Development of the U.S. Free Enterprise System

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  • 0:03 Free Enterprise
  • 1:28 Roots of the System
  • 2:57 Key Developments
  • 4:48 Lesson Summary
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Lesson Transcript
Instructor: Nate Sullivan

Nate Sullivan holds a M.A. in History and a M.Ed. He is an adjunct history professor, middle school history teacher, and freelance writer.

In this lesson, we'll examine the development of the American free market economic system. We'll trace the ideological roots of this system, and we'll learn what steps were taken to implement free enterprise economics in the early American Republic.

Free Enterprise

Sometimes we take for granted how lucky we are in the United States. We don't have to wait in line for hours to purchase a television or a small kitchen appliance. When we go shopping for most items, we usually have options. Sony or Panasonic? Ford or Nissan? Nike or Reebok? We're blessed to have all kinds of options when purchasing goods and services.

Competition drives down prices and increases quality. Think for a moment: what if there was only one shoe company in the United States? They could charge an extremely high price for their shoes, construct them poorly, and people would still buy them because they would have no other choice, right? But in a free enterprise system, numerous companies produce shoes, and they each try to make a better shoe for a cheaper price than their competitors. This leaves the buyer free to purchase the shoes he or she feels is the best value for their money (and, of course, which ones look the coolest).

The prosperity and the freedom to choose what we purchase is a product of the American free enterprise system. The free enterprise system is an economic system in which the means of production are privately owned, and one in which the government or state does not exert an overdue influence. Free enterprise is also largely synonymous with the terms capitalism and free market economics. In all three terms, the idea is basically the same: companies are not owned by the state but are free to compete with other companies under a free market.

Roots of the System

For over two hundred years, the free enterprise system has served the United States, but how did it come to exist? America's Founding Fathers were extremely influenced by the Enlightenment, an 18th-century intellectual movement that emphasized reason, critical thinking, skepticism, individualism, religious tolerance, democracy, capitalism, and other themes.

In regards to economics, one of the most important thinkers of the Enlightenment was Adam Smith. Adam Smith published a very influential book called the Wealth of Nations, in which he argued that economics functioned best when it was free from government interference and regulation. He perceived an ''invisible hand'' based on laws of supply and demand and free market economics that contributed to wealth.

So it's fair to say that Adam Smith really popularized modern capitalism, and the ideological roots of American free enterprise can be traced back to him. America's founders liked his ideas and decided to implement them in their young American Republic. Of course, even before America, when our land consisted of British colonies, free enterprise was alive and well. The British largely permitted free enterprise to develop in its North American Colonies because they recognized it was the system most capable for bringing in wealth. So Americans thus developed into an individualistic people, a group that cherished their right to hold private property and keep the rewards of their hard labor. This tradition carried into the American Republic.

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