LIKE A GOOD detective story, the history of capitalism begins with a puzzle. For millennia trade had flourished within traditional societies, strictly confined in its economic and moral reach. Yet in the sixteenth century, commerce moved in bold new directions. More effective ways to raise food slowly started to release workers and money for other economic pursuits, such as processing the sugar, tobacco, cotton, tea, and silks that came to Europe from the East and West Indies and beyond. These improvements raised the standard of living for Western Europeans, but it took something more dramatic to break through the restraints of habit and authority of the old economic order. That world-reshaping force came when a group of natural philosophers gained an understanding of physical laws. With this knowledge, inventors with a more practical bent found stunning ways to generate energy from natural forces. Production took a quantum leap forward. Capitalism—a system based on individual investments in the production of marketable goods—slowly replaced the traditional ways of meeting the material needs of a society. From early industrialization to the present global economy, a sequence of revolutions relentlessly changed the habits and habitats of human beings. The puzzle is why it took so long for these developments to materialize.
Most of the marvelous machines that transformed human effort began with simple applications of steam and electricity. How many people had watched steam lift the top off a pan of boiling water before someone figured out how to make steam run an engine? Couldn’t someone earlier have begun experimenting with lightning? The dramatic success of eighteenth-and nineteenth-century innovations compels us to wonder why human societies remained fixed for millennia in a primitive agrarian order. How can it be that brilliant minds penetrated some of the secrets of the cosmos but couldn’t imagine how to combat hunger? The answer that the times were economically backward is of course semantic and doesn’t really help us pierce the conundrum of great civilized accomplishments in the face of limited economic productivity.
Starting with these questions, I am going to explore the benchmarks in capitalism’s ascent, looking at how this system transformed politics while churning up practices, thoughts, values, and ideals that had long prevailed within the cocoon of custom. This is not a general study of capitalism in the world, but rather a narrative that follows the shaping of the economic system that we live with today. Nor does it cover how various countries became capitalistic, but rather concentrates on those specific developments in particular places that gave form to capitalism. My focus is on economic practices, of course, but it can’t be stressed too much that capitalism is as much a cultural as an economic system. A new way of establishing political order emerged. People reversed how they looked at the past and the future. They reconceived human nature. At a very personal level, men and women began making plans for themselves that would once have appeared ludicrous in their ambitious reach. Tucked into this account will be an examination of how different societies have responded to the constant challenges ushered into their lives during the past four centuries.
If we were to visit ancient Florence, Aleppo, and Canton, we would be astonished by the rich array of foods and goods for sale in their vast bazaars, souks, and markets. We would marvel at the beauty of their churches, temples, and mosques, as well as the merchants’ elegant city houses and the country homes of the nobility. We would discover a population of talented artisans, knowledgeable statesmen, shrewd traders, skilled mariners, and energetic people everywhere. Yet they all were in thrall to an economic system so limited in size and scope that it could barely feed them. They accepted as normal that they would regularly suffer from drastic shortages of all kinds of goods because it had always been so.
Scarcity in Traditional Society
Traditional societies around the globe were built on the bedrock of scarcity, above all the scarcity of food. Whether in ancient Egypt or Greece, Babylonia or Mongolia, it took the labor of upwards of 80 percent of the people to produce enough food to feed the whole population. And because farmers often didn’t even succeed in doing that, there were famines. All but the very wealthy tightened their belts every year in the months before crops came in. The fear of famine was omnipresent. Hungry subjects tended to be unruly ones, a fact that linked economic and political concerns. The worry about famines, which most adults shared, justified the authoritarian rule that prevailed everywhere. Few doubted that those vulnerable to food shortages needed to be protected from the self-interested decisions that farmers and traders might make about what to do with the harvest if they were left to themselves.
To prevent social unrest, rulers monitored the growing, selling, and exporting of grain crops. Where there were legislatures, they passed restrictive laws. Hemmed in by regulations, people had few opportunities to make trouble—or undertake new enterprises. Most manufacturing went on in the household, where family members turned fibers into fabric and made foodstuffs edible. Custom, not incentives, prompted action and dictated the flow of work throughout the year. People did not assign themselves parts in this social order; tasks were allocated through the inherited statuses of landlord, tenant, father, husband, son, laborer, wife, mother, daughter, and servant.
Despite the great diversity of communities around the world, they conformed in one way: Their population grew and retrenched like an accordion through alternating periods of abundance and scarcity—the seven fat and seven lean years of the Bible. You can see this “feast or famine” oscillation in the construction record of European cathedrals. Most of these magnificent structures took centuries to complete, with a spate of years of active building followed by long periods of neglect. When there was a bit of surplus, work could resume, only to be succeeded by stoppages during times of acute scarcity.
If we could go back in time, we would probably be most surprised by the widely shared resistance, not to say hostility, to change. Novelty has been so endemic to life in the modern West that it is hard for us to fathom how much people once feared it. The effects of economic vulnerability radiated throughout old societies, encouraging suspicions and superstitions as well as justifying the conspicuous authority of monarchs, priests, landlords, and fathers. Maintaining order, never a matter of indifference to those in charge of society, was paramount when the lives of so many people were at risk.
