Why Did Capitalism Emerge in the Course of the 16th Century - Essay Example

Why did Capitalism emerge in the of the 16th Century Introduction Capitalism could be described as the ownership of a means of production and accumulation of personal wealth and profits through investment of capital and employment of labour. Capitalism is based on the concept of a free economy and business enterprise with limited or little government intervention. Thus the term 'free market' is significant in capitalism as it refers to an economic system that is free of external intervention and is guided by a rule of law that is focused on establishing and protecting private property, including, private ownership of the means of production (Levi-Faur et al, 2005). Protection of private property was never so legally simplified before the advent of capitalism and the legal implications of private ownership suggested greater independence of private property owners and provided clear protected ownership that could be legally validated. Capitalism brought in the standardization and integration of property rules, increased trust in economic transactions and laid down the risks of ownership with possibilities of insurance against such risks. Loans and borrowing became easier as personal credit history could be checked and there was an increased standardization and transferability of statements documenting ownership of property (Levi-Faur et al, 2005). This specification of property limits and rules and regulations of ownership indicated a smoother flow of property between individuals and enabled a well-defined role for companies so that they could easily operate in national and international markets. The concept of capitalism has often been criticised by the fact that ownership of enterprises shows the division between the employer and the employee as the profits seem to go to the employer and is not shared by the employees. The growth of multinational companies is thus a direct influence of capitalism and the changing global economy has also been directly shaped by the spread of capitalism across society and nations. In fact, the world today could never have been the same without capitalism and considering this, it is important to examine why and how capitalism first emerged in the 16th century and what are the social, historical and political implications. Capitalism - A Background Capitalism is often contrasted to feudalism on the one hand where a monarch has ownership of property and socialism or communism on the other in which means of production are owned by the community collectively (Sweezy et al 1976). Karl Marx, used the term 'capitalist' in the Communist Manifesto although the word 'capitalism' introduced by Thackeray in 1854 meant as the possession of a large amount of capital. The ideology of the capitalist class also known as the bourgeoisie is known as capitalism which closely relates to the capitalist system (Marx, 1890/1976). Considering a social history of the distribution of wealth, Marx contended that human society has passed through several stages and modes of production. The mode of production has changed from ancient communism to primitive slavery, then to feudalism and capitalism. Marx sees society as being divided into two major social classes - the class that has control of the means of production (the exploiting class or bourgeoisie) and the class which do not have any control or does not own the means of production (the exploited class or the proletariat) (Marx 1890/1976). In ancient slavery, the slave-owners exploited the slaves. In feudalism, the lords exploited the peasants. Under capitalism, the capitalists exploit the workers and exploitation happens through the expropriation of surplus value. The surplus value is the total value of the products made by the worker minus what the worker is paid. The exploited class resists this exploitation and the resulting class struggle or class conflict is what drives human history forward. Marx argued that under the capitalist system, workers are treated like a commodity or equipment rather than a person and also prohibited from attaining their full individual potential. Capitalism in the 16th Century The philosophy of capitalism is guided by the fact that wealth could be used to create greater wealth and this wealth could be accumulated by certain members of society. The simplest forms of capitalism could be described in the middle ages when lending money at interest was a regular practice (Sweezy et al, 1976). In more modern terms, investments for shares of profit or loans on assets could be considered as direct features of capitalist societies. The strong role of the church in the Middle ages was a deterrent for the development of any form of capitalism although capitalism started taking its roots with the massive growth of European trade in the 13th century. In the beginning of the 13th century merchants in Italy and Netherlands began accumulating wealth that had strong capitalist connotations as the merchants were acquiring wealth at a personal rather than public capacity. For instance in the 14th century, Florence was dominated by banking families that engaged in financial transactions across Europe. Rapid creation of wealth was reported at this period with investments in foreign merchandise, cloth exports and trade or international financial transactions (Graham 1970; Wood 2002). There were even instances of employee resistance of such vast accumulation of unlimited wealth by a few but such instances and cases of wealth accumulation were either limited or not conspicuous at the time. Yet the presence of markets and trade at this time has helped individuals to amass fortunes and financial rewards very quickly. However the accumulation of wealth and some initial resistance of this phenomenon began by the 14th and 15th centuries and this is an indication of a pre-capitalist era that seemed to have within it all the elements of capitalism inclusive of resistance by employees and amassing of wealth by the employers and traders. However despite the presence of all the essential characteristics of capitalism during the 14th and 15th centuries, the system being in its nascent stage, the period could not be defined as capitalistic. The real and defining features of capitalism that made it an established economic system of the world were the formation and introduction of joint stock companies and the industrial revolution (Llyod-Jones, 1998). The formation and advent of stock companies for trading slowly revealed