to profit from creating more or better offerings in the marketplace. If more convincing evidence is desired, read The Road to Serfdom, by F.A. Hayek. He was an eye-witness to socialism’s takeover of capitalism in England. He was also a Nobel Memorial Prize winner in economics in 1974. England’s flirtation with socialism ended when Margaret Thatcher became Prime Minister and replaced the system with free-market capitalism. Besides England, Italy and India have similar history of returning to free-market capitalism under democratic governments.
Publiustoo.com October 24, 2019
Economic study is only applicable to Capitalism