h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Is modern capitalism synonymous with the industrial revolution? Or, is it the time when we started to mine the Earth for fossil fuels? Did one beget the other?

Discuss.

stone age man mined the earth for fossil fuels, and metals, thats how the bronze age came about.

I associate modern capitalism with the industrial revolution because it's a good point in time to recognise such a big change*. But really we could go back to the advent of agriculture 10,000 years ago


*So we have a number of things happening: the breakdown of the extended family unit and communities because of the necessity for centralised labour, wage slavery, the fossil fuel economy that allowed quick but unsustainable development that led to easily acrued wealth (for some).... I could go on.

Yes, I'd say *modern* capitalism could be said to have begun with the industrial revolution because it is technology that allowed the ideology, to go into 'overdrive'. But capitalism itself had really started to dominate our culture with the rise of the 'merchant classes' a few centuries earlier, (interestingly this didn't occur in Russia - which retained essentially a two tier class system- the 'aristocracy' and the 'peasant' class. And after the Russian revolution, technology was channelled into communist power.

But one could also go far back and say it all began with the invention of 'coinage' an abstraction of 'value' (Romans wasn't it?), this replacing 'barter'.

Coins as we know them (pieces of metal with a specific value, issued by a government) are first known in Lydia, Turkey from the 7th century B.C. Other cultures had 'tokens' for trading, just not coins. So the exchange of a 'token' for an item goes back long before the Romans. Just me being .

It's hard to say when modern capitalism started without defining what is meant by 'modern'. The industrial revolution is certainly when consumerism started. It was the rise of the 'middle classes' as we know them, with spare money to spend on things that previously would have been considered luxuries only affordable by the nobility.

I like when its so interesting

Yes you're right. Coins are just bits of metal, so its the abstraction of worth and value that is significant.

I think modern capitalism has more of a basis in mass consumer culture and the service industry which are more 20th century things. 19th century capitalism was far more based in industry and manufacturing.

[quote]But one could also go far back and say it all began with the invention of 'coinage' an abstraction of 'value' (Romans wasn't it?), this replacing 'barter'. [/quote]

Aye, I'd say that's when capitalism per se actually started - with the invention of coinage (and therefore capital itself) although barter and property pre-dated these so its arguable that it wasn't that simple.

Certainly capitalism has changed throughout the centuries including the theories behind it (modern theories of capitalism go back to the 18th century liberal philosopher Adam Smith who, ironically, would probably be quite upset about some of the ideas of his modern adherants), before Smith we had "mercantilism" which was based around the idea that there was a "fixed" amount of wealth in the world and that nations had to fight to control it.

Banks date from medieval times in Italy, shares date from the 17th century and the Dutch East India Company. Looks like you pays your money and takes your choice for when capitalism really started, depending on what you mean by 'capitalism'.

Here's a guess. I can't claim it's backed up with too much hard Economic History:

If we look at what preceded Capitalism...medieval feudalism was based largely on land ownership and control of the products of the land.

From the 1400s onwards, mercantile classes arose in the cities, producing and trading goods - but still supported fairly directly by their agrarian hinterlands. This early mercantilism disn't require much in the way of up-front investment. The chain of exchange from goods to food was still fairly short.

Around this time, trade routes started to open up - to China and the Americas. These required more in the way of up-front financing. Banking was invented in Venice and Amsterdam to support trading.

The early stirrings of the industrial revolution had already begun on the large estates such as those of Fountains Abbey (large-scale wool production; iron smelting). For these - and other technological innovations - to take off, investment was required. There was synergy with the banking system.

'Modern Capitalism' was born as business emerged which, due to the competitive advantage of technology, were able to out-compete other modes of production. Due to this, the workers moved from being direct suppliers of their own needs to providers of 'Surplus Value' (Marxist jargon: roughly. the effort you have left once you've provided the labour to satisfy your basic needs) to 'the bourgeoisie' (Marxist jargon: roughly, the owners of the means of production and thus the extractors of Surplus Value).

I don't think that 21stC consumer Capitalism differs markedly from the 19thC arrangement.

So, yes, I'd say that Capitalism *is* pretty much synonymous with the industrial revolution. Granted, there were technological developments beforehand - but their pace was accelerated by a) competitive necessity and b) financing: the ability to bet on future profits. But the really significant thing about the industrial revolution was the way it changed the means of production and the class structure of society. This is what we man by 'Capitalism'.

I'm thinking that Capitalism begins with modern banking, so I'd go for the Medicii and their use of financial leverage to obtain political ends.

Bah, bloody Marxists always insisting that the world went from feudalism to capitalism with nothing in between.

>I don't think that 21stC consumer Capitalism differs markedly from the 19thC arrangement.

In a way fundamental business models haven't changed, true - companies still makes things, market them and sell them at profit. What *has* changed things massively is the rise of the service sector where the notion of "product" is a bit more vague. Businesses use the term "product" to mean absolutely anything they can sell but there's a difference between a tangible object that needs resources to produce and which has tangible value and the "product" of the service industry whose only real value is based around demand and nothing else. This is something some economists have argued is the problem with the UK post-Thatcher, we no longer have an economy based on a tangible manufacturing industry and instead an intangible service industry whose "product" is worthless in an economic crisis when the growing economy needed to support those intangible services dissappears. Put more simply, a factory making cars is always making something you can sell or stockpile, but a company "manufacturing" branding or "business solutions" has no such thing.

>I'm thinking that Capitalism begins with modern banking

As I said, I think capitalism started with money (rich businessmen existed in the ancient world, for example) but it's also changed as the means of making it have. 100 years ago if you though of a businessman you'd think of someone like Henry Ford, someone who owned factories with a large working-class workforce and middle-class management that built things that his company sold, now it's often someone who runs a PR or IT business with no manufacturing wing and no blue-collar workforce. The type of capitalism we have these days is slowly changing as a result.

