Introduction and Background
Expanding use of (mostly) free market economies is the primary reason billions of people have been lifted out of extreme poverty. In 1820, approximately 84% of the world’s population survived on $1.90 per day per person. According to the World Bank, that was still true for 42% of world population in 1981. Today, less than 8% still suffer such extreme poverty. That’s dramatic.
The free market economic system is the most prolific creator of wealth known. It is the goose that lays the golden eggs. But incredibly, it has haters and enemies. They wish to supplant the free market system with crazy schemes such as socialism or communism – even though such systems have been tried time and time again, only to fail and cast millions into poverty, or worse.
How can the enemies of free market economies ever succeed in forcing their destructive schemes onto so many people? It is purely because of ignorance. The enemies of the free market economic system can only gain support if people do not understand how and why free markets work so well. Anyone who understands the free market economic system will immediately be able to grasp why other systems fail so colossally.
Why is ignorance of free market principle so widespread? It is not taught commonly in public schools, and when it is, it is not usually taught well because few teachers truly understand the concepts. Some of the concepts are a bit counterintuitive until the “big picture” is fully grasped.
Who invented the free market economic system? Nobody! When a community of people is predominantly free, honest and peaceful, a free market economy will automagically self-organize. It is a 100% natural thing.
Through much of history, people were not, by and large, predominantly free, honest and peaceful. Finally, the settlement of the “new world” provided a large-scale environment over an extended period of time in which a free market economy could form and flourish; and flourish it did. What was happening was not understood, but the growing uncommon prosperity attracted the attention of scholars who worked to understand it.
The first to gain an overall understanding was Scottish scholar Adam Smith, who must be regarded as the father of the science of economics. In 1776, Smith published An Inquiry into the Nature and Causes of the Wealth of Nations. (This tome is more commonly known as just “The Wealth of Nations.”) Over the ensuing decades, the science of economics was more fully fleshed out and formalized.
By this time, some students may be asking, “What about capitalism?” “What is capitalism?”
The term “capitalism” originated during the 1860’s as an alternative name for the free market economic system. Karl Marx and Friedrich Engels used the term “capitalist” (Kapitalist) in The Communist Manifesto. But “capitalism” was primarily popularized by Karl Marx in his writings Das Kapital and Theories of Surplus Value. That the term came into widespread use has enabled an avowed enemy of free market economics to stick it with a less descriptive and less appealing label.
Do not use the term “capitalism.” Instead, always say “free market economic system.” Yes, it’s more words, but it’s far more descriptive and harder to paint as an evil thing.
Take, for example, the often-heard knock, “crony capitalism.” That surely does sound like capitalism is a really sinister thing. What this actually means is that someone has hijacked government force to gain an unfair economic advantage. That has nothing whatever to do with capitalism. Cronyism would be a degradation of capitalism. A more accurate term would be, “crony statism.” If the term were instead “crony free market economic system,” it would be immediately recognizable as the oxymoron that it is!
Consequently, this is the only place in this course that you will find the term “capitalism.”