History of capitalism

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• Emergence of early capitalism
• Capitalism in the nineteenth century
• Capitalism in the twentieth century
• Capitalism in the twenty-first century

Capitalism originated from Western Europe.

Many economic historians regard the Netherlands as the first thoroughly capitalist country in the world. In early modern Europe it featured the wealthiest trading city (Amsterdam) and the first full-time stock exchange. The inventiveness of the traders led to insurance and retirement funds as well as such less benign phenomena as the boom-bust cycle, the world's first asset-inflation bubble, the tulip mania of 1636-1637, and according to Murray Sayle, the world's first bear raider - Isaac le Maire, who forced prices down by dumping stock and then buying it back at a discount ("Japan Goes Dutch", London Review of Books [April 5, 2001]: 3-7).

Over the course of the past five hundred years, capital has been accumulated by a variety of different methods, in a variety of scales, and associated with a great deal of variation in the concentration of economic power and wealth.^[1] Much of the history of the past five hundred years is concerned with the development of capitalism in its various forms, its condemnation and defense, and its rejection, particularly by socialists.

[edit] Merchant capitalism and mercantilism

Main article: Mercantilism

A painting of a French seaport from 1638, at the height of mercantilism.

The earliest stages of modern capitalism, arising in the period between the 16th and 18th centuries, are commonly described as merchant capitalism and mercantilism.^[2][3] This period was associated with geographic discoveries by merchant overseas traders, especially from England and the Low Countries; the European colonization of the Americas; and the rapid growth in overseas trade. Referring to this period in the Communist Manifesto, Marx wrote:

The discovery of America, the rounding of the Cape, opened up fresh ground for the rising bourgeoisie. The East-Indian and Chinese markets, the colonisation of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry, an impulse never before known, and thereby, to the revolutionary element in the tottering feudal society, a rapid development." [2]

Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods.^[4] Noting the various pre-capitalist features of mercantilism, Karl Polanyi argued that capitalism did not emerge until the establishment of free trade in Britain in the 1830s.

Under mercantilism, European merchants, backed by state controls, subsidies, and monopolies, made most of their profits from the buying and selling of goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balanacing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices..." ^[5] Similar practices of economic regimentatation had begun earlier in the medieval towns. However, under mercantilism, given the contemporaneous rise of the absolutism, the state superseded the local guilds as the regulator of the economy.

Among the major tenets of mercantilist theory was bullionism, a doctrine stressing the importance of accumulating precious metals. Mercantilists argued that a state should export more goods than it imported so that foreigners would have to pay the difference in precious metals. Mercantilists asserted that only raw materials that could not be extracted at home should be imported; and promoted government subsides, such as the granting of monopolies and protective tariffs, were necessary to encourage home production of manufactured goods.

Proponents of mercantilism emphasized state power and overseas conquest as the principal aim of economic policy. If a state could not supply its own raw materials, according to the mercantilists, it should acquire colonies from which they could be extracted. Colonies constituted not only sources of supply for raw materials but also markets for finished products. Because it was not in the interests of the state to allow competition, held the mercantilists, colonies should be prevented from engaging in manufacturing and trading with foreign powers.

[edit] Industrial capitalism and laissez-faire

Gustave Doré's 19th century engraving depicted the dirty, overcrowded slums where the industrial workers of London lived.

Mercantilism declined in Great Britain in the mid-18th century, when a new group of economic theorists, led by Adam Smith, challenged fundamental mercantilist doctrines as the belief that the amount of the world's wealth remained constant and that a state could only increase its wealth at the expense of another state. However, in more undeveloped economies, such as Prussia and Russia, with their much younger manufacturing bases, mercantilism continued to find favor after other states had turned to newer doctrines.

The mid-18th century gave rise to industrial capitalism, made possible by the accumulation of vast amounts of capital under the merchant phase of capitalism and its investment in machinery. Industrial capitalism, which Marx dated from the last third of the 18th century, marked the development of the factory system of manufacturing, characterized by a complex division of labor between and within work process and the routinization of work tasks; and finally established the global domination of the capitalist mode of production.^[6]

During the resulting Industrial Revolution, the industrialist replaced the merchant as a dominant actor in the capitalist system and effected the decline of the traditional handicraft skills of artisans, guilds, and journeymen. Also during this period, capitalism marked the transformation of relations between the British landowning gentry and peasants, giving rise to the production of cash crops for the market rather than for subsistence on a feudal manor. The surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture.

The rise of industrial capitalism was also associated with the decline of mercantilism. Mid- to late-nineteenth-century Britain is widely regarded as the classic case of laissez-faire capitalism.^[7] Laissez-faire gained favor over mercantilism in Britain in the 1840s with the repeal of the Corn Laws and the Navigation Acts. In line with the teachings of the classical political economists, led by Adam Smith and David Ricardo, Britain embraced liberalism, encouraging competition and the development of a market economy.

[edit] Finance capitalism and monopoly capitalism

In the late 19th century, the control and direction of large areas of industry came into the hands of financiers. This period has been defined as "finance capitalism" characterized by the subordination of process of production to the accumulation of money profits in a financial system. ^[8] Major features of capitalism in this period included the establishment of huge industrial cartels or monopolies; the ownership and management of industry by financiers divorced from the production process; and the development of a complex system of banking, an equity market, and corporate holdings of capital through stock ownership. Increasingly, large industries and land became the subject of profit and loss by financial speculators.

