Capitalism in Economics

Today's system of capitalism came out of many parts of economic systems over the past few centuries. In the Middle Ages, manorialism was a system where nobles who owned land granted to peasants the chance to work their lands in return for a fixed payment. Improvements in technology and agriculture were very important developments. These led to population growth and eventually to increased trading as well. People started to put money into new businesses to make profits. The power of landowners declined, and the power and influence of merchants rose.

During the Renaissance, the banking families' growth and power (like that of the Medicis of Florence) let monarchs and other rulers who supported trade and development of new businesses borrow money. Mercantilism defined how much power a nation had in terms of its supply of silver and gold. The Europeans thought that a nation could grow more powerful by gaining wealth. Through trade and the establishment of colonies, this was accomplished and further provided a source of reliable raw materials.

Adam Smith defined the factors of production as land, labor and capital. He also said that the economy was made up of individual transactions, and buyers and sellers were looking out for their own self-interest, which was the driving force of every economy. Smith posed the idea of competition as well, and the "Invisible Hand" theory which dealt with competition, self-interest and protecting the consumer from government intervention.

Karl Marx also had some important views. He said that history is a struggle between the oppressors (capitalists) who own the factors of production, and the oppressed (laborers). As trade and prosperity increased, the merchant class became more powerful and took power away from the nobles.