such capital as factories, buildings, and railways. Capitalism is also known as free enterprise because it allows people to carry out their economic activities largely free from government control.

The Scottish economist Adam Smith first stated the principles of the capitalist system in the 1700's. Smith believed that governments should not interfere in most business affairs. He said the desire of business people to earn a profit, when regulated by competition, would work almost like an "invisible hand" to produce what consumers want. Smith's philosophy is known as laissez faire (noninterference).

Adam Smith's emphasis on individual economic freedom still forms the basis of capitalism. But the growth and complexity of modern businesses, cities, and technologies have led people to give the government more economic duties than Smith gave it.

Mixed economies involve more government control and planning than do capitalist economies. In a mixed economy, the government often owns and runs such important industries as transport, electricity, gas, and water. Most other industries may be privately owned.

Communism, in its traditional form, is based on government ownership of nearly all productive resources and government control of all important economic activity. Government planners make all decisions about producing, pricing, and distributing goods. However, in many countries where this system has been adopted, the economy has not prospered. In the mid-1980's, China began to relax its governmental control over business activity and prices. In the late 1980's and early 1990's, governments rejecting Communist principles