A History of Capitalism - Part 2

Nowadays when we think about Capitalism, there are a specific set of associations that come to mind. These associations have all the characteristics of Capitalism as a thought process and as a practice that was discussed earlier. At a minimum, these associations consist of free, unregulated markets, private property and an enforcement mechanism that supports the rights of private property and the existence of corporations. How did these associations come about?

To answer this question, we have to go back into the past. The roots of the present system were forged over centuries. The earliest trading links were forged around the Mediterranean basin with the rise of the first cities and the development of the first formal system of government. Fairly early on, three great trading regions emerged. One was the trading region around the Mediterranean basin. A second one was the trading region encompassed by China and the third one was that encompassed by India. These trading regions were initially geographically limited. However, over time, their geographic scope gradually increased with the rise of successively large empires. In the Mediterranean region, the rise of the Roman Empire and the later development of Christianity played an important role in binding this area together and also served to bring in Western Europe into its ambit. The Chinese trading region increased in size as the central government gradually increased it territory and forged a primitive sense of nationhood through a common set of values. In India, development of the Hindu religion played a similar role in forging a sense of commonality amongst the people. Subsequent invasions by outsiders did little to change the sense of identity that was forged over time within these regions. A fourth great trading region developed later on with the rise of Islam and the establishment of the Islamic civilization from Nothern Africa to the Far East.

All these were pre-capitalist societies; they did not show the signs of a capitalist society. This does not mean that there was no trade between these regions. There was always active trade within these regions in times of peace and stability and this carried over into intra-regional - what we would call international trade today - as well. This was an early version of mercantilism in that trading links were established by individual merchants. Unlike later, there was no state sponsorship of this early international trade. The volume of trade was also relatively low and items traded were scarce, luxury items which were easily transportable and commanded a high price. An example of this was the trade in frankincense carried out between Southern Arabia and the Mediterranean region. This pattern persisted from the earliest times, down the ages until approximately the 16th century. In this period, trade would flourish within each major trading region during times of peace and stability and would tend to decrease if not collapse outright during more turbulent times. This would also be reflected in international trade where the volume of trade would fluctuate depending on the political and economic conditions within each region. The extent of the international trading links connecting each region increased over time as these became more tight knit culturally and the influence of their respective civilizations spread but the pattern of the trading links remained essentially unchanged. It was only from the 16th century onwards, that political, religious, economic and cultural changes within Europe set in motion a series of events that was to dramatically change the course of the world and set it firmly on the capitalist path that we now find ourselves on.

These developments occurred as a result of the Protestant movement against the authority and perceived corruption of the Church. There was a general change in attitude towards religion and the hold of the Church as far as ideas and modes of thinking was broken. One such change is the attitude towards usury. Usury has been denounced down the ages by all major religions. In Europe, this resulted in the attitude that money made by money was sinful. Thus lending money for investment purposes was also looked down upon. With the reformation, this attitude started to change. This process culminated in Calvinism which encourage the purposeful investment of money by presenting luxury and self indulgence as vices and thrift as a virtue. Calvinism even viewed wealth and its accumulation as a sign of God's favor which was in start contrast to the attitude of the Church which tended to view poverty as a virtue.

In the meanwhile, the emergence of the nation state in Europe also led to the emergence of the charter company. A charter was granted by the government in order to encourage large scale undertakings. This charter represented a monopoly on trade with a specific region for a number of years. This development led to the emergence of the great trading companies like the English East India Company. These entities were organized as joint stock companies in which a large number of people could invest their money and receive profits in proportion to their holdings.

By this point, the first elements of the coming capitalist system are in place. England was the first country to go down this path. Development of the capitalist mind set also helped to set in motion the Industrial Revolution which was to decisively tilt the balance of power in Europe's favor.