Why Capitalism (1): The Pre-Capitalist West

The development—creation and evolution—of Capitalism was hardly preordained. But it is too easy to look backward and conclude that where are now was inevitable. Nothing is inevitable. So why then? The question warrants a look at conditions leading to the birth of capitalism.

     We will eventually need to dedicate time to capitalism’s evolution to the present. But before we can begin that important journey, we must return to the context from which capitalism sprung as a response. As an added benefit to understanding something of the human imperatives behind capitalism’s birth, we may come to appreciate that it, too, was (perhaps) a momentary oasis of stability in a long tidal development of human organization, structure, and conduct.

     So what were the conditions that incubated what would become capitalism? Before exploring that, a provisional description and definition of capitalism is in order. Provisional because we only need it now for perspective and will elaborate (maybe materially) when the time comes. Moreover, to keep things as contained as much as such a topic can possibly be, we will focus on Europe as the primary Petrie dish for the emergence of this new philosophical, logical, and—as best known and understood—economic ideology.

Capitalism

     Capitalism is an economic system characterized by private ownership of the means of production and the pursuit of profit through market exchange. It is a system in which individuals, rather than the state or collective entities, own and control resources, businesses, and property. This is the original definition. What constitutes a “collective entity” has shifted somewhat. (Yes, I’m looking at you NASDAQ or NYSE-listed share capital corporations.)

1. Private Property – Individuals and businesses have the right to own and control property. Private property rights allow “individuals” to use, trade, and transfer their property as they see fit, within the limits of the law.
2. Market Economy – Market mechanisms allocate resources, determine prices, and facilitate economic exchange. Supply and demand forces, not centralized planning, largely determine production levels and the distribution. Buyers and sellers voluntarily transact based on mutual benefit.
3. Profit Motive – Individuals and businesses are motivated to engage in economic activities to generate income, maximize financial gains, and accumulate wealth. Profit is the incentive for innovation, risk-taking, investment, and entrepreneurship.
4. Competition – Competition fosters efficiency and drives innovation. It provides consumers with choice and incents producers to improve quality and lower costs.
5. Limited Government Intervention – Limited government intervention in economic affairs means the state focuses on maintaining rule of law, protecting property rights, enforcing contracts, and ensuring fair competition. Individuals and businesses are free to make economic decisions and engage in voluntary transactions unencumbered by government interference.
6. Profitable Investment and Capital Accumulation – Savings and profits are reinvested in productive enterprises, leading to increased productivity, technological advances, and expanded economic activity. Capital accumulation fuels economic development and higher living standards.
7. Economic Freedom and Individual Choice – Individuals are free to choose their occupations, enter into contracts, start businesses, and engage in trade. With such individual rights, including the right to own property, one can pursue economic self-interest and enjoy the fruits of one’s labour.

     Note that today capitalism can take various forms, accompanied by different degrees of government intervention and regulation. Different countries and societies—and even tribes within societies—may adopt different models of capitalism, combining market principles with varying levels of social welfare policies and regulation. The implementation and characteristics of capitalism can vary across nations and over time.

     The development and movement to the capitalism we know were gradual processes over centuries. Many factors and changes in economic conditions contributed to that evolution of capitalism. For now, we shall remain in the pre-capitalist period in Europe and focus on the original version of capitalism.

The Enlightenment

     Specialization makes for isolation, which goes a long way to explain why the historical context for capitalism tends toward one that is improbably predominant: economics. I concede that viewing capitalism solely in economic terms is sensible. Capitalism is an economic theory and therefore the forces and conditions that spawned it must also be economic. This is, of course, right. Yet abjectly superficial and, thus, wrong.

     In the academy, it apparently required both the development of “interdisciplinary studies” and pioneering work of psychologists that wouldn’t stay in their own lane to wrench economics from its self-exalted pedestal.^[1] All that work, and more, conclusively provided one insight if nothing else: to understand people and economics requires looking beyond economics. And so it should be in a consideration of this economic philosophy called capitalism. Particularly to understand how it came to be.

     While there can be no serious dispute that capitalism was a recoil against mercantilist policies in post-Feudal Europe, that part of the story is far too pat. It is insufficient in the same callow way as pretending to understand a 15-round prize fight TKO based on the final round or appreciating Romeo & Juliette solely from Act V.

     The big story is that capitalism was one of the final major intellectual outputs of the Enlightenment. This would necessarily support the oft-overlooked aspect of capitalism as philosophical foundation much broader than mere economics. Moreover, that it was built on, reflects, and owes materially to the long period of evolution in thinking that led to it. Any exploration of capitalism and its emergence that gives short shrift to the defining impact of the Enlightenment should be immediately suspect.

