Discuss capitalism would not be complete when not discussing the ideas of Adam Smith, particularly his ideas contained in his famous book, An Inquiry Into the Nature and Causes of The Wealth of Nations. As has been explained by the quote above, Smith put the freedom, markets and individual interests as the basis for economic concept. Three key concepts that would in turn become the basis for capitalism. There are five basic principles of capitalism, namely:

1. Capitalism is the full recognition of the rights of individual property or an individual with no specific boundaries. Private property rights is the guarantee for the individual concerned to uphold freedom and independence. Individual freedom will become a reality when he justified his own to have a guaranteed without parties or other individuals sued.
2. Capitalism is a recognition of the right of individuals to conduct economic activities in order to enhance socio-economic status.
3. Capitalism implies recognition of a push or economic motivation in the form of the spirit to achieve maximum benefit (profite oriented).
4. Capitalism also includes the affirmation of freedom of competition with other individuals (freedom for competition).
5. Capitalism recognizes the legal validity of the free market economy or the market mechanism (Seda, 1996:272).

Fifth recognition is then a manifestation of the concept of Laissez-faire, Laissez-Passer which is the core of capitalism and liberalism. “Modern Industry never have evolved without any division of labor and capital accumulation both of which were based on self-interest” says Smith.

Before rolling into other problems, it helps if we first discuss the origin of the word capitalism itself.

The terms of capital or capital or Capitale (derived from the Latin: caput, which means it is the head) appears first in the 12th century and 13th century which meant funds, stocks, some money and interest on the loan. Ferdinad Braudel quotes a priest of St. sermon. Bernardino of Siena (1380-1444), “quamdam seminale quam rationem lucrosi cummuniter vocamus capitale” (that is the main cause of prosperity usually capital). These terms refer, more narrowly, the wealth of money a company or a dealer. Berger writes, nouns “capitalist” is probably began in the mid 17th century which refers to the owners of capital. Adams Smith, who had been regarded as the father of capitalism do not use this term, instead he used the term “system of natural liberty.”

Warner Sombart was the first to recognize capitalism as a fundamental concept of a system of economic thought in his book, Der Moderne Capitalismus which was published 81 years ago (1921).

In the beginning introduction, the term of capitalism is not getting good response from social science experts, including Karl Marx himself was so excited and enthusiastic about offal dismantle capitalism. The term capitalism is even considered as an expression of a “lot of noise” that needs to removed from the vocabulary of social science experts. It’s different with the current condition where the term capitalism has become a kind of “life style icon” for intellectuals. Everyone is talking about capitalism and link (sometimes visible force) with a variety of social phenomena when trying to explain the reality of what happened.

One important point in the discussion of capitalism is to figure out a fundamental characteristic of these systems, as already mentioned above, ie, maximizing individual gains through economic activities that are intended to help the public interest. The principle that applies in the laissez-faire capitalism is, that is a principle that prohibits external authority to intervene in economic affairs. The basis of this principle is thought, that if humans are given the freedom to pursue profit there will be competition with the stability of society will be maintained because there are invisible hands that govern them. Another principle of capitalism is production for profit is intended to increase the capital. With this logic of the capitalist are competing to produce goods as efficiently as possible so that capital can be accumulated and the foundation of the company is getting stronger.

In development since its inception, capitalism has several historical stages. Dillard dividing the stages into three.

The early stage of capitalism (1500-1750). Development of capitalism can not be separated from the development of clothing industry in England in medieval times that is, the wool industry. Wool industry was built on the rural-rural England. Determination of rural areas as a production center, according to Dillard, beneficial for the development of British capitalism because of conflict-avoiding social conflict as happened in Florence in the 14th century and 13th-century Flanders.

Dillard trace, during this “social surplus” obtained is not used to build pyramids and cathedrals but is used to build businesses shipping, warehousing, raw materials, finished goods and various other form of wealth. In addition three other things that support their development is, first, the religious support for their hard work and live frugally. This support comes primarily from Protestant Calvinism and the teachings of Martin Luther King. For teaching the material prosperity of medieval Catholicism is considered “something” dirty. St. Jerome said, “a rich man, if not necessarily the child thief thief”. However, the development of trade in the late Middle Ages led to controversy and encourage efforts toward adjustment between theological doctrines with economic reality. In many regions of Europe, Venice, Florence, Augsburn and others, the capitalists violate the spirit and letter of prohibitions against manipulating the flowering of money. Protestant Reformation in the 16th and 17th centuries is also accompanied by economic changes that resulted in the development of capitalism in Holland and England.
Chronological and geographical correlation between this new religion with the growth in the economy to create the impression that Protestantism has a causal significance to the emergence of modern capitalism, although not in any sense the cause of capitalism, the first existing in a broad scope and growing, but ethics Protestants became strong stimulus for the economic order. Revision or interpretation of religious doctrine not only frees the capitalist practices of the sin of greed, but even membari divine support for the way life is.

Second, the effect of precious metal from the New World on the relative distribution of income on wages, profits and rent. Gold and silver from mines in Mexico, Peru and Bolivia to increase European precious metals stocks to seven-fold and increased the prices of up to two or three times in the years 1540-1640. The result is situated on rising prices, causing the landlords hit due sebandingnya not increase rents and increase the cost of living. For the landlords that aggressive, raise rents and apply the practices of capitalistic agriculture is the solution implemented. Inflation is giving birth profits for the capitalists, including traders, industrialists and other employers. In the end, these favorable conditions add to the savings and capital accumulation for them.

Third, the role in helping countries and directly to capital formation in multi-modal forms of capital. Dillard writes that the positive contributions and historical significance of mercantilism that era is the creation of necessary conditions for rapid economic change and cumulative in Western Europe.

