History of capitalism

The origins of capitalism have been much debated (and depend partly on how capitalism is defined). The traditional account, originating in classical 18th-century liberal economic thought and still often articulated, is the 'commercialization model'. This sees capitalism originating in trade. Since evidence for trade is found even in paleolithic culture, it can be seen as natural to human societies. In this reading, capitalism emerged from earlier trade once merchants had acquired sufficient wealth (referred to as 'primitive capital') to begin investing in increasingly productive technology. This account tends to see capitalism as a continuation of trade, arising when people's natural entrepreneurialism was freed from the constraints of feudalism, partly by urbanization.[14] Thus it traces capitalism to early forms of merchant capitalism practiced in Western Europe during the Middle Ages.[15]

Jan Brueghel the Younger's A Satire of Tulip Mania (ca. 1640) depicts speculators as brainless monkeys in contemporary upper-class dress. The Tulip Mania, of the 1630s, is often considered by many as the first recorded economic bubble (also known as asset bubble or speculative bubble) in history. Also, early stock market bubbles and crashes had their roots in socio-politico-economic activities of the 17th-century Dutch Republic (the birthplace of the world's first formal stock exchange and stock market),[16][17][18][19] the Dutch East India Company (the world's first formally listed public company) and the Dutch West India Company, in particular.

A 400-year evolution of global finance capitalism

Courtyard of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), a powerhouse of Dutch capitalism in the 17th century. The birth of the world's first formally listed public company (the Dutch East India Company) and first formal stock exchange (the Amsterdam Stock Exchange), in the 17th-century Dutch Republic, helped usher in a new era of stock market capitalism or financial capitalism in general,[20][21] as a milestone in the history of modern capitalism.[22][23][24]

The trading floor of the New York Stock Exchange (NYSE), one of the foremost symbols of American capitalism, in the early 21st century.

The Dutch East India Company (VOC) was an early corporate pioneer of outward foreign direct investment at the dawn of modern capitalism.[25][26]

Overview of Fort Zeelandia in Dutch Formosa (in the 17th-century). It was in the Dutch rule period of Taiwan that the VOC began to encourage large-scale mainland Chinese immigration.[27] The VOC's economic activities changed significantly the demographic and economic history of the island.[28][29]

Groot Constantia, the oldest wine estate in South Africa. The South African wine industry (New World wine) is among the lasting legacy of the VOC era.[30][31] Like native economy of Taiwan in pre-VOC era,[32] pre-1652 South Africa was virtually undeveloped or was in almost primitive state. In other words, the recorded economic history of South Africa and Taiwan both began with the VOC period.

In the early modern period, Walloon-Dutch-Swedish businessman Louis De Geer (1587–1652) was a pioneering entrepreneur and industrialist at the dawn of modern capitalism.[33][34]

Replica of an East Indiaman of the Dutch East India Company/United East Indies Company (VOC). The VOC was a driving force behind the rise of financial capitalism in the early modern period.[35][36][37] In Timothy Brook's words, "the Dutch East India Company – the VOC, as it is known – is to corporate capitalism what Benjamin Franklin's kite is to electronics: the beginning of something momentous that could not have been predicted at the time."[38]

The shipyard of the Dutch East India Company (VOC) in Amsterdam (1726 engraving by Joseph Mulder). The shipbuilding district of Zaan, near Amsterdam, became one of the world's earliest known industrialized areas, with around 900 wind-powered sawmills at the end of the 17th century. By the early 17th century Dutch shipyards were producing a large number of ships to a standard design, allowing extensive division of labour, a specialization which further reduced unit costs.[39]

In 1602 shares in the Dutch Vereenigde Oost-Indische Compagnie (VOC, better known as the Dutch East India Company) were issued, suddenly creating what is usually considered the world's first publicly traded company. (...) There are other claimants to the title of first public company, including a twelfth-century water mill in France and a thirteenth-century company intended to control the English wool trade, Staple of London. Its shares, however, and the manner in which those shares were traded, did not truly allow public ownership by anyone who happened to be able to afford a share. The arrival of VOC shares was therefore momentous, because as Fernand Braudel pointed out, it opened up the ownership of companies and the ideas they generated, beyond the ranks of the aristocracy and the very rich, so that everyone could finally participate in the speculative freedom of transactions. By expanding ownership of its company pie for a certain price and a tentative return, the Dutch had done something historic: they had created a capital market.

— Kevin Kaiser and David Young (INSEAD), in "The Blue Line Imperative: What Managing for Value Really Means" (2013)[40]

Its [the Dutch East India Company's] fame as the first public company, which heralded the transition from feudalism to modern capitalism, and its remarkable financial success for nearly two centuries ensure its importance in the history of capitalism.

