HIST363: Global Perspectives on Industrialization

The European expansion into the rest of the world since the fifteenth century had many motives and driving forces, but the resources, ambitions, greed, and enterprising spirit of West European commercial and finance capitalists were, no doubt, among them. From the sixteenth to the eighteenth century, capitalism developed a new pattern: In overseas trade, in the colonies, and connected with this, in the economic life of Europe. A new symbiosis between business and violence characterized capitalism during those centuries, particularly outside Europe - but under the influence of Europeans - as became evident in the many wars and raids, but also in the plantation system on the basis of unfree labor. Certainly, slavery was not a capitalist invention, but the capitalist plantation economy in Brazil, the Caribbean, and the southern regions of North America triggered a huge expansion of the slave trade and slavery. According to Marx, modern capitalism came into the world soaked in blood and filth, as a result of violence and suppression. This is only a half-truth historically, but none the less a correct observation when one considers the connection between the rise of capitalism and colonization. This connection is currently intensively researched.⁶

Within Europe, capitalism continued its expansion into the world of production, which was accordingly reshaped. Think of the different types of agrarian capitalism in Western and Eastern Europe, think of mining and metal-producing industries, and think of the proto-industrial reorganization of cottage industry in most industrial regions of Europe. Productivity growth was one major consequence that decisively improved the life chances - and frequently the survival chances - of a rapidly growing population. However, new forms of inequality, dependence, and exploitation also followed, which could not be realized without some violence and many social conflicts.

The combination of merchant and finance capitalism with colonialism triggered innovations. The enterprise, a core element of capitalism in its process of consolidation, became more clearly profiled by gaining elements of a legal and institutional identity beyond the people who founded and managed it. The Dutch Vereenigde Oostindische Compagnie (the VOC, founded in 1602) was just one, but a famous example among several firms founded for the purpose of colonial trade in a number of countries, especially in the Netherlands, England, and France. An impressive capital fund (6.5 million guilders) on the basis of shares, more than 200 shareholders with limited liability, power with a board of directors, sophisticated organization with a transnational and transregional reach, a central office in Amsterdam soon with about 350 employees, a diversified portfolio of trading activities including some production units, for example a spinning mill in India: A very modern corporation, indeed. However, it rested on the foundations of political privilege and was a monopoly with extensive quasi-governmental powers. The Dutch government had conferred on the VOC the right to operate all Dutch trading business east of the Cape of Good Hope, along with the authorization to wage war, conclude treaties, take possession of land, and build fortresses. The VOC executed these rights, often in armed struggle with competitors from other countries. The distinction between conducting capitalist business and waging war was fluid. There were years in which the company apparently drew the major share of its income from the seizure of competing or enemy ships.

The VOC held together until 1799, while its shareholders continuously changed. They could easily enter and leave the corporation because they could sell and buy their shares on newly emerging stock markets; in Antwerp from 1460, in Amsterdam from 1612, and in London from 1698, with a precursor from 1571. The shares of the monopoly companies engaged in colonial business represented a considerable proportion of the commercial papers traded on the stock exchanges. Capital increasingly became a commodity, and the speculative elements associated with it grew by leaps and bounds. Not only did the prospect of spectacular profits increase as a result, but also the danger of great losses. Both the opportunities and the perils soon affected not just a small number of active, professional trade capitalists, but also an increasing number of small and large investors from wide sections of the population in western European metropolises. In the course of the seventeenth century they learned how to try their luck on the stock exchange, to bet, to invest, and to speculate, with prospects and dangers. The downfall of the English South Sea Company in 1720 was preceded by fully-fledged speculation mania. The British government had granted the company a monopoly on trade with South America, even including all the rights to regions not yet discovered! The public expected huge gains. A run on shares set in, and the share price rose from 100 to 905 pounds within just one month. Broad segments of the population entrusted their money to the company and lost it when the bubble burst in the summer of 1720, and the share price went into free fall. Sir Isaac Newton was among the victims. He is supposed to have said: "I can calculate the motions of erratic stars, but not the madness of the multitude". The macro-economic and social consequences of such crises still remained quite limited. Yet, via stock market and speculation, larger segments of society got their first introduction to the hopes and disappointments, the gains and the losses that capitalism so abundantly held in store for them.

The rise of finance capitalism not only followed from the growing credit needs of trade and production through expansion. Rather, the services provided by banks were also requested by those in power; by city governments and ruling aristocrats, and later on above all, by the governments of the powerful territorial states just establishing themselves by competing and sometimes by fighting with one another. Step by step, the center of transnational finance capitalism moved to Western Europe, first to Antwerp and Amsterdam, then later to London.⁷

In the Netherlands and in England particularly, capitalist principles affected social life beyond the economy, sociability, consumption, leisure activities, betting and sports, the relation between the sexes, and the distribution of political power. In the seventeenth and eighteenth centuries, the Netherlands and England were the most capitalist countries in Europe and, for that matter, the world. It is worthwhile to note that they were also the most prosperous countries and certainly also the freest in Europe, on the way to constitutional government and a dynamic civil society.

I have discussed the skepticism about trade and capitalism, and the anti-capitalist sentiments dominant in medieval Europe, under the influence of Christian moral doctrine and other factors. Certainly, Reformation and Counter-Reformation brought about a "modern religiosity" that stressed the "worldliness of faith"⁸ and contributed to an upgraded appreciation of work and profession. Max Weber has emphasized this, not without some justification.

Nevertheless, it was not so much the Reformation, but instead the Enlightenment that brought about a re-assessment in contemporary thinking about capitalism and its reputation, at least among intellectuals and probably beyond. Under the impact of their era's destructive wars, authors such as Grotius, Hobbes, Locke, and Spinoza worked at redefining the virtues of civil society with a secularizing thrust and informed by a concern about human rights, freedom, peace, and prosperity. In 1748, in a clear withdrawal from the old European mainstream, Montesquieu praised trade as a civilizing force that contributed to overcoming barbarism, calming aggression, and refining manners. Other authors chimed in to the same tune, among them Bernard de Mandeville and David Hume, Condorcet, and of course Adam Smith; all of them West European thinkers. The common good, went the thrust of these arguments, is actually promoted by the reasonable pursuit of self-interest; the advantage of the one need not be to the disadvantage of the other. Commerce and morality were not locked into inevitable opposition. The market helped replace the war of passions with the advocacy of interests. Commerce was said to promote such virtues as diligence and persistence, uprightness, and discipline.

Overall, a fundamental affirmation of society's new capitalist tendencies was starting to emerge. It was expected not only that these tendencies would increase prosperity, but also that they would contribute to creating a new social order that was better for human cooperation, one without arbitrary state intervention, with respect for liberty and individual responsibility, and with the capacity for resolving conflicts through compromise instead of war. Certainly, these authors did not use the concept "capitalism". Adam Smith wrote about "commercial society". However, basically this was a legitimizing vision of capitalism as a civilizing promise in the spirit of Enlightenment.

With regard to appreciation by intellectuals and to public opinion, capitalism had its best time in the second half of the eighteenth century. However, again there was a wide gap between reality and discourse; now between the deep contradictions of capitalist reality and its utopian idealization in terms of "doux commerce" and "commercial society".⁹