Condition of Europe at that time was the same as the conditions of developing countries where the state started the 20th century, cumulative process of economic development. In addition the country also needed to create conditions which could give a proper atmosphere for the operation of such economic activities, providing protection from foreign attack, providing facilities that support transportation, communications and port installations, arrange a suitable legislation for capitalist progress, the creation of domestic markets and tax free other obstacles within the limits of state and others.

Classical capitalism (1750-1914). Start the 18th century there was a shift in the development of capitalism in which the domination of trade in economic activity is replaced by the industry. The domination of capital that had been dominated by trade in capital switched to industrial capital. This is caused by the industrial revolution in England. Adam Smith in An Inquiry Into the Nature and Causes of The Wealth of Nations it is the most influential factor in the development of classical capitalism.

After the French revolution and the wars, Napoleon swept the remnants of feudalism and mercantilism loosen, Smith’s policy came into effect. Policies of laissez-faire, laissez Passer (free trade, market mechanisms, a balanced budget and strong financial using the gold standard) is run. In England this system looks at the removal of Corn Laws in 1864.

Applicability of liberalism in European countries is the successful efforts of the bourgeoisie venture capitalists raised to a position for a while very influential. Economically successful political force that eventually generate profitable capitalistic process.

The implementation of free trade in his time period of economic expansion will bring a very large for Europe, with the colonization of Asia, Africa and Latin America.

Advanced phase of capitalism (since 1914-present). In this phase of capitalism is also experiencing rapid growth in its history insanely particularly in social management.

World War I marked a turning point in the development of capitalism in general and Europe khususnya.periode since 1914 witnessed a reversal of public interest to capitalism and the reversal of almost all the tendencies of the pre-war liberals. Sebalum decades of war, capitalism, strong leadership in Europe to run the international economic community. Developing world markets, the gold standard almost become universal, Europe acting as world and European banks became central to increasing the volume of international trade.

But after World War I, the trends change, U-turn. International markets subside, the gold standard was abandoned and the national payment instruments, preferably in a controlled manner, the hegemony of European banks moved to the United States. Regarding the actual displacement of this hegemony has been predicted long ago by Adam Smith:

Starting from shop owners, merchants and their legal experts (American colonists) would become statesmen and legislators and legislators-will be employed to reach a new form of government of a vast empire, which in their beliefs – beliefs which may very true – will be one of the largest and wonderful empire which had existed on this earth.

Of peoples in Asia and Africa that have been used as the colony managed to rise against European colonialism and also added in trade barriers, more and break the European dominance in the world.

Meanwhile capitalism in Eastern Europe began to weaken due to the Bolshevik revolution driven by Lenin. Revolution has been dismantling the principal institutions of capitalist private ownership of means of production over a large area, unload the class structure, the old forms of government and the established religion. Moreover spirit generated by the Russian revolution in less than half a century, managed to appear to challenge the superiority of capitalist organization of production systems. In Western Europe and the shift by abandoning traditional forms of capitalism. Above all, Laissez-faire, the policy into an agreement to the 19th century, had been humiliated by the war and postwar experiences.

With the onset of major depression in the 1930s, the capitalist system that had stood settled, shaken up by the roots. Laissez-faire, said Dillard, suffered a severe blow from the president’s New Deal of Franklin D. Roosevelt in the United States. Gold standard collapsed completely, falling stock markets. While in England, which is the home of capitalism, free trade be abandoned. Classical principle of strong financial, annual budget was balanced, in practice and theory is replaced by a planned deficit during depressed economic activity. At the end of World War II, the glorious period of classical capitalism fade with dinasionalisasikannya basic industries, including coal, transport, communications, public interest and the Bank of England by the labor party in power in England.

malaise Passover is the beginning of the welfare-state system that put the country back on its function – although not total as in communist countries. In the welfare-state system of state run social functions for maintaining the stability of capitalism.

Form of capitalism, this type can be seen in the United States, which by Saiful Arif mentioned systems in the United States has several aspects: first, the principle of freedom (freedom) which means free enterprise and invest (free entry in consumption and investment) and limitations on government intervention as well as arrange democratic political model.

Second, the principle of balance (equality). The presence of diffusion between the political and economic power; the same bargaining power between producers and consumers as well as equal opportunity as well as efforts to create equity.

Third, the principle of justice (fairness). Represents an attempt to avoid unfair practices such as workers who do not meet the standard; host relationships and exploitative employers and others.

Fourth, the principle of welfare (welfare). To take into account the allocation and production efficiency. Welfare parameters can be known through government oversight of price stability and efforts to create a condition of employment that is full employment (labor intensive).

Fifth, the principle of sustainable growth (sustainable growth). The indication is the real income growth and technological progress.

Susan George writes, in the year 1945 or 1950, if you seriously offer any ideas and policies that are currently referred to as neo-liberalism, you will be ridiculed on the stage or sent to a psychiatric hospital. In any western countries, at that time, each person is a Keynesian, Social Democratic or Christian-Social-Democratic Party or the Marxist. The idea that markets should be released to manage the public and political policies: an idea which states that countries should voluntarily stay away from the economy, or companies should be given total freedom, that trade unions should be curbed and social guarantees society must be reduced – such ideas felt very strange to the spirit of that era. Although some people approve of these ideas, but they will not hesitate to bring it and will find it difficult to find his audience.

But after the collapse of communism in 1989, the welfare-state is becoming obsolete. Collapse of the welfare-state system has actually been started unreadable since Margaret Thatcher and Ronald Reagan to power and change the existing policy in their respective countries toward neo-liberalism that is often termed Thatcherism and Reagenisme. In the 1990s this condition is intensified with the increasing acceptance of neo-liberalism by most of the world community through the logic of globalization.