When Did Capitalism Begin?

Political Philosophy
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It has become all too common for the Left to criticize capitalism for every reason under the sun, albeit their reasoning has often lacked reason and has been aimed at an illigimate Appeal to Emotion. While there are many ways they may do this, my chief concern for this post revolves around a particular question. This question rises from one of the many criticisms of the Left regading capitalism is that it is an “oppressive status quo.” Now, let no one think he must convince me personally that this is claim that capitalism is oppressive is fallacious. But all of this talk by them seems to lead to throwing around the word ‘progress’ and ‘change’ at random without much critical analysis. They assume that because a thing is called ‘progressive’ that it is truly progress. They assume that because because a policy is ‘changed’ such changes are actually desireable without considering the concerns of claims to the contrary. Well, all this got me thinking about a question I had never really considered: when did capitalism begin? I find myself defending a system with whose recent history I am familiar, but whose evolutionary and original historical origins escape me. While I understand and don’t mind if posters wish to throw Rand quotes at me and refer to her books, I am, admittedly, hoping that there will not be overwhealming consensus on this topic. I am curious as to the different theories held about the origins of capitalism, and why these respective theories are held.

Going back to the Leftists’ claim that capitalism is a ‘status quo’ system: I’ve been reading, for the third time, Nobel Prize winning economist FA Hayek’s Road to Serfdom. Although he argues that the ‘status quo’ attack is fallacious, he does it in a particulalry interesting manner. He essentially and briefly claims that capitalism is a recent system as compared to socialism. Because he does not clarfiy whether or not he is speaking of industrial capitalism as what occured in the 1800s or general capitalism as a system, it is hard to determine his exact meaning. Nor do I fault him for this. Those who have read the book will remember that Hayek’s critqiue of socialism is an examination of socialism’s negative effects on England, France, and Germany beginning in the early 1900s specifically. He starts there and works his way up to WWII and addresses the simarility between fascism and communism.

And thus, it is not a broad treatise on capitalism. So while he does talk a little bit about the history of capitalism for comparison and contrast purposes, he does not detail the history of the system. He does, however, make vague hints. One of my favorite quotes by him is that the Free Market “is a system, which, rather than being designed, was stumbled upon man as the best system for the allocation of resources.” This would amost seem to imply that Hayek believes capitalism to be a system independent of man, like gravity. A thing to be discovered and harnessed by man rahther than discovered. Yet, almost paradoxically, the thesis for his book is that man has always, throughout most of history, lived in sefrdom, and that only has he experienced liberty, which Hayek attributes to capitalism and private property and innovation that both bring. His whole point is that under the market system we were moving toward liberty but that we are reversing course and via socialism, are returning to serfdom.

I heartily believe his thesis, and the proof of his words can be everywhere seen in the Western countries, where our liberty is and has been stripped from us by the collectivist forces in our governments. But even so, Hayek himself seems to be (and I don’t fault him for this either) confused or conflicted about the beginnings of capitalism. This particular has no bearing on his overall thesis, and is only a minor point, so it often overlooked by both leftwing and rightwing economists. But I’m crazy with curiuosity about the origins of this beautiful system which I’ll defend to the day I die. What’s more frustrating, there do not seem to be very many discussions on the birth of capitalism, though every other aspect seems to be discussed at length.

But I’m curious what the rest of you think about capitalism. When did this system called capitalism begin? I understand that there are different ways to approach it, so in your answers, I don’t mind if you try to tackle it in general, or address it from a specifc evolutionary, philosphical, or political perspective when tracking its history.

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As a non-historian, here is my understanding of history:

Capitalism is a system where the right to individual self-determination is recognized and where spurious “rights” of birth or “rights” to have someone provide you with things are not recognized. One will never find a perfect system, but by tracing the quantum of these two things – how much did a society allow the right to self-determination, and how many spurious “rights” did it allow – one can get an idea of how close a society is to Capitalism.