the fact that capitalism was growing as the only means of distribution of wealth and that wealth was not a public commodity but defined by private ownership of a few companies (Llyod-Jones, 1998). The role of industrial revolution is important here as the growth of industries on a rapid scale during the 16th century suggested that a large number of workers were employed in these industries and laid down the foundation for a difference between the employed and the employer. In the 16th century England, capitalism emerged from a thriving trade and a centralised political system. England, with its centralized national market, served as the main international point of transit for goods, and agricultural products. England had an impressive network of roads and water transport systems and was already accumulating resources through trade and expansion of its territories. Furthermore, England became more unified in the 16th century when the Norman ruling class established itself on the island as a reasonably organised military and political body. This went a long way toward eliminating the fragmentation of the state, or the "parcellized sovereignty" inherited from feudalism (Wood 1998). England being less militarised and governing bodies being increasingly concentrated in the central state, the lords began to have more powers and subsequently more autonomy. The "extra-economic" powers of property owners made them less dependent on their ability to demand more rents out of their tenants by direct, coercive means than on their tenants' productivity. Landlords had a strong reason to encourage and require their tenants to find ways of increasing their output. This made them different from aristocrats who had been squeezing surpluses out of peasants by means of simple coercion, enhancing their powers of surplus extraction not by increasing the productivity of the direct producers but rather by improving their own coercive powers-military, judicial, and political. (Wood 1998). The changing political, social and economic landscape of England considering the expansion of the British Empire, the increase of trade and trading enterprises, the development of stock companies and the industrial revolution were thus the major determinants of the rise of capitalism in the 16th century and we discuss these issues in detail in the next part of this analysis. Development of Trading Enterprises - Trading enterprises began as early as the 14th century although widespread trading enterprises undertaken by merchants, families or groups, along with support at times from trading guilds made trading more organised in the 16th century. The Hanseatic League for example was established to give a structural and organisational framework to trade and trade consequently became more structured and regulated and thus its acceptability increased. The regulation of trade was one of the primary attributes of the development of a later regulated capitalist system with strong legal and political support (Harris, 1921; Graham 1970). Trade regulations helped to reduce any malpractice and gave trade a social and political support that increased its popularity and applications making it the basis of a capitalist pursuit in subsequent years. Trade became an increasingly profitable enterprise and from individual enterprises nations began trading, establishing colonies and expanding territories beyond borders. This was thus the beginning of a British Empire and the development of a chartered company that established its monopoly on trade and colonialism (Harris, 1921). Changing Political and Social system in Britain The sixteenth century was marked by major changes in Europe and the changing political and social systems essentially brought about changes in the economic system. The economy was growing and the mechanisms of commerce, systems of international finance were also changing rapidly. Along with the rise of trading fleets, the entrepreneurial bourgeoisie, were all building a capitalist, money-based economy. The 16th century saw the success of East India trading company, the ascent of Queen Elizabeth, and regulations of coinage, markets and use of weights and measures (Graham, 1970). With the development and expansion of the British Empire there was complete change in social systems and brought in the Golden age for Britain along with a capitalist economy. Formation of Joint Stock Companies - The first joint stock enterprise was established by the Muscovy Company in Britain that received its Royal charter in 1555. The other companies that received Royal charter during or around the 16th century East India Company (1600), the Hudson's Bay Company (1670) and the South Sea Company (1711). For a joint stock company, investors could contribute variable sums of money to fund the venture and could become joint holders of the trading stock of the company, having the rights to share any profits in proportion to the size of their holdings. The Bank of England, founded in 1694, was also organized as a joint-stock company. This meant that the traders and merchants who provided the funds for loans to the government acquired their shares in the stock of the company. With the formation of stock holdings, capitalism was firmly established and found larger support among the upper classes. Industrial Revolution With rapid technological innovations in Britain the impact of the industries was not far behind in 16th century economy. Industrial revolution marked the application of machinery to industries. The process spread across Europe and in England during the 16th century the foundations of an industrial revolution were already laid with the technological innovations and changes. Glass, clocks and chemicals were manufactured and the use of machinery in factories also increased (Llyod-Jones, 1998). Steam engine, electric power, and railroads which developed in later years after the 16th century led the industrial revolution to its completion and changed the way business or trade was done. From grinding machines to textile equipment, new innovations changed the face and fabric of industries and placed its final and definite seal on capitalism. With the final entry of the industrial revolution, capitalism was here to stay. Conclusion: In this analysis, I have identified the reasons for which capitalism emerged in the 16th century, delineating social and technological factors that may have contributed to the rise of a capitalist system. Bibliography HARRIS, Mary Dormer. 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