On the Origins of Capitalism

Put simply, capitalism is an economic system characterized by the private ownership of business and industry, where earning a profit by selling a good or service is each owner’s basic and necessary goal. Private firms compete to seize a larger and larger share of a given market, to meet (and, in the modern world of advertising, create) the demands of the greatest possible number of consumers, the ultimate success being driving one’s competitors out by underselling them. The capitalist (the owner) can take a greater piece of the market with each competitor that goes under, resulting in more profits. Profits not only enrich the capitalist personally, they allow the firm to expand into markets in other cities, nations, or continents. They allow a commodity to be sold at a lower price. They provide opportunities for investment in new technologies that reduce the cost of production, the number of hours needed to create a commodity, and the number of workers the capitalist needs to employ.

But to accomplish all these things, the capitalist needs workers. He needs them to produce and sell his product at a rate and on a scale he cannot do himself. The workers need currency to survive, so they sell their labor to the capitalists for a wage. The capitalist exploits the workers, as it is the workers who create the wealth. Workers construct the good or provide the service, thus producing the wealth, which is controlled, and pocketed, by the capitalist. The capitalist awards herself much while keeping worker wages as low as possible–to increase profits. The capitalist holds all decision-making power, making capitalism authoritarian as well as a grand theft from the people who generate wealth. Capitalism is the few growing rich off the labor of the many.

Capitalism was a revolutionary change that brought with it unimaginable advances in technology and living standards. While its negative impacts on human society (exploitation and theft, authoritarianism, environmental destruction, etc.) are clear, it also had a positive impact, and one need not read Marxist literature long to notice many authors give an appreciative nod to its inception and early development, an example of which you will see below. Capitalism is still a young enterprise—it has not existed since the beginning of time. As British socialist Chris Harman writes, “Capitalism as a way of organizing the whole production of a country is barely three or four centuries old. As a way of organizing the whole production of the world, it is at most 150 years old” (How Marxism Works). Competition between private firms that use wage-labor has been the driving force of human economics for but a moment in the lifetime of our race, so those who view capitalism as the zenith of economic progress may one day be disappointed. Modern humans have been on earth for 100,000 years and, as Harman notes, “it would be remarkable indeed if a way of running things that has existed for less than 0.5 percent of our species’ lifespan were to endure for the rest of it.”

Much older than capitalism is the division of society into classes, and it is important to understand the origins and societal effects of this phenomenon in order to understand the rise of capitalism.

For 95,000 years, most human societies were characterized by “primitive communism,” in which labor was cooperative and resources were distributed equally or according to need. Anthropologist Richard Lee writes, “Before the rise of the state and the entrenchment of social inequality, people lived for millennia in small-scale kin-based social groups, in which the core institutions of economic life included collective or common ownership of land and resources, generalised reciprocity in the distribution of food, and relatively egalitarian political relations” (see Harman). People’s survival depended on cooperation, which necessitated a classless form of social organization and political leadership. Sometimes, men and women had equal power, and revered leaders usually worked alongside everyone else. Many Native American nations were structured like this only a century ago, and some isolated aboriginal tribes still are in the Pacific and South America.

Human society started changing when agricultural surpluses during the Urban Revolution of 10,000-5,000 B.C. created the specialization of work, which gave rise to class divisions, the State, and the exploitation of the masses under an economic system called feudalism. New technologies allowed food production (and the human population) to explode, and it became necessary for certain individuals in each community to guard and manage stored food. That fell to leaders who had once worked alongside the people, often religious leaders. When cooperation was no longer required for survival, social structures became divided into upper and lower classes. We see that in the most ancient of nation-states, such as Egypt. Those divisions have characterized the last 5% of human existence.

So most human societies now had a small minority of rulers and a huge majority of laborers, and all the exploitation and inequality that comes with such a structure. Though capitalism has similar characteristics, feudalism dominated human societies from 5,000 B.C. to the 15th century A.D. Workers labored not for capitalists who compete with other firms for more profits and market control, but to provide wealth and luxury to powerful heads of state. Harman explains:

The emergence of civilisation is usually thought of as one of the great steps forward in human history—indeed, as the step that separates history from prehistory. But it was accompanied wherever it happened by other, negative changes: by the development for the first time of class divisions, with a privileged minority living off the labour of everyone else, and by the setting up of bodies of armed men, of soldiers and secret police—in other words, a state machine—so as to enforce this minority’s rule on the rest of society.

Under feudalism, your resources and labor were devoted to pharaoh, the emperor, the king, or to your local feudal lord. The vast majority of people worked in agriculture, and did not sell their labor for a wage (soldiers were a notable exception). Production was limited to self-contained estates, and workers (“serfs”) were stuck in unshakable caste systems. One did not expect his or her lot in life to improve or change in any way before death. Most people exchanged their labor for protection, turning over large portions of their produce to the lord and receiving in return the protection of the lord’s armies from bandits and enemy lords, though of course this “exchange” was usually forced upon the poor through conquest and violence. Serfs were by no means allowed to leave as they chose—that would hurt the rulers. There was widespread oppression of the peasant masses by the rulers and their armies, and by the church as well, which demanded portions of crops as tithes.

