Conceptions of what constitutes capitalism have changed significantly over time, as well as being dependent on the political perspective and analytical approach adopted by the observer in question.
His 1776 work, An Inquiry into the Nature and Causes of the Wealth of Nations, theorized that within a given stable system of commerce and evaluation, individuals would respond to the incentive of earning more by specializing their production.
Smith argued that protecting particular producers would lead to inefficient production, and that a national hoarding of specie (i.e. cash in the form of coinage) would only increase prices, in an argument similar to that advanced by David Hume.
His systematic treatment of how the exchange of goods, or a market, would create incentives to act in the general interest, became the basis of what was then called political economy and later economics.
Much of the history of late capitalism involves what David Harvey called the "system of flexible accumulation" in which more and more things become commodities, the value of which is determined through the process of exchange rather than their use.
Many, particularly the wealthy, came to view the state as a vehicle for improving business conditions, securing markets, and gaining access to scarce materials—even when such objectives could only be achieved through military force.
A. Hobson, a British liberal writing at the time of the fierce debate concerning imperialism during the Second Boer War, observed the spectacle of the "Scramble for Africa" and emphasized changes in European social structures and attitudes as well as capital flow, though his emphasis on the latter seems to have been the most influential and provocative.
Accordingly, Wallerstein's conception of imperialism as a part of a general and gradual extension of capital investment from the center of the industrial countries to an overseas periphery coincides with Hobson's.
Wallerstein thus perceives formal empire as performing a function that was analogous to that of the mercantilist drives of the late seventeenth and eighteenth centuries in England and France; consequently, the expansion of the Industrial Revolution contributed to the emergence of an era of aggressive national rivalry, leading to the late nineteenth-century scramble for Africa and the acquisition of formal empires.
The relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century.
[3] According to de Soto, this is the process by which physical assets transform into capital, which in turn is used in many more ways and much more efficiently in the market economy.
[6] In new institutional economics and other fields focusing on public policy, economists seek to judge when and whether governmental intervention (such as taxes, welfare, and government regulation) can result in potential gains in efficiency.
Critics of market failure theory, like Ronald Coase, Harold Demsetz, and James M. Buchanan argue that government programs and policies also fall short of absolute perfection.