Prediction in Marxism of the collapse of capitalism.
A species of catastrophe theory, envisaging that the inherent contradictions of the capitalist system will lead, through political conflict, to the collapse or overthrow of capitalism.
Varieties of capitalism
It is an ongoing debate within the fields of economics and sociology as to what the past, current and future stages of capitalism consist of. While ongoing disagreement about exact stages exists, many economists have posited the following general states. These states are not mutually exclusive and do not represent a fixed order of historical change, but do represent a broadly chronological trend.
Laissez-faire capitalism, a social system in which there is no government intervention in the economy.
Agrarian capitalism, sometimes known as market feudalism. This was a transitional form between feudalism and capitalism, whereby market relations replaced some but not all feudal relations in a society.
Mercantilism, where national governments sought to maintain positive balances of trade and acquire gold bullion.
Industrial capitalism, characterized by its use of heavy machinery and a much more pronounced division of labor.
Monopoly capitalism, marked by the rise of monopolies and trusts dominating industry and other aspects of society. Often used to describe the economy of the late 19th and early 20th century.
Colonialism, where governments sought to colonize other areas to improve access to markets and raw materials and assist state-owned capitalist firms.
Welfare capitalism, where mixed economies predominated and governments sought to provide a safety net to alleviate the worst abuses of capitalism. The heyday of welfare capitalism (in advanced economies) is widely seen to be from 1945 to 1973 as major social safety nets were put in place in most advanced capitalist economies.
Mass production, post-World War II, saw the rising power of major corporations and a focus on mass production, mass consumption and (ideally) mass employment. This stage sees the rise of advertising as a way to promote mass consumption and often sees significant economic planning taking place within firms.
State capitalism, where the state intervened to prevent economic instability, including partially or fully nationalizing certain industries. Some economists also include the economies of the Soviet Union and the Eastern Bloc in this category.
Corporatism, where government, business and labor collude to make major national decisions. Notable for being an economic model of fascism, it can overlap with, but is still significantly different from state capitalism.
Financialization, or financial capitalism, where financial parts of the economy (like the finance, insurance, or real estate sectors) predominate in an economy. Profit becomes more derived from ownership of an asset, credit, rents and earning interest, rather than productive processes.
The processes by which capitalism emerged, evolved, and spread are the subject of extensive research and debate among historians. Debates sometimes circle around how to bring substantive historical data to bear on key questions. Key parameters of debate include: how far capitalism is a natural human behaviour and how far it arises from specific historical circumstances; whether its origins lie in towns and trade or in rural property relations; the role of class conflict; the role of the state; the extent to which capitalism is a distinctively European innovation; its relationship with European imperialism; whether technological change is a driver or merely an epiphenomenon of capitalism; and whether or not it is the most beneficial way to organise human societies.
The historiography of capitalism can be divided into two broad schools. One is associated with economic liberalism, with the eighteenth-century economist Adam Smith as a foundational figure. The other is associated with Marxism, drawing particular inspiration from the nineteenth-century economist Karl Marx. Liberals tend to view capitalism as an expression of natural human behaviours that have been in evidence for millennia and the most beneficial way of promoting human well being. They tend to see capitalism as originating in trade and commerce, and freeing people to exercise their entrepreneurial natures. Marxists tend to view capitalism as a historically unusual system of relationships between classes, which could be replaced by other economic systems that would serve human well being better. They tend to see capitalism as originating in more powerful people taking control of the means of production, and compelling others to sell their labour as a commodity. For these reasons, much of the work on the history of capitalism has been broadly Marxist.
Origins of capitalism
The origins of capitalism have been much debated (and depend partly on how capitalism is defined). The traditional account, originating in classical eighteenth-century liberal economic thought and still often articulated, is the ‘commercialization model.’ This sees capitalism originating in trade. Since evidence for trade is found even in palaeolithic culture, it can be seen as natural to human societies. In this reading, capitalism emerged from earlier trade once merchants had acquired sufficient wealth (referred to as ‘primitive capital’) to begin investing in increasingly productive technology. This account tends to see capitalism as a continuation of trade, arising when people’s natural entrepreneurialism was freed from the constraints of feudalism, partly by urbanization. Thus it traces capitalism to early forms of merchant capitalism practiced in Western Europe during the Middle Ages.
