The Creation of Capitalism

I just finished reading The Relentless Revolution; A History of Capitalism by Joyce Appleby, a well-known historian at UCLA. The book covers five centuries, so it doesn’t linger too long on any one topic. In her view, capitalism began in England with the industrial revolution, a not uncommon view, but she believes that the agricultural revolution that preceded it was the most important material factor because it reduced the number of people required to produce food. Trade was not the first stage in capitalism; this was just merchants buying low and selling high. Commerce involved too small a part of the population to create such a revolution. Capitalism began with the production of marketable goods.

Capitalism radically changed traditional society, where people were defined by their class. It transformed society by changing the laws, class structure, individual behavior and values. It changed the view of what it means to be human, although Adam Smith got it wrong. What he believed was a cause of capitalism (economic rationality) was actually an effect. Marx was also wrong in believing that coercion was necessary for the transformation, which he thought began with farsighted landlords and worked to the exclusive advantage of capitalists. What both got wrong was that they posited attitudes prior to the conversion to capitalism that people did not have, an insight of Weber. The success of capitalism would have been quite surprising to those in the process of change because resistance to change was hostile.

The success of the Dutch propelled developments in England as Brits looked across the channel and could see how wealthy the lowlanders were becoming. Although Spain and Portugal had a head start on trade, their governments maintained too much of an aristocratic disdain for work and were indifferent to the needs of merchants and artisans. The French remained entangled in feudal laws until after the revolution and their system of inheritance, which divided property amongst all sons, kept more on the land and prevented fewer from overcoming the necessities of subsistence. The English practiced primogeniture, the passing of property onto the oldest son. The English were also aided by a decrease in the power of the monarchy in the 1600's.

In England, changes in the law mirrored changes in relations to food. In traditional societies, the production of food was highly regulated by government because people were slaves to the weather, which resulted in famines, which caused political unrest. Governments needed to do what they could to deal with the famines in order to maintain control. Aspects of English law prevented the hoarding of food. It had been a felony to hold food off the market, to wait for a better price or to retail food to others.

English property law, secured centuries earlier, also changed to include intellectual property such as inventions. This allowed the extraordinary gains by natural philosophers (we would call them scientists today) in understanding physical laws to be translated into the many inventions that propelled both agricultural productivity and the creation of industry.

Corporations were initially monopolies created by the monarchy. However, in the political upheaval in England, with the diminished power of the monarchy, questions about the status of these monopolies came to be debated in parliament as many in the aristocratic class became involved in commercial activities. The model of the Dutch, where government backed commercial interests, also promoted change.

Capitalism created periods of booms of and busts. Of course, investors responded to the allure of profits during the boom. Ironically, during the bust periods, ordinary people could afford what were previously luxuries, like spices, sugar, cloth not made from wool, etc.

Economic change was bound up with social change. In traditional societies, the Bible viewed labor as both a gift and a punishment and there was a sense of awe and reverence for social arrangements (which, of course, served the interests of the clergy). Customs, not incentives, regulated the flow of tasks in society. Because people were at the mercy of the weather, they were fatalistic. Rules against usury also had to be overcome. As time went on, people became less threatened by change. Eventually, views of human nature changed to such an extent that people no longer saw themselves as prisoners of their class. This fostered notions of equality, economic freedom of the individual and individual rights.

Later, countries could adopt capitalism from the top down. But the experience of the first capitalist country was unique. In hindsight, the contingencies of a King limited by a Bill of Rights (1689) and parliament, aristocrats interested in commerce, the power of entrepreneurs, young people leaving the land and moving freely to cities and the presence and vitality of capital, allowed capitalism to occur, where in the rest of Europe change was inhibited by the fear of disorder. The social environment necessary to enable capitalists to reject the old social order was certainly not inevitable and was perhaps unlikely. This fact is often obscured by the human tendency to rationalize the past by use of simple causal constructions.

In Appleby’s view, “capitalism began when private investments drove the economy, and entrepreneurs and their supporters acquired the power to bend political and social institutions to their demands” (p. 118). The great feature of capitalism is the creation of wealth. This idea had to overcome the old mercantilist notion that wealth was a zero-sum game. It led to modern moral notions of equality and individual rights, including increased rights for women. But there are also dark sides of capitalism. Capitalism did not eliminate oppressive upper classes; it just changed how they came to power. Although slavery had existed since ancient times, capitalism made it into an industry. Prior to 1740, human population had risen and fallen and the plague had wiped out a good portion of Europe (as disease wiped out most of the “new world”). From that time on, population increased, leading to some of the problems we face today.