The wealth of the Western world has created something of a safety net against global famine, but there are still societies whose powerful traditions echo those of premodern Europe. Through our engagement with the Muslim world we now also recognize the hold of ideas about honor, the separation of male and female roles, the importance of female virginity, and the submersion of each person’s desires into the will of his or her community. Recent terrorist attacks have prompted many Westerners to hope that improved economies might otherwise engage the young men who carry out the violence. More jobs would certainly be welcome, but such a response bears the traces of our capitalist mentality. What we don’t sufficiently weigh are the powerful ties of shared rituals and beliefs and how threats to them affect people. Men and women in traditional societies see our concern about efficiency and profits as fetishes. These preoccupations of ours are as distasteful to them as they were to men and women in sixteenth-century Europe.
Capitalism’s Distinctions
The word “capital” helps define my tack on this historical cruise. Capital is money destined for a particular use. Money can be socked away in the mattress for a rainy day or spent at the store. Either way, it is still money. It becomes capital only when someone invests it in an enterprise with the expectation of getting a good return from the effort. Stated simply, capital becomes capital when someone uses it to gain more money, usually by producing something. We can add an “ism” to “capital” only when the imperatives and strategies of private investments come to dominance as they did first in England and the Netherlands, next in Western Europe, and then in the American colonies. Outside these areas, capitalism moved next to Eastern Europe and Japan. In our own day capitalist practices hold sway through most of the world.
Capitalism of course didn’t start out as an “ism.” In the beginning, it wasn’t a system, a word, or a concept, but rather some scattered ways of doing things differently that proved so successful that they acquired legs. Like all novelties, these practices entered a world unprepared for experimentation, a world suspicious of deviations from existing norms. Authorities opposed them because they violated the law. Ordinary people were offended by actions that ran athwart accepted notions of proper behavior. The innovators themselves initially had neither the influence nor the power to combat these responses. So the riddle of capitalism’s ascendancy isn’t just economic but political and moral as well: How did entrepreneurs get out of the straitjacket of custom and acquire the force and respect that enabled them to transform, rather than conform to, the dictates of their society?
Many elements, some fortuitous, had to be in play before innovation could trump habit. Determined and disciplined pathbreakers had to persist with their innovations until they took hold well enough to resist the siren call to return to the habitual order of things. It’s not exactly a case of how small differences can have large impacts through a chain of connections. The better simile would be breaking a hole in a dike that could not be plastered up again, after letting out a flood of pent-up energy. But breaking that hole required curiosity, luck, determination, and the courage to go against the grain and withstand the powerful pressures to conform.
Just as the capitalist system has global reach today, so its beginnings, if not its causes, can be traced to the joining of the two halves of the globe. Europe, Africa, and Asia had been cut off from the Americas until the closing years of the fifteenth century. Even contact between Europe and Asia was confined to a few overland trade routes used to transport lightweight commodities like pepper and cinnamon. Then European curiosity about the rest of the world infected a few audacious souls, among them Prince Henry the Navigator. Prince Henry never left Portugal, but he funded a succession of trips down the west coast of Africa. Merchants, enticed by a trade in gold and slaves along the western Africa coast, increased the number of voyages. Soon Portuguese ships were rounding the Cape of Good Hope on their way up the east coast of Africa. By the beginning of the sixteenth century, the Portuguese had established strongholds on both African coasts and across the Indian Ocean to the Indian subcontinent itself. Simultaneously another Portuguese, Ferdinand Magellan, leading a Spanish expedition, circumnavigated the globe in 1517.
Seventy years before these Portuguese voyages, a Ming dynasty emperor sent out seven great expeditions from China. Led by Zheng He, who must have been a brilliant commander, the expeditions involved more than twenty-seven thousand sailors and two hundred vessels, the largest of them weighing fifteen hundred tons. (Columbus’s first voyage, by contrast, involved a crew of eighty-seven and three ships weighing no more than one hundred tons.) From China these flotillas sailed through the East Indies, past Malacca, Siam, Ceylon, across the Indian Ocean, and down the east coast of Africa, possibly going as far as Madagascar. Sailors grew herbs on the ships’ broad decks and managed to return from Africa with a couple of giraffes. Greatly aided by the magnetic compass, the Chinese voyages advertised the technological sophistication of the Chinese. Yet after three decades the expeditions stopped.
After Bartolomeu Dias rounded the Cape of Good Hope in 1488, dozens of similar caravels followed in his wake, bringing Europe into continuous contact with the East Indies. The seafaring Portuguese had only whetted the appetite of European adventurers. This shift in European travel to Asia, starting overland from Italy, to countries on the Atlantic Ocean had profound consequences. In the next century, Spain, Portugal, France, England, Sweden, Denmark, and the Netherlands permanently eclipsed the commercial dominance of the Mediterranean countries. The Atlantic became the new highway for world travelers, leaving behind the city-states of Genoa and Venice.