Role of Dutch-speaking regions in the rise of modern capitalism
A 400-year history of global finance capitalism
Courtyard of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), a powerhouse of Dutch capitalism in the 17th century. The birth of the world’s first formally listed public company (the Dutch East India Company) and first formal stock exchange (the Amsterdam Stock Exchange), in the 17th-century Dutch Republic, helped usher in a new era of stock market capitalism or financial capitalism in general, as a milestone in the history of modern capitalism.
The trading floor of the New York Stock Exchange (NYSE), one of the foremost symbols of American capitalism, in the early 21st century.
Replica of an East Indiaman of the Dutch East India Company/United East Indies Company (VOC). The VOC was a driving force behind the rise of financial capitalism in the early modern period.In Timothy Brook’s words, “the Dutch East India Company – the VOC, as it is known – is to corporate capitalism what Benjamin Franklin’s kite is to electronics: the beginning of something momentous that could not have been predicted at the time.”
The shipyard of the Dutch East India Company (VOC) in Amsterdam (1726 engraving by Joseph Mulder). The shipbuilding district of Zaan, near Amsterdam, became one of the world’s earliest known industrialized areas, with around 900 wind-powered sawmills at the end of the 17th century. By the early seventeenth century Dutch shipyards were producing a large number of ships to a standard design, allowing extensive division of labour, a specialization which further reduced unit costs.
“ Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy (Greif 2006, 286), and Malmendier (2009) provides evidence that shareholder companies date back to ancient Rome. Yet the title of the world’s first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged. The two major companies were the Dutch East India Company and the Dutch West India Company, founded in 1602 and 1621. Other companies existed, but they were not as large and constituted a small portion of the stock market. ”
— Edward P. Stringham & Nicholas A. Curott, in “The Oxford Handbook of Austrian Economics” [On the Origins of Stock Markets] (2015)
“ Its [the Dutch East India Company’s] fame as the first public company, which heralded the transition from feudalism to modern capitalism, and its remarkable financial success for nearly two centuries ensure its importance in the history of capitalism. ”
— Warwick Funnell & Jeffrey Robertson, in “Accounting by the First Public Company” (2014)
“ (…) If one looks closely at the Dutch in the seventeenth century we can see virtually every major feature of large-scale industry credited to the English two centuries later. Production was increasingly mechanised, as in sawmilling; standardised parts were deployed in manufacturing, especially in shipbuilding; modern financial markets were developed, underscored by the formation of the Amsterdam Bourse in 1602. And it was all underwritten by an agricultural system that did what all capitalist agricultures must do: produce more and more food with less and less labour-time. ”
— Jason W. Moore, Political Economy Research Centre (Goldsmiths, University of London), December 2017
The role of Dutch-speaking lands, especially present-day Flanders and the Netherlands (in particular modern-day North Holland and South Holland), in the history of capitalism has been a much discussed and researched subject. Capitalism began to develop into its modern form during the Early Modern period in the Protestant countries of North-Western Europe, especially the Netherlands (Dutch Republic) and England: traders in Amsterdam and London created the first chartered joint-stock companies driving up commerce and trade, and the first stock exchanges and banking and insurance institutions were established. The world’s earliest recorded speculative bubbles and stock market crashes occurred in 17th-century Holland. The Dutch Republic was also an early industrialized nation-state in its Golden Age. Seventeenth-century Dutch mechanical innovations such as wind-powered sawmills and Hollander beaters helped revolutionize shipbuilding and paper industries. The Dutch also played a pioneering role in the rise of the capitalist world-system. World-systems theorists (including Immanuel Wallerstein and Giovanni Arrighi) often consider the economic and financial supremacy of the 17th-century Dutch Republic to be the first historical model of capitalist hegemony.
