Economics: Free Market Capitalism--Historical Development


Figure 1.--

It was in Italy that capitalism first appeared in an embryonic stage among Italian city states. Some credit the Templars and the Crusade as the veginning point. It was the Dutch, however, who invented capitalism, vcroissing the threashold from the medieval to mdern era. It was quickly adopted by the English and in the American colonies. It was the efficiecies and wealth generating capabilities of capitalism that enabled the Dutch and English to survive and prosper in conflicts with much larger countries. Other European countries also embrsaced capitalism, but none more throughly than the Anglo-American powers. And it was the Dutch, English, and Americans that developed capitalist systems with a maritime component that enabled it to extend their economies well beyond their own territory. This was critical for the Dutch who had to fight wars with the two most powerful continental powes--first Spain and then France. The Dutch were dwarfed by both these empires. But they had a vast trading fleet to suport their drive for independence and help from the English/British. The British saw the independence of the the Lowlands as vital to their independence. But at the same time they waged three Naval Wars with the Dutch to seize naval dominance. And this was the system which the English inplanted along the coast of north America (17th century). And it was England that proved to be the crucible from which the Industrial Revolution sprang. Other European countries also adopted capitalism to varying degrees, but none more fully than the Anglo-American powers. Market capitalism and its interrelated adjuncts proved to be the central force in the 20th century when Britain and America faced a series of conflicts with powerful adversaries which sharply different visions for western civilizations--autocracy/totalitarianism or liberal democracy. Although the challengers amassed potent armies and great power controlled by powerful autocrats it was the seemingly disorganized democracies with less martial traditions, but backed by highly efficent capitalist economies that prevailed.

Precursors

The Catholic Church played an important role in the early steps toward capitalism. Some credit the Christian Knighs Templars and the Crusade as the beginning point in he development of European capitalism. When the crusades began there was no European banking system (11th century). Bankers had begun to operate in Byzantium and the Italian city states, but there was no easy way to safely transfer funds long distances. As European states began to wage war at great diusatance, it became necessary for both states and individuls to find ways of transferring funds. The Tempars who were established to facilitate the Crusades and with a network boith in Europe ad the Holyland were in a perfect position to arrange for such transfers and toi benefit from it. [Burman, p. 78.] The other Crusading orders developed simillar networks. It was in Italy that capitalism first appeared in an embryonic stage among Italian city states. Italian city states (Milan, Venice, Genoa, Florence, and others) were the center of the Renaissance (13th century). This explosion of culture was generated by the economic success of these states. It was here that the first improtant Europeam banks sprang up. This vibrant ecomomic activity developed here because there was more freedom there than in areas controlled by despotic absolute rulers. The Church for sme time encouraged this freedom and intellectual inquiry. [Stark] The invention of capitslism might well have occurred here had it not been for two developments. First the fall of Byzantium (1453) and the rise of Ottomsn power closed off access of Italian states to traditional trade roustes with the East. Second, the Potestant Reformation (1519) confronted the Cathholic Church with a najor challenge. Faced with the challenge of Protestantism, the Catholic Church tured reactionary and launched the Catholic Counter Reformation. The impact was a chilling sffect both on intelectual inquiry and economic innovation. Faced with the threatof the Inquisition, the potential bankers of southern Europe were reluctant to address issues like usury, protections seculsr law, individual freedom, and other issues. And they actively targeted productive citzes sych as the Jews inSpain or the Hugenoughts in France, driving these peope with finanial and technical skills to more open socities like the Netherlsands and England. Thus both intelectual inquiry and economic innovation shited to the Protestant North.

Capitalist Countries

It was the Dutch who invented capitalism, croissing the threashold from the medieval to mdern era. It was quickly adopted by the English and in the American colonies. It was the efficiecies and wealth generating capabilities of capitalism that enabled the Dutch and English to survive and prosper in conflicts with much larger countries. This was critical for the Dutch who had to fight wars with the two most powerful continental powers--first Spain and then France. The Dutch were dwarfed by both these empires. But they had a vast trading fleet to suport their drive for independence and help from the English/British. The British saw the independence of the the Lowlands as vital to their independence. But at the same time they waged three Naval Wars with the Dutch to seize naval dominance. And it was England that proved to be the crucible from which the Industrial Revolution sprang. Other European countries also embraced capitalism, but none more throughly than the Anglo-American powers. And it was the Dutch, English, and Americans that developed capitalist systems with a maritime component that enabled it to extend their economies well beyond their own territory. The English implanted capitalism along the coast of north America (17th century).

The Netherlands

It was the Dutch who invented capitalism, croissing the threashold from the medieval to modern era. The Netherlands was the first capitalist country. It was the Dutch who inventing public stock companies, share trading, a stock exchange, and insurance, among other modern features of modern capitalism. And associated with the rise of capitalism were other associated developments, including 1) religious and political toleration (the foundation of democracy), 2) technical innovations, 3) a maritime systtem, and 4) Protestantism. The Dutch highly innovative in severa technical areas. This including naval technology and methods of protecting its below-sea-level cities. The Dutch also developed the technically advasnced cooperative infrastructure of canals and other waterways between and within its cities. The Dutch amassed a huge commercial fleet, often armed, to conduct commerc around the world. Altthough a tiny principoality, not other country but England could reival the Dutch fleet. It was the efficiecies and wealth generating capabilities of capitalism and technical innovations that enabled the Dutch and English to survive and prosper in conflicts with much larger countries. This was critical for the Dutch who had to fight wars with the two most powerful continental powers--first Spain and then France. The Dutch were dwarfed by both these empires. But they had a vast trading fleet to suport their drive for independence and help from the English/British.

