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Capitalism Glossary Merlin Beier & Andrew Johnston Adam Smith (1723-1790): Scottish philosopher and economist. The founder of the modern discipline of economics, and the first major proponent of capitalism. His seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), might be the most influential, single-body of work in the development of modern-day laissez-faire economics. Smith believed that free markets could regulate themselves, and that the selfish pursuit of the individual to maximize their own personal wealth (i.e. the profit incentive) would benefit society as a whole. Smith referred to this self-regulating aspect of the free market as the invisible hand (of the market).

Capitalism: A socio-economic system based on the private ownership of capital, property, and the means of production. In a capitalist system, the production of goods and services is dependent on the free market rather than on centralized government planning. A capitalist system relies on competition between different producers/businesses for the favour of consumers. Although it was mainly Adam Smith who developed the basic and original tenets of capitalism, ironically it was Karl Marx who first used the term in the modern sense of the word. Centralized Planning: Synonymous with a command economy. It is when business activities and the allocation/production of resources are determined/managed by the state rather than by the free market. Chicago School of Economics: A neoclassical school of economic thought that rejected the Keynesian economic model in favour of Monetarism. The Chicago school stresses that The free market can allocate resources more efficiently than the government. Monopolies are created by government regulation of the market place.

Deregulation of the marketplace is beneficial for the economy. Rather than trying to stimulate demand, governments should focus on maintaining the low growth rate of the money supply (in essence, Monetarism). Eleemosynary: Charitable; relating to charity. Free Enterprise: An economic system where few restrictions are placed on business. Business enterprises are free from government interference and arent burdened with copious amounts of regulation. Keynesian Economics: It is the belief that the economy, during the short run, is greatly influenced by the total amount of spending in the economy (i.e. aggregate demand). John Maynard Keynes (1883-1946) first stipulated this idea in his magnum opus The General Theory of Unemployment, Interest and Money in 1936. This theory developed as a response to the Great Depression. Keynesian economists support having a mixed economy, and advocate for the expansion of government interference in the private sector and the marketplace, especially during times of economic crisis and recession. Laissez-Faire: An economic system where the marketplace is virtually free from all forms of government interference. Examples of government interference include legal restrictions, regulations, and tariffs. In a laissez-faire economy, there is little to no government regulation put on business or free enterprise. Proponents of laissez-faire economics believe that the freer an economy is, the more prosperous. They also believe that the government should exist only to protect liberty and individual property rights. Laissez-faire is a French term that literally translates to let them do. The implied meaning would be let them do as they will or leave it alone (with they and it referring to the free market and business). Libertarian: A political philosophy that heavily emphasizes the importance of individual liberty. Libertarians believe that the promotion of personal

liberty should be the chief objective of any government or society. Libertarians believe the there should be minimal government interference in the lives of its citizens, and they feel that the only duty that the government has is to defend the natural rights of its citizens. Typically, libertarians support laissez-faire economics. They generally believe that the government should opt out of interfering with the marketplace, and that private enterprise should be left to its own devices. Macroeconomics/Microeconomics: Macroeconomics is a branch of economics that deals with the structural behaviour of the economy as a whole. It is concerned with large and important matters such as GDP, unemployment rates, inflation, and long-term monetary policy. This is in contrast to microeconomics, which is the study of individual households (consumers) and firms (businesses and producers). Milton Friedman (1912-2006): An American economist and writer who was the recipient of the 1976 Nobel Prize in Economics. A major proponent of free market enterprise, Friedman advocated for the freeing up of the market place and for the downsizing of the federal governments role in the economy. In the 1960s, Friedman developed a macroeconomic theory known as Monetarism. He was also one of the main founders of the Chicago School of Economics. He is considered to be one of the most influential (if not the most influential) economists of the 20th century. Profit Incentive: The primary desire that motivates entrepreneurs and individuals to establish/expand new businesses. It is the idea that individuals are driven by the prospect of (financial) profit to innovative and to create. Social Responsibility: The idea that businesses and companies should not be solely fixated on maximizing their personal profits as they have the civic duty to promote the collective and social good.