In these different responses of equally capable Chinese and Portuguese mariners we have one of history’s great riddles. Why the retreat of the Chinese and the Europeans’ rush to “see the world”? The Chinese had long demonstrated more interest in trade than men in Portugal, so monetary motives don’t help us. Looser political control probably enabled many more Portuguese to act on their own impulses, even if royal purses were needed to bear the expense of the first exploratory voyages. In the absence of certain knowledge, we are free to rush in and tell stories that confirm our biases. Western storytellers have emphasized the intrepidity of their explorers, the readiness of Europeans to move away from their customs. Such explanations of the differences in the societies of East and West won’t bear up under serious scrutiny. The story is more interesting than that.
Clearly it was not a lack of knowledge, wealth, or skill that kept the Chinese from maintaining contact with the Occident. What might it have been? On the practical side, the greater prosperity of Chinese merchants who had established commercial relations throughout the Indies might have checked any interest in going farther afield. Perhaps the Ming emperors lost interest in African countries when they discovered them to be, in most regards, inferior in science, art, and craftsmanship to theirs. Belief in the utter superiority of the “Heavenly Kingdom,” as they styled it, predominated in Chinese culture. And why not? In ancient times, in an example of engineering wizardry, a Chinese innovator was able to cut a long trench through granite mountains to control floods by alternating bonfires and baths of cold water to crack the rocks.1 The many examples of technical ingenuity and scientific achievement that highlight Chinese history point to a superior level of excellence in education. What didn’t take place in China was a continuous path of developments, each building on its predecessor. Nor did the Chinese share the evangelical imperative of European Christianity, giving explorers some moral authority to search for converts among foreigners. A lot of “mays” and “mights.” We’ll never really know, but we can appreciate the significance of these contrasting responses.
The Dutch, French, and English quickly followed the Spaniards to the New World to carve out their piece of this unexplored area. As contemporaries quickly realized, almost everything, at least the things that Europeans wanted and couldn’t grow themselves, grew in the tropics. As they moved from exploration to exploitation, European adventurers began looking for a source of labor to cultivate the new crops for export back home. The Portuguese had been trading in African slaves since Henry the Navigator’s first voyages and soon began shipping enslaved men and women across the Atlantic. Unlike most of the native tribes in the New World, Africans were accustomed to the disciplined work of mining and farming. Aboriginal Americans made poor slaves; they often simply died of despair when chained to work. By the middle of the seventeenth century, with escalating demand, French, Dutch, and English merchants had entered an intense rivalry with the Portuguese to dominate the slave trade.
These voyages had an incalculable impact on Europe and Africa. The new demands for labor created modern slavery, an institution far crueler and more inhumane than the slavery of biblical times. Over the course of the next two and a half centuries, close to twelve million African men and women were wrenched from their homes and shipped to the New World to work first for the Spanish mines and ranches and then on the sugar, rice, coffee, and tobacco plantations that the Spaniards, Dutch, French, Danes, Swedes, and English created throughout the Western Hemisphere. The sea-lanes of the Atlantic gave access to this new source of labor.
The Trailblazer
In view of this spectacular activity across the globe, it may seem a bit perverse for me to pinpoint the beginnings of capitalism in one small island kingdom in the North Atlantic. Yet only in England did these dramatic novelties produce the social and intellectual breakthroughs that made possible the emergence of an entirely new system for producing goods. A series of changes, starting in farming and ending in industry, marks the point at which commerce, long existing in the interstices of traditional society, broke free to impose its dynamic upon the laws, class structure, individual behavior, and esteemed values of the people. Although thousands of books have been written about this astounding phenomenon, it still remains something of a mystery.
Visiting the Vatican Museum several years ago, I was struck by the richness of life captured in fourteenth-and fifteenth-century paintings there. They were full of plants, furniture, decorations, and clothing! I couldn’t help but contrast these lavish depictions of everyday life with plain feaures of England. How counterintuitive that this poor, cold, small, outlandish country would be the site of technological innovations that would relentlessly revolutionize the material world! In the early twentieth century the historian Arnold Toynbee thought he had found the key to all development in the formula of “challenge and response.” The English might have been challenged by their very lack of distracting luxury. Toynbee’s hypothesis didn’t hold up under rigorous scrutiny, but there may still be an element of truth in it.
For generations, scholars concentrated on eighteenth-century industrialization to mark the beginning of capitalism. They labeled it the Industrial Revolution. This is understandable because the spectacular appearance of factories filled with interfacing machinery and disciplined workers so visibly differed from what had gone before. But this is to start an account of a pregnancy in the fifth month. Critical changes had to take place before these inventions could even be thought of. But which ones and for how far back?
