Figure 1.-- |
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European mercantilism evolved into what we now call capitalism. Capitalism is founded on the same ecoinomic impulse as mercantilism the drive for profit. Both the mercantilist and the capitalist seeks to acquiring desirable goods for lower prices than they can be sold. The difference between the two is profit. And profit is at the heart of the system. Socialists have criticised the profit motive. And it is a cold, dark unemotianal heart. The only problem for socialists is that it generates wealth. And socialism with empathy and humanitarian social concerns does not. Adam Smith in the Wealth of Nations describes the mechanism that drives capitalism. The profit motive was essentially a hidden hand directing the system. Smith postulated that society as a whole benefitted by allowing each individual from seeking his own individual interests. Individuals pursuing their own personal interests will guarantee the interests of society as a whole. There are major differences between mercantilism and capitalism. Capitalism involves the rational or efficent use of the means of production. Labor becomes specialized workers in the form of wage labor. The managers or capitalist manipulate capital, raw materials, terchnology, and oher fsactors so as to maximize profit or wealth. There is the potential for capitalist to cause social problems by reducing wages to poverty levels, cvhild labor, casusing pollution, producing unsafe problems, unfair competition, etc. Here it is up to the Government to regulate the system to prevet these undesirable consequences. Labor unions can also unballance the system through raqeteerng, unsustaninable wage demands, etc. And thus must be regulated. Here there is a fine line. Inadequate regulation can threaten te system by resulting in a socially unacceptable concentration of wealth. Oppressive regulation can destroy the profitability of the system. The individual and his desire for a profit is at the hear of the capitalist system. It was the Dutch who first invented capitalism. It ws 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. This proved to be the central force in the 20th century when Britain and America faced a series of conflicts with powerful adversaries challeging not only capitalism, but ln\beral democracy which developoed as an adjunct.
Mercantilism was the governing economic policy persued by Europem countries during the 17th and 18th cenuries. There was no great spokesman for mercantilism like Adam Smith fir capitalism (The Wealth of Nations) and Karl Marx for Comunism (Das Kapital). Mercantilism was esentially the attempt of pre-industrial European leaders to gain control over the increasingly complex ecomomies that emerged from the late-Medieval era. Other topics include the voyages of discovery, American gols and slver, the highland clearances, the potato, and slavery. European mercantilism evolved into what we now call capitalism.
Capitalism is founded on the same ecoinomic impulse as mercantilism the drive for profit. Both the mercantilist and the capitalist seeks to acquiring desirable goods for lower prices than they can be sold. The difference between the two is profit. And profit is at the heart of the system. Socialists have criticised the profit motive. And it is a cold, dark unemotianal heart. The only problem for socialists is that it generates wealth. And socialism with empathy and humanitarian social concerns does not. Adam Smith in the Wealth of Nations describes the mechanism that drives capitalism. The profit motive was essentially a hidden hand directing the system. Smith postulated that society as a whole benefitted by allowing each individual from seeking his own individual interests. Individuals pursuing their own personal interests will guarantee the interests of society as a whole. There are major differences between mercantilism and capitalism. Capitalism involves the rational or efficent use of the means of production. Labor becomes specialized workers in the form of wage labor. The managers or capitalist manipulate capital, raw materials, terchnology, and oher fsactors so as to maximize profit or wealth. There is the potential for capitalist to cause social problems by reducing wages to poverty levels, child labor, casusing pollution, producing unsafe problems, unfair competition, etc. Here it is up to the Government to regulate the system to prevet these undesirable consequences. Labor unions can also unballance the system through raqeteerng, unsustaninable wage demands, etc. And thus must be regulated. Here there is a fine line. Inadequate regulation can threaten te system by resulting in a socially unacceptable concentration of wealth. Oppressive regulation can destroy the profitability of the system. The individual and his desire for a profit is at the hear of the capitalist system.
Various components were connected with the capitalism that the Dutch invented and the Anglo-American powers perfected. These included: 1) a maritime system, 2) liberal democracy, and 3) technical innovation. It is difficult to assess to what affect these three components were causes or effects in a complex interelated system. 4) A fourth component has to be consiudered--Protestantism. It is immeditately apprent thsat the three great practioners of capitalism (the Netherlands, England/Britain, and America) were Protestant countries, often locked in desperate struggles with Cathholic countries). And there are two aspects of Protestantism that must be considerd. First, Protestantism by irs very nature (Bible reading and individual contemplsation) was prone to split into competing scts, imposible to control by any autocratic authority. Second, Protestant doictrine itself, especially Calvanistic thouht.
