In order to understand how capitalism innovates one must analyze Adam Smith the man who laid out the foundation for capitalism. Adam Smith main concept in his book the Wealth of Nations is the “invisible hand”. The “invisible hand” is an example of innovation through capitalism, which guides the market towards equilibrium through supply and demand. What fuels the invisible hand is the competition for scarce resource such as clients who demand the product or service of the supplier. According to Adam Smith the competition for clients drives the supplier to produce a product or service of quality in order to gain clients, if not then they will be out of business. Adam Smith describes this self interest in the Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”(Smith, p.14). In the example of the butcher the supplier does not create a quality product or service to benefit society, the supplier does it out of self-interest in order to compete against the other butchers. This forces the supplier to present products of quality to the market which benefits society indirectly...
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... being an economic expert one can notice this in real life as well. A Pizza shop owner may produce average or quality pizza to the customers not because he cares for the customers but he wants to attract and retain the customers for his own survival. Therefore an individual self-interest is what indirectly manipulates the economy and causes innovation. Adam smith describes the greatness of self interest in the market in the butcher example. In a sense the markets innovation is out of our own pure greed to exploit certain markets, our greed is based on acquiring a large amount of surplus.
Innovation can appear in different forms in a capitalistic society. Whether the innovation occurs in the organization sector or the individual itself, there was a purpose behind. Capitalism has produced some of humanity greatest innovations which are still occurring to this day.
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