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in pre-modern world, credit was very limited

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because limited credit, few new businesses

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because few new businesses, economy didn't grow

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because economy didn't grow, lack of confidence in future

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because of lack of confidence in future, limited credit

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therefore, frozen economy

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then came the scientific revolution and the idea of progress

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if we admit our ignorance of the natural world, invest in research and development, we can improve our human condition

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increased the sum total of human production, trade, and wealth

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if you believe in progress, you believe that the size of the entire economic pie can grow, and everybody can enjoy more food, more clothes, and more wealth at the same time

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over the last 500 years, the idea of progress convinced people to put more and more trust in the future, and this trust created credit, and this credit brought real economic growth, which opened the way to give even more credit the next time around

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compared to world before the scientific revolution, today there is much more trust in the future and much more credit in the world, that governments, business corporations, and even private individuals can obtain long, low-interest loans

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the rising belief in progress and credit led to dramatic ethical and political revolutions

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in 1776 Adam Smith wrote "The Wealth of Nations"

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probably the most influential book on economics of all time

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when the owner of a factory has greater profits than what he needs, he will tend to use his profits in order to employ more and more workers

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when one man becomes richer, other people be come richer

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Adam Smith's idea that the selfish human urge to increase one's own private profits is the basis of the collective wealth and welfare of society, has been one of the most revolutionary ideas in human history

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not just from an economic perspective but even more so from a moral and ethical perspective

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what he is saying is greed is good, that egoism is altruism

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he moved humanity on from thinking of the economy as a zero-sum game, to thinking of it as a win-win situation in which my profits are your profits, and if I'm poor, then you, too, will probably be poor, but if I'm rich, then you, too, can become rich, since I can now buy something that you can sell, or I can loan you money

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Smith thus denied the traditional contradition between wealth and morality

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if Jesus said that a rich man cannot enter the Kingdom of God, Smith said that rich men are the best people in society, and are the one's creating the Kingdom of God here on earth and benefiting everybody.

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being rich, according to Adam Smith, means being a good person, rich people are the most useful and benevolent people in society, they are the ones who turn the wheels of growth to the advantage of everybody else

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the new ethical code was: profits should be reinvested in production, they shouldn't be wasted

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capitalism is called capitalism because it distinguishes between capital and wealth

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capital

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money, goods, and resources that are invested in production

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wealth

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money wasted on unproductive activities or products

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pharaohs in Ancient Egypt were not capitalists, with their wealthy, they built very expensive pyramids which were not productive in generating more capital

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a pirate that loots a chests of gold coins and buries it, is not a capitalist because he didn't invest his money

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however, a factory worker who takes some of his monthly salary and invests it in the stock market or even in his own education so he can get a new job or be more productive, is a capitalist

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in pre-modern times, people believed production was more or less constant

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the elite in the Middle Ages did not believe in the capitalist ethic, they believed in generosity and spending on things that didn't improve production: generosity, tournaments, churches, parties, wars, they very rarely reinvested their money in any kind of production

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in the modern age (after 1600), the nobility was gradually replaced by a new class

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not made up of dukes, kings and princes but managers, stock brokers, and people of the middle class

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these people are far more rich than the Medieval nobility but they are far less interested in extravagant consumption and spend a smaller percentage of their income on non-productive activities

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compared to the nobility of the past, today's elite dressed in drab suits of black and gray, far less showy, a sign that most of their wealth was going back into investments and not being lavishly displayed

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they have very little time for carnivals and banquets, most rich people today spend their day going from one business meeting to another finding out where the best place to invest their money is and what happened to their previous investments

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a common topic is: where can I invest my money: stock exchange, or buying a house, or a start-up

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medieval nobility rarely did this

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governments also spent much time determining where to invest their tax incomes, e.g. in infrastructure by building a new port so that they can tax it

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another government things that education is a better investment

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capitalism teaches that economy growth is the supreme good

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e.g. to bring justice and freedom to a place that doesn't have it, a common capitalist solution is that justice and freedom depend on economic growth and that people need to learn about free enterprise, hard work, and self-reliance

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many scientific projects are funded because they indicate a likeliness to increase production or profits

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a scientific project that does promise to improve economic growth in some way will have a difficult time finding funding in today's economy

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you won't understand the history of science if you don't take capitalism into account

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and to understand capitalism, you need to take science into account

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capitalism is founded on a belief in economic growth, and there is nothing that brings about more economic growth than scientific research and development

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capitalism is founded on a belief in perpetual economic growth, which contradicts much of what we know about the universe

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one reason this has been possible is that science continually has come up with new discoveries: new continents, the combustion engine, genetically engineered sheep

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what allows governments and banks to create new money is our trust in them that this money will be honored

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what keeps our trust alive is mostly the continue production of new technological discoveries which promise a better future