Economic Liberalism and Capitalism: Principles and History
Economic Liberalism: Core Principles
The basic principles of economic liberalism were developed in the late eighteenth century by a group of British thinkers known as the Classical School.
- Adam Smith defended the supremacy of the individual against organized estates or groups. He considered the pursuit of self-interest as an engine for economic development.
- The personal interest of each individual ensures that each good is produced in the quantity that is demanded.
- Interests are balanced in the market by the "invisible hand," which adjusts prices through the game of supply and demand to achieve an optimal balance.
- The state should stay out of the economy and eliminate protectionist barriers that hinder economic growth.
- David Ricardo argued that labor is a commodity like any other and that wages would not rise above the minimum essential for subsistence.
- Thomas Robert Malthus pointed out that population growth would unbalance the relationship with existing resources and worsen the living standards of the majority.
Capital Markets and the Capitalist System
Capitalism is a system in which the instruments of production are privately owned and concentrated in the hands of a specific part of the population: the capitalists or bourgeoisie.
The Labor Market
The system relies on two distinct groups:
- Capitalists: Owners of the means of production who seek to maximize benefits while pursuing the lowest possible wages.
- Salaried Workers (Proletariat): Individuals who offer their labor in exchange for a salary.
Competition to win market share forces businesses to lower costs and prices by adopting more productive techniques. However, imbalances between supply and demand cause periodic economic crises. During these periods, products remain unsold, prices fall, profits decrease, and businesses close. Only large enterprises with significant resources survive by innovating, finding new products, or opening new markets.
Protectionism vs. Free Trade
Free Trade
Free trade advocates for no government intervention in international trade, allowing for the free exchange of goods based on company competitiveness. The entry of high-quality, low-cost British goods into the international market significantly affected the rest of Europe, prompting other nations to promote the growth of their own industries.
Protectionism
Protectionism involves the imposition of tariffs on foreign products to make imports less profitable. While the defense of free trade favored the most competitive nations in the industrialization process, protectionism served as a defensive mechanism for developing domestic industries.