How deep are the roots of capitalism? Some have argued that its beginnings reach down into the Middle Ages or even to prehistoric times. Jared Diamond wrote a best-selling study that emphasized the geographic and biological advantages the West enjoyed. Two central problems vex this interpretation: The advantages of the West were enjoyed by all of Europe, but only England experienced the breakthroughs that others had to imitate to become capitalistic. Diamond’s emphasis on physical factors also implies that they can account for the specific historical events that brought on Western modernity without reference to the individuals, ideas, and institutions that played so central a part in this historic development.2
David Landes entered the lists of scholars recounting the “the rise of the West” with an explanation that blended many climatic and cultural factors without providing a narrative of how they interacted to transform Western society. Alfred Crosby, in his assessment of this question, stressed a change in Europeans’ fundamental grasp of reality. In the thirteenth century they adopted a quantitative understanding of the world that promoted mathematics, astronomy, music, painting, and bookkeeping. While presenting a fascinating account of technical achievements, Crosby’s insistence upon intellectual changes leaves society and politics in a conceptual limbo. Deepal Lal goes back even farther in time to the eleventh century, where he finds the roots of the “Great Divergence” in papal decrees that established a common commercial law for all of Christendom.3
The Latin motto post hoc, ergo propter hoc reminds us that because something happened before something else, it is not necessarily a cause of the following event. The emergence of capitalism was not a general phenomenon, but one specific to time and place. People who take the long-run-up view of the emergence of capitalism note factors like the discovery of the New World, the invention of the printing press, the use of clocks, or papal property arrangements. These were present in countries that did not change their economic ways. Logically, widely shared developments can’t explain a response that was unique to one country. What the myriad theories about how the West broke with its past do have right is that there were many, many elements that went into capitalism’s breakout from its traditional origins. It is also important to keep in mind that a succession is not a process. A process is a linked series of operations; a succession is open to interruption and contingency.
European Divergence
There was nothing inevitable about the English moving from the agricultural innovations that freed up workers and capital for other uses to a globe-circling trade and on to the pioneering of machine-driven industry. It’s only in retrospect that this progression seems seamlessly interconnected. But it wasn’t. This appearance reflects a human tendency to believe that what happened had to happen. It is important to break with this cast of mind if we are to understand that capitalism is not a predestined chapter in human history, but rather a startling departure from the norms that had prevailed for four thousand years. Nor did commerce force capitalism into being. There have been many groups of exceptional traders—the Chinese, Arabs, and Jews come to mind—but they were not the pioneers of either the Agricultural or Industrial Revolution. We could say that a fully developed commercial system was a necessary, but insufficient, predecessor to capitalism.
To say that capitalism began in England is not to suggest that the explorations of the Portuguese and Spanish did not have an impact on the history of capitalism. These staggeringly bold adventures of the fifteenth and sixteenth centuries opened up minds and pocketbooks in England as elsewhere. But the examples of Spain and Portugal bolster the case for England’s exceptionalism. Despite sallying forth in successive expeditions, neither country modified its aristocratic disdain for work or indifference to the needs of merchants and artisans. Everything that was remarkable about Portuguese and Spanish voyages got folded back into old ways. What differed in England was that a sequence of developments never stopped. And they attracted commentary, debate, and explanations. This intellectual engagement with the meaning of economic change blocked a reversion to old ways of thinking. Novel practices and astute analysis of them are what it took to overturn the wisdom of the ages. Many countries had brilliant episodes in their history; sustaining innovation through successive stages of development distinguishes England’s performance.
Of course to start at any date is arbitrary. All historical developments have antecedents, some going back centuries. Each cut of the historian’s ax into the layers of the past proves that the roots of modern society are very deep. Yet the seventeenth century brought fundamental alterations to England, and contemporaries became acutely and astutely aware of them. At its beginning a venerable social order existed to keep in place established precepts, prerogatives, and regulations. A century and a half later capitalism had gained critical momentum against the regime of status, stasis, and royal control. From the risky ventures and trial-and-error methods of large and small entrepreneurs emerged successes so resounding that there was no turning back. Changes became irreversible and cumulative. Growth turned into development, not just expansion, but getting more from less. Capital would never again be scarce. Indeed, the Dutch became the financiers of Europe with the savings accumulated during their heyday as the world’s greatest traders.
The “rise of the West” is a very old theme in history books, one that, alas, has produced many invidious comparisons between the West and “the rest.” I certainly do not want to contribute to the hubris that this historical tradition has fostered. I think that a careful reader of this book will note the emphasis on the unusual convergence of timing and propitious precedents in my explanation of how capitalist practices became the new social system of capitalism. Focusing on England may seem a bit old-fashioned, but the latest scholarship confirms that England was the unique leader.
Recently a stimulating debate has erupted around the proposition that Europe wasn’t so different from the rest of the places on the globe before 1800. Kenneth Pomeranz has written a provocative study that details how parts of Asia enjoyed a standard of living in the eighteenth century similar to that of Western Europe. Only with nineteenth-century industrialization did there occur that “great divergence” that led to European hegemony, in his view.4 Pomeranz’s study has had a salutary effect, promoting new research and forcing a searching reevaluation of old opinions. His argument for “global economic parity” concentrates on material factors like life expectancy, agricultural productivity, and interregional trade. Intangibles like the public’s receptivity to change and the flexibility of the government responses get little of Pomeranz’s attention. Nor does he consider how various developments interacted with one another, either enhancing or discouraging successful innovations. At the cultural heart of capitalism is the individual’s capacity to control resources and initiate projects. England’s great and unexpected success forces us to look for the invisible influence at play that we might otherwise overlook.
Measures of well-being taken at one point in time don’t say much about the direction or momentum behind different economies. Many times in the past, countries have flourished for a while only to fall back to an earlier level. Only in England after the sixteenth century did the initial, enterprising successes lead steadily to other innovations.5 There, mutually enhancing economic practices escaped the confining channels of custom and gained leverage as blueprints for change. This fact impresses not as evidence of national superiority, but rather of how much contingency and fortuity played in the genesis of capitalism. In stressing the singularity of England, I am also emphasizing how surprising it is that this revolutionary new system of capitalism emerged at all.