— Warwick Funnell and Jeffrey Robertson, in "Accounting by the First Public Company" (2014)[41]

A chartered company, the first with publicly traded stocks, and—within a few decades of its foundation—the richest company in the world, the VOC was not merely a business interest. It constituted a politogen, even a state in itself. (...) One of the VOC's most groundbreaking achievements was to organize, practically alone, an intercontinental cycle of accumulation that was vital to the emergence of global capitalism and the modern state.

— Peter Gelderloos, in Worshipping Power: An Anarchist View of Early State Formation (2016)[42]

(...) If one looks closely at the Dutch in the seventeenth century we can see virtually every major feature of large-scale industry credited to the English two centuries later. Production was increasingly mechanised, as in sawmilling; standardised parts were deployed in manufacturing, especially in shipbuilding; modern financial markets were developed, underscored by the formation of the Amsterdam Bourse in 1602. And it was all underwritten by an agricultural system that did what all capitalist agricultures must do: produce more and more food with less and less labour-time.

— Jason W. Moore, Political Economy Research Centre (Goldsmiths, University of London), December 2017[43]

The role of Dutch-speaking lands, especially present-day Flanders and the Netherlands (in particular modern-day North Holland and South Holland), in the history of capitalism has been a much discussed and researched subject.[44][45][46][47][48][49][50][51] Capitalism began to develop into its modern form during the Early Modern period in the Protestant countries of North-Western Europe, especially the Netherlands (Dutch Republic)[52][53][54][55][56][57] and England: traders in Amsterdam and London created the first chartered joint-stock companies driving up commerce and trade, and the first stock exchanges and banking and insurance institutions were established.[58][59][60][61][62] The world's earliest recorded speculative bubbles and stock market crashes occurred in 17th-century Holland. Seventeenth-century Dutch mechanical innovations such as wind-powered sawmills and Hollander beaters helped revolutionize shipbuilding[63][64] and paper industries. The Dutch also played a pioneering role in the rise of the capitalist world-system.[65] World-systems theorists (including Immanuel Wallerstein and Giovanni Arrighi) often consider the economic and financial supremacy of the 17th-century Dutch Republic[66] to be the first historical model of capitalist hegemony.[53][54][67][68][57][69][70]

As Thomas Hall (2000) notes, "The Sung Empire in particular nearly underwent a transformation to capitalism in the tenth century C.E. But the only states to be controlled by capitalists before the European transformation in the 17th century were semiperipheral capitalist city-states such as the Phoenician cities, Venice, Genoa, and Malacca. These operated in the interstices between the tributary states and empires, and though they were agents of commodification, they existed within larger systems in which the logic of state-based coercion remained dominant. This coming to state power by capitalists in an emerging core region signaled the triumph of regional capitalism in the European subsystem."[71] In Werner Sombart's words, "In all probability the United Provinces were the land in which the capitalist spirit for the first time attained its fullest maturity; where this maturity related to all its aspects, which were equally developed; and where this development had never been done comprehensive before. Moreover, in the Netherlands an entire people became imbued with the capitalist spirit; so much so, that in the 17th century Holland was universally regarded as the land of capitalism par excellence; it was envied by all other nations, who put forth their keenest endeavours in their desire to emulate it; it was the high school of every art of the tradesman, and the well-watered garden wherein the middle-class virtues throve."[72] Foundational thinkers in this approach include Adam Smith, Max Weber, Fernand Braudel, Henri Pirenne, and Paul Sweezy.

Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy (Greif 2006, 286), and Malmendier (2009) provides evidence that shareholder companies date back to ancient Rome. Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged. The two major companies were the Dutch East India Company and the Dutch West India Company, founded in 1602 and 1621. Other companies existed, but they were not as large and constituted a small portion of the stock market.

— Edward P. Stringham and Nicholas A. Curott, in "The Oxford Handbook of Austrian Economics" [On the Origins of Stock Markets] (2015)[73]

