Why and How Capitalism and the Preconditions for Industrialization Emerge - Term Paper Example

Introduction Europe emerged from the Middle Ages with a lot of challenges in the area of infrastructure and development. The societies of that era were steeped in superstition and other forms of backward activities which were centred around the divinity of monarchs. In the period of the Reformation which began in the 1500s a lot of changes occurred. One of the main areas was the institution of Capitalism to aid the development of Europe. Capitalism is defined by Viault as “an economic system in which investment in and ownership of the means of production, distribution and exchange of wealth is made and maintained chiefly by private individuals and corporations” (2011, p80). In the 1700s, a spate of inventions in Britain and the identification of new markets around the world laid the foundation for the Industrial Revolution of the early 1800s. The growth of scientific agriculture, manufacturing and engineering boosted the Industrial Revolution in the period to lay the impetus for the Industrial Revolution. However, the position of Capitalism and its relationship with Industrialisation is not very clear. This essay will discuss why and how Capitalism and the preconditions for Industrialisation emerge. In attaining this end, the following objectives will be explored: 1. A critical examination of the core patterns in the industrialisation of Britain, Europe and the rest of the World. 2. A review of the earliest philosophical and economic elements of Capitalism in Europe. 3. An assessment of the commercialisation and its impact on synthesising industrialisation and capitalism. 4. Conclusion on how capitalism and the preconditions of industrialisation emerged. Feudalism and Serfdom Maddison undertook a critical review of the evolution of the economic history of Europe (1982). He classifies six epochs in European economic history. These include the pre-agrarian era which is a period where people lived in the wild and survived by hunting and picking. The second category is the agrarian era which was interrupted by the ancient imperialism of Rome and Greece. Then came a period of reversion back to agrarianism (500 – 1500). Europe then moved into a period of advanced agrarianism (1500 – 1700). Then Europe moved to the era of merchant capitalism (1700 - 1820) and then to the era of capitalism (1820 - 1980). This indicates that the concept of Capitalism emerged after the period of agrarianism which was characterised by a high degree of serfdom. Serfdom is defined by Dobb as “an obligation laid on the producers by force and independently of his own volition to fulfil certain economic demands of an overlord, whether these demands take the form of services to be performed or of dues to be paid in money or in kind” (1950, p35). This implies that serfdom was some kind of slavery that was institutionalised in the Europe. In this process, the Church played a major role in honouring the concept of the divinity of monarchs (Viault, 2011). The monarchs and people with noble births were allowed to have control over castles and other sensitive locations and due to the divinity connected to their origins, they took a kind of royalties in return for land and/or protection and security. Hence, the nobles held a central position in society. There were nobles who ruled by divine and patriarchal rights whilst the commoners or non-nobles worked and paid royalties in different forms to the nobility. However, the earliest call for reforms was the class struggle of Britain in the era of Oliver Cromwell in the 1600s. In this process, the masses sought a revolution that would end feudalism. However, the ruling class moved and relaxed systems and the situation of a serious revolt as was the case in France did not occur in Britain. Merchant Capitalism Meanwhile, Britain joined the club of European nations that acquired foreign possessions after the Age of Exploration. Beaud identifies that American resources prompted the Industrial Revolution (2001). This is because the colonisation of new lands in North America allowed Britain to attain more resources and this promoted the volume of trade that was carried out in Britain. The mode of operation that the British government used was that, various mercantile companies were granted licenses by the Crown to operate in the various colonies that Britain acquired. The trading companies supplied materials to the colonies and trading spheres of Britain around the globe (Rubin, 1929). The shipping companies and the mercantile entities that conducted these trade activities began to grow in response to demand from the colonies in North America, the Caribbean, Africa and Asia. The expansion of markets continued as more training links were established by the British. Through this, a bourgeois class emerged in Britain. This is because most of the members of the aristocracy and other successful investors became successful urban dwellers who controlled capital and wealth (Rubin, 1929). The Reform Act of 1832 was a confirmation of the growth of a number of commoners who had become wealthy by indulging in mercantile capitalism (Warham, 1995). This is because the Reform Act allowed more people to be elected by ordinary people into the House of Commons and many large cities in Britain that grew as a result of the prosperity of the Industrial Revolution showed that a middle class was emerging (Wicks, 2006). The middle class was a third group of people who were not nobles. However, due to the fact that they had invested in the fortunes of mercantile capitalism and were now rich, they were also not considered as commoners. Thus, the third group of middle class members of the British society alongside the nobles who already had capital came together to form the bourgeois class. The