England advanced economically just as it was being torn apart politically. During the seventeenth century, constitutional and religious conflicts turned into open rebellion and then civil war, followed by a republican experiment, itself brought to an end by the restoration of the monarchy. This period of divided authority coincided with the formation of a unified, national market for the country. Either because of, or despite, the protracted political turmoil, innovators and interlopers were able to defy venerable regulations about how the grain crop should be raised and marketed. When the political arrangements of 1688 restored political stability to the country, the new economic practices were firmly in place. So well established were they that old-timers complained of their being treated as customary.
Economic Change and Analysis
Most economists, when they think about history, take their cues from Adam Smith. His Wealth of Nations was the first great account of the economic changes England had witnessed in the two centuries before 1776, when it was published. Smith placed economic development in a long sequence of progressive steps that had evolved over time. This interpretation of the history of capitalism as moving forward effortlessly has produced the greatest irony in the history of capitalism, an explanation of its origins that makes natural what was really an astounding break with precedent. This view also depends upon people already thinking within the capitalist frame of reference. According to Smith, capitalism emerged naturally from the universal tendency of men and women to “truck and barter.” In fact it took economic development itself to foster this particular cultural trait. Smith turned an effect into a cause. For Smith and his philosophical colleagues, economic change had slowly, steadily led to the accumulation of capital that could then pay for improvements like the division of labor that enhanced productivity. No cultural adjustment had been considered necessary because underneath all the diversity in dress, diet, and comportment beat the heart of economic man—and presumably economic woman.
Because the full elaboration of economic developments in England took place over two centuries—almost seven generations of lived experience—it was possible to imagine it as the evolutionary process that Smith described. But in continental Europe industrialization came with brutal speed. Men and women were wrenched from a traditional rural order and plunged into factories within a single lifetime. Karl Marx, observing this disruption in the middle decades of the nineteenth century, could not accept the English evolutionary explanation for the emergence of capitalism. He believed that coercion had been absolutely necessary in effecting this transformation. Marx traced that force to a new class of men who coalesced around their shared interest in production, particularly their need to organize laboring men and women in new work patterns.
Separating poor people from the tools and farm plots that conferred independence, according to Marx, became paramount in the capitalists’ grand plan.6 He also stressed the accumulation of capital as a first step in moving away from traditional economic ways. I don’t agree. As Europe’s cathedrals indicate, there was sufficient money to produce great buildings and many other structures like roads, canals, windmills, irrigation systems, and wharves. The accumulation of cultural capital, especially the know-how and desire to innovate in productive ways, proved more decisive in capitalism’s history. And it could come from a duke who took the time to figure out how to exploit the coal on his property or a farmer who scaled back his leisure time in order to build fences against invasive animals.
What factory work made much more obvious than the tenant farmer-landlord relationship was the fact that the owner of the factory profited from each worker’s labor. The sale of factory goods paid a meager wage to the laborers and handsome returns to the owners. Employers extracted the surplus value of labor, as Marx called it, and accumulated money for further ventures that would skim off more of the wealth that laborers created but didn’t get to keep. These relations of workers and employers to production created the class relations in capitalist society. The carriers of these novel practices, Marx said, were outsiders—men detached from the mores of their traditional societies—propelled forward by their narrow self-interest. With the cohesion of shared political goals, the capitalists challenged the established order and precipitated the class conflict that for Marx operated as the engine of change. Implicit in Marx’s argument is that the market worked to the exclusive advantage of capitalists.
In the early twentieth century another astute philosopher, Max Weber, assessed the grand theories of Smith and Marx and found both of them wanting in one crucial feature: They gave attitudes to men and women that they couldn’t possibly have had before capitalist practices arrived. Weber asked how the values, habits, and modes of reasoning that were essential to progressive economic advance ever rooted themselves in the soil of premodern Europe characterized by other life rhythms and a moral vocabulary different in every respect. This inquiry had scarcely troubled English economists or historians before Weber because they operated on the assumption that human nature made men (little was said of women) natural bargainers and restless self-improvers, eager to be productive when productivity contributed to their well-being.
Following Smith, economic analyzers presumed a natural human psychology geared to ceaseless economic activity. Weber challenged this assumption with a single line: “A man does not by nature wish to earn more and more money, but simply to live as he is accustomed to live and to earn as much as is necessary for that purpose.”7 Weber began with an interesting phenomenon to explore: the convergence of economically advanced countries and the Protestant religion. He concluded that “the spirit of capitalism,” as he called it, could best be treated as an unexpected by-product of the Protestant Reformation of the sixteenth century. Examining the forms and sensibilities of Catholic Christendom against which the reformers had rebelled, Weber detailed how Protestant leaders taught that true Christians served God everywhere. They intruded their strenuous morality into every nook and cranny of customary society, using the scalpel of rationality to cut away the accretions of popish religion. It was the morality and rationality that Puritans brought to the world of work, Weber indicated, that had transformed the habits of people. Puritans invested work with a religious quality that aristocrats had denied it. Protestant preachers produced great personal anxiety by emphasizing everyone’s tenuous grip on salvation. This promoted an interest in Providence in which believers scrutinized events for clues of divine intentions. This intense examination of ordinary life turned prosperity into evidence of God’s favor. All these factors, Weber said, inadvertently made men and women agents of economic development.