Even feudal systems often had to allow some rights to some noblemen. Also, typically, traders were a rung above serfs. In practical terms this meant they had some more rights while the serfs had less. Some of these traders were even designated “freemen”. To a modern mind all these people would look like they’re under terrible oppression, but its relative: typically, they were not living in an absolute tyranny. Though those higher in the nobility had a lot of tyrannical power, the rights – such as they were – drew a line. That does not mean such lines were never crossed. They were. However, when such rights are widely accepted “on paper”, a tyrant who crosses them routinely and capriciously might stir rebellion. For instance, see the Magna-carta, for the type of rights the nobles and freemen were demanding from the English king around 1200AD. The same concerns, and the same need to make the top rungs feel included, led to the creation of early parliaments.

Even such limited rights can be disruptive of the system. A lower baron can do wonders with his little wine-monopoly, and be richer than some who are above him in the nobility. And, his rights as a nobleman can keep some of his wealth protected from the higher-ups. The nobility can accommodate this by allowing people to buy their way to higher stations. Similarly a freeman expands from a few apprentices, to having more employees and becomes rich, and the nobility accommodates this by making him a minor noble. In the U.K., a rich non-noble could sometimes buy himself a seat in the house of commons. In Italy, one sees the wealthy Medici family making their own guy the pope. Wealth from sources other than birth, and the right to keep that wealth, disrupt the existing birth-based status quo.

At the same time, one has the Renaissance rediscovering the idea of man’s mind as a powerful force, and a discovery of the need for the mind to think independently. So, we see Luther and Erasmus questioning the authority of the established church. We see that these people get protection from certain nobility who are either convinced by their ideas, or who think they can use these ideas to their own ends. So, a German prince protects Luther and Henry VIII splits England from Rome. Philosophers like John Locke are patronized by some noblemen, while they write books that promote reason over faith. So, Adam Smith and John Baptiste Say are born into a society where wealth does not always come from birth, where the relationship between hard work and wealth is much better established, where the relationship between the mind and wealth is better established, and where rights are far more widespread than their grand-father’s generation. They then see how the meddling of governments – even for the supposed benefits of the kingdom – actually end up working against the mind and actions of better businessmen. Their work finally convinces governments to step away from meddling in many areas.

Unfortunately, their generation too does not see the protection of rights as the primary role of government. Rather, the government’s role is seen as furthering the common good, and rights are seen as the best way to ensure this. The individual is not yet seen – morally and intellectually – as an end in himself. The appeal is: let him pursue his selfishness, because that is the best way he can help the volk. For a time, this intellectual seed was still a seed. For a time, many of the older powers of the nobility had been stripped away and many new rights recognized. If Capitalism is a recognition of universal rights, and an absence of spurious “rights”, then this period came the closest relative to many centuries past.

Then, having curbed the spurious “rights” of nobility, the spurious “rights” of the masses started to grow. One sees its fruit as early as the French revolution. One sees it in the populist movement in the U.S. around the 1890s. The world-wide turning point was somewhere around the First World War. The communist revolution in Russia probably had the establishment well and truly scared. So, post WW-I other countries started to give universal voting rights to all males. With the background philosophy that government has the duty to help the poor and redistribute the wealth of the rich, universal voting rights are going to lead to more and more re-distributive laws. Given the widespread premise about the nature of government, it made sense to grant such universal rights and have things move slowly and peacefully, without revolution. Still, this marked the move away from the brief upward trend.

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Yes, I preface this too with “as a non historian” and a non-Marxist’s understanding of socialist theory. This seems to be a two part question. Correct me if I’m wrong, but your question is essentially, what is the time period in which capitalism first arose, and your reason for asking it is due to the confusion of “progressive” versus “reactionary” by socialists.

Before we can answer that, we must begin by differentiating between concepts to better understand the situation. Capitalism, as we wish to establish it (meaning the full laissez-faire, private property society) has never existed obviously, but capitalism in the more loose sense of the division of labor organized around generally secure private property and the general mass production of goods for private profit, has existed in varying degrees and intensities in different areas in the past.

