Free Enterprise: Freedom of private business to organize and operate for profit in a competitive system without interference by government beyond regulation necessary to protect public interest and keep the national economy in balance.
Entrepreneur: One who organizes, manages, and assumes the risks of a business or enterprise.
Capitalism: An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.
Free Market: An economy operating by free competition.
Adam Smith: Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-faire economic policies. In his first book, “The Theory of Moral Sentiments,” Smith proposed the idea of an invisible hand—the tendency of free markets to regulate themselves by means of competition, supply and demand, and self-interest.
Smith is also known for creating the concept of gross domestic product (GDP) and for his theory of compensating wage differentials. According to this theory, dangerous or undesirable jobs tend to pay higher wages as a way of attracting workers to these positions.
Smith’s most notable contribution to the field of economics was his 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations.”
Wealth of Nations: Adam Smith published “An Inquiry into the Nature and Causes of the Wealth of Nations” on March 9, 1776. More commonly known as “Wealth of Nations,” Smith described the capitalist system as superior to the mercantilist system, largely because an individual’s natural need to fulfill self-interest results in “the invisible hand” which ultimately serves a societal benefit. Combined with division of labor, this results in a symbiotic relationship which creates stability and prosperity through free markets.
The Invisible Hand: The invisible hand is a metaphor for the unseen forces that move the free market economy. Through individual self-interest and freedom of production as well as consumption, the best interest of society, as a whole, are fulfilled. The constant interplay of individual pressures on market supply and demand causes the natural movement of prices and the flow of trade.
Division of Labor: The separation of a work process into a number of tasks, with each task performed by a separate person or group of persons.
Laissez-Faire Economics: Laissez-faire is an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates as “leave alone” (literally, “let you do”), is that the less the government is involved in the economy, the better off business will be—and by extension, society as a whole. Laissez-faire economics are a key part of free market capitalism.
Alexander Hamilton: An officer in the American Revolution, co-author of the Federalist Papers, signers of the United States Constitution, and the first Secretary of the Treasury, Hamilton is considered the founder of the American free market system.
Among his accomplishments were creating a national system of public credit, instituting a central bank to serve as a hub of the banking and financial system, establishing the U.S. dollar as the national currency, and promoting the growth of securities markets in the United States.
Socialism: The opposite of capitalism and a free market society, socialism is a social and economic doctrine that calls for public rather than private ownership or control of property and natural resources. According to the socialist view, individuals do not live or work in isolation but live in cooperation with one another. Furthermore, everything that people produce is in some sense a social product, and everyone who contributes to the production of a good is entitled to a share in it. Society as a whole, therefore, should own or at least control property for the benefit of all its members.
Marxism: The political, economic, and social principles and policies advocated by Karl Marx. A theory and practice of socialism including the labor theory of value, dialectical materialism, the class struggle, and dictatorship of the proletariat until the establishment of a classless society.
Communism: Political and economic doctrine that aims to replace private property and a profit-based economy with public ownership and communal control of at least the major means of production (e.g., mines, mills, and factories) and the natural resources of a society. Communism is thus a form of socialism—a higher and more advanced form, according to its advocates. Exactly how communism differs from socialism has long been a matter of debate, but the distinction rests largely on the communists’ adherence to the revolutionary socialism of Karl Marx.
Karl Marx: Karl Marx was a philosopher, author, social theorist, and an economist. He is famous for his theories about capitalism and communism. Marx, in conjunction with Friedrich Engels, published The Communist Manifesto in 1848. Marxian economics, is not favored among modern mainstream thought. Nevertheless, Marx’s ideas have had a huge impact on societies, most prominently in communist projects such as those in the USSR, China, and Cuba.
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