Over the 18th century, some people began to reject the principles of mercantilism. In 1776 Scottish economist Adam Smith published his famous written work commonly called “Wealth of Nations”. Smith challenged the idea that the government should control the economy. He proposed the idea of free trade and competition with a lesser role for the government. His ideas formed the foundation for the principles of capitalism. Capitalism is an economic system that supports the idea of free trade and choice as a means of achieving prosperity.
Capitalism caused the Industrial Revolution because industrialization required labor and investment from individuals, not necessarily the government. For example, in Britain wealthy entrepreneurs were motivated to use their wealth to create factories and mines in order to earn a profit. The individualistic principles of capitalism helped create the expansion of industrialization, which eventually spread worldwide.
Capitalism was also a central component of classical liberalism in the societies of the Industrial Revolution. This ideology was based on economic individualism and the principles of economic freedom, private ownership, competition, self-interest, and self-reliance. In general, all these principles called for little or no government economic intervention and as much economic liberty for individuals as possible. Classical liberalism shifted European society from mercantilism to capitalism.
Laissez-faire capitalism is also referred to as free market capitalism or market capitalism. Laissez-faire in French means ‘leave us alone’—the government should remain out of the economy and instead allow individuals to freely carry out their own economic affairs. England during the Industrial Revolution is an example of a classical liberal society. The development of capitalism as an economic system rejected the idea of government control of the economy, focusing instead on individuals.
Source: Economics in the Industrial Revolution
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