CyberJournal ~ Richard K Moore
www.cyberjournal.org
* excerpts and postings from www.cyberjournal.org

 
 



The birth of capitalism


The story of capitalism begins in the late 1700s in Scotland and northern England, with the birth of the Industrial Revolution.  Several particular ingredients came together there, which collectively launched the world onto its current path. One of those ingredients was an impressive series of mechanical inventions (e.g., the steam engine), leading to a multifold increase in the rate and scale of manufacture. Another ingredient was the nature of the British economy - which had for some time been organized around specialization and trade. 

Different regions of Britain had specialized in the production of different kinds of goods, first for the London market  and later - as the British Empire expanded - for international markets.  What this meant is that a more efficient producer could always find a market for his cheaper goods.  Rather than being limited by the size of a local market, there was always the opportunity to capture a share of the huge trade that flowed through London. Thus when the tools of industrial manufacture came along, they could immediately be put to very profitable use. An enterprising entrepreneur who saw the potential of a new invention, and who invested boldly, was able to amass a huge fortune.  He could set up a large-scale manufacturing plant, mass-produce goods below the cost of earlier methods, and rapidly capture a share of the large existing markets.

A new way of creating fortunes had been born. Instead of slowly amassing wealth over a lifetime, or risking a voyage in search of treasure, there was now a systematic way to amass wealth relatively quickly.  A person with money to invest could seek out the latest leading-edge inventions, develop a still-more efficient factory - and steal market share from his now-outdated rivals.  A way had been found to use money to transform initiative & innovation into wealth. Out with the old methods, in with the new methods - and behind it always the investor - driving the process while amassing a fortune. This method of amassing wealth was eventually given the name capitalism.  A capitalist is someone who invests money in an enterprise with the objective of receiving more in return than was invested.

The consequences of these developments were far reaching.  The availability of cheaper products, and the wealth of a few entrepreneurs, was the least of it.  People's livelihoods were destroyed, as their locally based enterprises were forced out of business. They moved to towns and became factory employees, usually under appalling conditions. The vitality of rural life was undermined and industrial cities arose, with their slums, crime, and diseases.  Society is a system, and if one part changes, those changes ripple out and effect other parts - in ways both intended and unintended.  The goal of entrepreneurs and investors was simply to amass wealth, but their initiatives led to profound societal changes.

A third ingredient of British society - its hierarchical class system - contributed to the way in which these changes unfolded. Those at the bottom of the hierarchy were long accustomed to being exploited, and being subject to the will of their 'betters'.  Their domestication to hierarchy prepared them well for living in slum conditions and working under the thumb of oppressive bosses.  But those at the top of the hierarchy were also affected, and they were in a better position to protect their interests against the changes that were being brought about by capitalist investors and entrepreneurs.

Although the nature of the British economy served to promote capitalist success, there were also aspects of the economic regime which placed limits on that success.  The dominant economic doctrine of the day was mercantilism, whose static definition of wealth did not fit well with the dynamics of capitalist innovation. Tariffs, taxes, and various kinds of restrictions hampered the growth of capitalist development.  The economic regime was designed to protect the wealth and power of the aristocratic class, and capitalist upstarts soon began to see the existing regime as an obstacle to their ambitions. The paradigm of capitalism had been wealth accumulation through initiative & innovation, and it was only natural that the creative energies of capitalists would turn eventually from technology to politics.  In the early days, when markets seemed inexhaustible, the creative focus was on new technologies and larger-scale production.  But as markets began to saturate, and growth slowed down, creative attention turned to the political barriers that stood in the way of further wealth accumulation. 

Capitalism became in part a political movement - lobbying for a new economic regime and fewer restrictions  on its operations.   In 1775 James Watt perfected his steam engine.  In the very next year Adam Smith published The Wealth of Nations.  The steam engine opened up whole new vistas of industrial development, including railroads and powered sea transport.  But Wealth of Nations was of perhaps even greater historical significance - it helped turn the tide toward an entirely new economic regime, a regime that transformed the world and which led directly to what we now know as globalization. As economic analysis, Smith's work is certainly notable - but as a revolutionary manifesto - although unintended as such - his work was perhaps the most successful in all of history.

Wealth of Nations presented one of the earliest examples of what is now called systems analysis.  Smith looked at the economy as a system within which buyers and sellers were actors, and whose interactions led to an overall system behavior.  He sought to identify the motives that guided buyers and sellers, and to trace out how those motives affected system performance. He examined how economic policies and restrictions affected that performance, and sought to demonstrate that fewer restrictions would lead to enhanced performance - and thus increase the wealth of the British nation.  Smith offered a model of a market economy - free of all but a few simple restrictions.  He argued persuasively that within such a market economy every buyer and seller could be left to pursue their own self-interest - and that the result would lead to a healthier, more productive economy.

Smith was guided by noble moral sentiments, and his work was aimed at improving the welfare of society.  In the new production methods he saw hope for a more bountiful society, and he sought through his work to liberate economics from antiquated restrictions.  Smith was not particularly wealthy, and was not himself a capitalist, but the main effect of his book was to advance the cause of the capitalist movement. Inadvertently, Smith played the role of radical propagandist in the struggle for power between the traditional aristocracy, and the emerging capitalist class.  By persuasively arguing that a more liberal economic regime would benefit everyone, and that it would enhance the wealth of the British state, he helped undermine the old aristocracy's resistance to the advance of capitalism.

One can only feel sorry for Smith, who must to this day be turning in his grave. His intention was not to empower a new ruling elite, but rather to promote economic benefits for everyone. He was very careful, in his analysis, to point out that some restrictions were very necessary - not all restrictions should be removed from the marketplace.  Unfortunately, once his work was published, he had no control over how it would be used. The capitalist movement embraced Smith's central notion of fewer restrictions, but paid little heed to those restrictions that were necessary for his market economy to operate effectively. While Smith envisioned a free and open marketplace, based on fair competition, ambitious capitalists were heading in quite a different direction. 
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Richard K Moore
Wexford, Ireland
Citizens for a Democratic Renaissance
email: [email protected]
URL: http://cyberjournal.org

    A community will evolve only when
    the people control their means of communication.
    - Frantz Fanon

    "One cannot separate economics, political science, and
    history. Politics is the control of the economy. History,
    when accurately and fully recorded, is that story. In most
    textbooks and classrooms, not only are these three fields of
    study separated, but they are further compartmentalized into
    separate subfields, obscuring the close interconnections
    between them" -- J.W. Smith, The World's Wasted Wealth 2,
    (Institute for Economic Democracy, 1994), p. 22.

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