Economic Systems: Factors and Historical Development

Factors that Influence Economic System

• The type of economic system adopted by a country is influenced by multiple factors.

Historical and Ideological Background

• Mercantilism (16th to 18th century) was an early form of capitalism where the economy was largely controlled by the state, and wealth was accumulated through trade and colonization.
• The Industrial Revolution (18th to 19th century) laid the groundwork for free-market economic theory.
• Adam Smith, known as the "father of economics," proposed the idea of the "invisible hand" in his work "The Wealth of Nations" (1776), where individual self-interest indirectly promotes the good of society.
• David Ricardo's principle of comparative advantage explained how trade can benefit all parties, even when some are more efficient in the production of all goods.
• Monopoly Capitalism (late 19th century to early 20th century) led to increased wealth inequality, with companies consolidating and monopolizing industries.
• Finance capitalism emerged during this period, with investment and banking activities playing a major role in the economy.
• Keynesian economics (mid-20th century) advocated for state intervention in the economy to achieve full employment and economic stability, as promoted by John Maynard Keynes in his work "The General Theory of Employment, Interest and Money" (1936).
• Neoliberal Capitalism (late 20th century to present) promoted deregulation, privatization, and free markets, led by key figures Friedrich Hayek and Milton Friedman, and influenced by their works such as "The Road to Serfdom" (1944), "Capitalism and Freedom" (1962), and "Free to Choose" (1980).