How it came around
The earliest forms of capitalism—which we call "mercantilism"—originate in Rome, the Middle East, and the early Middle Ages. Unlike capitalism, which revolves around production, mercantilism revolves around trade. The core of mercantilism is the simple practice of selling something for more than you paid for it. It's based on the concept of profit, and it grew out of man's mobility.
In the 5th century, the decline of the Roman Empire also meant the decline of widespread mercantilism in Europe. But mercantilism continued to thrive throughout Arabia. The rapid spread of Islam in the 700s brought the practice of mercantilism to Africa, Asia and parts of southern Europe. From Spain and Portugal, mercantilism spread to the rest of Europe, which resumed its mercantile economic system by the 14th century. Over the next 500 years, mercantilism became what we now call capitalism.
Capitalism is based on the same principle as mercantilism: the large-scale realization of a profit by acquiring goods for lower prices than one sells them. But capitalism as a practice is characterized by the following:
Today, the economies of nations that are typically referred to as capitalist are in fact mixed economies -- they incorporate certain aspects of capitalism and certain aspects of planed economies. In pure capitalism, things like child labor laws, Social Security, anti-discriminatory hiring practices and a minimum wage have no place. Capitalism rejects all government intervention in economic matters.
The basis of capitalism is individualism.
Capitalism's key early thinker, Scottish political economist Adam Smith suggested two concepts that ultimately became the basis of capitalism:
• Because self-interest guides producers to create exactly what people want, the pursuit of personal gain eventually benefits society.
• An economy has a natural design. Left to its own devices -- and removed from politics, religion and all other pursuits...