Late 19th and early 20th century capitalism has also been described as an era of "monopoly capitalism," marked by government's movement from laissez-faire capitalism and competitive markets to the concentration of capital into large monopolistic or oligopolistic holdings by banks and financiers, and characterized by the growth of large corporations and a division of labor separating shareholders, owners, and managers.^[9]

By the last quarter of the 19th century, the emergence of large industrial trusts had provoked legislation in the U.S. to reduce the monopolistic tendencies of the period. Gradually, the U.S. federal government played a larger and larger role in passing antitrust laws and regulation of industrial standards for key industries of special public concern.

By the end of the 19th century, economic depressions and boom and bust business cycles had become a recurring problem. In particular, the Long Depression of the 1870s and 1880s and the Great Depression of the 1930s affected almost the entire capitalist world, and generated discussion about capitalism long-term survival prospects. During the Great Depression of the 1930s, Marxist commentators often posited the possibility of capitalism's decline or demise, often in contrast to the ability of the Soviet Union to avoid suffering the effects of the global depression.^[10]

[edit] Capitalism following the Great Depression

The economic recovery of the world's leading capitalist economies in the period following the end of the Great Depression and the Second World War—a period of unusually rapid growth by historical standards—eased discussion of capitalism's eventual decline or demise.^[11]

In the period following the global depression of the 1930s, the state played an increasingly prominent role in the capitalistic system throughout much of the world. In 1929, for example, total U.S. government expenditures (federal, state, and local) amounted to less than one-tenth of GNP; from the 1970s they amounted to around one-third.^[12] Similar increases were seen in all industrialized capitalist economies, some of which, such as France, have reached even higher ratios of government expenditures to GNP than the United States. These economies have since been widely described as "mixed economies."

During the postwar boom, a broad array of new analytical tools in the social sciences were developed to explain the social and economic trends of the period, including the concepts of post-industrial society and welfare statism. ^[13] The phase of capitalism from the beginning of the postwar period through the 1970s has also been variously described as "state capitalism" by Maxist and non-Marxist commentators alike.

The long postwar boom ended in the 1970s, amid the economic crises experienced following the 1973 oil crisis. The "stagflation" of the 1970s led many economic commentators politicians to embrace neoliberal policy prescriptions inspired by the laissez-faire capitalism and classical liberalism of the 19th century, particularly under the influence of Friedrich Hayek and Milton Friedman. In particular, monetarism, a theoretical alternative to Keynesianism that is more compatible with laissez-faire, gained increasing support in the capitalist world, especially under leadership of Ronald Reagan in the U.S. and Margaret Thatcher in the UK in the 1980s.

[edit] Globalization

The New York Stock Exchange

Although overseas trade has been associated with the development of capitalism for over five hundred years, some thinkers argue that a number of trends associated with globalization have acted to increase the mobility of people and capital since the last quarter of the 20th century, combining to circumscribe the room to maneuver of states in choosing non-capitalist models of development. Today, these trends have bolstered the argument that capitalism should now be viewed as a truly world system (Burnham). However, other thinkers argue that globalization, even in its quantitative degree, is no greater now than during earlier periods of capitalist trade.^[14]

After the abandonment of the Bretton Woods system and the strict state control of foregin exchange rates, the total value of transactions in foreign exchange was estimated to be at least twenty times greater than that of all foreign movements of goods and services (EB). The internationalization of finance, which some see as beyond the reach of state control, combined with the growing ease with which large corporations have been able to relocate their operations to low-wage states, has posed the question of the 'eclipse' of state sovereignty, arising from the growing 'globalization' of capital.^[15]

Economic growth in the last half-century has been relatively strong. Life expectancy has almost doubled in the developing world since the postwar years,^{[dubious — see talk page]} and is starting to close the gap on the developed world where the improvement has been smaller. Infant mortality has decreased in every developing region of the world.^[16] Income inequality for the world as a whole is diminishing.^[17] Many other variables such as per capita food supplies, literacy, child labor, and access to clean water have also improved.^[specify]

[edit] Footnotes

1. ^ Scott (2005)
2. ^ Burnham (2003)
3. ^ Encyclopædia Britannica (2006)
4. ^ Scott (2005)
5. ^ Quoted in Sir George Clark, The Seventeenth Century (New York: Oxford University Pres, 1961), p. 24.
6. ^ Burnham (2003)
7. ^ Burnham (2003)
8. ^ Scott (2005)
9. ^ Scott (2005)
10. ^ Stanley L. Engerman "Capitalism" The Oxford Companion to United States History. Paul S. Boyer, ed. Oxford University Press 2001. Oxford Reference Online. Oxford University Press.
11. ^ Engerman (2001)
12. ^ Encyclopædia Britannica (2006)
13. ^ Burnham (2003)
14. ^ Doug Henwood is an economists who has argued that the heyday of globalization was during the mid-19th century. For example, he writes in What Is Globalization Anyway?:

    Not only is the novelty of "globalization" exaggerated, so is its extent. Capital flows were freer, and foreign holdings by British investors far larger, 100 years ago than anything we see today. Images of multinational corporations shuttling raw materials and parts around the world, as if the whole globe were an assembly line, are grossly overblown, accounting for only about a tenth of U.S. trade.[1]

    (See also Henwood, Doug (October 1, 2003). After the New Economy. New Press. ISBN 1-56584-770-9. )
15. ^ For an assessment of this question, see Peter Evans, "The Eclipse of the State? Reflections on Stateness in an Era of Globalization," World Politics, 50, 1 (October 1997): 62-87.
16. ^ Guy Pfefferman, “The Eight Losers of Globalization”
17. ^ David Brooks, “Good News about Poverty”