     There is insufficient space or need, frankly, to interrogate the fulness of what constituted the Age of Enlightenment. For our purpose, here, much of it resolves to a few critical evolutions of “common” thought and attitude that made all the difference. So our survey of this era that arguably began with Descartes (ca 1637) or Newton (ca 1687) and persisted through the start of the French Revolution (1789) will be brief and focused.

Enlightenment Ideals

     In hindsight certainly, and maybe even at the time, the dominant developments of the Enlightenment centred on certain obvious ideals. These were generally thwarted desires that bubbled to surface in nearly every aspect of life: political, social, personal, religious, scientific, artistic…

     Enlightenment ideals included human happiness, knowledge—both by reasoning and experience, tolerance, fraternity, separation of church and state, constitutional government, progress, natural law, and so forth. So embedded are these in our (Western) daily thought, it is hard to conceive a time when they were impossible dreams and quests. Foremost among these ideals, informing not only Western culture generally but setting the table for capitalism particularly, was liberty.

     Liberty can be a malleable word and concept, and served many purposes in this period—as in our own. It tended to be the catch-all expression of desire for freedom of some sort. Freedom from religious dogma; freedom from oppressive monarchy; freedom to rise and achieve; freedom to do as one pleased. It said, as many small children express it, “You’re not the boss of me.”

     The millennia preceding the Enlightenment had been one of control and dominion of one sort or another, be that by religious or secular princes. The scientific revolution and both development and dissemination of thoughts and knowledge revealed the artifice of these structures. Liberty was the cri de Coeur that found a place or made a place for itself in all aspects of life of all sorts of people.

     There are those who continue to propagate the bankrupt notion that there was a Dark Ages of effectively no forward movement for humanity; that this ended with the Renaissance, Scientific Revolution, and ultimately with the Enlightenment. They are wrong. But that’s for another time. Their underlying point, however, is that the centuries leading to the Enlightenment were a foundation for an evident explosion of thinking.^[2] Thanks in no small part to Guttenberg’s machine, these thoughts were broadly disseminated and fed even more thoughtful advance during the Enlightenment. It’s arguable that this, itself, was liberty and liberating.

Enlightenment Legacy of Ideas and Power Structures

     Among the works and authors whose broad contribution to and expansion of Enlightenment ideals is especially notable for our purpose are:

• David Hume, Treatise on Human Nature (1740)
• Adam Smith, Theory of Moral Sentiments (1759)
• Anne Robert Jacques Turgot, Reflections on the Formation and Distribution of Wealth (1766)
• Adam Smith, The Wealth of Nations (1776)

     Notice particularly in this radically abbreviated list, two Scots disciples of Frances Hutcheson—Hume and Smith—whose foundational education is humanism not economics. Also, give credit to the many others not on the list that are undoubtedly known to you, but are too distant from capitalism specifically. Thinkers such as Diderot, Voltaire, Kant, Rousseau… All of whom were standing on the shoulders of John Locke and Thomas Hobbes, and whose underlying purpose, treatise, and intent was yet generally foundational to capitalist thinking.

     For instance, from Locke we inherit, “Life, liberty and property,” which is of a piece with Hobbes’s focus on individual rights. It was, however, Spinoza who undergirded the members of the “Radical Enlightenment” that fomented for individual liberty and democracy. Such was the temper of the time. By the tail end of the Enlightenment, governance and economics that did not harmonize with this burgeoning expectation would have been truly without credit: a wilful act of extreme and broad force to preserve a system or systems ready to be retired.

Conditions In Europe Before Capitalism

     If the age of capitalism can be tied to a date, 1776 would be it. This conveniently, but completely independently coincides with the birth of the United States of America. Is there a connection? No doubt on many levels, if not only that they seem to be related outcomes of a universal social recoil.

     “Recoil from what?” one might ask.

     In a word: plenty. Europe during the 17^th– and 18^th-centuries was a fizzing Petrie dish of resentments and reactions, ambitions and antagonisms. There was a slow rolling change to the zeitgeist economically, geographically, technologically, in governance, in religious faith, industrially, demographically, and—perhaps most importantly, in ideas—or ideologically.

     Circumstances such as the decline of feudalism, migration off the farm and its urban centers growth corollary, the emergence of a money economy, and advancements in technology were fertile ground for the development of capitalism. Layer atop that a legal and institutional framework supporting property rights, contract enforcement, and the rule of law to provide stability and security for economic transactions. There was bound to be change, maybe of a predictable type and direction.

     This is, of course, not all. The Age of Discovery was barely over. The ideas behind capitalism and the establishment of the USA were children of the Enlightenment. Let us now briefly, thematically survey the most proximate and relevant features of Europe before capitalism.

Agricultural Changes and the Enclosure Movement

     This process, which accelerated from the 16^th to the 19^th-centuries, forced small farmers and peasants off the land, concentrating land ownership and helping propel an eager labour force into employment in emerging industries. It also played a crucial role in breaking down the feudal system.