Driven to glorify God in all callings, cut off from the ceremonial comforts of a ritualistic religion, the Protestant became the archetypal modern man and the foe of tradition. Weber put his finger on what was wrong with all previous discussions of capitalism’s history: They started with the unexamined assumption that men and women rushed to throw off the old and put on the new. Projecting their contemporary values upon those in the past, analysts spent little time examining people’s motives because they were certain that they would naturally respond positively to the prospect of making more money even if it involved attitudes that they had never had or activities that appeared abhorrent to them. Reasoning on this assumption, they had removed all of the central puzzles about how capitalism had triumphed in the West.
Weber rejected out of hand the existence of Smith’s natural propensity to truck and barter and criticized Marx for assuming the existence of a market mentality before there was a capitalist market. Smith made everyone a capitalist driven to seek self-improvement through the material rewards of the market. With this dependable human endowment, capitalism would emerge in the fullness of time. Marx invented a cadre of profit-driven men clairvoyant enough to imagine a world that had never existed. Weber labeled Smith’s ceaseless economic striving a peculiar form of behaving that had to be explained, not taken for granted.
Influences on This Study
These powerful thinkers—Smith, Marx, and Weber—have greatly influenced all subsequent analysis of capitalism. As a scholar I have long been fascinated by how economic development has changed the way we think about our material world and ourselves as well as the way we work and live. While I have learned from all these master theorists, I have been most influenced by Weber because of his emphasis on contingency and unintended consequences in the formation of capitalism. His respect for the roles that cultural and intellectual traits play in history appeals to me as well. I should also place myself on the contemporary ideological continuum. I’m a left-leaning liberal with strong, if sometimes contradictory, libertarian strains. I have always had a keen interest in progressive politics, and I believe that we are ill served by the conviction that capitalism is a freestanding system untouched by the character of its participants and the goals of particular societies. Mechanical models of the economy that emphasize its autonomy purport to be disinterested, but they actually diminish our capacity to think intelligently about the range of choices we have.
I first started teaching in 1967 at San Diego State University, where I became interested in the history of capitalism through a circuitous route. All the American history instructors there used the same book in our introductory course. It was a collection of readings that demonstrated the origins of modern social thought through a succession of major texts from the sermons of Puritans who settled New England, through Thomas Hobbes’s Leviathan, John Locke’s Second Treatise of Government, Smith’s Wealth of Nations, Thomas Paine’s Common Sense, The Federalist Papers, and onward.
Teaching is a great revealer of one’s ignorance. Everything seems to fit together while one is taking notes from someone else’s lecture. When the task of making sense of the past falls on you, gaps and non sequiturs stand out like hazard lights. The glaring anomaly I quickly discovered dealt with definitions of “human nature.” A term introduced to eighteenth-century public discourse, our ideas about human nature go unexamined because they spring from the commonsense notions of our society. Yet our understanding of human nature grounds just about everything else we believe, whether about politics, the workings of the economy, friendship, marriage, or child rearing. The problem that popped up in my teaching was how to account for the radical change in descriptions of human nature during the course of the seventeenth century. In the early selections in our textbook, the Puritan sermons and Elizabethan plays described men and women as thoughtless and capricious, if not usually downright wicked. Yet fast-forward a hundred years, and assumptions about basic human traits had changed dramatically.
The new view of men and women can most easily be found in Smith’s Wealth of Nations. Yet Smith took his opinions about human nature for granted. Listen to him: “The principle which prompts to save is the desire of bettering our condition, a desire which tho generally calm and dispassionate, comes with us from the womb, and never leaves us til we go into the grave.” He speaks of the “uniform, constant, and uninterrupted effort of every man to better his condition.”8 Where, I wondered, had Smith got this view of people as fundamentally rational and self-improving? Certainly it bore little resemblance to the characters that Shakespeare created or to Puritan conviction that “in Adam’s fall did sin we all.” Being in England for a year’s sabbatical, I became a permanent fixture at the British Museum, where I began reading in a new genre, the writings about commerce that began appearing in pamphlets, economic tracts, broadsides, and advice books from the 1620s onward. Following this paper trail through the rest of the century, I discovered abundant clues about the break with conventional opinions about human nature. I saw that most authors tangled up their policy recommendations with assertions about human tendencies or what they often called the natural order of things.9
Capitalism as a Cultural System
Economic systems do not exist in isolation; they are intimately and crucially intertwined in their country’s laws and customs. Capitalism, even though it relies on individual initiatives and choices, is no different. It impinges on society constantly. Social mores channel desires and ambitions. Social norms help determine family size, and family size influences population dynamics. Neither the landlords, nor laborers, nor merchants, nor manufacturers were—or are—purely economic actors. They all had complex social needs and played many different roles in society as parents, subjects, neighbors, and members of a church, political party, or voluntary association. We could consider contemporary entrepreneurs, corporate managers, bankers, and large shareholders of stocks and bonds as now constituting something of a capitalist class with common interests in their financial well-being, particularly protecting capital from taxation and enterprises from regulation. Yet these men and women are not just capitalists. They’re parents, athletes, gun owners, Catholics, evangelical Protestants, members of AA, lovers of the good life, naturalists, environmentalists, and patrons of the arts.