But, to get to the heart of the matter, the answer of an exact date really seems irrelevant to the “spirit” of the question, as the accusation is from the socialists: capitalism is old, socialism is new; capitalism is reactionary, socialism is progressive. We don’t really need to look at historical dates to compare and sort of to “see which came first” to win the argument, but by more of an examination of the concepts and the referents of capitalism and socialism.

Will we have to investigate both questions, (the history of capitalism and the conceptual contrast of capitalism and socialism) to get a satisfactory answer. By the way, I thought Road to Serfdom was a great source of information and argumentation, I’m really surprised by Objectivists that didn’t enjoy it.

First, we have to examine the default state of nature. Human beings are estimated to have existed more or less in the current form since 500,000 years ago. The general scientific consensus is that they came from Africa and spread around the globe in small tribes and familial groups. At this point, we can say that there is no capitalism, and that the hunter-gatherer groups lived a pretty much hand to mouth communal existence for the most of human history. This is the default state of primitive existence. No capital goods, no credit, no savings, etc.

Marx stated that socialism can only come about after the material productive forces raise the class consciousness of the proletariat to a sufficient level for revolution. In this sense, as Ludwig von Mises pointed out, the most outstanding contribution to social theory Marx originated is the inevitability of socialism. Socialism can only occur with the capital already accumulated under capitalism.

In this sense, socialism is mystical as a philosophy of religious or secular eschatology, Mises points out in his book Socialism.

Now, it appears that capitalism in the loose second sense that I mentioned earlier, seems to have its first roots during the Renaissance, mainly in Italy late 14th century. As cities began to cooperate and spread the division of labor and monetary integration throughout and capital began to be accumulated, leading to gradual rise in living standards, and eventually even the Catholic church begrudgingly recognized that the right to private property was unfortunately needed for general prosperity.

This is the great period of mercantilism, which mixes some aspects of the above loose definition with heavy state control, taxation, and regulation of commerce. This cannot be capitalism, but certainly the capitalistic elements of trade and production are there.

The most relatively pure example of our second definition and the closest to our first ideal was the period of monarchical limitations on state powers which precipitated the Industrial Revolution around the time of the end of the 18th century to WWI. This was the greatest expansion of trade and production, the greatest rise in living standards, and except for the American Civil War, the greatest time of peace mankind has ever known. It was ended by WWI, mass democracy, and the communist revolution in Russia. That is my very brief historical understandings of the different economic systems.

Now, we must examine the concepts of capitalism and socialism. Why should a socialist be “progressive” and a capitalist be “reactionary”? I think Hayek provides a pretty good explanation of this in Road to Serfdom. Hayek seems to come into the same understanding of the historical development of capitalism, stating that it had developed during the Renaissance, grew and spread into Western civilization with the direction of freeing the individual man from the ties which bound him in feudal society.

Rand reminds us that: The ideological root of statism (or collectivism) is the tribal premise of primordial savages who, unable to conceive of individual rights, believed that the tribe is a supreme, omnipotent ruler, that it owns the lives of its members and may sacrifice them whenever it pleases to whatever it deems to be its own “good.” Unable to conceive of any social principles, save the rule of brute force, they believed that the tribe’s wishes are limited only by its physical power and that other tribes are its natural prey, to be conquered, looted, enslaved, or annihilated. … Statism—in fact and in principle—is nothing more than gang rule.

We must remember that the primitive man lacked established private property rights, although he must have had some very basic conception of “this is mine, that is yours” in order to survive. In this sense, socialism is almost identical to the default primitive state of nature, where man organized into tribes and communal life. Indeed socialist theory goes back to at least Plato.

The concept of a ruling authority who distributes goods to the group is more closely aligned with the early social organizations of man. (And despite any socialist claims that no ruling authority is really socialist, that is not born out by the necessary implications of socialist theory.) The progress of civilization has always been a progress away from the primitive tribe and towards a society of exclusion and privacy for the individual to control his own life, mind, and body, and those physical goods he had homesteaded, produced, and traded for with this life, mind, and body.