>>Bah, bloody Marxists always insisting that the world went from feudalism to capitalism with nothing in between.

I don't think that I said that. Certainly Marx didn't. He talked quite a bit about the feudal-capitalist dialectic. I shan't try to reproduce his obscure language...but something along the lines of the conditions of previous age also being present in the current.

Think of it as an oscillation between feudalism and capitalism, with capitalism gradually becoming dominant.

I started this cos I'm reading 'The Great Transformation' by Karl Polanyi. So far, he seems to be saying that modern capitalism is really a reflection of trade going from a social system to a monetary one. Thus, in most places before it trade wasn't (just) bartering for gain, but it was an extended social network of exchange. He sees the change to buying and selling pretty much *everything* through a market system as the most important part of the industrial revolution.

Personally, I don't really know, but I remember reading something about Malthus, an economist in the early 19th century, who predicted that civilisation would crash when we ran out of resources (and has anyone ever been more wrong?). Of course, he wrote just as the industrial revolution was getting into its swing, so he didn't realise the effects it would have.

I think the argument was that it had become economically viable to use fossil fuels on a large scale for the first time, and the expansion in available energy was what drove the IR. This, of course, drove the expansion of a market economy (and the resulting explosion in finance too). It's kinda hard to separate modern capitalism from the IR.

Btw, anyone care to define 'capitalism'?

Wiki says "Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned." But private ownership's been around since the Romans. Does it have more to do with finance*, or the rise or a market-based economy, or mass-production, or what? I suspect there's a few different definitions going on here.



*Polanyi says Greeks in 400BC had a more complicated finance & insurance market than anything Adam Smith knew about.

Ah. Now. Let's not confuse 'money' - or even 'wealth' -with 'Capital' (capital-C in deference to a certain gentleman from Trier. )

The point about Capital is that it is a dynamically accumulating body of wealth. We can leave Marx aside, you'll be relievd to hear. Marx acknowledged that he was building on the work of the economist david Ricardo, whose Theory of Rents demoinstrates how wealth naturally accumulates from tenant to landlord. ('Rents' doesn't necessarily mean land rents - the concept has been extended to make it a specialist term in economics. Ricardo's explanation is quite a robust, mathematical one involving things like 'marginal values' and competition).

OK - so imagine if you've accumulated wealth - whether in a feudal economy, an agrarian landowner/tenant economy - whatever. You are now iun a position to invest in enterprises (eg overseas trading; buying more land and clearing the tenants out in favour of more profitable sheep; etc.). You may fund this directly from your accumulated wealth - your Capital. Or, more commonly, your Capital will provide some collateral for borrowing against future profits. Assuming your profits exceed the interest on you borrowings, your Capital will increase, you'll be able to invest more...and so on.

OK. Now consider the Industrial Revolution. A good way of making money is to invest in new technology. (pedro has pointed out elsewhere that technology is the engine of growth). If, for example, you are able to build a big, brick building and stuff it full of new-fangled water-powered spinning jennies and power, you can start to turn out cloth dirt cheap and compete traditional production methods out of the market altogether. incidentally - we can see something similar in the Third World today whereby a combination of agro-technology and farming subsidies mean that it is cheaper to buy in staple crops such as rice. Whole ountries can no longer afford to subsistence farm

To run your new mills you need labour - but there's a plentiful source now that there's no money in traditional home weaving, etc. In fact - the pool of labour is so large (one spinning jenny can replace a few dozen housewives) that you can dicate Ts&Cs. This is useful, because you'll be competing with other enterprises with their own jennys and looms. You are in a position to seek 'efficiency savings' - which are achieved by a combination of more technology and beating down the Ts&Cs of your workforce. (Back to Marxist jargon for a moment: You can 'extract increased surplus value'). If you do these successfuly, you will inevitably accumulate Capital. If you don't - you will be out-competed and go bust.

Back briefly one step. When you were building the jennys and looms and waterwheels and putting them in a (probably iron-framed) mill...this required considerable up-front investment in technology. It also required lots and lots of people. One way of getting people to work for you - say, to fight a war or build a pyramid, is to poke them with spears - but this option tends to apply to states, rather than private entrepeneurs. Another way is to pay them a wage. A third way is for the various bit-players (loom designers, iron smelters, canal builders, wool merchants) to speculate in their own areas of technology. The last two require a banking system which is (I'm guessing) rather different to that in Ancient Greek times. (did ancient banks do investment, or were they simply involved in money tranfer etc.? obviously they did *some* lending.)

In short...what we mean by 'Capitalism' is a system of wealth accumulation based on competion. It requires and thus facillitates technological development by allowing investment - and this is backed by sophisticated financial systems. It requires wage labour.

And, yes, Capitalism and the Industrial Revolution were co-dependent. Although this doesn't necessarily imply that Capitalism is the *only* way of achieving technological growth...

>Wiki says "Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned.

Ah, good old Wonky, where the consensus of geeks is mistaken for scholarly knowledge.

That's baloney anyway, what about state-owned enterprises? Capitalism is a system, what the owner of the means of wealth-creation calls themselves isn't really all that relevant. If a company creates wealth and is owned by a conglomerate later falls into government hands it doesn't stop generating capital.

Regarding Ed's claim that Capitalism is synoymous with modern development, what do we call pre-industrial capitalists in that case? Merchants?

Personally, I define capitalism as the "creation" of wealth via profit by individuals or corporate bodies. What separates a capitalist from a non-capitalist organisation is whether they exist to make money or whether they exist primarily for another purpose and have their costs provided from elsewhere.

There are some half-and-half organisations like the BBC, though, which makes part of its income through the license fee (ie the state) and part through commerical enterprises.