Home What is Capitalism?
  1. Origins and Evolution of Capitalism
    1. Adam Smith
    2. Mixed Economy
  2. Capitalism in the United States
  3. Capitalism in Developing Countries
  4. Critiques of Free Market Capitalism
  5. Related Sites
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Origins and Evolution of Capitalism

The emergence of capitalism in the western world was a revolution, really.  The centuries-long transition from the per-capitalist society – in which the decision-making mechanism rested on a hierarchy of nobility, landed gentry, noblemen and serfs – involved societal reorganization and a dramatic change in perspective.

The fundamental economic questions (how do we use our land, labor and machinery to produce goods? which goods should society produce? Who gets to consume these goods?) were irrelevant to the feudal system of the Middle Ages.  To contemplate where you would work or how land would be used was inconceivable.  There was no need to decide what to do with land; land was not a salable, productive commodity.  Rather, land owners enjoyed prestige and status.  Land ownership was the basis for the crucial social hierarchy.  You would no more think of selling your land than you would sell your last name.

Labor, too, was not something to be “allocated” – to be bought and sold – in the pre-capitalist world.  The country peasant worked the lord’s estate in order to fulfill his duties as a serf; it was his lot in life, rarely questioned and never challenged.

How did capitalism emerge into this stifling, tradition-bound, steady, stable way of life?  Certainly the wealthy noblemen did not give up the power that came with their title and their land easily.  Indeed, in England, the beginning of the centuries-long transition to capitalism was when the noblemen enclosed common grazing land in order to find more pasture for the lord’s sheep.  In 1820 the Duchess of Sutherland evicted 15,000 tenants from 794,000 acres, replacing them with 131,000 sheep.  These tenants went to the city and were free to – or forced to -  sell their labor.

It was in this context that factors of production were created.  Resources are generally regarded as land, labor, and capital (machinery).  The defining characteristic of capitalism is the market determines how a society allocates its resources in the production of goods and services.  There is no command mechanism telling you and you where you must work or what you must produce.  In the pre-capitalist societies, the command mechanism was tradition and the strict social constraints of a feudal society. 

There were no factors of production in pre-capitalist societies.  Of course, land, labor and capital (machinery used to produce goods and services) existed.  But they were not commodities to be bought and sold.  The serf worked the lord’s land but was never paid for his services.  He paid rents and ate what little was left.  Land was related to a family’s title and prestige.  It was not to be bought and sold.  And capital (stuff used in the production of other stuff) was thought to be the treasure of the artisan.  Land, labor and capital weren’t bought and sold in the pre-capitalist economy.  Societal restrictions prohibited it. 

Incremental reforms that upset the social order of the day led to the commodification of land, labor and capital.  It was the freedom to buy and sell the factors of production that paved the way for a capitalist society.

From its origins, capitalism has been equated with freedom.

Click here for an article on capitalism and its connection to freedom and morality.

Click here (PDF) for a recent interpretation which suggests that, although capitalism is efficient, it is amoral.