Hayek points out the “Background to danger” and “Is planning ‘inevitable’?” in Road to Serfdom that the collectivists began to see the world in terms of the inevitable societal evolution towards the Garden of Eden. They thought it would be automatic prosperity and equality for all, but for the arbitrary economic system imposed on us by capitalists. If we could only gain control of the capital goods, expropriate them from the private owners, then we would be living in paradise. In that sense, capitalism is reactionary, and socialism is progressive.

Ayn Rand calls this “pure Attila-ism,” as Marx had substituted “material productive forces” for Hegel’s “Geist” in the attempt to live as close to the perceptual level as humanly possible. There is no mind, just matter, expropriate the omnipotent material forces and you are the master of reality. (Cf. Rand, For the New Intellectual)

If we examine these concepts, we see that if progress is to be judged by the standard of liberating mankind from the primitive state of natural poverty, then capitalism and only capitalism, the more laissez-faire the better, can be considered consistent with this standard.

As Hayek points out, that modern civilization was made possible only by capitalism and that as soon as all around planning is attempted, because of the calculation and knowledge problem which he outlines, the division of labor must necessarily contract. But under the free competitive forces, the division of labor is extended far beyond anything that can be possible under planning. Thus the conclusion, that if “progress” is to be the consideration, then it is all the more important that we NOT have socialism.

I know, that’s probably a terrible answer, and I wish there is just one lecture I could point you to, but there isn’t. You might want to read this book Socialism by Ludwig von Mises, particularly “PART III. THE ALLEGED INEVITABILITY OF SOCIALISM.”

http://mises.org/books/socialism/contents.aspx

Also, if you go on iTunes U, there is a 10 part lecture series you can download for free by another Austrian economist and professor at UNLV, Hans-Hermann Hoppe called “Economy, Society, and History,” which you can listen to on your iPod whenever. It’s a pretty good series, although beware that he is an anarchist, but it still contains a lot of good historical and economic information about the “problem of production” man faces in his existence, and how violations of private property rights must necessarily thwart progress and lower living standards.

http://mises.org/media.aspx?action=category&ID=66

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This is a great question. I think Capitalism as a system of private property predates humanity. Animals understand private property within a pack and even sometimes value their creation.

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This is a great question. I think Capitalism as a system of private property predates humanity. Animals understand private property within a pack and even sometimes value their creation.

Problem with this answer is that I don’t think anyone here would define capitalism that way. Animals don’t understand private property at all, although if you mean just implicitly, that point is sufficiently addressed in 2046’s post: “We must remember that the primitive man lacked established private property rights, although he must have had some very basic conception of “this is mine, that is yours” in order to survive. In this sense, socialism is almost identical to the default primitive state of nature, where man organized into tribes and communal life.” Really, any political system is a system of private property, because at least implicitly, private property is understood to be important for anyone’s survival. Even equal distribution of wealth is a system of private property, albeit one where property forcibly changes hands. Whether or not various systems properly treat private property is another story.

As a system of protecting individual rights - which is what is meant by laissez-faire capitalism here - a lot more development than the concept of private property was required to even grasp exactly what would be the proper system for all people. Rights, trade, and understanding the moral basis of those two concepts, are an essential conceptual basis to the development of capitalism.

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Actually, animals most emphatically do NOT understand private property. In certain macaque groups (a kind of monkey), dominant individuals will take food or other resources away from submissive individuals by force. This actually discourages the discovery of extra food, because the submissive individuals have anything they “produce” (by procuring it from the environment, sometimes at considerable effort) stolen from them, and the dominant individuals don’t need to do that extra work when they can just take whatever they want.

I think it’s an extremely good natural example of what happens when private property rights are NOT respected.

Also on an interesting note, submissive individuals become very good at figuring out how to hide from dominant individuals and procure/consume in secret. But of course this severely limits their activity. They even figure out how to sneak matings out of the sight of dominant individuals.

This is a great question. I think Capitalism as a system of private property predates humanity. Animals understand private property within a pack and even sometimes value their creation.