During this time, there were small numbers of artisans, merchants, and traders in towns selling goods for individual profit, but they worked alone, as a family, or with an apprentice. There were also those who loaned money. But merchants held no economic power over others. Like peasants, they produced a good or service in order to survive, but their goods had to be exchanged for money so the family could in turn purchase agricultural produce. Money had little significance beyond a lord’s need to pay soldiers for their services or a merchant’s need for a means to put food on the table. True wealth was in land. It gave workers a way to feed themselves, and lords sought land through conquest to gain more resources, workers, and power—to live in greater luxury. So the work output of most people enriched the lives of the nobility, and under such a system there was little means for workers to improve production techniques or technology.

But things slowly changed in the 15th century. In Europe, plague destroyed a huge percentage of the population in the 14th century. The surviving nobles demanded more and more goods from the merchants in the towns. Towns thus became more important and more work opened up there for roaming free laborers and escaped serfs. The surviving peasants seized the best land from the dead, and were able to produce more. As a result, trade networks sprung up, markets grew more important in feudal society than isolated production on estates, and living standards rose. Exploration, conquest, and the enslavement of foreign lands and people led to globalization and international trade that made some merchants rich alongside kings, queens, and men of the church.

The “putting-out system” provided peasants a new way of making a living and thus weakened the economic power of the feudal lord. It was also an infant form of capitalist exploitation. Merchants bought the raw materials needed to make a commodity, and paid poor peasants to carry out production. Thus, “the direct robbery of the products of peasant labour was replaced by a system in which individual workers voluntarily accepted less than the full value of their products in return for being supplied with raw materials or tools” (Harman, A People’s History of the World). The poor had not the resources to buy or own the means of production—the raw materials and technology. To survive they were forced to accept whatever payment the merchant offered. Payment was dismal, as the merchant desired and needed profit—money from the sale of a good left over after all production and labor costs had been paid—to continue and improve his way of life. He kept wages low to keep more money for himself.

Importantly, for the common people wealth could be now be amassed in currency. Survival could be ensured by selling one’s labor for a wage (one who did so Marxists called a proletarian, an employer of wage labor being the bourgeois, the merchant, the capitalist). Over the next two centuries, merchants increasingly supervised production. New technologies revolutionized production and garnered huge profits. Markets became global. The merchant class grew larger and richer, and more industries were organized under firms with one person employing a larger and larger labor force. Industrial capitalism was born. Marx observed in The Communist Manifesto in 1848:

Modern industry has converted the little workshop of the patriarchal master into the great factory of the industrial capitalist. Masses of laborers, crowded into the factory, are organized like soldiers. As privates of the industrial army they are placed under the command of a perfect hierarchy of officers and sergeants. Not only are they slaves of the bourgeois class and of the bourgeois State; they are daily and hourly enslaved by the machine, by the overseer and, above all, by the individual bourgeois manufacturer himself. The more openly this despotism proclaims gain to be its end and aim, the more petty, the more hateful and the more embittering it is.

Yet American socialist Michael Harrington called capitalism “the greatest achievement of humankind in history” because “political power no longer had to be authoritarian, for it had ceased to be the principal instrument of economic coercion” (Socialism: Past and Future). Private ownership and competition weakened the power of feudal lords, though “the shifts in social structure opened up possibilities of freedom and justice, not inevitabilities.” In many ways, capitalism helped push the world in that direction. Marx wrote the bourgeoisie “put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his ‘natural superiors.'” Unfortunately, the change only substituted one form of minority rule for another. The power of the church and of ruling dynasties declined, and the power of the capitalist class increased. “In one word,” Marx wrote, “for exploitation, veiled by religious and political illusions, [the capitalist class] has substituted naked, shameless, direct, brutal exploitation.”

He also noted, “Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class,” from “an oppressed class under the sway of the feudal nobility” to today, where “the executive of the modern State is but a committee for managing the common affairs of the whole bourgeoisie.” Within each nation, as a capitalist class grew and gained colossal wealth, it gained political power, advancing to the top of the social hierarchy, until it “conquered for itself, in the modern representative State, exclusive political sway.”

Over the centuries, capitalists solidified control of political power, and in many ways this slowed down the development of liberty and democracy. It was no longer the king or feudal lord oppressing the class of businessmen and the class of laborers, it was the class of wealthy ruling businessmen (like George Washington, James Madison, and Alexander Hamilton  in the United States) oppressing the class of laborers. To repeat what Dr. King wrote, “[Capitalism] started out with a noble and high motive, viz., to block the trade monopolies of nobles, but like most human systems it fell victim to the very thing it was revolting against.” New oppressors took over, and like back then the governments of many advanced societies today mostly serve the interests of big business, because politicians are also business leaders or are bought off by them in the form of lobbying, campaign contributions, and so on.

As under feudalism, the majority experienced barbaric treatment at the hands of the minority, not just physical mistreatment in deadly working conditions but also the robbery of their wealth, the wealth workers created with their own hands. The capitalist owners exploited the labor of the people, keeping them poor and desperate while enriching themselves, a problem that still exists. To quote The Communist Manifesto:

The history of all past society has consisted in the development of class antagonisms, antagonisms that assumed different forms at different epochs. But whatever forms they may have taken, one fact is common to all past ages, viz., the exploitation of one part of society by the other. No wonder, then, that the social consciousness of past ages, despite all the multiplicity and variety it displays, moves within certain common forms, or general ideas, which cannot completely vanish except with the total disappearance of class antagonisms.