The stock market — the daytime adventure serial of the well-to-do — would not be the stock market if it did not have its ups and downs. (...) And it has many other distinctive characteristics. Apart from the economic advantages and disadvantages of stock exchanges — the advantage that they provide a free flow of capital to finance industrial expansion, for instance, and the disadvantage that they provide an all too convenient way for the unlucky, the imprudent, and the gullible to lose their money — their development has created a whole pattern of social behavior, complete with customs, language, and predictable responses to given events. What is truly extraordinary is the speed with which this pattern emerged full blown following the establishment, in 1611, of the world's first important stock exchange — a roofless courtyard in Amsterdam — and the degree to which it persists (with variations, it is true) on the New York Stock Exchange in the nineteen-sixties. Present-day stock trading in the United States — a bewilderingly vast enterprise, involving millions of miles of private telegraph wires, computers that can read and copy the Manhattan Telephone Directory in three minutes, and over twenty million stockholder participants — would seem to be a far cry from a handful of seventeenth-century Dutchmen haggling in the rain. But the field marks are much the same. The first stock exchange was, inadvertently, a laboratory in which new human reactions were revealed. By the same token, the New York Stock Exchange is also a sociological test tube, forever contributing to the human species' self-understanding. The behaviour of the pioneering Dutch stock traders is ably documented in a book entitled “Confusion of Confusions,” written by a plunger on the Amsterdam market named Joseph de la Vega; originally published in 1688, (...)

— John Brooks, in “Business Adventures” (1968)[74]

Even in the days before perestroika, socialism was never a monolith. Within the Communist countries, the spectrum of socialism ranged from the quasi-market, quasi-syndicalist system of Yugoslavia to the centralized totalitarianism of neighboring Albania. One time I asked Professor von Mises, the great expert on the economics of socialism, at what point on this spectrum of statism would he designate a country as "socialist" or not. At that time, I wasn't sure that any definite criterion existed to make that sort of clear-cut judgment. And so I was pleasantly surprised at the clarity and decisiveness of Mises's answer. "A stock market," he answered promptly. "A stock market is crucial to the existence of capitalism and private property. For it means that there is a functioning market in the exchange of private titles to the means of production. There can be no genuine private ownership of capital without a stock market: there can be no true socialism if such a market is allowed to exist."

— Murray Rothbard, in “Making Economic Sense” (2006)[75]

Until about the mid-1700s, the Dutch Republic's economic and financial system were the most advanced and sophisticated ever seen in history. Historically, the Dutch were responsible for at least four major pioneering institutional innovations[lower-alpha 1] (in economic, business and financial history of the world):

• The foundation of the Dutch East India Company (VOC), the world's first publicly listed company[76][77] and the first historical model of the multinational corporation (or transnational corporation) in its modern sense,[lower-alpha 2][78][79][80][81][82][83] in 1602. The birth of the VOC is often considered to be the official beginning of corporate-led globalization with the rise of modern corporations (multinational corporations in particular) as a highly significant socio-politico-economic force that affect human lives in every corner of the world today. As the first company to be listed on an official stock exchange, the VOC was the first company to issue stock and bonds to the general public. With its pioneering features, the VOC is generally considered a major institutional breakthrough and the model for modern corporations (large-scale business enterprises in particular). It is important to note that most of the largest and most influential companies of the modern-day world are publicly traded multinational corporations, including Forbes Global 2000 companies.
• The establishment of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), the world's first official stock exchange,[lower-alpha 3] in 1611, along with the birth of the first fully functioning capital market in the early 1600s.[85] While the Italian city-states produced the first transferable government bonds, they didn't develop the other ingredient necessary to produce the fully fledged capital market in its modern sense: a formal stock market.[86][87][88] The Dutch were the firsts to use a fully fledged capital market (including the bond market and stock market) to finance public companies (such as the VOC and WIC). This was a precedent for the global securities market in its modern form. In the early 1600s the VOC established an exchange in Amsterdam where VOC stock and bonds could be traded in a secondary market. The establishment of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser) by the VOC, has long been recognized as the origin of modern-day stock exchanges[89][90] that specialize in creating and sustaining secondary markets in the securities issued by corporations. The process of buying and selling shares (of stock) in the VOC became the basis of the first formal stock market.[91][92] The Dutch pioneered stock futures, stock options, short selling, bear raids, debt-equity swaps, and other speculative instruments. Amsterdam businessman Joseph de la Vega's Confusion of Confusions (1688) was the earliest book about stock trading. Early techniques of stock-market manipulation occurred.
• The establishment of the Bank of Amsterdam (Amsterdamsche Wisselbank), often considered to be the first historical model of the central bank,[93][94][95] in 1609. The birth of the Amsterdamsche Wisselbank led to the introduction of the concept of bank money. Along with a number of subsidiary local banks, it performed many functions of a central banking system.[96][97][98][99][100] It occupied a central position in the financial world of its day, providing an effective, efficient and trusted system for national and international payments, and introduced the first ever international reserve currency, the bank guilder.[101] Lucien Gillard calls it the European guilder (le florin européen),[102] and Adam Smith devotes many pages to explaining how the bank guilder works (Smith 1776: 446-455). The model of the Wisselbank as a state bank was adapted throughout Europe, including the Bank of Sweden (1668) and the Bank of England (1694).
• The formation of the first recorded professionally managed collective investment schemes (or investment funds), such as mutual funds,[103][104] in 1774. Amsterdam-based businessman Abraham van Ketwich (also known as Adriaan van Ketwich) is often credited as the originator of the world's first mutual fund. In response to the financial crisis of 1772–1773, Van Ketwich formed a trust named "Eendragt Maakt Magt" ("Unity Creates Strength"). His aim was to provide small investors with an opportunity to diversify.[105][106] Today the global funds industry is a multi-trillion-dollar business.