growth in the wealth and power of the bourgeois led to the concentration of investments in the hands of these individuals. They were therefore able to raise money to fund projects and also support the commercialisation of inventions. With time, Britain became the most industrialised nation in the world. And as colonies like those in North America got self sufficient and could produce their own primary products like agricultural products, the demand for such products from Britain and other colonising countries reduced. The focus therefore shifted to the export of processed products. And since Britain had the infrastructure, the industries produced and exported to different parts of the world. Thus, members of the old nobility and the new bourgeois class became stronger and they controlled more wealth. This acted as the impetus for the Industrial Revolution. Banking and Organized Work Urban trade increased in Britain as the Industrial Revolution began (Cunningham, 2009). The urban centres grew because there was a massive demand for labour to work in the industries. Guilds were formed to protect various trades and interests as a method of keeping the aristocratic and bourgeois group at the top of the economic systems. Britain copied the system of banking adopted by the Dutch and implemented it. The British formed a Royal Bank which was to act as the central bank and ensure that the government had enough money to fund its wars and colonial expansion (Cunningham, 2009). Higher taxation requirements were introduced after the loss of the main North American colonies. The effect of the guilds and the banks was that the guilds protected the rich bourgeois and industry owners whilst the banking system formed the impetus for the pooling of resources for the funding of business growth and expansion. The area of commercial banking had been the preserve of the Jews in European nations including Britain because the Church forbade Christians from lending to other Christians at an interest (Walker, 1937). Thus, the industrialisation of Britain led to the higher demand for capital and this allowed the British bourgeois to always attain funding to carry out their activities. Protestants in Britain also supported calculation and accountability as a fundamental aspect of business and trade (Walker, 1937). Hence, the tradition of managing businesses and growing wealth grew in Britain. Capitalism Rostow identifies that the banking system that existed in nations in the early 1800s caused all nations with a central bank to experience unprecedented success and economic growth (1985). He cites the examples of Western Europe, North America and Japan. These are nations that set up Central Banks and this bred a system of commercial banks which worked together to promote capital, funding and credit to boost industrialisation. Capitalism in Britain and the West was fuelled by three main things (Maddison, 2007) which include: 1. Rapid technological change. 2. Structural transformation and 3. Rising per capita income. There is evidence of unprecedented growth in Europe in the 1820s due to the industrial revolution (Maddison, 1991). This include collective changes and the growth in GDP and other trends (Maddison, 1991). Also, the growth of capitalism and the growth of cities in Britain led to the quick networking and expansion of urban centres (Kemp, 1978). In response to this, most people in the rural areas who were part of the serfdom system moved to urban centres in Britain to “seek their fortune” as we notice in the book Dick Whittington. The peasants were converted to labourers in the industries and this promoted the growth of industrialisation and ultimately led to a paradigm shift in the socio-economic structures of Britain. Capitalism is characterised by the laissez-faire system used by governments in dealing with work amongst individuals who formed businesses (Weber, 1923). There was limited encroachment by the state and this prevented interference in the trade of the early industries of Britain (Weber, 1923). Thus, the individuals formed industries which were capitalistic and profit oriented and capital accounting was used to seek profits rationally and systematically (Weber, 1923). In stating the difference between the Capitalism that emerged in lieu of feudalism, Professor Hamilton states that Capitalism is “a system where wealth other than land is used for the definite purpose of profits” (Hilton, 2006: p56). Thus, land and agricultural levies and taxes that were required by the nobles and barons were abolished as Capitalism came to play. Thus, Capitalism refers to an era where money was used as a system of exchange in the economy. The society was steeped in a system of profitability and pursuit of wealth. Economic wealth and control was the main focus and underlying factor for the determination of classification in the society. In lieu of the old system of classification, people were placed in two classes. This included the property owners and the propertyless workers (Nussbaum, 2002). In critiquing the elements of Capitalism, Cunningham identified that there were four main components and elements that marked the British and early European Capitalist society: 1. Organised industry. 2. Possession of materials by employer. 