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I think it is important to point out that socialism is varried and old. Various cults (of the christian variety) would spring during the medieval era. It usually involved polygamy, the abolishing of private property, and insane mystical philosophies. Luckily most of these groups implode in fantastic fits of violence or are slaughtered by whatever state they happen to be upsetting.

Murray Rothbard ( You don’t need to say anything) has a lecture at mises about socialism and religion where he talks about these groups.

Marxian socialism is new and is only one of many kinds of socialism. In fact I would even go so far to say that Marxian socialism is pretty damn rare since only Academics and capitalists really understand it. Trotsky, Lenin, Mao, and Stalin all hevily modified Marxist doctirne to suit what made them feel good.

Mao - Oh peasants can ignite the revolution also!

Trotsky - We don’t need to wait for capitalism to spread to feudalist societies!

Lenin - Lets start the revolution against capitalism in Germany by starting it in the most backward european country, Russian.

Stalin - Marxism is whatever I say it is.

Remember that the point of Marxism is that socialism and communism will come inevitably around the world collwhen the workers can’t bear being exploited anymore. Socialism requires a massive industrial economy. At the time of Marx’s writing, he thought that Germany would be the best candidate for a socialist revolution because of how industrial advanced it was.

Yet the vast majority of socialist revolutions happen in what are basically fedualist countries, or were countries that were colonized by a european power . Socialist revolutions don’t seem to take place in countries that actually approach a capitalist system. It has only happened a couple of times, and that was only on the city scale during the period between WWI and WWII.

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Actually, animals most emphatically do NOT understand private property. In certain macaque groups (a kind of monkey), dominant individuals will take food or other resources away from submissive individuals by force. This actually discourages the discovery of extra food, because the submissive individuals have anything they “produce” (by procuring it from the environment, sometimes at considerable effort) stolen from them, and the dominant individuals don’t need to do that extra work when they can just take whatever they want.

I think it’s an extremely good natural example of what happens when private property rights are NOT respected.

It is, but that doesn’t mean that animals never understand private property. Charles Cornish wrote a book “Animals of today, their life and conversation” where he shows examples of dogs respecting property rights. A quick Google search of “animals understand property” yields several instances that shows a rudimentary concept of property rights in animals.

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It is, but that doesn’t mean that animals never understand private property. Charles Cornish wrote a book “Animals of today, their life and conversation” where he shows examples of dogs respecting property rights. A quick Google search of “animals understand property” yields several instances that shows a rudimentary concept of property rights in animals.

Are you equating “understanding property” with territoriality?

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A wonderful book (three volumes) that addresses this issue in fictional form is Neil Stephenson’s The Baroque Cycle. He writes of the period from around 1650 to 1715, centered mainly in England. It’s after the restoration of the Monarchy and prior to the Glorious Revolution. He explores the development of a stable currency, individual rights, and science and how they impacted the “System of the World” (which is largely a British system). Absolutely a must read for anyone interested in how the ideas that influenced the Founding Fathers came to be.

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Are you equating “understanding property” with territoriality?

I’m not equating two per se, but I think territoriality is part of understanding property. Animals can understand food ownership too sometimes, but your example shows that obviously sometimes they don’t. Just like humans.

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Are you equating “understanding property” with territoriality?

I would call four dogs living in the same territory together, each having several toys, each knowing which toys are their personal toys and defending what is theirs while largely leaving the others’ alone a very primitive form of understanding.

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Capitalism began around the start of the 18th Century as a result of both the Age of Enlightenment across Europe and the Industrial Revolution in Britain.

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Capitalism and Private Property are interchangeable concepts only to a certain extent.

Capitalism is basically spontaneous organization of human relations backed by law and order to provide a safe turf. It is debatable when it started because it’s a process inherent to Human Civilization. We’ll see a lot more of it in the future than in the past.

But Capitalism can’t work without private property, and that’s a matter of law.

That can be answered more accurately. Non Catholic Englishmen gained private ownership of their own bodies in 1689 but that didn’t stop them being gang-pressed into slavery aboard a merchant ship.