In many respects, the Dutch Republic's pioneering institutional innovations greatly helped revolutionize and shape the foundations of the economic and financial system of the modern-day world, and significantly influenced many English-speaking countries, especially the United Kingdom and United States.[107]

A competitor to the 'commercialization model' is the 'agrarian model', which explains the rise of capitalism by unique circumstances in English agrarianism. The evidence it cites is that traditional mercantilism focused on moving goods from markets where they were cheap to markets where they were expensive rather than investing in production, and that many cultures (including the early modern Dutch Republic) saw urbanisation and the amassing of wealth by merchants without the emergence of capitalist production.[108][109]

The agrarian argument developed particularly through Karl Polanyi's The Great Transformation (1944), Maurice Dobb's Studies in the Development of Capitalism (1946), and Robert Brenner's research in the 1970s, the discussion of which is known as the Brenner Debate. In the wake of the Norman Conquest, the English state was unusually centralised. This gave aristocrats relatively limited powers to extract wealth directly from their feudal underlings through political means (not least the threat of violence). England's centralisation also meant that an unusual number of English farmers were not peasants (with their own land and thus direct access to subsistence) but tenants (renting their land). These circumstances produced a market in leases. Landlords, lacking other ways to extract wealth, were motivated to rent to tenants who could pay the most, while tenants, lacking security of tenure, were motivated to farm as productively as possible to win leases in a competitive market. This led to a cascade of effects whereby successful tenant farmers became agrarian capitalists; unsuccessful ones became wage-labourers, required to sell their labour in order to live; and landlords promoted the privatisation and renting out of common land, not least through the enclosures. In this reading, 'it was not merchants or manufacturers who drove the process that propelled the early development of capitalism. The transformation of social property relations was firmly rooted in the countryside, and the transformation of England's trade and industry was result more than cause of England's transition to capitalism'.[110]

This article includes both perspectives.

The 21st century has seen renewed interest in the history of capitalism, and "History of Capitalism" has become a field in its own right, with courses in history departments. In the 2000s, Harvard University founded the Program on the Study of U.S. Capitalism; Cornell University established the History of Capitalism Initiative;[111] and Columbia University Press launched a monograph series entitled Studies in the History of U.S. Capitalism.[112] This field includes topics such as insurance, banking and regulation, the political dimension, and the impact on the middle classes, the poor and women and minorities.[113][114] These initiatives incorporate formerly neglected questions of race, gender, and sexuality into the history of capitalism. They have grown in the aftermath of the financial crisis of 2007–2008 and the associated Great Recession.

Map of a medieval manor. Notice the large commons area and the division of land into small strips. The mustard-colored areas are part of the demesne, the hatched areas part of the glebe.
William R. Shepherd, Historical Atlas, 01923

According to some historians,[115] the modern capitalist system originated in the "crisis of the Late Middle Ages", a conflict between the land-owning aristocracy and the agricultural producers, or serfs. Manorial arrangements inhibited the development of capitalism in a number of ways. Serfs had obligations to produce for lords and therefore had no interest in technological innovation; they also had no interest in cooperating with one another because they produced to sustain their own families. The lords who owned the land relied on force to guarantee that they received sufficient food. Because lords were not producing to sell on the market, there was no competitive pressure for them to innovate. Finally, because lords expanded their power and wealth through military means, they spent their wealth on military equipment or on conspicuous consumption that helped foster alliances with other lords; they had no incentive to invest in developing new productive technologies.[116]

The demographic crisis of the 14th century upset this arrangement. This crisis had several causes: agricultural productivity reached its technological limitations and stopped growing, bad weather led to the Great Famine of 1315–1317, and the Black Death of 1348–1350 led to a population crash. These factors led to a decline in agricultural production. In response, feudal lords sought to expand agricultural production by extending their domains through warfare; therefore they demanded more tribute from their serfs to pay for military expenses. In England, many serfs rebelled. Some moved to towns, some bought land, and some entered into favorable contracts to rent lands from lords who needed to repopulate their estates.[117]