     The agricultural revolution in Europe started in the early 17^th-century and brought unprecedented advances in agricultural technique and productivity—certainly in England. Crop rotation approaches, soil restoration and drainage, and husbandry techniques such as selective breeding, as well as other means of expanding arable land were all developed and put to use during this period. The first major wave of mechanization also shook up agriculture during this period. Ploughs, for instance, were advanced materially. The seed drill, too, was advanced by the Europeans. And, in 1786, the threshing machine was invented.

     All of this led to increased food production. More food had an accelerating effect on population growth. And, ultimately, surplus labour became an issue on the farm. Surplus labourers, no longer needed for agricultural activities, moved to towns and cities to (eventually) form a new class of wage labourers. Urban migration supported, if not propelled industrialization. (More about this dynamic later.)

Feudalism and The Power of Land

     In the European context, Feudalism was the dominant socio-economic system prior to the emergence of capitalism. Feudalism was characterized by a hierarchical structure where land and resources were owned by a small noble class, while peasants worked the land in exchange for protection and a share of the produce. This system weakened as trade expanded and new economic opportunities arose, but it persisted.

     The feudal system had its heyday from the 5^th through 12^th-centuries, arising during a period of weak central authority and nascent (at best) legal structures. The fiefs held by local lords were petty “kingdoms”. In the 17^th-century the actual feudal construct was developed. These property-centric seigneuries made the fief-holder (the peasant) an extremely dependent man. Not a slave, but one unfree beyond the bounds of fidelity owed to the landlord. Or at the very least, one whose liberties were truncated and opportunities limited.

     In England, the feudal system was laid to rest by Parliament in 1645 and subsequently by Charles II in 1660. In France, however, the system persisted until eradicated by the National Assembly ca 1793.

Enclosure

     Returning to the Agricultural Revolution, a key driver was the so-called Enclosure Movement. Predominantly in England, this involved consolidation of common lands and their transformation into private property. While at first blush this would seem to be a boon to feudal landlords, one need focus on the precedent for property privatization.

     The Enclosure Acts, in England, spanned the period from 1604-1919. At least in the earliest of its period, Enclosure can be said to have been an unwieldy and misguided attempt to address the Tragedy of the Commons^[3] by attempting to eliminate the Commons. No commons, no tragedy. People being people, however, the tragedy persisted (and persists) anywhere there is a commons of any sort. Enclosure, it can be argued, had unintended, unanticipated consequences. Nobody could have or would have perceived that these decrees tilting toward private property would (partially) catalyze the advent of what would be called capitalism.

The Urban Shift

     The shift to urban living was pronounced in the time leading to the breakthrough of capitalism. There were various, interrelated reasons for this change. The privatization of the commons, mechanization and industrialization, trade and discovery, and money all played a part. Ultimately the shift was from rural and agrarian to urban and industrial. To put a finer point on it, many people were driven to a situation that did not lend itself well to independence and self-sufficiency of any sort. Rural people are, irrespective of scale, producers. Rather, urban dwellers were to be a factor of production, or wage labour, as it would come to be known.

     Irrespective, the pre-capitalist urban shift was only the start of an ongoing change. People moved off the farm to survive; urban-centred industry survived because of labour; discovery and trade continued—or accelerated—with the availability of people. The arrows of causality are unclear except that they point the same direction generally. It was, in any case, sufficient to be an obvious factor in the pre-capitalist circumstance.

Commercial Revolution and Mercantilism

     The fullness of the Commercial Revolution is arguably from the 11^th through the 18^th-centuries.^[4] It is a period of significant import to us because through this period commerce became a fundamental expression of human desire or ambition; or at least a primal conception of the game of life. The period witnessed a surge in (overseas) trade, colonization, and the growth of merchant capitalism. One after the other, European nations sought to amass wealth and power through exploration, colonization, and the establishment of overseas empires—colonies providing access to new resources, markets, and investment opportunities. Mercantilism, the economic doctrine dominant during this time, was geared to maximize a nation’s wealth through government intervention, protectionism, and the accumulation of precious metals.

     Much less well publicized than its more recent sibling, the Industrial Revolution (see below), the criticality of this development—for our purpose, anyway—can’t be overstated. It is here the ideas of commerce, money, wealth, and the power that flows from it all took hold. This is not to say such motivations did not exist before. They did: Croesus was not a Florentine banker, after all.

     During the Commercial Revolution the structures to support a non-militaristic expression and pursuit of these desires fell into place. For a number of reasons: from technological to social innovation that would tame the seas and defray financial risk; from demographics to geopolitics, the stars aligned and commerce did not just flourish—it rooted deeply. To explore all aspects of every element is worthy of its own volume(s). Moreover, many interdependent drivers such as the rural flight to the city are noted in other sections. So we will satisfy ourselves with a survey some important facets of this revolution, noting how they express if not amplify the human propensities that led to capitalism.

