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Lecture #3 - Introduction to Capitalism
The essence and evolution of capitalism Adam Smith and Classical Capitalism
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The Essence & Evolution of Capitalism- Topics
- (1) What is the capitalist system?
- (2) The similarities between the 18th-19th century capitalism and modern
capitalism (managerial capitalism)
1. What is the capitalist system?
(a) Key institutional elements
(b) What is the critical differentia of capitalism?
Three Key Institutional Elements of Capitalism
(1) Private Property
(2) Market
(2) Firm
Capitalism is an economics system characterized by a particular combination of
these three institutions.
Private Property
● What does private property mean?
● This means that you can:
(1) enjoy your possessions in a way that you want
(2) exclude others from their use if you wish
(3) sell (or dispose) it to someone else
→examples?
● In other societies, such as a slavery system, what (or who) were private
property?
● In the socialist system, there exists a substantial restriction to owning property
privately.
, ● In a capitalist economy, what is the most important type of private
property?
● That is the machinery equipment, buildings, and other durable inputs used in
producing goods. These are called “capital goods.”
● Who owns the capital goods?
● Owned by a few individual capitalists or firms.
● There are a group of people who do not own the means of production
(capital goods), so there is only one way for them to survive, which is supplying
their labor time to capitalists.
Question
Which of the following are examples of private property in
capitalism?
(1) Computers belonging to your college
(2) Microsoft Office
(3) A farmer’s land in Soviet Russia
(4) Stock shares of a company
Market
What is the market?
Market is a means of transferring goods or services from one person to another
Characteristics of market transaction compared to theft, gift, or a
government order (?)
(1) Transactions are reciprocated
(2) Transactions are voluntary
(3) Mutually beneficial to both pirates
(4) Price mechanism
Question: Which of the following are examples of markets?
(a) Wartime food rationing
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