The Rise of Capitalism
How we arrived here?
A consideration of where we are now and how we got here may help us determine where we can go from here and how to get there. So, in this part we will examine the currently dominant system, capitalism. In summary, we argue that capitalism appeared at a particular historical moment, is shaped by a particular historical context, and is likely to either end or evolve into something else, as the result of interplay with the ever-changing context. To make this clear, we start from clarifying what the defining features of capitalism are. We suggest that these futures were a great asset in the early stages of the system, leading to fast economic, political and other social changes. However, ‘more of the same’ in different circumstances has allowed them to become overgrown and out of control, leading to the decline of the system as a whole. The first chapter will look at the rise of capitalism and the second chapter at its decline.
What actually is capitalism? The answer to this question very much depends on who you ask. Capitalism is used as a term of abuse as well as glorification; it is used to indicate both an economic system and a political system, and is often amalgamated with ancient facets of trade, commerce and production. For various reasons (not all of which are noble), it is tied to many things, so some clarifications are required:
- Capitalism is often linked to forms of political organisation that are usually referred to as ‘democracies’. It is taken for granted that democracy and capitalism go hand in hand. This was used as a propaganda weapon during the Cold War, but it is not something that should be assumed. Present-day China is an example: politically, it is a communist country, but economically speaking, it is to a great degree capitalist. There are many other examples: theocracies, like Saudi Arabia, and dictatorships, such as Franco’s Spain or Pinochet’s Chile, have been considered capitalist countries. It is clear that there is not an innate link between capitalism and a certain type of political organisation. It should be acknowledged, though, that capitalism was initially more likely to appear and develop alongside at least a rudimentary democracy, as it allowed those with the capital (irrespective of their background) to exercise greater power.
- Capitalism is often tied to private property, free trade, and private enterprise. It is true that capitalism has incorporated and made greater use of these features, but they existed long before capitalism appeared and were fairly common in previous social systems; therefore, they cannot be its defining features. The pharaohs of ancient Egypt owned the means of production (slaves and technology), but it would seem odd to call them capitalists. The Phoenicians traded more freely than 19th century merchants, but it would be a stretch to call the Mediterranean societies of that time capitalist. Likewise, from Ancient Greece to Ancient China, we can find advocates of private property, way before anybody dreamed of what we nowadays recognise as capitalism. The reason why it is common to define the system in this way is mostly ideological. These features are easy to see as timeless and universal, so linking capitalism to them makes it seem, by association, timeless and universal too. And, if we believe that ‘capitalism’, in one form or another, has always existed (and has been fully expressed only relatively recently), we will also believe that it will always exist; so what’s the point of thinking about something else?
- Profit, too, is not unique to capitalism. To make a profit, the benefit of what you make or do needs to be somewhat greater than the cost. For example, if you make a pair of shoes and sell them so that you cover your expenses and can also feed yourself and your family, you are running a profitable business. This sort of transaction has also been around for a long time, way before capitalism.
- What about laissez-faire? Surely, freedom from government interventions (such as regulations, privileges, tariffs and subsidies) must be at the heart of capitalism. After all, many people define capitalism as a bottom-up approach (as opposed to socialism which is seen as a top-down approach). This, though, is far from reality. Laissez-faire (meaning ‘let them do’, or ‘leave them alone’) was popularised by the first economists, the 18th-century French thinkers known as the physiocrats. They advocated it mainly to help get rid of internal tariffs (taxes for moving goods within a country) and were in favour of agriculture rather than capitalism. Adam Smith (1723–90), who is considered in the Anglo-Saxon world to be the father of economics, was also in favour of laissez-faire. He advocated a reduced role for the state in economic matters, but again, not for the sake of capitalists. Quite the opposite, he did so because he thought that the state colluded with, and was too much swayed by the capitalists of his time. In fact, capitalism and capitalists have had, in general, an inconsistent relationship with laissez-faire. They have favoured it when it has suited them, but have been happy to be bailed out by the state in times of crisis, or to put up tariffs when they sought to stifle their competition (Trump’s re-introduction of some tariffs is a recent example). As we will see later on, all capitalist economies are actually mixed economies and seeing laissez-faire as the hub of the capitalist wheel does not seem to be justified.
This hopefully clears the way for seeing capitalism as a system that first appeared in a particular historical period (roughly in the 17th century), and incorporated the useful elements of previous systems, but also developed its own unique features. We propose that these features come in pairs: although this is far from clear cut, one member of each pair can be considered ‘hard’ or material, and the other ‘soft’ or socio-psychological (this reflects the interplay between the material and socio-psychological that can be recognised in all social processes):
- Fiat money and individualism make the first pair. We suggest that they are the precursors to capitalism – indeed, the very elements that enabled it to appear.
- The second pair are the ‘legs’ on which capitalism stands (without them it would collapse): one is investment (borrowing, lending and trading in money and shares) and the other is consumerism (mass production and mass consumption),
- The third pair makes up the right arm of capitalism: quantity and competition (being prioritised in capitalism over quality and cooperation).
All these six elements had existed in some form even before capitalism, but capitalism transformed them in a unique way, and by doing so accelerated the separation from their natural counterparts (e.g. the counterpart to money being the value it is supposed to represent, the counterpart of consumerism being the needs it is meant to meet, etc.). It is argued that this separation served the system well for a while, as it allowed for greater complexity and operational freedom. However, at a certain point, it went too far. Looking more closely at this process can help us not only understand why those features are essential, but also how and why capitalism rose, reached its peak and, in recent decades, entered its decline.
 Aristotle and Mencius are respective examples (the latter using the term ‘constant assets’). For further details, see, for instance, The History of Ancient Chinese Economic Thought, edited by Lin, C., Peach, T. & Fang, W. 2014.
The invention of fiat money was necessary for capitalism to emerge. Of course, money as such appeared much earlier; everybody has seen Roman coins or something similar. But, those were not money as we know it (even though there may be some similarity in appearance) and were closer to other forms of exchange than to what we nowadays consider to be money.
In the 17th century, France was a dominant power, considered the leading force of a new world order. But then things started going wrong. France was losing a war against the much smaller and less wealthy England. How was that possible? What was France doing wrong?
If the financial market and consumerism are capitalism’s legs, quantification and competition can be seen as its right hand (quality and cooperation being the inferior, left one – unless, of course, you are left-handed).
The rise of capitalism lasted for several centuries. Overall progress was discernible until roughly the mid-1970s. However, it was a bumpy ride, with many ups and downs and a large number of casualties. In the very early stages of capitalism, industrialisation was, by and large, embraced by the new working class.