The English/British

The British saw the independence of the the Lowlands as vital to their independence. The English were also quick to adopted the capitalist innovations invented by the Dutch. But at the same time they waged three Naval Wars with the Dutch to seize naval dominance. And it was England that proved to be the crucible from which the Industrial Revolution sprang.

Germany

Modern economics in Germny can be traced back go the Hanseatic League. Capitalism developed in Germany soon after its origins in the Netherlands. It was delsyed somewhat because unlike the Dutchvanhd Enhflish, the Gernans did not have an imprtant maritime outlet. Germany began to industrrialize after Britain it ws not until the mid-19th century that we begin go see major industrial activity. Although they started lste, they pursued industrialization with a Tuetonic vegence. And industrial capitalism in German developed differenhtly than the Anglo-American model. It was much more a creation of state power thsn the more chaotic Anglo-Amerixcan system. The POrussian anhd German Imperial state guided and promoted indusytrial developmednt in part to sustain and provide the meanhs of generating state power. The Krupp family was, for example, interested in building railroad rails, but the Government offered strady, reliable contracts to produce arms.

Other European Countries

Other European countries also embraced capitalism, but none more throughly than the Anglo-American powers. And it was the Dutch, English, and Americans that developed capitalist systems with a maritime component that enabled it to extend their economies well beyond their own territory.

America

The English implanted their economic and political system along the coast of north America (17th century). It was not at first a capitalist system. The English colonies developed along two different lines, booth with an sgricultural base (17th and 18 centuries). The northern colonies were small family farms combined with handicraft subsistence. English laws prohibited the development of industry least the colonies compete with the mother country. Raw materials such as timber were shipped to England. And the colonies in the 18th century develooed a maritime trade. The colonial merchant fleet was small by British standards, but substsatisal in European terms. Another factor was the importance of the Puritans and Calvinidst teachings in the northern colonies. The southern colonies developed along a more agricultural path based on slave labor. During the British colonia era the major export crop was tobacco. The second period of America's econnomic development might be called the Ante-Bellum era or the period between Independence (1776-83) and the Civil War (1861-65). America at first seemed an unlikely place for the world's great capitalist power to develop. It is not surprising that Marx largely ignored America in his work. Not only was the country split between free and slsave labor, but the majority in the north were confirmed agrarianists deeply suspicious of banks, merchants, and cities. The first Secretary of the Treasury, Alexander Hamilton, used capitalist financing to put the new Federal Government on a sound financial footing. But the expanding demoritization of the sufferage elected a populist president, General Andrew Jackson, who destroyed the Bank of the United States causing a depression. During this period, several industries began along capitalist lines. English capital played a major role in this development by financing northerrn economic expsansion, especially building railroads. An Americans as well as European emigrants introduced a range of the technical innovations. Agriculture in the north increasing shifted from subsistence to producing market crops. And America continued its maritime tradition. Most of this economic innovation occurred in the North. Ironically, soon after independence, a northerner Ely Witney's invented the cotton gin which invigorated the Southern plantation system. The South built a hugely profitable agricultural economy based on slave labor and the platation production of cotton. While radically different, the two regional economies were not unrelated. Export earmings from cotton helped finance indusrial expandion in the North. his industrial expansion would lead to the destriction of the Ante-Bellum South in the Civil War (1861-65). It was in the third era that America developed as a capitalist industrial behemoth (1865-1929). Populist suspicion of capitalism did mnot disappear during this period, although it was weakened by the defeat of the Southern Condederacy. A number of factors contributed to this extrodinary growth. Economists will argue as to the relative importance of the various factors. There was the invaluable contribution of English law and a stable political system which protected property. Emigration brought both workers and individuals with technical skills. Important scientists continued to work mosly in Europe, but many technical innovations occurred in America. An the Jeffersonian-Jacksonian suspicion of a strong central government served America well during this period. The Federal and state governments placed few impediments and a very limited tax burdsen in the path of industrial expansion. In fact government promoted the expansion by distributed 131 million acres of land grants to encourage railroad construction (1850-72).

The 20th Century

Other European countries also adopted capitalism to varying degrees, but none more fully than the Anglo-American powers. Market capitalism and its interrelated adjuncts proved to be the central force in the 20th century when Britain and America faced a series of conflicts with powerful adversaries which sharply different visions for western civilizations--autocracy/totalitarianism or liberal democracy. Although the challengers amassed potent armies and great power controlled by powerful autocrats it was the seemingly disorganized democracies with less martial traditions, but backed by highly efficent capitalist economies that prevailed.

Sources

Burman, Esward. The Templars: Knights of God.

Stark, Rodney. The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success (Random House: 2005), 304p.






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Created: 1:33 AM 8/18/2009
Last updated: 12:31 AM 8/24/2009