Capialism comes literally from the reinvesting of extra capital. Though a form of it was around in the middle ages, it wasn't until the reformation that it really took off in the form we know today. As Janie mentioned, Weber's Protestant ethic and the spirit of capitalism looked at why the northern European protestant countries developed such capitalistic industrailised societies so much faster and more completely than their southern catholic neighbours. To sum up his conclusions:

Early protestants believed 'industriousness was next to Godliness' - in other words, hard work was pleasing to God, idleness was an invitation to the devil. So these pious souls wre busy toiling away like the ant in the ant and the catholic grasshopper story.
Their asectic forms of protestantism (think Calvinism, Cromwell, etc) forbade indulgence in lives vices (drinking, gambling, whoring etc., - so did Catholicism, of course, but thats' another story).
Thus their hard work and industry (in the sense of more hard work) brought them surplus income, and their beliefs forbade them from indulging themselves, so, after charity work, there was little else to do with the money but plough it back into more work and industry.
This in turn brought even more surplus cash (i.e - what wasn't needed for survival).
Previously, people had generally produced what was needed to live, now regular surpluses were being produced and re-invested. Capitalism had been born. Capitalism is partly the exponential growth of making money for its own sake. That's why this years' profits MUST be a little higher than last years' though nobody actually needs that kind of money.

The early prods came to see material success as a sign of God's favour - afterall, if you were rich, it was because you were industrious and led a sober life. This in turn led them to view the catholics' more relaxed lives with suspicion - the beginnings of the (protestant) work ethic - work and material success as a virtue in itself. Not putting in enough time in the office to be considered a 'viable' member of the human race? Thank those early protestants.

As time passed, the religious dimension was sloughed off - especially after the humanistic revolution of the Enlightement which placed 'man' at the centre of his universe rather than God. But the notions of capitalism and success as being virtues in themselves lived on and flourished, and so did money. This has helped lead to the Western world's notion that any kind of venture that doesn't lead to productivity (e.g - those Indians just sitting round doing nothing with all that real estate) is somehow a sign of backward primitiveness if not actually a sin....

Here's my favourite quote though (don't know who said it though): "War is capitalism with the gloves off"