European Americans of a small coastal strip, who decided like some Italian Republics, to have Laws instead of Kings, gained themselves their right to their own bodies and properties, albeit with some exceptions (taxes, regulations) and it was actually until after the Vietnam war that no American was legally protected not to be hijacked, enslaved, and send to be mutilated in combat against his will.

So basically it is necessary to acknowledge the great English and by extension American Liberties - as they appear in paper - and also contrast them with the reality of the human experience, of history. I can’t think of a culture of a comparable size (Switzerland, some Italian cities) that achieved such level of liberty and thus Capitalism, but still it is a work in progress.

When they ask you when Capitalism began, you should draw them a line that smoothly takes off the horizontal plane and grows exponentially.

Only the knees of the curve are perceivable, but paradoxically the knee of the curve changes depending on the (historical) position of the observer.

Therefore, there is as little a way to answer your question as there is to answer the question of when civilization began, or when the animal homo sapiens turned into the human homo sapiens…

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… Well, all this got me thinking about a question I had never really considered: when did capitalism begin? … But even so, Hayek himself seems to be (and I don’t fault him for this either) confused or conflicted about the beginnings of capitalism. …

You got too many rambling phillipics from confessed non-historians. Allow me to answer briefly as a published author of histories[1] and as an Objectivist.

It may be that every society has had traders and merchants. Certainly, every civilization has. However, capitalism was impossible until the Age of Reason. I am fully aware of powerful roots in the Middle Ages, but two explicit formulations were necessary: the arithmetic of risk; and natural rights. Before Fermat and Pascal rationalized chance, risk was in the hands of the Fates or the gods or God. Once risk was calculable, it could be bought and sold. (See Against the Gods: the Remarkable Story of Risk by Peter L. Bernstein; Wiley, 1998.) That alone was not sufficient. Good arithmetic alone could not make capitalism without political equality based on common rights.

You often hear people say “a jury of your peers” but that phrase appears nowhere in the Constitution, nor could it because we have no peerage. Capitalism was impossible until everyone was equal under law. That required an understanding of natural rights.

Where you look for the origin of capitalism depends on what you define as an essential event. The English Bill of Rights of 1689 (Avalon here) is a strong statement. Locke’s Second Treatise on Government would be a philosophical foundation for that. Myself, I like the fact that The Wealth of Nations and the Declaration of Independence were both published in 1776. That’s where capitalism begins… though, without the arithmetic of risk, we would have had little more than self-sufficient yeoman farmers in some kind of Jeffersonian Tolkein fantasy, rather than the complex and vibrant civilization of invention and improvement.

[1] My curriculum vitae includes about 20 works such as these:

“Champagne: The Athens of the Middle Ages, The Celator, Vol. 25. No. 11, November 2009.

“Michigan in Three Financial Panics: 1837, 1857, and 1933,” The Mich-Matist Volume XLII No.4, Fall 2006.

“Copper Owls : The Emergency Coinage of Athens 406 BC,” The Celator, Vol. 19, no. 10 (October 2005), p. 6-16.

“Sir Isaac Newton: Warden and Master of the Mint,” The Numismatist, Vol. 114, no. 11 (November 2001), p. 1302-1308, 1363 : ill., port.

“Dyrrachium: Rome’s Gateway to Greece,” The Celator, Vol 11 no. 4, April 1997

“A Penny Earned: the Wages of Work,” The Numismatist, Vol. 109, no. 11 (November 996), p. 1320-1321, ill.

“Some Questions on the Origins of Coinage,” Classical Numismatic Review, Vol. 19, no. 3, p. 3.

“The Purse of Eratosthenes: the Coinage and Commerce of Cyrene,” The Celator, Vol. 8, no 1, (January 1994), p 18-20., ill

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I don’t know how it began but ironically it was Alexander Hamilton who first coined the term “capitalism”

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I don’t know how it began but ironically it was Alexander Hamilton who first coined the term “capitalism”

I thought the word “capitalism” was coined by Marxists as a pejorative term and then was captured by capitalism’s supporters to be a non-pejorative term.

Edit:

According to Wikipedia -

The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850 and Pierre-Joseph Proudhon in 1861.