3. Hiring of workmen and paying wages 4. Profits from sale of goods (Cunningham, 2009). This replaced the peasant-oriented economic system where most people in Britain were living as farmers who produced and gave a share of their products to their landlords. They therefore had a system that evolved out of the changes in economic trends in the country and this led to the creation of the “natural economy” or the “exchange economy” where people sought to produce goods or services that brought them income in cash or similar terms (Rubin, 1929). Naturally, as more British people moved to urban centres, the conditions in these cities became terrible and difficult to attain. There was the exploitation of workers due to the need to attain higher levels of profitability on the part of producers and manufacturers. The populations in rural settings also declined further since more people opted for urban lifestyles. With time, the British trend and system spread to other nations in the West and countries like the United States evolved from being agrarian nations to becoming industrialised. Thus, industrial centres like Detroit which opened up attracted migrations of people from the farms to work in these industrialised cities. Commercialisation and the Merger of Capitalism and Industrialisation The period of 1800 led to a quest for research and the invention of new technologies and systems. Thus, the position of the richest and most successful businessmen was to spend money to develop a given technology and commercialise it first in Britain and then to other parts of the Empire (Viault, 2011). The trend of trade and the maximisation of profits as an end in itself was a major thing that grew and was enhanced (Hilton, 2006). The idea was that people sought to acquire wealth by investing in the most promising ventures. Hence, most investors in the earliest capitalist societies put money in ventures that were promising. This meant that activities that were not really productive and could not attract profits were likely to be shunned whilst investors concentrated on other things. Since the British government was making money through the overseas trade, there was a natural demand for the products made on the island. This is because in most of the colonies, the British government had exclusive trading rights. They also built trading infrastructure and this enabled them to get a direct access to the markets and produce for the people in the nations to get the most modern and the most sophisticated markets. Another element is that in most of the nations, the British or other European imperialists were the pace-setters. They were the ones who defined the prices and costs at which they sold their products and goods. This control allowed them to earn very high and uncontrolled profits because they were the only ones who had the kind of products. With time, people developed a taste for these European manufactured products and they also formed some kind of upper or ruling class and they continued to exploit the opportunities there. Thus, capitalism grew and expanded. The quest for profits grew amongst British bourgeois and some parties entered unethical and immoral practices like the Trans-Atlantic Slave trade which involved the capture and sale of Africans to work in plantations in the Americas to make money for the British aspiring bourgeois (Wolf, 2010). Colonialism was formalised in the era of Queen Victoria and Britain had access to more markets around the globe. Conclusion Britain and Europe were agrarian societies in the medieval periods. However, the Age of Exploration and the Reformation of Europe caused numerous factors to work in sync to promote capitalism and industrialisation. First of all, the identification of means of accessing far-away lands allowed the British and other Europeans to colonise and trade with these territories. This opened up a market for Europe. The advancement of science and technology caused Britain to build manufacturing industries. Britain held a global monopoly to the manufacture of goods at the end of the 1700s. Mercantile capitalism therefore emerged as a way of producing goods for nations around the world. This boosted industries. A number of commoners and nobles moved to urban centres and they invested in creating industries in order to hire workers, produce goods and sell at a profit. These people became the core of the middle-class and bourgeois class. The bourgeois class was given money from the banking industry of Britain which came under the supervision of the Treasury or Central Bank. In that period, the serfs who were mainly peasants in rural areas of Britain moved to urban centres to become workers in these industries since the payment was better. Capitalism therefore evolved due to the states laissez-faire attitude towards interruption of businesses that were conducted legally. Thus, business owners were free to pursue profits as long as they were not illegal. The British expansion to other parts of the world enhanced the control of territories and the industrialists got a larger market to sell their goods in. This continued and Britain expanded its scope further and Capitalism became the standard practice and system in the country as a natural consequence of the Industrial Revolution References Beaud, M. (2001) A History of Capitalism 1500 – 2000 Digital Version, University of Michigan. Cunningham, W. (2009) The Progress of Capitalism in England New York: BiblioLife. Dobb, M. (1950) Studies in the Development of Capitalism London: Routledge Hamilton, E. J. (1929) Economica Duke University Press. Hilton, R. (2006) The Transition from Feudalism to Capitalism Delhi: Aakar Books Kemp, T. (1978) Historical Patterns in Industrialisation London: Longman Maddison, A. (1982) Phases of Capitalist Development Oxford: Oxford University Press. Maddison, A. (1991) Dynamic Forces in Capitalist Development: A Long- Run Comparative Review Oxford: Oxford University Press. Maddison, A. (2007) Contours of the World Economy Oxford: Oxford University Press. Nussbaum, F. L. (2002) An Early H istory of Economic Institutions in Europe New York: Beard Books Rostow, W. W. (1985) “Phases of Capitalist Development by Angus Maddison” Journal of Economic History Vol 45(4) pp1026 – 1028 Rubin, I. L. (1929) A History of Economic Thought London: Ink Links Ltd. Viault, B. S. 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