The collapse of the manorial system in England enlarged the class of tenant farmers with more freedom to market their goods and thus more incentive to invest in new technologies. Lords who did not want to rely on renters could buy out or evict tenant farmers, but then had to hire free labor to work their estates, giving them an incentive to invest in two kinds of commodity owners. One kind was those who had money, the means of production, and subsistence, who were eager to valorize the sum of value they had appropriated by buying the labor power of others. The other kind was free workers, who sold their own labor. The workers neither formed part of the means of production nor owned the means of production that transformed land and even money into what we now call "capital".[118] Marx labeled this period the "pre-history of capitalism".[119]

In effect, feudalism began to lay some of the foundations necessary for the development of mercantilism, a precursor of capitalism. Feudalism was mostly confined to Europe and lasted from the medieval period through the 16th century. Feudal manors were almost entirely self-sufficient, and therefore limited the role of the market. This stifled any incipient tendency towards capitalism. However, the relatively sudden emergence of new technologies and discoveries, particularly in agriculture[120] and exploration, facilitated the growth of capitalism. The most important development at the end of feudalism was the emergence of what Robert Degan calls "the dichotomy between wage earners and capitalist merchants".[121] The competitive nature meant there are always winners and losers, and this became clear as feudalism evolved into mercantilism, an economic system characterized by the private or corporate ownership of capital goods, investments determined by private decisions, and by prices, production, and the distribution of goods determined mainly by competition in a free market.

Decaying hedges mark the lines of the straight field boundaries created by a Parliamentary Act of Enclosure.

England in the 16th century was already a centralized state, in which much of the feudal order of Medieval Europe had been swept away. This centralization was strengthened by a good system of roads and a disproportionately large capital city, London.[122] The capital acted as a central market for the entire country, creating a large internal market for goods, in contrast to the fragmented feudal holdings that prevailed in most parts of the Continent. The economic foundations of the agricultural system were also beginning to diverge substantially; the manorial system had broken down by this time, and land began to be concentrated in the hands of fewer landlords with increasingly large estates. The system put pressure on both the landlords and the tenants to increase agricultural productivity to create profit. The weakened coercive power of the aristocracy to extract peasant surpluses encouraged them to try out better methods. The tenants also had an incentive to improve their methods to succeed in an increasingly competitive labour market. Land rents had moved away from the previous stagnant system of custom and feudal obligation, and were becoming directly subject to economic market forces.

An important aspect of this process of change was the enclosure[123] of the common land previously held in the open field system where peasants had traditional rights, such as mowing meadows for hay and grazing livestock. Once enclosed, these uses of the land became restricted to the owner, and it ceased to be land for commons. The process of enclosure began to be a widespread feature of the English agricultural landscape during the 16th century. By the 19th century, unenclosed commons had become largely restricted to rough pasture in mountainous areas and to relatively small parts of the lowlands.

Marxist and neo-Marxist historians argue that rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labour required in the new industries developing in the north of England. For example: "In agriculture the years between 1760 and 1820 are the years of wholesale enclosure in which, in village after village, common rights are lost".[124] "Enclosure (when all the sophistications are allowed for) was a plain enough case of class robbery".[125] Anthropologist Jason Hickel notes that this process of enclosure led to myriad peasant revolts, among them Kett's Rebellion and the Midland Revolt, which culminated in violent repression and executions.[126]

Other scholars[127] argue that the better-off members of the European peasantry encouraged and participated actively in enclosure, seeking to end the perpetual poverty of subsistence farming. "We should be careful not to ascribe to [enclosure] developments that were the consequence of a much broader and more complex process of historical change."[128] "[T]he impact of eighteenth and nineteenth century enclosure has been grossly exaggerated...."[129]

A painting of a French seaport from 1638, at the height of mercantilism.

While trade has existed since early in human history, it was not capitalism.[130] The earliest recorded activity of long-distance profit-seeking merchants can be traced to the Old Assyrian merchants active in Mesopotamia the 2nd millennium BCE.[131] The Roman Empire developed more advanced forms of commerce, and similarly widespread networks existed in Islamic nations. However, capitalism took shape in Europe in the late Middle Ages and Renaissance.

An early emergence of commerce occurred on monastic estates in Italy and France and in the independent city republics of Italy during the late Middle Ages. Innovations in banking, insurance, accountancy, and various production and commercial practices linked closely to a 'spirit' of frugality, reinvestment, and city life, promoted attitudes that sociologists have tended to associate only with northern Europe, Protestantism, and a much later age. The city republics maintained their political independence from Empire and Church, traded with North Africa, the Middle East and Asia, and introduced Eastern practices. They were also considerably different from the absolutist monarchies of Spain and France, and were strongly attached to civic liberty.[132][133][134]

Modern capitalism only fully emerged in the early modern period between the 16th and 18th centuries, with the establishment of mercantilism or merchant capitalism.[135][136] Early evidence for mercantilistic practices appears in early modern Venice, Genoa, and Pisa over the Mediterranean trade in bullion. The region of mercantilism's real birth, however, was the Atlantic Ocean.[137]

Sir Josiah Child, an influential proponent of mercantilism. Painting attributed to John Riley.