From a relastively early point in the development of indusrrial capitlism, social commentators have been disturbed by the inequities in capitalist economies. In fact, there have always been inwquities in human society. These inequities have been very pronounced since the Agricultural Revolution (about 8000 BC). Why then did social critics first begin to serious question these inquities. Too often poorly eduycated writers claimn that industrial capitalism first created the inequities. This is simply untrue. Inequities existed thriughout Europe and the rest of the world before capitalism. What the Industrial Revolution did was to generate wealth on an unpresedented level. And the result was the creation for the first time oif a very affluent middle class. That affluence was reflected in many ways. The middle class substatislly changed society. One of the changes was to redefine childhood. We see ordinary families keeping dogs and cats as pets for the first time. And we see large numbers of individuals with the time to mull over the social condition. And for the first time we see this concern over inequities--essentially generated by the creation of wealth and affluence. One reason that sociasl critics began to question capitalism was the mechanisms of capitalism--Adam Smith's incisible hand. There was no morality to it, rather a cold unfeeling mechanism. There was no morality, the mechanism was purely mechanical, the principle that society as a whole will benefit if individuals are free to pursue their oiwn selfish personal interests. Thus social reformers like Marx designed a much "moral" system in which instead of pursing selfish personal interests, that individuals would be proivided for based on their needs. Pure Marxist doctrie saw a whitering away of the state, but in fact to redestribute resources a powerful state is needed. And the critics of capitalism see the state as a mechism for inserting morality into the social process. This however presents two fundamental problems for the moralists. Firs,t the state is controlled by a political process which may or may not be moral and that morality is something that different people can view very differently. Second, is a moral issue that the opponents of capitalism who claim the moral highround like to ignore. What is the miorality of seizing the poroperty of one group of citizens and giving it to another? But morality is something whih can be argued intermably. A much more important question is subject to factual resolution. What social system allows the individual to best develop his or her inate abilities. The answer is capitalism. Ask your self, where have the great discoveries that made the nodern world come? They came from capitalist countries, primarily America, Britain, France, and Germany. This is true in virtually every field of human endevor. Why did no major advances in science come from the Soviet Union or other Socisalist countries. Is it moral to limit human aspirations. Why was it the Capitalist West that created not only the industrial technology, but also the new information based technology. Why was it corporatios that created modern drugs and medical procedures? Why was the Green Revolution which saved billions if lives in the Third World generated by the United States. Is it really moral to organize soiciety on the basis of a soicial system thast rather than creating wealth, destroys it. Planned economies did not have the market cycles of Capitalist countries, but they also proved extridinarily ineffiucent, essentially guaranteeing wuidespreas poverty. In Socialist countries a very common phenomenon was that the value of manufactured goods often were worth less than the raw materials used to produce them. This is why the Comunist Eastern European countries, Russia, Cuba, China (before the capitalist reforms), North Korea could not export. And all of these countries had to develop highly coercive state structures to either resistriubute wealth or prevent individuals from pursuing their self interests.
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.
A major issue in state with a capatalist economy is taxation. There are three basic types of economies: socialist (state onership), capatlist/free enterprise, and mixed economies (partial state ownership). Taxation is not an issue in a socialist state because the government owning the means of production can generate revenue from the operations of state controlled enterprises. The problem for the citizens of these socialist or largely socialist countries (Cuba, North Korea, and Viet Nam) is that state operations are so ineficient that the economy is not productive and thus the people are among the poorest in the world. The inefficies of socialist economics led to the collaspse of the Dociet Union and the decesion of socialist countries (like China) to adopt free market reforms. Taxation is an issue in a free market economy because the state has no way to generated recenue except to tax. Historically the two most capatalist countries have been Britain and America and their economic success since the 17th century has been largely due to the ecomomoic sucess generated by market capitalism. They also until the Depression of the 1930s have been the countries with the lowest tax burden. American officials from an early point recognized that the power to tax was the power to kill, a doctine enunciated by the Supreme Court at an early point in the Republic. Political liberalism was founded in Europe on the idea of restriction state intrusions in economic life. The state at the time was cdominated by aristocrats or individuals enriched by state action and refressive European tax systems reflected this. American tax tax revenue was at first generated by tariff revenue. State revenue systems was more varied. As the United States industrialized abd during the crisis of the Civil War, other forms of revune were needed. There are a range of different taxes, but they can be either regressive or progressive taxes. A regressive tax affects all tax payers equally. A progressive tax imposes a higher tax burden to those with higer incomes. The progressive movement strongly promoted a progressive tax system. The idea of a progressive tax system in generally accepted in democratic nations. The basic question is what level to set the tax rate. Here there are two basic concerns. First is equity. While there is differences of opinion here, the basic principle is that the wealthy who benefit most from society should pay more. Second is effectiveness. And here there are two matters to consider. One is the law of diminidhing returns. There is a point beyond which highrr rates will actially retuen less revenue because payer will avoid them. Two, thre is also a ate beyond which will retard economic activity, reducing both government revenue and the wages of the lower income people the progressive income tax was susposped to benefit. Notice that equity is a value judgement and highly subjective. Effectiveness is not subjective and can be meaured imperically.
Students learming American history are generally not presented with information explaining how market capitalism essentially created within a century the most powerful nation on earth. Rather standard history books tend to dweall upon inequities. Often 19th century histories focus on the fight to abolish slavery. While the horrors of slavery are now well depicted. Rarely do history teachers make the point that it was the superior morality and effiencies of free market capitalism that first ended slavery in the northern states and gave the northern states the industrial power to prevail in the Civil War. Rarely do teachers pursue the morality of capitalism, but in a capitalist economy, the individual is a free agent. This is why free workers oppose slavery. In the short term, it does not make erase racial prejudice, but it does end slavery. Which is what happened in the norther states after independence. And the industry created by free market capital and free labor defeated the plantation slaveogracy of the southern states. After the Civil War, teachers focus on industrialization and the inequities faced by workers and immigrants. Here there are important issues to consider. Industrialists were able to influence the Governmrent to use its power to prevent workers from organizing and exerting their rights. What teachers fail to address is the fact that workers in America achieved much higher incomes than European workers. This is part of the reason that European workers flocked to the United States during the late-19th and early 20th century. The reason for this was efficiencies of the American free market economy. Too often American histories focused on the difficulties for immigrants in America and not the fact that they enjoyed more prosperous lives in America. And virtually never addressed is why there was more opportunity and economic success in America.
Smith, Adam. The Wealth of Nations (1776).
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