The main spur to trade or rather to industry and ingenuity, Is the exorbitant appetite of men, which they will take pain to gratify.
John Cary, 1695
Capitalism is an economic and cultural system that is characterized by innovation, risk taking and private investment to increase wealth.
Let’s say it’s the 13th Century and you’re a fabric merchant. Just like merchants today, you sometimes need to borrow money or credit to buy the fabrics you want to resell at a profit, in order to pay them back with interest once you’ve resold the merchandise. This is called mercantile capitalism, which was a global phenomenon from the Chinese, to the Indian overseas trade network, to Muslim merchants who would sponsor trade convoys across the Arabian Desert. By the 17th century, British and Dutch merchants had expanded upon this idea to create joint stock companies in order to finance bigger trade missions and spread the risk of international trade. These were the beginnings. However, industrial capitalism is completely different, both in scale and in practice. According to Joyce Appleby’s definition, it is: “An economic system that relies on investment of capital in machines and technology that are used to increase production of marketable goods”.
Industrial capitalism developed first in Britain, which was the dominant power on the seas and was making wealth off its trades with its colonies, in the 19th century. The growth of capitalism was supported by the half-century of civil unrest resulting from the 17th century English civil war. The economic regulations imposed by the British crown before the war couldn’t be maintained during the turmoil, which led to freer markets. Another factor was the remarkable increase in agricultural productivity by the end of the 16th century. As food prices started to climb, it became profitable for farmers, both large and small, to invest in agricultural technologies that improve crop yields. The higher prices for grain resulted from population growth, which in turn was boosted by increased production of food crops. This increased productivity, eventually brought down prices, thus encouraging more innovation in order to increase yield. Lower food prices had an added benefit: since food cost less and wages remained the same, workers had more disposable income, which means more consumption. This incentivized people to make consumer goods more efficiently.
This rapidly increasing productivity also meant that fewer laborers had to work in agriculture to feed the population. To put this in perspective, 80% of the English population in 1520 worked the land. By 1800, only 36% of adult male workers were in agriculture and in 1850 that percentage dropped to 25.
One of the ways the British achieved this agricultural productivity was through the process of enclosure, through which landlords could reclaim and privatize fields that for centuries had been held in common by multiple tenant farmers.
Now capitalism is also a cultural system, and it is rooted in the need of private investors to make profit. Thus, people had to develop the capitalist values of taking risks and investing in innovation. The main reason why these values developed in Britain was that they were very well publicized. Writers like Thomas Mun, who worked for the English East India Company, exposed people to the idea that it was human nature for individuals to participate in markets as rational actors. Even the English language changed; the word “individual” wasn’t introduced until the 17th century and up until the 18th century a “career” referred only to the racing life of a horse.
Today we’re in the 21st century and it is evident that industrial capitalism has overcome. But it isn’t without its critics or shortcomings. One way that workers responded to these shortcomings was by forming labor unions. Another response was socialism. Capitalism advocates like to point out that it’s more inclined to human nature which means that if left to our own devices, humans would still construct capitalist economic relationships. Socialism in the other hand, at least in its modern versions, makes fewer pretenses towards being an expression of human nature; but rather the result of human choice and human planning.
We can confidently say that today industrial capitalism has won out, at least for now, and in terms of material well-being and access to goods and services, it is rather a good thing. But how and to what extent can we use socialist values to regulate free markets remains an open question. Is capitalist competition natural and good or should there be systems in place to regulate it for the sake of our collective well-being? Should we provide free health care for the sick and pensions for the old? Should governments run businesses and if so, which ones? Those are the challenges where industrial capitalism and socialism are still competing and in that sense the struggle continues.