As Thomas Hall (2000) notes, “The Sung Empire in particular nearly underwent a transformation to capitalism in the tenth century C.E. But the only states to be controlled by capitalists before the European transformation in the seventeenth century were semiperipheral capitalist city-states such as the Phoenician cities, Venice, Genoa, and Malacca. These operated in the interstices between the tributary states and empires, and though they were agents of commodification, they existed within larger systems in which the logic of state-based coercion remained dominant. The first capitalist nation-state was the Dutch Republic in the seventeenth century. This coming to state power by capitalists in an emerging core region signaled the triumph of regional capitalism in the European subsystem.” In Werner Sombart’s words, “In all probability the United Provinces were the land in which the capitalist spirit for the first time attained its fullest maturity; where this maturity related to all its aspects, which were equally developed; and where this development had never been done comprehensive before. Moreover, in the Netherlands an entire people became imbued with the capitalist spirit; so much so, that in the 17th century Holland was universally regarded as the land of capitalism par excellence; it was envied by all other nations, who put forth their keenest endeavours in their desire to emulate it; it was the high school of every art of the tradesman, and the well-watered garden wherein the middle-class virtues throve.” Foundational thinkers in this approach include Adam Smith, Max Weber, Fernand Braudel, Henri Pirenne, and Paul Sweezy.
However, the ‘commercialization model’ has been questioned, with a leading competitor being the ‘agrarian model’. This notes that traditional mercantilism focused on moving goods from markets where they were cheap to markets where they were expensive rather than investing in production, and that many cultures (including the early modern Dutch Republic) saw urbanisation, and merchants amassing great wealth, without capitalist production emerging. The ‘agrarian model’ instead argues that capitalism arose from unique circumstances in English agrarianism.
The agrarian argument developed particularly through Karl Polanyi’s The Great Transformation (1944), Maurice Dobb’s Studies in the Development of Capitalism (1946), and Robert Brenner’s research in the 1970s, the discussion of which is known as the Brenner Debate. In the wake of the Norman Conquest, the English state was unusually centralised. This gave aristocrats relatively limited powers to extract wealth directly from their feudal underlings through political means (not least the threat of violence). England’s centralisation also meant that an unusual number of English farmers were not peasants (with their own land and thus direct access to subsistence) but tenants (renting their land). These circumstances produced a market in leases. Landlords, lacking other ways to extract wealth, were motivated to rent to tenants who could pay the most, while tenants, lacking security of tenure, were motivated to farm as productively as possible to win leases in a competitive market. This led to a cascade of effects whereby successful tenant farmers became agrarian capitalists; unsuccessful ones became wage-labourers, required to sell their labour in order to live; and landlords promoted the privatisation and renting out of common land, not least through the enclosures. In this reading, ‘it was not merchants or manufacturers who drove the process that propelled the early development of capitalism. The transformation of social property relations was firmly rooted in the countryside, and the transformation of England’s trade and industry was result more than cause of England’s transition to capitalism’.
The present article includes both perspectives.
The twenty-first century has seen renewed interest in the history of capitalism, and “History of Capitalism” has become a field in its own right, with courses in history departments. In the 2000s, Harvard University founded the Program on the Study of U.S. Capitalism; Cornell University established the History of Capitalism Initiative; and Columbia University Press launched a monograph series entitled Studies in the History of U.S. Capitalism. This field includes topics such as insurance, banking and regulation, the political dimension, and the impact on the middle classes, the poor and women and minorities. These initiatives incorporate formerly neglected questions of race, gender, and sexuality into the history of capitalism. They have grown in the aftermath of the financial crisis of 2007–2008 and the associated Great Recession.
The ‘crisis of the fourteenth century’
Map of a medieval manor. Notice the large commons area and the division of land into small strips. The mustard-colored areas are part of the demesne, the hatched areas part of the glebe.
William R. Shepherd, Historical Atlas, 01923
According to some historians, the modern capitalist system originated in the “crisis of the Late Middle Ages”, a conflict between the land-owning aristocracy and the agricultural producers, or serfs. Manorial arrangements inhibited the development of capitalism in a number of ways. Serfs had obligations to produce for lords and therefore had no interest in technological innovation; they also had no interest in cooperating with one another because they produced to sustain their own families. The lords who owned the land relied on force to guarantee that received sufficient food. Because lords were not producing to sell on the market, there was no competitive pressure for them to innovate. Finally, because lords expanded their power and wealth through military means, they spent their wealth on military equipment or on conspicuous consumption that helped foster alliances with other lords; they had no incentive to invest in developing new productive technologies.