One of the principal arguments of this book is that there was nothing inexorable, inevitable, or destined about the emergence of capitalism. So why make such a big deal about this? Why insist that the seeds of capitalism were not planted in the Middle Ages or that a capitalist mentality was not hardwired in human beings? Why? Because those notions aren’t true. The powerful propulsive force of capitalist ways, once a breach with tradition had been made, is largely responsible for giving an aura of inevitability to their arrival on the human scene.
Societies that are resistant to capitalist ways today appear unnatural. Yet Europeans actually deviated from a global norm. Another important point: We should not make the first capitalist transformation a template for all others because that course of events could never be duplicated. Nor did countries that adopted a capitalist system, after England had shown the way, have to have the same qualities needed for the initial breakthrough. The same holds true for countries becoming capitalist today. Copying is not the same as innovating.
Because capitalism began in England with the convergence of agricultural improvements, global explorations, and scientific advances means that capitalism came into human history with an English accent and followed the power trail that England projected around the globe in the eighteenth and nineteenth centuries. This meant that the market economy retained a bit of foreignness for those for whom English and, by extension, capitalism are second languages. For England’s neighbors and rivals, there was little choice but to imitate what the French in the eighteenth century called the English miracle. Other societies have elaborated their own variants of capitalism, often trying to protect certain customs and habits from capitalist imperatives. The people of Africa, the Middle East, India, and the East Indies had capitalism thrust upon them as Western Europeans arrived to exploit their resources. Still others, like the native people of North and South America, retreated into their communities when Europeans threatened their way of life and they were made strangers in their homelands.
Appreciating that capitalism is a historical development and not a discovery of universal principles brings clarity about one thing: The experience of the first capitalist country was unique. The range of possibilities for other countries remains to be discovered. Because capitalism as an economic system impinges upon the whole society, each country has and will transform its values and practices in its own way. The roles of culture, contingency, and coercion, so critically important in the history of capitalism, should not be obscured. Not only has the market changed with every generation, but the possibilities for capitalist development have been and still are many and varied.
In its forward thrust, capitalism acquired champions who insisted on the natural quality of capitalism. All cultures are natural in that they draw upon inherent human qualities and there are many potentialities planted in the human breast. Not all human qualities are called into play in every culture. Culture is a selecting mechanism, choosing among the diverse human skills and propensities to fashion a way for people to live together in a specific location at a certain time. A growing field in biology, epigenetics, studies how particular environments activate certain genes in human beings that can then be passed on to their progeny. Without the environmental trigger, the gene remains inert. This suggests that there is a very intricate interchange between our biology and our culture, one that goes well beyond the familiar nature-nurture relationship. All people may be self-interested, but what interests them depends a lot upon the society in which they have been reared.
Our present method of analyzing economies obscures their entanglement with society and culture. Professional economists analyze capitalism with mathematical precision. Building mathematical models to explain how markets behave, they tend to ignore the messiness that any set of social relations is bound to produce. All the economists’ precise projections assume ceteris paribus—all other things remaining equal—but they rarely do. Philosophers use the word “reify” to indicate when a concept is being talked about as a real thing rather than as a way of talking about something. Economists talk about their subject as though it were a unitary thing rather than a mixed bag of practices, habits, and institutions. I am conscious of this danger and want to avoid skating too close to reification. When I make “capitalism” the subject of a sentence, I will be thinking of capitalists as those who use their resources to organize an enterprise or a cluster of business and corporation operators devoted to producing for a profit.
All these definitions of mine make for dull reading, but clarification is worth a little boredom. I further want to distinguish between those historical developments traceable to capitalism and those that have existed in tandem with older systems. People blame capitalism for social ills that have long caused great misery. The Four Horsemen of the Apocalypse—oppression, war, famine, and devastation—come to mind. Unattractive personal motives, traits like greed and indifference to suffering, are often projected onto capitalists. Greed is as old as Hammurabi’s code. It could be said that capitalism is the first economic system that depends upon greed—at least upon the desire of bettering one’s condition, as Smith said. So, in a way, capitalism is damned for its honesty. But greed can also disadvantage an entrepreneur. Capitalists have been and still are greedy, but the distinctive characteristic of capitalism has been its amazing wealth-generating capacities. The power of that wealth transformed traditional societies and continues to enable human societies to do remarkable things.
Capitalism has left few areas of life untouched. The most startling has been its influence upon women. It upended women’s lives in two long waves, the first abusive, the second liberating. Women in the early years of each country’s industrialization were swept up from their cottages and villages and dumped onto factory floors for twelve-to fourteen-hour days of muscle-wrenching tedium. Such long hours of labor were previously unneeded and not demanded.
The second wave began in the nineteenth century with techniques for limiting pregnancies. The correlation between an improved standard of living and lower fertility rates has held up everywhere and has always benefited women. Today in the homelands of capitalism, couples are not even having enough children to replace their nations’ populations. Women have joined men in almost every profession and niche of the work force. Birthrates are still falling, and slowly marital roles have begun to adjust to accommodate families with two working parents.
