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CAPITALISM

CAPITALISM. Europe went through remarkable economic transformations between 1500 and 1800, including agricultural change, urbanization, industrial development, commercial expansion, and growing financial sophistication. Capital was accumulated and productively invested; it helped to create (and became increasingly essential to) the new forms of social organization used to exploit economic opportunities. Labor became more of a commodity to be bought and sold. Occupational diversification proceeded alongside a growing polarization of wealth, creating a large group of wage-dependent laborers and an emerging, but increasingly assertive, middle class that embraced the productive ideal.

These changes were once thought to be associated with a fundamental transition from one type of economic, social, and political form (feudalism) to another (capitalism). However, economic change in early modern Europe is better conceived as a changing balance between sectors and regions, some of which moved rapidly, others only slowly. Overlapping (if sometimes contradictory) forces helped Europe to become more capitalist over time, but noncapitalist forms existed alongside this trend and shaped the path it took.

Different degrees of capitalism coexisted in constantly changing alignments from the Middle Ages to the nineteenth century, and all regions of Europe had some dynamism at some periods. The richest "core" parts of Europe in 1500 were the lands ruled by the Habsburgs in Spain, northern Italy, southern Germany, and the Low Countries. Northern Europe was, by comparison, economically peripheral. By 1650 the economic hub of Europe had shifted irrevocably to the northwest seaboard, leaving the Mediterranean as the "periphery."

COMMERCIAL CAPITALISM

At the end of the Middle Ages, Europe's largely subsistence economies were small, fragmented, and lacking dynamism. Demand was slack, and what trade existed was in foodstuffs and a few luxuries. Goods needed an expanding market, which extralocal commerce seemed to provide by short-circuiting some of the inherent constraints on economic growth. Thus began greater intra-European trade and, crucially, the voyages of discovery, which—for better or worse—brought Europeans into direct contact with the wider world. Supplies of new goods were brought to Europe, and new demands were created: for commodities like sugar, tea, and tobacco, and for semidurables like crockery or cotton and silk clothes. European manufactures found new markets abroad.

It was once thought that the profits so earned were concentrated in the hands of capitalists, who helped to fund further economic development. Direct and indirect benefits accrued. Production for exchange rather than use became the norm, and with it a specialization of function, or "division of labor." Successful merchants could diversify into industry. Transportation and transaction costs would be reduced by innovations in carrying. Ships had to be built, outfitted, and victualed, further stimulating production and technological innovation. Long-term credit, changes in the law on multiple ownership, which made possible "joint-stock companies," and increasingly sophisticated exchange facilities (including banknotes) fostered the rational and systematic maximization of net returns, which is a keynote of capitalism.

Historians conventionally believed that international trade, especially with the New World, was the prime force behind the primitive accumulation of capital, leading eventually to the industrial and commercial revolutions of the nineteenth century. Certain significant mercantile groups in the towns of northwest Europe benefited, but the overall stimulus to early capitalism should not be exaggerated. Overseas commerce was a risky business involving no more than one percent of European production. Dynamic and glamorous as international trade may seem, more mundane aspects of early modern economic life need to be considered. In order of numbers employed, commerce came a long way behind agriculture and industry. Once thought less dynamic than trade, the agricultural world in particular had considerable potential for economic change because of the nature of social class relations in some areas of rural Europe.

AGRARIAN CAPITALISM

Social status and wealth in rural Europe were determined by the legal rights people had to the land they worked and consequently by their share of the surplus they extracted. Some parts of Europe had many peasant proprietors, but mostly the land was owned by a few rich people and worked by "tenant" farmers and landless or land-poor laborers. In France the political needs of the late-medieval French crown led it to foster peasant proprietorship. This created a substantial body of semi-independent peasantry, but they were generally poor, and the rural economy was relatively immobile. Scandinavia was similar. In contrast, the English peasantry was politically weaker, and independent freeholders were gradually turned into tenant farmers. This facilitated subsequent social change (expropriation) and economic improvements (based ultimately on consolidation of holdings) required for capitalism. Ownership of the means of production became concentrated in fewer hands, landholding units became larger, and specialized techniques were introduced to raise yields. Thus, fluid social relations of production were adapted to capitalism, and other, increasingly capitalistic, means of raising net profitability were introduced.

This is true of parts of northwest Europe, notably England. Yet a simple imbalance of power relationships in favor of the owners of the means of production did not necessarily promote capitalist development. Powerful landowners east of the River Elbe reacted to growing western demands for grain during the sixteenth-century population expansion by exploiting more intensively their feudal privileges over serf labor. For example, the rights of Russian lords over their peasants were consolidated and extended by comprehensive laws passed in 1649. Serfdom in the east was characterized by restricted personal freedom and the exploitation of the peasantry by legal and political rather than purely economic means. Labor power had not been turned into a simple commodity for, in addition, the relation between capital and labor retained a personal dimension, and workers had means of support other than selling their labor. The experience of eastern Europe is a reminder that a commercialized economy is not the same as a capitalist economy. It also shows that economic change did not always bring with it more capitalistic forms of social organization and that a polarized society is not necessarily a capitalist one.