     That the Commercial Revolution began in the Italian (maritime) city-states of Venice, Genoa, Florence, and Lucca, etc. would suggest two things. First, trade over the Mediterranean was instrumental and created wealth. The disequilibrium and chaotic tentativeness of the petty feudal lords—or the absence of central (monarchical) government—was surely causal to some extent. Throwing off overlords requires means, which trade afforded. Second, the petty anarchy of the small protectorates (mostly dedicated to protecting the protector’s position…) is naturally subject to entropy. It falls apart—fast.^[5] Abject poverty with no protection is undesirable. So what would make a false equilibrium on that foundation crumble? In the Italian and European experience, the answer is regional government and power: the city-state.

Mercantilism

     Mercantilism may be the single-most important and obviously-connected element in the environment that spawned capitalism. That it is an economic system is evident. What it says about the people behind it and the environment it helped spawn may be more instructive.

     Mercantilism emerged during the transition from feudalism, which was characterized by a rigid social hierarchy and an agrarian-based economy, with wealth primarily derived from landownership. At least two significant forces in Europe at the time contributed to the shift from feudalism into mercantilism. First was the development of city-states and then nation-states. These larger, more complex, and wealthier political entities required a non-agrarian means to maintain and grow wealth. Second, (recent) growth was built on trade that flourished because of discovery, financial tools, and entities that could accept trade risk at the necessary, growing scale.

     As capitalism, in the hands of Adam Smith anyway, is a recoil from mercantilism, one would be safe assuming mercantilist policies were bad. But not all of them. In fact, characteristics of mercantilism were seminal to the development of capitalism. The capitalist response (from Smith) was arguably one of:

• ideas that exposed failings and shortcomings, such as zero-sum trade, and consumption-driven economics; and
• objection to a system tuned to sustain existing wealth and power, while inhibiting others.

     Consider these key features of mercantilism with an eye to where and how they echo in capitalism.

1. Focus on Trade and Accumulation of Wealth – Mercantilism emphasized trade and wealth accumulation as essential elements of economic prosperity and national power. Capitalism preserved the general sentiment. Alas, mercantilist policies aimed to maximize exports and minimize imports for a positive balance of trade. A trade surplus was believed to result in the inflow of precious metals, especially gold and silver, which were then considered the basis of wealth. It was the zero sum notion: “our” loss was “their” gain and vice versa. Governments implemented protectionist measures—tariffs, quotas, and subsidies—to foster domestic industries, protect them from foreign competitors, and secure markets for their own goods. The goal was to safeguard local industries, create employment opportunities, and reduce reliance on foreign goods. Though generally considered poor policy (at least publicly), this focus on trade and economic nationalism laid a foundation for developments in international commerce and economic theory.
2. State Intervention and Regulation – Mercantilism relied heavily on state intervention and regulation in the economy. Governments played an active role in promoting and protecting domestic industries, often granting monopolies, subsidizing and privileging favoured industries, and implementing regulations to control production, trade, and colonial ventures. They established guilds, controlled production methods, and enforced quality standards. Again, the aim was to protect and promote domestic industries, maintain a favorable trade balance, and increase the nation’s revenue, wealth, and economic power.
3. Colonialism, Exploration, and Resource Extraction – Mercantilism coincided with the era of colonial expansion and exploration. European powers sought to establish colonies and extract valuable resources from overseas territories. Colonies provided access to raw materials, cheap labour, and captive markets for goods. Establishment of colonies and exploitation of their resources were key mercantilist policies. The wealth generated played a significant role in the accumulation of capital.
4. Accumulation of Bullion – As noted above, mercantilism emphasized accumulation of precious metals, particularly gold and silver. Possession of bullion represented a nation’s wealth and power. Policies were designed to increase exports and generate a trade surplus specifically to bring more precious metals into the country. This emphasis on bullion reflected the prevailing economic thinking that metals were the primary form of wealth.
5. Economic Nationalism – Perhaps most significantly, mercantilism was marked by economic nationalism. The interests of the nation-state were prioritized over individual economic freedoms, full stop. The aim was to strengthen the nation’s economic power and self-sufficiency.

     Over time, the limitations of mercantilist policies and the desire for economic progress led to a gradual shift towards the principles of free trade. Mercantilism’s emphasis on state intervention and protectionism was increasingly challenged by thinkers advocating for the benefits of open markets and international trade. Modern economic thinkers branded and challenged the heavy-handed protectionist aspects of mercantilism as unproductive “rent taking.” All the centrally-accumulated wealth and human desire projected by mercantilist thought was arguably the ideal set up for a truly revolutionary push back. As we will see.

