THE CONCEPT THAT underlies capitalism, free enterprise is the economic system based on private rather than public ownership of the means of production. Investment of capital and employment of labor generate personal profit, which benefits society. According to free enterprise theorists and advocates, economies work best when left free to respond to fluctuations in supply and demand, and government intervention should be limited if not eliminated.

The theory is primarily the work of Adam Smith, who wrote The Wealth of Nations in 1776 as a reaction to the then-current philosophy of mercantilism. The profit motive that drives free enterprise has been present in virtually all economies, but its fullest expression came in the 18th century when the Industrial Revolution shifted power to merchants, bankers, and industrialists ...

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