England began a large-scale and integrative approach to mercantilism during the Elizabethan Era. An early statement on national balance of trade appeared in Discourse of the Common Weal of this Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them."[138] The period featured various but often disjointed efforts by the court of Queen Elizabeth to develop a naval and merchant fleet capable of challenging the Spanish stranglehold on trade and of expanding the growth of bullion at home. Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping.

These efforts organized national resources sufficiently in the defense of England against the far larger and more powerful Spanish Empire, and in turn paved the foundation for establishing a global empire in the 19th century. The authors noted most for establishing the English mercantilist system include Gerard de Malynes and Thomas Mun, who first articulated the Elizabethan System. The latter's England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure gave a systematic and coherent explanation of the concept of balance of trade. It was written in the 1620s and published in 1664.[139] Mercantile doctrines were further developed by Josiah Child. Numerous French authors helped to cement French policy around mercantilism in the 17th century. French mercantilism was best articulated by Jean-Baptiste Colbert (in office, 1665–1683), although his policies were greatly liberalised under Napoleon.

Under mercantilism, European merchants, backed by state controls, subsidies, and monopolies, made most of their profits from buying and selling goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices..."[140] Similar practices of economic regimentation had begun earlier in medieval towns. However, under mercantilism, given the contemporaneous rise of absolutism, the state superseded the local guilds as the regulator of the economy.

The Anglo-Dutch Wars were fought between the English and the Dutch for control over the seas and trade routes.

Among the major tenets of mercantilist theory was bullionism, a doctrine stressing the importance of accumulating precious metals. Mercantilists argued that a state should export more goods than it imported so that foreigners would have to pay the difference in precious metals. Mercantilists asserted that only raw materials that could not be extracted at home should be imported. They promoted the idea that government subsidies, such as granting monopolies and protective tariffs, were necessary to encourage home production of manufactured goods.

Proponents of mercantilism emphasized state power and overseas conquest as the principal aim of economic policy. If a state could not supply its own raw materials, according to the mercantilists, it should acquire colonies from which they could be extracted. Colonies constituted not only sources of raw materials but also markets for finished products. Because it was not in the interests of the state to allow competition, to help the mercantilists, colonies should be prevented from engaging in manufacturing and trading with foreign powers.

Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods.[3] Noting the various pre-capitalist features of mercantilism, Karl Polanyi argued that "mercantilism, with all its tendency toward commercialization, never attacked the safeguards which protected [the] two basic elements of production – labor and land – from becoming the elements of commerce." Thus mercantilist regulation was more akin to feudalism than capitalism. According to Polanyi, "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date."[141]

British East India Company 1801

The Muscovy Company was the first major chartered joint stock English trading company. It was established in 1555 with a monopoly on trade between England and Muscovy. It was an offshoot of the earlier Company of Merchant Adventurers to New Lands, founded in 1551 by Richard Chancellor, Sebastian Cabot and Sir Hugh Willoughby to locate the Northeast Passage to China to allow trade. This was the precursor to a type of business that would soon flourish in England, the Dutch Republic and elsewhere.

The British East India Company (1600) and the Dutch East India Company (1602) launched an era of large state chartered trading companies.[15][142] These companies were characterized by their monopoly on trade, granted by letters patent provided by the state. Recognized as chartered joint-stock companies by the state, these companies enjoyed lawmaking, military, and treaty-making privileges.[143] Characterized by its colonial and expansionary powers by states, powerful nation-states sought to accumulate precious metals, and military conflicts arose.[15] During this era, merchants, who had previously traded on their own, invested capital in the East India Companies and other colonies, seeking a return on investment.

The productivity gains of capitalist production began a sustained and unprecedented increase at the turn of the 19th century, in a process commonly referred to as the Industrial Revolution. Starting in about 1760 in England, there was a steady transition to new manufacturing processes in a variety of industries, including going from hand production methods to machine production, new chemical manufacturing and iron production processes, improved efficiency of water power, the increasing use of steam power and the development of machine tools. It also included the change from wood and other bio-fuels to coal.

The Spinning mule, built by the inventor Samuel Crompton.