Money and The Commercial Source of Wealth

The Decline of the Landlord and Ascendance of the Commercial Baron

     In these city-states, where power was based on wealth detached from land ownership, there was a degree of liberty unknown to the vassal of a landlord or king. The city-states were decidedly commercial. From Italy to the Netherlands and Belgium, Germany, and Spain, trade (in goods and knowledge), banking, and finance were the primary endeavors.

     All the discovery, innovation, liberty, and ability to endeavor was enabled and fueled by… money. In the simplest sense, the gold and silver from the New World and the trade that went along with it created a large and growing “middle” merchant class. This striving centre propelled change by the force of base desire.

Financial Innovations and Institutions

     Money! The Commercial Revolution formalized and institutionalized money unlike and well beyond anything since the Roman Empire. Modern banking took hold in the 16^th-century when the (Catholic) Church became satisfied that charging interest was not, in fact, sinful. (No doubt, swelling tithes and the grace of banking families helped.)

     Dramatically oversimplifying: if you are the Jeff Bezos of your time, eventually it dawns on you that there is a limit to the pace and scale of wealth generation by (mostly) exploiting gold/silver acquisition directly. And, you may have that limit in sight. But others have ideas to explore, exploit, trade, and create wealth. Moreover, they are willing to undertake the dangers that go with it. Critically, they need (investment) money to make money. Since yours is doing nothing—except supporting artists and building churches—it makes sense to invest. But investment in this kind of venture is a long-odds bet. The better choice is to lend at interest. It’s much safer and almost as lucrative.

     Banking and the institutionalization of money as an exchange medium and moreso as influence on the Commercial Revolution cannot be understated. Except, of course, when compared to that other Leviathan of the period: the joint stock company.

     The joint stock company developed as one of two ways to manage (financial) risk during this period. The other was insurance. The risks these institutions were created to offset or mitigate were legion, nearly all arising out of discovery and trade. From the natural risks of travel on the sea, mostly owing to weather and ignorance, to risks of war and piracy, trade on the high seas did not always pan out. But when it did, it worked out very well. The monied and striving needed means to defray the risks and pursue the spoils.

     The idea of sharing risk, like the idea of money, was not new. During the Commercial Revolution it was, however, institutionalized. Discovery and trade rapidly evolved to be the purview of the wealthy that financed a founder’s company for a (substantial) piece of the action. (Sound familiar? Today we call it venture capitalism.) Its beginning is often tied to the London Royal Exchange, founded in 1565 and becoming a stock exchange by 1801. But trading exchanges, called bourses, actually date back to the 13^th and 14^th-centuries depending on the geographic location. The Amsterdam Bourse (stock exchange) is dubiously honoured as listing the Dutch East India Company, the first company to issue stocks and bonds, in 1602.^[6] As for insurance, Lloyd’s of London was created at a coffee shop in 1688. Its underwriting and new service systematized the notion of risk quantification for sea venturers and others.

Colonialism and Trade

     Ironically, not unlike our own time, it was a climate change at the end of the 13^th-century that forced innovation. This happened geopolitically, in technology, and in the drive to discover. The ensuing Age of Discovery helped shifted the economic centre of Europe farther west (toward the Atlantic) from Rome and the east end of the Mediterranean. When the Turks took Constantinople in 1453, overland trade route to the east became cost prohibitive at the very least. Once again, voyages of discovery were propelled on the back of trade and commerce.

     Which came first: the explorations and discovery or the technological advances that supported and sustained them? Capitalism would phrase this as demand v. supply-driven. On the waters alone, sail rigging designs and lighter weight hull crafting were matched with the navigational tools and techniques that were directly the result of Isaac Newton’s (Leibniz’s) calculus. It’s arguable they were complementary—as always. A discovery of some sort opened the way to an innovation that could fulfil a developing but struggling demand. Or, seen through the other end of the prism, a nascent demand being proven sets off a race to discover/innovate a means to fully exploit it.

Industrial Revolution and Capital Accumulation

     The Industrial Revolution, by which we’re referring to the British experience of industrialization through the second half of the 18^th-century and most of the 19^th, was another essential catalyst for the development of capitalism. A common description is that the Industrial Revolution was the time and process of changing an agrarian and artisanal world to a mechanized one. By good fortune or as an unremarkable next step to the ideas and progress that preceded it, the Industrial Revolution supercharged what was begun by the Commercial Revolution.

     The change in production at the time—both how and what—pushed forth a profound change in economy. That change in economy, in turn, altered society and individuals even more profoundly. As noted earlier, money and greater opportunity for individual advancement unleashed desires held down by the landownership-as-wealth structure. That was largely the Commercial Revolution’s doing. It took the Industrial Revolution to give those desires form and purpose beyond seafaring trade.

