Glossary
Adam Smith
A Scottish economist and philosopher, widely regarded as the 'father of modern economics,' whose 1776 work *The Wealth of Nations* laid the groundwork for classical free-market capitalism.
Example:
Students studying the origins of capitalism often encounter the foundational theories of Adam Smith, particularly his arguments for free trade and the 'invisible hand.'
Consumerism
A social and economic order that encourages the acquisition of goods and services in ever-increasing amounts, often driven by advertising, mass production, and rising disposable income.
Example:
The rise of department stores and mass-produced goods in the late 19th century encouraged consumerism as people had more access to non-essential items.
Division of Labor
The specialization of workers on specific tasks in a production process, where each worker performs a small, repetitive part of the overall job, leading to increased efficiency and productivity.
Example:
In a car factory, one worker might only install tires, another the engine, and another the seats, showcasing the benefits of division of labor in manufacturing.
Free Trade
An international trade policy where governments do not restrict imports or exports through tariffs, quotas, or other barriers, aiming to promote economic efficiency and global exchange.
Example:
The signing of an agreement between two countries to eliminate all taxes on goods exchanged between them promotes free trade.
Insurance
A financial instrument where individuals or businesses pay regular premiums to a company in exchange for protection against potential financial losses from specified risks, such as fire or accident.
Example:
A factory owner might purchase insurance to protect against financial losses if a fire destroys their machinery or inventory.
Investment Trusts
Financial vehicles that pool money from multiple investors to invest in a diversified portfolio of securities, managed by professionals, offering a way for smaller investors to access broader markets.
Example:
Instead of buying individual stocks, a small investor might put their money into an investment trust to gain exposure to a wide range of companies and reduce risk.
Invisible Hand
Adam Smith's metaphor describing the unintended social benefits resulting from individuals acting in their own self-interest in a free market.
Example:
When a baker decides to produce more bread because of high demand, they are driven by profit, but their actions also ensure the community has enough food, illustrating the invisible hand at work.
Joint-Stock Banks
Financial institutions where multiple investors pool their capital by purchasing shares, allowing them to fund large-scale projects or businesses and share in the profits and risks.
Example:
To finance the construction of a new railway line across a continent, several wealthy individuals and companies might invest in a joint-stock bank to gather the necessary funds.
Laissez-faire
An economic philosophy advocating for minimal government intervention in the economy, promoting free markets, individual economic freedom, and the belief that markets will self-regulate.
Example:
The decision by a government to remove all tariffs on imported goods and allow businesses to operate without licenses exemplifies a laissez-faire economic policy.
Leisure Time
Time free from work or other duties, often used for recreation, hobbies, or relaxation, which increased for some social classes during the Industrial Age due to rising incomes and changing work patterns.
Example:
With the rise of the middle class during industrialization, people had more disposable income and leisure time to enjoy activities like attending concerts or visiting parks.
Limited Liability
A legal principle that protects shareholders from personal responsibility for a company's debts or liabilities beyond the amount of their initial investment.
Example:
If a company goes bankrupt, an investor with limited liability would only lose the money they invested in shares, not their personal assets like their home or savings.
Mercantilism
An economic theory prevalent from the 16th to 18th centuries, emphasizing government control of trade to maximize exports, accumulate wealth (especially gold and silver), and establish colonies for raw materials and markets.
Example:
A European power imposing high tariffs on imported goods to protect its domestic industries and ensure its colonies only traded with the mother country, demonstrating a mercantilist approach.
Stock Markets
Organized exchanges where shares of publicly traded companies are bought and sold, allowing businesses to raise capital and investors to trade ownership stakes.
Example:
An individual can become a part-owner of a major technology company by purchasing its shares on the stock market.
Transnational Businesses
Companies that operate and conduct business activities in multiple countries, often establishing branches, factories, or offices abroad to expand their reach and markets.
Example:
A clothing company that designs its products in Italy, manufactures them in Vietnam, and sells them globally is an example of a transnational business.
Wealth Gap
The significant disparity in assets, income, and living standards between different social classes, particularly between the rich and the poor, often exacerbated by industrialization.
Example:
During the Industrial Revolution, factory owners amassed vast fortunes while their workers lived in poverty, illustrating a stark wealth gap.