In textile manufacturing, mechanized cotton spinning powered by steam or water increased the output of a worker by a factor of about 1000, due to the application of James Hargreaves' spinning jenny, Richard Arkwright's water frame, Samuel Crompton's Spinning Mule and other inventions. The power loom increased the output of a worker by a factor of over 40.[145] The cotton gin increased the productivity of removing seed from cotton by a factor of 50. Large gains in productivity also occurred in spinning and weaving wool and linen, although they were not as great as in cotton.

The Rothschild family revolutionised international finance. The Frankfurt terminus of the Taunus Railway was financed by the Rothschilds and opened in 1840 as one of Germany's first railways.

The growth of Britain's industry stimulated a concomitant growth in its system of finance and credit. In the 18th century, services offered by banks increased. Clearing facilities, security investments, cheques and overdraft protections were introduced. Cheques had been invented in the 17th century in England, and banks settled payments by direct courier to the issuing bank. Around 1770, they began meeting in a central location, and by the 19th century a dedicated space was established, known as a bankers' clearing house. The London clearing house used a method where each bank paid cash to and then was paid cash by an inspector at the end of each day. The first overdraft facility was set up in 1728 by The Royal Bank of Scotland.

The end of the Napoleonic War and the subsequent rebound in trade led to an expansion in the bullion reserves held by the Bank of England, from a low of under 4 million pounds in 1821 to 14 million pounds by late 1824.

Older innovations became routine parts of financial life during the 19th century. The Bank of England first issued bank notes during the 17th century, but the notes were hand written and few in number. After 1725, they were partially printed, but cashiers still had to sign each note and make them payable to a named person. In 1844, parliament passed the Bank Charter Act tying these notes to gold reserves, effectively creating the institution of central banking and monetary policy. The notes became fully printed and widely available from 1855.

Growing international trade increased the number of banks, especially in London. These new "merchant banks" facilitated trade growth, profiting from England's emerging dominance in seaborne shipping. Two immigrant families, Rothschild and Baring, established merchant banking firms in London in the late 18th century and came to dominate world banking in the next century. The tremendous wealth amassed by these banking firms soon attracted much attention. The poet George Gordon Byron wrote in 1823: "Who makes politics run glibber all?/ The shade of Bonaparte's noble daring?/ Jew Rothschild and his fellow-Christian, Baring."

The operation of banks also shifted. At the beginning of the century, banking was still an elite preoccupation of a handful of very wealthy families. Within a few decades, however, a new sort of banking had emerged, owned by anonymous stockholders, run by professional managers, and the recipient of the deposits of a growing body of small middle-class savers. Although this breed of banks was newly prominent, it was not new – the Quaker family Barclays had been banking in this way since 1690.

At the height of the First French Empire, Napoleon sought to introduce a "continental system" that would render Europe economically autonomous, thereby emasculating British trade and commerce. It involved such stratagems as the use of beet sugar in preference to the cane sugar that had to be imported from the tropics. Although this caused businessmen in England to agitate for peace, Britain persevered, in part because it was well into the industrial revolution. The war had the opposite effect – it stimulated the growth of certain industries, such as pig-iron production which increased from 68,000 tons in 1788 to 244,000 by 1806.

19th-century Great Britain become the first global economic superpower, because of superior manufacturing technology and improved global communications such as steamships and railroads.

In 1817, David Ricardo, James Mill and Robert Torrens, in the famous theory of comparative advantage, argued that free trade would benefit the industrially weak as well as the strong. In Principles of Political Economy and Taxation, Ricardo advanced the doctrine still considered the most counterintuitive in economics:

When an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit.

By the mid 19th century, Britain was firmly wedded to the notion of free trade, and the first era of globalization began.[135] In the 1840s, the Corn Laws and the Navigation Acts were repealed, ushering in a new age of free trade. In line with the teachings of the classical political economists, led by Adam Smith and David Ricardo, Britain embraced liberalism, encouraging competition and the development of a market economy.

Industrialization allowed cheap production of household items using economies of scale, while rapid population growth created sustained demand for commodities. Nineteenth-century imperialism decisively shaped globalization in this period. After the First and Second Opium Wars and the completion of the British conquest of India, vast populations of these regions became ready consumers of European exports. During this period, areas of sub-Saharan Africa and the Pacific islands were incorporated into the world system. Meanwhile, the European conquest of new parts of the globe, notably sub-Saharan Africa, yielded valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment between the European imperial powers, their colonies, and the United States.[146]

The gold standard formed the financial basis of the international economy from 1870 to 1914.

The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914.

