1 Capitalistic Economy

The capitalistic form of economy has its origin in the famous work of Adam Smith—Wealth of Nations (1776). Adam Smith (1723–1790), the Scottish philosopher-economist professor at the University of Glasgow, whose writings formed the basis of classical economics, had stressed certain fine ideas which were to take fancy among some of the western countries and finally capitalism took birth. He raised his voice against the heavy-handed government regulation of commerce and industry of the time which did not allow the economy to tap its full economic worth and reach the level of well- being. Stressing ‘division of labour’ and an environment of ‘laissez faire’ (non-interference by the government), he proposed that the ‘invisible hand’ of ‘market forces’ (price mechanism) will bring a state of equilibrium in the economy and a general well-being for the countrymen. For such an economy to function for public well-being, he acknowledged the need of competition in the market.

Once the USA attained independence, the ideas of Adam Smith were made part of its public policy—just one year after the Wealth of Nations was published. From here, the idea spread to other parts of Euro-America—by 1800 the economic system called ‘capitalism’ was established which was later known by different names—Private Enterprise System, Free Enterprise System or Market Economy.

The decisions of what to produce, how much to produce and at what price

to sell are taken by the market, by the private enterprises in this system, with the state having no economic role.