Invention and Innovation

     Accepted wisdom is that the Industrial Revolution began with Hargreaves’s spinning jenny (1770), Watt’s steam engine (ca 1780), Cartwright’s power loom (1785), and even Whitney’s cotton gin (1793). That’s not wrong—limited, but not wrong. There were many other, less notable but equally purposeful uses of mechanization that began appearing about this time. These bellwether inventions—and the others—created the means for and proved out 5, 10, 50X increases in productivity, directly driving industrialization and economic growth for British fabricators. Development and expansion of the basic ideas of mechanized work was applied to drain mines, build a railroad transportation construct, and alter the pace and scale of locomotion on land and by naval routes, and so much more.

     But to focus solely on mechanization or even industrialization is to expose only part of the story. The Industrial Revolution was a piece with the temper of the times. For instance, consider the rural-to-urban shift. Did industrialization incite migration from country to city, or was it merely a sop for all that newfound labour? Did mechanization contribute to starting that migration or was it merely an accelerant atop Closure and mercantile policies? The machinery invented was obviously the outcome of a long period of technological innovation. It did not arrive fully formed as a gift from God—maybe Mammon. Something else was elemental to those those inventions, derived from initial mechanization that advance over decades, caused them to bloom at that particular time? One has to at least speculate that it had something to do with the many other changes during the 18^th-century.

     Dissecting the Industrial Revolution is an effort worthy of shelves of space. Let us, however, make emphatic the point that the Industrial Revolution did not stand alone. The Industrial Revolution was a fact of and outcome from the crucible of intellectual, spiritual, moral, economic, and political (social) ferment of the preceding centuries: the Enlightenment and Commercial Revolution for instance.

Efficiency and Productivity (and the end of the Artisan)

     Evolution to the factory system, a natural outcome of bringing workers to one place to support mechanized equipment that prefaced orders of magnitude greater output than they ever could, was a more material outcome of the Industrial Revolution than mere mechanization. (Again: whether this started, resulted from, or merely accelerated forces of urbanization is a parlour game.) Factories could be even more purposeful alongside “industrial” modes of transportation such as rail and steam ship. Productive facilities no longer had to be adjacent to raw materials or the market. Both the inputs and outputs could be readily delivered from/to locations much farther afield. Factories led to specialization of labour skill, further over-matching and undercutting artisanal production capacity and cost.

     Of course, the Industrial Revolution would displace some and create horrible inequities that might take as long as a century to sort out (i.e., labour exploitation) every bit the same as the Age of Discovery had done before it (viz. slavery). This is not to diminish but, in fact, to extoll the value and impact on progress. But because it is not our central point here, we’ll leave that be.

Capital Accumulation

     Perhaps the most continuous and significant aspect of the Industrial Revolution, together with mercantilist thinking, trade, and the full panoply of Commercial Revolution impacts, was wealth accumulation. The descriptions provided for each show the cumulative and exponential impact of how:

• trade and trade opportunities led to a non-agrarian merchant class;
• discovery and colonialism created wealth for explorers and plunderers;
• the Commercial Revolution, particularly the concomitant Closure laws, reoriented the notions of success away from the landholding precedent;
• mercantilist policies created trade winners from venturers and pooled wealth; and
• industry solidified the shift from land assets to money and capital assets of all sorts as the basis of wealth accumulation and investment.

The Industrial Revolution fueled capital accumulation, as entrepreneurs and capitalists invested in new industries, machinery, and infrastructure. As we noted earlier, capital was essential to full discovery and trade at increasing scale without state intervention (control).

The Birth of Capitalism

     The “birth” of capitalism is complex… and debated. There was no particular crystalizing moment. It developed gradually over several centuries as an outcome to the prevailing circumstances that included not only conditions at hand but forces of change as presented previously.

     To the extent that capitalism was born, it was an idea made manifest by events and the actions of numerous people. It was, as the contrast between its fundamental principles and the circumstances of the day would prove out, a recoil marked by increasingly powerful individual and societal forces for individual freedom and rights, by exploding desire to acquire and amass wealth, by the search for political power and autonomy that had been withheld but obviously driven by wealth. It would be justifiable to say capitalism was not so much a new ideology as the codified unleashing of primal desires in an economic context.

     Even for a long hatching such as I suggest, there are events, ideas, and individuals to mark the moment. This section surveys only a small few of those.

Social and Political Transformations

     The rise of capitalism was not driven solely by economic factors but also by social and political transformations. As noted above, the Enlightenment, an intellectual and cultural movement of the 17^th and 18^th-centuries, emphasized reason, individualism, and the pursuit of progress. Enlightenment thinkers challenged traditional hierarchies and called for social and economic reforms that aligned with capitalist principles, such as equality before the law and the freedom to engage in economic activities.

     Throughout the preceding assessment of conditions and forces of change, the shifts in thought and thinking play an outsize role. This brief section is a synthesis of those effects on the moral, internal, and external perceptions among the masses.

