The term capitalism relates to a particular system of socioeconomic organization (generally contrasted with feudalism and socialism), the nature of which is more often defined implicitly than explicitly. In common with other value-loaded concepts of political controversy, its definition—whether implicit or explicit—shows a chameleon-like tendency to vary with the ideological bias of the user. Even when treated as a historical category and precisely defined for the purpose of objective analysis, the definition adopted is often associated with a distinctive view of the temporal sequence and character of historical development. Thus historians such as Sombart (1915), Weber (1930 [1922]) and Tawney (1926), who were concerned to relate changes in economic organization to shifts in religious and ethical attitudes, found the essence of capitalism in the acquisitive spirit of profit-making enterprise and focused on developments occurring in the sixteenth, seventeenth and early eighteenth centuries. Probably a majority of historians have seen capitalism as reaching its fullest development in the course of the Industrial Revolution and have treated the earlier period as part of a long transition between feudalism and capitalism. Marxist historians have identified a series of stages in the evolution of capitalism—for example, merchant capitalism, agrarian capitalism, industrial capitalism and state capitalism—and much of the debate on origins and progress has hinged on differing views of the significance, timing and characteristics of each stage. Thus Wallerstein (1979), who adopts a world-economy perspective, locates its origins in the agrarian capitalism that characterized Europe of the sixteenth, seventeenth and eighteenth centuries; while Tribe (1981), who also takes agrarian capitalism as the original mode of capitalist production, sees the essence of capitalism in a national economy where production is separated from consumption and is co-ordinated according to the profitability of enterprises operating in competition with each other.
Whatever the historical or polemical objective of writers, however, their definition is likely to be strongly influenced by Karl Marx (1867–94), who was the first to attempt a systematic analysis of the ‘economic law of motion’ of capitalist society and from whom most of the subsequent controversy on the nature and role of capitalism has stemmed. For Marx, capitalism was a ‘mode of production’ in which there are basically two classes of producers: the capitalists, who own the means of production (capital or land), make the strategic day-to-day economic decisions on technology, output and marketing, and appropriate the profits of production and distribution; and the labourers, who own no property but are free to dispose of their labour for wages on terms which depend on the numbers seeking work and the demand for their services. This was essentially the definition adopted, for example, by non-Marxist economic historians such as Lipson and Cunningham and by Marxists such as Dobb (1946).
Given this perspective, it is primarily the emergence of a dominant class of entrepreneurs supplying the capital necessary to activate a substantial body of workers which marks the birth of capitalism. In England, and even more emphatically in Holland, it can be dated from the late sixteenth and early seventeenth centuries. Holland’s supremacy in international trade, associated with its urgent need to import grain and timber (and hence to export manufactures) enabled Amsterdam to corner the Baltic trade and to displace Venice as the commercial and financial centre of Europe. The capital thus amassed was available to fund the famous chartered companies (Dutch East India Company 1602; West India Company 1621) as well as companies to reclaim land and exploit the area’s most important source of industrial energy—peat. It also provided the circulating capital for merchants engaged in the putting-out system whereby they supplied raw materials to domestic handicrafts workers and marketed the product. Specialization within agriculture drew the rural areas still further into the money economy, and the urban areas supplied a wide range of industrial exports to pay for essential raw material imports.
Dutch capitalists flourished the more because they were subject to a Republican administration which was sympathetic to their free market, individualist values. In England, where similar economic developments were in progress in the sixteenth and early seventeenth centuries, the rising class of capitalists was inhibited by a paternalistic monarchical government bent on regulating their activities for its own fiscal purposes and power objectives and in terms of a different set of social values. The Tudor system of state control included checking enclosures, controlling food supplies, regulating wages and manipulating the currency. The early Stuarts went further in selling industrial monopolies and concessions to favoured entrepreneurs and exclusive corporations and infuriated the majority whose interests were thus damaged. The English capitalists carried their fight against monopolies to the Cromwellian Revolution. When the monarchy was restored in the 1660s, the climate of opinion had been moulded by religious, political and scientific revolution into an environment which favoured the advancement of capitalism and laid the foundations for its next significant phase—the Industrial Revolution.
Orthodox economic theorists eschew the concept of capitalism: it is too broad for their purposes in that it takes into account the social relations of production. Modern economic historians adhering to an orthodox framework of economic theory also tend to avoid the term. They do, however, recognize a significant aspect of capitalism by emphasizing the rational, profit-maximizing, double bookkeeping characteristics of capitalist enterprise; and in the post-Second World War debates on economic development from a backward starting-point, there has been a tendency to regard the emergence of this ‘capitalist spirit’ as an essential prerequisite to the process of sustained economic growth in non-socialist countries (see, e.g. Landes 1969; Morishima 1982; North and Thomas 1973).
The modern debate on capitalism in contemporary advanced economies has revolved around its being an alternative to socialism. Marxist economists follow Marx in seeing capitalism as a mode of production whose internal contradictions determine that it will eventually be replaced by socialism. In the aftermath of the Second World War, when the governments of most developed countries took full employment and faster economic growth as explicit objectives of national economic policy, there was a marked propensity for the governments of capitalist economies to intervene actively and extensively in the process of production. At that stage the interesting issues for most Western economists seemed to be the changing balance of private and public economic power (see Shonfield 1965), and the extent to which it was either desirable or inevitable for the increasingly ‘mixed’ capitalist economies to converge towards socialism. In the late 1960s and 1970s, when the unprecedented post-war boom in world economic activity came to an end, Marxist economists were able to point confidently to the ‘crisis of capitalism’ for which they found evidence in rising unemployment and inflation in capitalist countries; but non-Marxist economists had lost their earlier consensus. The economic debate on capitalism is now taking place in a political context which is relatively hostile to state intervention; and those economists who believe that the ‘spirit of capitalism’, or free private enterprise, is the key to sustained technological progress and that it is weakened by socialist economic policies, seem to carry more conviction than they did in the 1950s and 1960s.
Phyllis Deane
University of Cambridge
References
Dobb, M. (1946) Studies in the Development of Capitalism, London.
Landes, D. (1969) Prometheus Unbound, Cambridge, UK.
Mark, K. (1867–94) Das Kapital, 3 vols, Moscow.
Morishima, M. (1982) Why has Japan Succeeded?, Cambridge, UK.
North, D.C. and Thomas, R.P. (1973) The Rise of the Western World, Cambridge, UK.
Shonfield, A. (1965) Modern Capitalism, London.
Sombart, W. (1915) The Quintessence of Capitalism, New York.
Tawney, R.H. (1926) Religion and the Rise of Capitalism, London.
Tribe, K. (1981) Genealogies of Capitalism, London.
Wallerstein, I. (1979) The Capitalist World-Economy, Cambridge, UK.
Weber, M. (1930 [1922]) The Protestant Ethic and the Spirit of Capitalism, New York. (Original edn, Tübingen.)