INDUSTRIAL CAPITALISM

Commercial explanations of capitalist development, which focus on extrinsic forces, may underestimate the internal dynamism of European agriculture, industry, and towns. Some regions of Europe had been net importers of food and exporters of finished products since the Middle Ages. The economically dynamic northern Italian city-states are an example in the late Middle Ages. During the sixteenth century, the Dutch imported as much as a third of their grain needs from the Baltic, allowing specialization within pastoral agriculture alongside a level of urbanization and industrial employment that would have been unthinkable if their economy had been closed.

Just as some regions depended on trade, so too did most European families. Far from being merely self-sufficient, production for exchange was common. It is unlikely that most households made items such as clothes for their own use, because the manufacturing process from raw material to finished garment was far too complicated and time-consuming. Even in the more isolated economies there was a considerable degree of specialization and therefore exchange. Incomes fluctuated, but in good times there were surpluses to spend on marketplace purchases. Thus, there were opportunities for growth and change even within "traditional" economies.

Factories and capitalism are conventionally linked, but most early modern industrial production was located in the home and in the countryside: it is commonly known as "cottage industry." Across northwest Europe between a sixth and a third of all men living in the countryside were primarily employed in nonagricultural jobs such as textile manufacture. These rural domestic producers were both independent artisans producing for local markets and dependent employees whose work might reach extralocal markets. The latter form is known as "putting-out," and its advantage to capitalists was that it was cheap and flexible. Breaking free of guild restrictions on quality, price, and employment, urban merchant entrepreneurs were able to find plenty of eager workers among the underemployed poor of rural Europe. In the major cloth-producing areas such as Picardy in northeast France or the English West Country, these entrepreneurs bought raw wool or flax to be prepared and spun into yarn. They then gave the yarn to specialist weavers and bought back the cloth, which was taken for finishing and finally for selling, often in national or international markets. Urban specialists added more value to the product by dyeing cloth and tailoring it, but the majority of ordinary woolen and linen fabric was made in the countryside.

Putting-out thus embodied important capitalistic elements. Capital was controlled not by individual workers, but by entrepreneurs; the production process involved a clear division of labor; workers were paid wages, for, while some might own their own looms, the only commodity they were selling was their labor; and goods were sold in nonlocal markets. Capitalism is ultimately defined, as Karl Marx (1818–1883) argued, not by the performance of an economy, but by its specific relations of production between capital and labor. However, small-scale production organized by master weavers rather than merchants continued to characterize the woolen-cloth industry of the seventeenth-century Low Countries. Even within a single English county like Yorkshire, putting-out and independent artisan cloth production coexisted. And rather than a linear progression from independence to dependence, workers sometimes moved back and forth between them.

URBAN CAPITALISM

It is understandable that historians searching for early modern capitalism focused on agrarian change and on the agricultural origins of industry. Most Europeans lived on the land and it provided not only their subsistence, but also most of the raw materials for industry (wood, leather, and fibers for making cloth); apart from wind and water, energy came mainly from organic rather than mineral sources. Some 8 percent of all Europeans lived in towns of 10,000 or more in 1600 and 10 percent in 1800. Most of this growth can be accounted for by a trebling in England's proportion from under 6 percent to over 20 percent. London alone grew from 200,000 inhabitants to nearly 600,000 during the seventeenth century and to one million by 1800. As early as 1700 nearly a third of the Dutch lived in towns, but there and elsewhere in continental Europe the percentage did not grow any further. In eastern Europe the urban component remained minimal—as little as 3 percent in 1800.

Despite their often small size and low proportion of national population, towns were the motors of economic change. They functioned as centers of production (especially finishing and luxury goods), transportation and exchange; they provided legal, financial, and educational services; they served as bases for secular and ecclesiastical bureaucracies; they acted as communications nodes, providing verbal, written, and printed information; they offered increasingly sophisticated leisure facilities. Their impact was felt in all economic sectors. While productivity in French agriculture was generally low, the area around Paris had yields comparable with England; Dutch farming was highly advanced because of the large urban markets.

Towns and capitalism were not always connected. Towns helped to modernize the economies of northwestern Europe, but they had little effect on Russian agriculture, trade, and industry because they were simply military or administrative outposts in a sea of feudalism. Southern Italy had many towns, but they were essentially dormitories for farmers and did not offer the range of industrial, commercial, and service occupations found elsewhere in Europe. Some have even questioned whether the urban elites of seventeenth- and eighteenth-century France were "bourgeois" in any meaningful sense. Most aspired to belong to the nobility and, when able, tried to ape their social norms and economic behavior—including a disdain for trade and a preference for conspicuous consumption. Yet throughout the period there was a strong association between urbanization and the development of different stages of capitalism—in northern Italy, then the Netherlands, then England.