Philosophical Elements

     Philosophical or moral shifts are important because they inform everything else. These moral sentiments of what is “right” and “wrong” operate sub-sonically. That is, they tend—especially as they become more ingrained—to frame the more obvious and noisy thinking and debate. Among others, these particular philosophies informed the environment that led to and that has existed for capitalism.

• Individualism – Individualism emphasizes the value and autonomy of the individual. John Locke among other contemporary and later thinkers of the Enlightenment championed individual rights, including the right to own property and pursue one’s own interests. Individualism recognizes individuals as the central agents of economic activity and supports the idea that they should be free to make choices based on their own self-interest. We, in the capitalist West to be sure, take this as a natural law.
• Liberalism – Liberalism, as a political and philosophical ideology, underpins capitalism. Liberal thinkers advocated for limited government intervention, protection of individual rights, and free markets. They argued that individuals should be free to pursue their own economic interests and that government interference in the economy should be minimized. Again, today we argue about degree, never about the inherent rightness of this proposition. Principles of liberalism, including individual freedom, equality before the law, and the sanctity of private property aligned with the core tenets of capitalism.
• Utilitarianism – Utilitarianism, a consequentialist ethical theory associated with thinkers like Jeremy Bentham and John Stuart Mill, influenced the development of capitalism. Utilitarianism focuses on maximizing overall happiness or utility in society, which obviously aligns to the forces of the Enlightenment. Capitalism, with its emphasis on individual self-interest and competition, is usually seen as compatible with utilitarian principles. According to utilitarianism, capitalist pursuit of self-interest, can lead to greater overall social welfare and well-being. Utilitarianism lasts.

Psychological Elements

     For our purpose the prevailing psychology of the time is (as always) a clear expression of the dominant philosophical tendencies. Two particular feature of the changing psychology under capitalism are worth noting.

• Self-Interest and Rationality – Capitalism assumes that individuals are primarily motivated by self-interest and act rationally to maximize their own well-being. This psychological assumption aligns with classical economic theories, such as those developed by Adam Smith. According to this perspective, individuals in a capitalist system are expected to make rational choices based on their own perceived benefits.
• Incentives and Rewards – Capitalism relies on the psychological principles of incentive and reward. The pursuit of profit and the prospect of economic reward (aka, greed) serve as powerful motivators for individuals to engage in productive activities. The belief that hard work, innovation, and entrepreneurial risk-taking can lead to financial success and social mobility serves as a critical driving force in a capitalist society.

Sociological Elements

     Capitalism recognized and amplified weak or constrained imperatives such as the naked desire to throw off the real and figurative shackles of servitude. Such sociological developments became codified in the Western (economic) ethos. Consider only three of these changes that are fundamental as air today but were unheard of pre-capitalism.

Division of Labour

     Division of labour, a fundamental aspect of capitalism, is associated with the work of Adam Smith. Smith specifically illustrated the efficiency of making pins with several specialists doing a part rather than the artisan creating from start to finish. It speaks directly to increasing overall productivity and efficiency. Capitalism implicitly is about advancing productivity as a means to succeed, grow wealth, secure freedom, etc. This sociological legacy spawned the assembly line, personal improvement, and so forth. Moreover, the division of labour promotes interdependence and the exchange of goods and services, fostering economic growth and the development of market systems.

Market Exchange

     Nothing is more central to capitalism than market exchange. Smith memorialized it with his butcher and baker. Voluntary transactions between buyers and sellers based on (hopefully) mutually beneficial agreements serves all good from allocation of resources to comparative advantage. It is of a piece with the concepts of freedom and liberty, meritocratic success, and wealth accumulation. The market, an impersonal arbiter of value—instead of a king or state—opened the door to imagination and innovation by anyone. Identification of and supply to an unserved demand founds capitalism and removed opportunity from the stranglehold of the landlord and regent.

     Market exchange is an understanding of markets as social institutions, where individuals interact and play. Its “rules” become institutionalized democratically because participants are free to join and play by the rules or break the rules and be ostracized. This is a legacy notion we hold dear even as it wears thin.

Social Mobility

     Capitalism offers the potential for social mobility, allowing individuals to move up or down the socioeconomic ladder based on personal economic success. In the feudal and even mercantile society this was rare. While “merit” can be argued and there is a long debate to be had over what basis of success is rewarded, there is no denying that under capitalism it is feasible and has at times been common. The prospect of upward social mobility, achieved by individual effort and merit, has been an important element supporting the legitimacy and acceptance of capitalism.

     Capitalism, of course, harnessed the Enlightenment cause of freedom and liberty in which economics so fundamentally plays a part. Freedom of the sort most people want is in no small part enabled by wealth. Accumulation of wealth is a core principle of capitalism. So in effect, capitalism harnessed this ideal of freedom and liberty by attaching it to wealth accumulation—and farther backward to individual merit and success.