The demographic crisis of the fourteenth century upset this arrangement. This crisis had several causes: agricultural productivity reached its technological limitations and stopped growing, bad weather led to the Great Famine of 1315–1317, and the Black Death of 1348–1350 led to a population crash. These factors led to a decline in agricultural production. In response, feudal lords sought to expand agricultural production by extending their domains through warfare; they therefore demanded more tribute from their serfs to pay for military expenses. In England, many serfs rebelled. Some moved to towns, some purchased land, and some entered into favorable contracts to rent lands from lords who needed to repopulate their estates.
The collapse of the manorial system in England enlarged the class of tenant farmers with more freedom to market their goods and thus more incentive to invest in new technologies. Lords who did not want to rely on renters could buy out or evict tenant farmers, but then had to hire free labor to work their estates, giving them an incentive to invest in two very different kinds of commodity owners. One kind was those who had money, the means of production, and subsistence, who were eager to valorize the sum of value they had appropriated by buying the labor power of others. The other kind was free workers, who sold their own labor. The free workers were “free workers” in the double sense that they neither formed part of the means of production nor owned the means of production that transformed land and even money into what we now call “capital”. Marx labeled this period the “pre-history of capitalism”.
In effect, feudalism began to lay some of the foundations necessary for the development of mercantilism, a precursor of capitalism. Feudalism was mostly confined to Europe and lasted from the medieval period through the sixteenth century. Feudal manors were almost entirely self-sufficient, and therefore limited the role of the market. This stifled any incipient tendency towards capitalism. However, the relatively sudden emergence of new technologies and discoveries, particularly in agriculture and exploration, facilitated the growth of capitalism. The most important development at the end of feudalism was the emergence of what Robert Degan calls “the dichotomy between wage earners and capitalist merchants”. The competitive nature meant there are always winners and losers, and this became clear as feudalism evolved into mercantilism, an economic system characterized by the private or corporate ownership of capital goods, investments determined by private decisions, and by prices, production, and the distribution of goods determined mainly by competition in a free market.
Main article: Enclosure
Decaying hedges mark the lines of the straight field boundaries created by a Parliamentary Act of Enclosure.
England in the 16th century was already a centralized state, in which much of the feudal order of Medieval Europe had been swept away. This centralization was strengthened by a good system of roads and a disproportionately large capital city, London. The capital acted as a central market for the entire country, creating a large internal market for goods, in contrast to the fragmented feudal holdings that prevailed in most parts of the Continent. The economic foundations of the agricultural system were also beginning to diverge substantially; the manorial system had broken down by this time, and land began to be concentrated in the hands of fewer landlords with increasingly large estates. The system put pressure on both the landlords and the tenants to increase agricultural productivity to create profit. The weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try out better methods. The tenants also had an incentive to improve their methods to succeed in an increasingly competitive labour market. Land rents had moved away from the previous stagnant system of custom and feudal obligation, and were becoming directly subject to economic market forces.
An important aspect of this process of change was the enclosure of the common land previously held in the open field system where peasants had traditional rights, such as mowing meadows for hay and grazing livestock. Once enclosed, these uses of the land became restricted to the owner, and it ceased to be land for commons. The process of enclosure began to be a widespread feature of the English agricultural landscape during the 16th century. By the 19th century, unenclosed commons had become largely restricted to rough pasture in mountainous areas and to relatively small parts of the lowlands.
Marxist and neo-Marxist historians argue that rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labour required in the new industries developing in the north of England. For example: “In agriculture the years between 1760 and 1820 are the years of wholesale enclosure in which, in village after village, common rights are lost”. “Enclosure (when all the sophistications are allowed for) was a plain enough case of class robbery”. LSE anthropologist Jason Hickel notes that this process of enclosure led to myriad peasant revolts, among them Kett’s Rebellion and the Midland Revolt, which culminated in violent repression and executions.
Other scholars argue that the better-off members of the European peasantry encouraged and participated actively in enclosure, seeking to end the perpetual poverty of subsistence farming. “We should be careful not to ascribe to [enclosure] developments that were the consequence of a much broader and more complex process of historical change. “[T]he impact of eighteenth and nineteenth century enclosure has been grossly exaggerated….”
Twentieth century versions of this theory see the crisis of capitalism as being a legitimacy crisis rather than a simple economic or political one.