Exploitation is not distinctively capitalist, but wealth generating is. Yet because of its economic power and global reach, capitalist exploitation almost qualifies as a distinctive characteristic. One cannot celebrate the benefits of the capitalist system without taking account of the disastrous adventures and human malevolence that this wealth-generating system has made possible and sometimes actually encouraged. Capitalists and the governments that became sponsors of capitalist endeavors cannot be held responsible for fomenting the human catastrophes predicted in the Book of Revelation, but lots of ills in modern times must be included in its history, especially those intrinsic to its success. The inventions that led to the Industrial Revolution drew heavily upon fossil fuels, coal at first and then oil. This greatly expanded the ambit of production, freeing economies from the limitations that land for growing food and producing timber imposed. Over time the relentless revolution increased the exploitation of natural resources and the accompanying degradation of the environment. “Can the globe sustain these capitalist successes?” has become an urgent question.
Capitalism has produced some enduring tensions, evident from the sixteenth century onward. Where the extremes of riches in a society of scarcity were usually tolerated, capitalism’s capacity to generate wealth made salient, and hence open to criticism, inequalities in the distribution of economic and political power. Similarly, government interference was acceptable when the society was at risk of starving, but no longer so when the system seemed to function better when its participants had the most freedom. This very lack of government regulation in market economies enhanced chances for cycles of boom and bust, as we know so well today. These issues will continue to surface through the history of capitalism. Finding just solutions to the problems they cause remains the challenge.
Most decision making in the capitalist system lies with those who have access to capital. Since these ventures almost always involve employing men and women, entrepreneurs depend upon others for labor. Workers in turn depend upon employers for the wages that support them and their families. Once separated from land or tools, ordinary men and women had no resources with which to earn their daily bread and so had to go out and sell their labor. But the way we talk about jobs doesn’t always make clear this mutual dependence. The adjective “free” as in “free enterprise” serves the ideological purpose of masking the coercion in capitalism. People may be free to take a job or not, but they are not free from the need to work as long as they wish to eat. Employers are not under the same existential restraint. Today all the “frees”—trade, enterprise, markets—have become so saturated with rhetorical overtones that I shall use these terms with care and then mainly to avoid the monotonous repetition of “capitalism.”
Clarity about the nature of the capitalist system could enable us to make wiser policy decisions. Recognizing that capitalism is a cultural, not a natural, system like the weather might check those impulses in American foreign policy framing that assume that becoming like us is a universal imperative. Nor is the market a self-correcting system, as its apologists argue. Ideological assumptions about the autonomy of economics make it hard for us to recognize that the market serves us, not just as individual participants but as members of a society desirous of paying workers living wages, providing universal health care and good schools, as well as making humanitarian outreaches to the world. At a critical moment in the journey of capitalism to dominance, the importance of cultural influences and social considerations was dispatched to a conceptual limbo. We need to drag them back into the light.
In this book, I would like to shake free of the presentation of the history of capitalism as a morality play, peopled with those wearing either white or black hats. Even though every history is always suffused with moral implications, historians don’t have to take sides. Still, they have to recognize how morals influence what people did in the past. Economists like to treat their subject as a science and minimize the moral overtones of wealth distribution, but neglect of people’s powerful sense of right and wrong is an evasion of reality. How could it be otherwise when economic life touches so closely our values and, by extension, our politics? With a better understanding of capitalism, people in democracies can play a much more positive, vigorous role in shaping economic institutions. To those who will disagree with my proposals in this history of capitalism, what I say may seem self-serving, so I present it as an intention rather than an accomplishment. You will have to decide which it is.
Before closing my introduction, perhaps my definition of “capitalism” is in order. Capitalism is a cultural system rooted in economic practices that rotate around the imperative of private investors to turn a profit. Profit seeking usually promotes production efficiencies like the division of labor, economies of size, specialization, the expansion of the market for one’s goods, and, above all, innovation. Because capitalism is a cultural system and not simply an economic one, it cannot be explained by material factors alone. In the beginning, capitalist practices provoked an outpouring of criticisms and defenses. Competition buffets all participants in this investor-driven economy whether people are investing their capital, marketing their products, or selling their labor. The series of inventions that harnessed natural energy, first with water and coal-fired steam in the eighteenth century, made economic progress dependent upon the exploitation of fossil fuels. Coal and oil once seemed without limit, but today they have become scarce enough to make us ask if our economic system is sustainable.
My challenge is to make you curious about a system that is all too familiar. That familiarity, joined to the notion that there is something inherently capitalistic in human nature, has obscured the real conflict between capitalism and its economic predecessors. Capitalist practices represented a radical departure from ancient usages when they appeared upon the scene in the seventeenth century. Because they assaulted the mores of men and women in traditional society, it took a very favorable environment for them to gain a footing. After that, the capacity of new capitalist ways to create wealth induced imitation. And the impertinent dynamic of “more” sent entrepreneurs from the West around the world in search of commodities along with the laborers to produce them. They carried with them the engines for the relentless revolution that capitalism introduced.