IDEOLOGIES OF CAPITALISM

Towns were hothouses of capitalist development, but other factors also nourished the acquisitive and productive ideal. From the mid-sixteenth century Calvinism appealed to those who believed that wealth was a sign of God's favor and that glorifying God could be done through acquisition. Yet some Calvinists believed it was wrong to exploit other people, and different faiths have also been credited with fostering capitalism: for example, Jews had traditionally been untroubled by Christian reservations about charging interest. Nor was Catholicism an enemy of financial sophistication, for north Italian bankers dominated the commercial and public finances of the fifteenth-century Mediterranean world. Literacy and numeracy had also been high in this region, especially in the cities, during the Renaissance, but it was in the northwest of Europe that literacy developed most rapidly and extensively in the seventeenth and eighteenth centuries.

In the eighteenth century secular intelligentsia took up the banner of capitalism. Enlightenment thinkers analyzed, celebrated, and promoted getting and spending, arguing that commercial inter-course was one way of promoting the social interaction that was the basis of personal and societal improvement. Changes in attitude not only affected the owners of capital. An "industrious revolution," marked by a growing propensity to work in order to consume, fueled the demand side of growth. For many people, incomes and consumption rose. Marx thought that workers would labor more just to stand still, but the capitalism that developed in early modern Europe was fed by a desire not for subsistence, but for betterment, not for "needs," but for "wants." The consolidation and glorification of private property that occurred in the West was an important precondition of an "industrious revolution." In eastern Europe, by contrast, the idea of individual ownership of goods was subordinated to that of family or community interest.

While Enlightenment writers eventually functioned as the ideologues of nineteenth-century laissez-faire capitalism, they did not come from such an environment. A body of laws and assumptions about economic regulation, which were designed to promote social stability over individual gain, restricted the free market. At best, attitudes toward capitalism remained ambivalent. It was "virtuous" to engage in commerce, but only if market relations were equalized, competition was fair, and exchange therefore equitable. Throughout the early modern period, capitalism remained a contested terrain. Just as Calvinism had provided only contingent support for capitalism in the seventeenth century, Enlightenment thinkers saw property and gain entailing moral and civil obligations—both against a backdrop of enduring political support for intervention in support of a "moral economy."

The increasingly centralized territorial states might facilitate, protect, and exploit economic expansion and consolidation, but when there were competing interests, political priorities almost invariably outweighed capitalist ones. Countries like Spain ruined themselves on imperial commitments, although warfare did help indirectly to promote certain aspects of the development of capitalism. Nor were economic and political advantage the only policy considerations. Alongside sometimes rampant economic individualism there existed a greater or lesser commitment to social collectivism. Government policy recognized and encouraged capitalism, but it also tried so to structure its development as to limit its most destructive effects. For its victims there were poor-relief schemes revised and augmented from their medieval origins to cope with the many new vulnerabilities that capitalism brought.

CONCLUSION

Growth, decline, and stagnation coexisted in different sectors and regions of early modern Europe. The preconditions of and paths to progress differed, but the regions that did foster capitalism had shared characteristics. High levels of literacy and urbanization, sophisticated judicial systems, dense and long-established networks for exchanging goods and people, and technological advances unified the North Sea region and enabled it to progress at a faster rate. At the other end of the spectrum were southern and eastern Europe, where high production costs, inadequate transportation, extreme polarization of wealth, illiteracy, a small and undynamic urban sector, and heavy-handed political intervention inhibited economic change.

Change could also have very different implications. Involvement in European or world commerce was a social solvent in England and the Netherlands but involved a hardening of traditional relationships east of the Elbe. At every turn, existing social forms, cultural priorities, and political structures influenced the extent of economic change. Its effects were also contingent. Domestic arrangements and the cultural preferences that underlay them shaped the course of economic development at least as much as capitalism affected the family.

Incomplete as it was even in 1800, the development of a capitalist economy had progressed—albeit hesitantly—especially in and around the North Sea Basin. A proletariat, a class that had no means of subsistence other than wages, was emerging in town and country. From being a conglomeration of parceled regional economies, continent-wide exchanges of grain and of certain raw materials and manufactures helped to create a more unified entity. A rudimentary "world economy" was being founded. New products and new markets were outdating the mercantilist assumption of a "fixed cake." Ideas of intervention and stasis were being replaced by laissez-faire and dynamic growth as the balance of attitudes shifted in favor of capitalism. Capital was being accumulated and used in an increasingly sophisticated and productive way. Technological change had not yet broken down the barriers within traditional economies, making possible the exponential growth of the nineteenth and twentieth centuries, but labor productivity was rising. A fully capitalist European economy was in the making.

See also Agriculture; Banking and Credit; Commerce and Markets; Communication and Transportation; Economic Crises; Enlightenment; Feudalism; Industrial Revolution; Industry; Inflation; Laborers; Liberalism, Economic; Money and Coinage; Proto-Industry; Serfdom; Shipping; Stock Exchanges; Textile Industry.

BIBLIOGRAPHY

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Wallerstein, Immanuel. The Modern World-System. 3 vols. New York, 1974, 1980, 1989.

Wrightson, Keith. Earthly Necessities: Economic Lives in Early Modern Britain. New Haven, 2000.

R. A. HOUSTON