Proto-Capitalist Thinkers and Writings

     Many prominent thinkers and writers contributed to the development of capitalist ideas. Some we have already encountered in our survey of the Enlightenment’s relevance. These thinkers, among so many others, challenged prevailing economic doctrine to lay the intellectual foundation for capitalism.

• Jean-Baptiste Colbert (1619-1683) – Colbert was King Louis XIV of France’s finance minister. He implemented mercantilist policies to encourage domestic industry, trade, and export promotion. His advocacy of government intervention and protectionism influenced economic policies across Europe during the early modern period. And, while purists may argue that this is mercantilist not capitalist, the focus on industry, trade, and wealth creation would cast a long shadow for this protocapitalist.
• John Locke (1632-1704) – John Locke, an English philosopher, contributed mightily to political theory and the ideal of individual rights. His writings on property rights, including Two Treatises of Government (1689), laid the foundation for the concept of private property and protections for individual ownership. Such ideas were critical to the emergence of capitalism, which would be hollow without private property rights.
• Bernard Mandeville (1670-1733) – Mandeville, a Dutch-British philosopher and economist, published The Fable of the Bees (1714). He proposed and argued that individual vices, when combined, can lead to overall social and economic benefits. Mandeville’s ideas challenged traditional moral and ethical assumptions, highlighting the role of self-interest in economic activity. It would not be a big leap to Smith’s market forces and the self-interested butcher and baker.
• Adam Smith (1723-1790) – Adam Smith, a Scottish philosopher and economist, is often referred to as the “father of capitalism.” His seminal work, The Wealth of Nations (1776), provided a comprehensive analysis and postulation of the value and relevance of market economies. Smith emphasized the importance of free markets, division of labour, and self-interest, arguing that the pursuit of self-interest, guided by market forces, ultimately leads to the betterment of society as a whole.

Free Trade and Liberal Economic Policies

     The development of capitalism was closely tied to the advocacy of free trade and liberal economic policies. The concept of laissez-faire economics, championed by thinkers like Adam Smith, argued for minimal government intervention in the economy. This shift away from mercantilist policies toward free trade and liberal economic practices created an environment conducive to the growth of capitalism. Trade and liberal economic policies tilted toward private owners as opposed to being the domain of states. Without state power to compel mercantilist desires, capitalists changed the focus to allow for more benefit from the elemental give and take of trade among market players. The repeal of protectionist measures, the dismantling of trade barriers, and the promotion of open markets demanded—then rewarded—greater competition, innovation, and the expansion of economic opportunities.

Capitalist Empires and Colonialism

     The growth of capitalism was intertwined with the expansion of colonial empires. European powers, such as Spain, Portugal, the Netherlands, France, and England, pursued colonial ventures for economic gain. Colonies provided access to valuable resources, including precious metals, agricultural products, and labour. The exploitative economic systems established in colonies, such as the plantation economies in the Americas, generated immense wealth for the colonizers and contributed to the accumulation of capital that fueled capitalist development.

     The birth of capitalism was a multifaceted process driven by a combination of economic, intellectual, social, and political factors. The Enlightenment, Commercial Revolution, and Industrial Revolution were key catalysts. The principles of individualism, private property, and free trade were its core underpinnings. In any case, the temper of the times made some sort of evolution inevitable. Arguably, capitalism best served thte needs and desires.

This is part of a series of essays exploring the idea of Capitalism as Religion.

Transformation of Capitalism, an introduction

Religious About Capitalism

Timothy Grayson is a Canadian (digital) transformation consultant, coach, and writer. Among other things, he has provided thechangeplaybook.com as a practical resource for change and project managers. Find him at institute-x.org.

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^[1]   I am referring to Tversky and Khanneman, and all those that followed their path to flesh out the field of behavioural economics.

^[2] The only disagreement being the degree of discontinuity represented by this “enlightened” period.

^[3]   This tragedy represents a common circumstance where a number of individuals acting in their own self-interest, on an open and apparently infinite resource, where no individual act would seem to have material impact, end up collectively depleting and/or destroying the resource for everyone. Originally the commons were public grazing lands for sheep. As a side note, this tragedy overlays nicely to one of the most typical oppositions to climate change action in the West: Our actions will have no effect compared to China and India (ergo, carry one carrying on).

^[4]   Only on a geologic time scale could anything that took 400-700 years to fulfill be considered a “revolution” and not an “evolution.”

^[5] Or, more probably, consistent with Hemmingway’s maxim: “Gradually, then suddenly.” (The Sun Also Rises.)

^[6]   Again foreshadowing today, the Dutch also pioneered short selling, options, debt-equity swaps, merchant banking, and other speculative instruments.