In primitive societies, the usual system of exchanging goods was barter system. At that time the idea of profit did not exist. People accumulated goods not for making profit during the days of scarcity but to gain prestige.
The system of trading often consisted of giving and mutual rendering of services. Economic factors such as wages, investment, interest and profit were practically unknown in preliterate societies.
During the early Middle Ages trade and commerce were little more advanced than they had been among the primitive peoples. While at first conducted largely on a barter basis, trading came gradually more and more to involve money as a medium of exchange.
This gave a fillip to the development of trade and commerce which gave importance to money, gold, silver, and tokens thereof. Money is not property, it is a symbol of property; it has a profound influence on the uses to which productive properties are put.
According to Simmel, the establishment of the institution of money in the economic system of modern western society has had far-reaching effects upon almost every phase of life.
It resulted in greater freedom for both the employer and employee, and for both seller and buyer of goods and services, since it makes for depersonalized relationship between the two parties in a transaction.
Simmel maintains that the institution of money has radically changed our whole philosophy of life. It has made us peculiarly in our attitudes, so that everything is evaluated in terms of money, and as social contacts have become depersonalized, human relations have become superficial and cold.
In the early part of the modern period, the economic activities were generally regulated by the governing powers. It was an economic reflection of the growing unification of European peoples under strong monarchical Governments.
The interest of the secular rulers lay in internal unification and this necessarily meant economic as well as political integration. The mercantilist ideology dominated the period. The economic activities of the people were politically regulated to increase the profits of the king and to fill his treasury with wealth.
The nation was looked upon by the mercantilist as an economic organization engaged in the making of profit. The ownership and use of productive properties were minutely regulated by mercantilist law.
Then came the Industrial Revolution which changed the techniques of production the policy of mercantilism also had failed to bring about the welfare of the people. To secure maximum production of usual goods the new doctrine of ‘Laissez-faire’ was propounded. The doctrine preached non-interference in economic matters.
According to this doctrine, if individuals pursue their own interest, unhampered by restriction; they will achieve the greatest happiness of the greatest number. Its advocates, Adam Smith, J.S. Mill, Spencer and Sumner contended that Government should remove all legal restrictions on trade, on production, on the exchange of wealth and on the accumulation of property. Adam Smith enunciated four principles (i) the doctrine of self interest, (ii) laissez faire policy, (iii) the theory of competition and (iv) profit motive.
Upon these principles and in response to the changing techniques of production brought about by Industrial Revolution, a new system of property ownership and ‘production’, capitalism developed. The Industrial Revolution replaced factories in place of households.
In factories the work was divided up into little pieces, each worker doing a little piece. Production increased. Large plants in course of time were set. Corporations owning large plants came into being. All these developments of mass production, division of labour, specialization, and exchange were accompanied by capitalism.
In this new system of production and exchange, the ownership of productive properties was both individualized and divested of all social responsibility. Property became private and was freed from all obligations to state, family and other institutions.
The owners of the factory were free to do as they pleased. Profit was the main motive for them. They were under no obligation to produce goods if they believed that they could not make profit.
The mode of production was profit-oriented and the Governments in adherence to the doctrine of Laissez-faire supported the owners in this right.