The global financial system was mainly tied to the gold standard during this period. The United Kingdom first formally adopted this standard in 1821. Soon to follow was Canada in 1853, Newfoundland in 1865, and the United States and Germany (de jure) in 1873. New technologies, such as the telegraph, the transatlantic cable, the Radiotelephone, the steamship, and the railway allowed goods and information to move around the world at an unprecedented degree.[147]

The eruption of civil war in the United States in 1861 and the blockade of its ports to international commerce meant that the main supply of cotton for the Lancashire looms was cut off. The textile industries shifted to reliance upon cotton from Africa and Asia during the course of the U.S. civil war, and this created pressure for an Anglo-French controlled canal through the Suez peninsula. The Suez canal opened in 1869, the same year in which the Central Pacific Railroad that spanned the North American continent was completed. Capitalism and the engine of profit were making the globe a smaller place.

The New York stock exchange traders' floor (1963)

The economic recovery of the world's leading capitalist economies in the period following the end of the Great Depression and the Second World War—a period of unusually rapid growth by historical standards—eased discussion of capitalism's eventual decline or demise.[149] The state began to play an increasingly prominent role to moderate and regulate the capitalistic system throughout much of the world.

Keynesian economics became a widely accepted method of government regulation and countries such as the United Kingdom experimented with mixed economies in which the state owned and operated certain major industries.

The state also expanded in the US; in 1929, total government expenditures amounted to less than one-tenth of GNP; from the 1970s they amounted to around one-third.[136] Similar increases were seen in all industrialized capitalist economies, some of which, such as France, have reached even higher ratios of government expenditures to GNP than the United States.

A broad array of new analytical tools in the social sciences were developed to explain the social and economic trends of the period, including the concepts of post-industrial society and the welfare state.[135]

The long postwar boom ended in the 1970s, amid the economic crises experienced following the 1973 oil crisis.[150] The "stagflation" of the 1970s led many economic commentators and politicians to embrace market-oriented policy prescriptions inspired by the laissez-faire capitalism and classical liberalism of the 19th century, particularly under the influence of Friedrich Hayek and Milton Friedman. The theoretical alternative to Keynesianism was more compatible with laissez-faire and emphasized rapid expansion of the economy. Market-oriented solutions gained increasing support in the capitalist world, especially under leadership of Ronald Reagan in the U.S. and Margaret Thatcher in the UK in the 1980s. Public and political interest began shifting away from the so-called collectivist concerns of Keynes's managed capitalism to a focus on individual choice, called "remarketized capitalism".[151] In the eyes of many economic and political commentators, the collapse of the Soviet Union brought further evidence of the superiority of market capitalism over planned economy.

The New York Stock Exchange.

Although overseas trade has been associated with the development of capitalism for over five hundred years, some thinkers argue that a number of trends associated with globalization have acted to increase the mobility of people and capital since the last quarter of the 20th century, combining to circumscribe the room to maneuver of states in choosing non-capitalist models of development. Today, these trends have bolstered the argument that capitalism should now be viewed as a truly world system (Burnham). However, other thinkers argue that globalization, even in its quantitative degree, is no greater now than during earlier periods of capitalist trade.[152]

After the abandonment of the Bretton Woods system in 1971, and the strict state control of foreign exchange rates, the total value of transactions in foreign exchange was estimated to be at least twenty times greater than that of all foreign movements of goods and services (EB). The internationalization of finance, which some see as beyond the reach of state control, combined with the growing ease with which large corporations have been able to relocate their operations to low-wage states, has posed the question of the 'eclipse' of state sovereignty, arising from the growing 'globalization' of capital.[153]

While economists generally agree about the size of global income inequality, there is a general disagreement about the recent direction of change of it.[154] In cases such as China, where income inequality is clearly growing[155] it is also evident that overall economic growth has rapidly increased with capitalist reforms.[156] The book The Improving State of the World, published by the libertarian think tank Cato Institute, argues that economic growth since the Industrial Revolution has been very strong and that factors such as adequate nutrition, life expectancy, infant mortality, literacy, prevalence of child labor, education, and available free time have improved greatly.[157] Some scholars, including Stephen Hawking[158] and researchers for the International Monetary Fund,[159][160] contend that globalization and neoliberal economic policies are not ameliorating inequality and poverty but exacerbating it,[161][162][163] and are creating new forms of contemporary slavery.[164][165] Such policies are also expanding populations of the displaced, the unemployed and the imprisoned[166][167] along with accelerating the destruction of the environment[161] and species extinction.[168][169] In 2017, the IMF warned that inequality within nations, in spite of global inequality falling in recent decades, has risen so sharply that it threatens economic growth and could result in further political polarization.[170] Surging economic inequality following the economic crisis and the anger associated with it have resulted in a resurgence of socialist and nationalist ideas throughout the Western world, which has some economic elites from places including Silicon Valley, Davos and Harvard Business School concerned about the future of capitalism.[171]