A Brief History of Capitalistic Free Enterprise

by Glenn Rogers

  The Emergence of the Nation-State

  In most places in Europe, feudalism was being replaced by monarchism. Kings rushed to strengthen their hold and increase their power over the territories they claimed as their own. They began paying warriors wages to fight for them and utilized modern technology (in the form of cannons) as the foundation of their arsenal. And for many Europeans this appeared to be preferable to feudalism. They became subjects of The Crown.

  But in Italy a different way of thinking manifested itself. New relationships between the individual and the society were being formed. Under the feudal system, the individual was loyal to the lord on whose land he or she lived and worked. But a new perspective rooted in humanism focused on individual liberty and one’s willingness to be a participating and productive member of one’s city, one’s community. A sense of patriotism and a pride of citizenship was evolving.

  Along with this new spirit of the individual came a number of other ideas. One was that the elite of society were not simply entitled to power and authority, but were required to ask for it. This asking for authority took the form of elections. Officials were elected to positions of authority. Another new perspective had to do with the way people viewed the power and authority of the church. Though the church in Italy remained strong and influential in the 14th century, it was no longer a given that the church had political power and authority. In this new order, citizens of the city, working for the good of their city, became the leaders.

  “For all this, only in the fifteenth century did the Italian republics mature into states in which citizenship became the measure of normality, signaling the death of feudalism there. Patriotism replaced feudal obligation; duty to the city-state replaced duty to the nobility and clergy,” (Davenport, 75). And in the midst of all this sociopolitical change, capitalistic free enterprise was reemerging as the economic choice of the people.

  Summary

  The sacking of Rome in 410 was an unimaginable horror for the Empire. But it was only the beginning of the end—which came 66 years later in 476 when the last emperor stepped down and a barbarian became king of Italy. Because there was no longer a strong central power to keep things running smoothly, society collapsed. The economy collapsed as well. In time, the capitalistic free enterprise that had characterized the Roman economy gave way to a newly developed feudal system that would stabilize Europe for hundreds of years. But an economic status quo is hard to maintain, and the failure of the crusades along with the horrors of the Black Death left feudalism gasping for breath, unable to revitalize itself. As feudalism waned, capitalistic free enterprise was reborn. And along with it a new sociopolitical reality began to emerge—the nation state.

  Chapter 5

  The Industrial Revolution

  The Industrial Revolution changed the way people lived and worked in western society. It changed the face of our society and laid the foundation for what we would become.

  New Ways of Thinking, New Ways of Doing

  In the second chapter, I referred to the greatest social transition in human history. I was referring to the transition from hunter-gatherers to settled village living and the beginning of agrarian society—farming and keeping flocks and herds. In this chapter, our subject is the industrial revolution, which is the second greatest social transition in human history—the transition from an agrarian society to an industrial society. It was a revolution in that it was as much about thinking in new ways as it was about making and doing things in new ways. It involved thinking in new ways about society, economics, and industry. And much of the progress that was made in relation to industry and economics was possible because of the new ways of thinking. One of the things that characterized the old way of thinking was the idea that this is the way we’ve always done this and we should continue to do it this way. As that old way of thinking was discarded, individuals began to think, as we say, outside the box, focusing on new, bigger, better, faster, progress, and productivity—more efficient ways of conducting business and getting things done. It was this new way of thinking that allowed for new ways of doing things, which generated the industrial revolution.

  Historians often date the industrial revolution from the mid 1700s to the mid 1800s. All sorts of important things happened during those hundred years that changed many things about how Western people think and live. What were some of the more important things that came out of the industrial revolution? There were several:

  1. The utilization of steam power

  2. The utilization of coal

  3. The use of canals and railways for quicker transport

  4. The development of better techniques for making iron—which resulted in better material

  5. New techniques in metallurgy and chemicals resulted in breakthroughs in other industries

  6. The transformation of the textile industry by the use of machines

  7. The making of better machine tools that allowed for making more and better machines

  8. The development of the banking industry provided capital for the expansion of business

  And these things of course were just the beginning. Since the industrial revolution right up to today, there has been a continuous stream of new thought and new technology. But my purpose is not to discuss new technology and its impact on society. My concern in this chapter is the economics in use during the industrial revolution.

  The Evolution of Capitalism

  Western culture was changing, and the economic system changed along with it. As people began to think and behave differently in general (for example, people were moving from rural to urban settings seeking opportunities to improve their lives), they thought differently about money—how to earn it, how to use it. Some sold their time and skill in exchange for wages; some used what money they had saved to start a small business. Some who owned land in the country used it as collateral to borrow money so they would have the capital to start or invest in a business. As people changed they way they did things, they were, in that process of change, modifying (sometimes in small ways, sometimes in big ways) the capitalistic free enterprise that people had engaged in for millennia.

  In The Industrial Revolution, A Very Short Introduction, Robert Allen, notes that the Industrial Revolution actually involved a series of smaller revolutions. “One reason that the Industrial Revolution led to a continuous process of economic growth is that it involved a set of revolutions that reinforced each other. Some of these revolutions, in fact, started before the Industrial Revolution—therefore, the Industrial Revolution was the result of economic change as well as the cause of it,” (4). What were these previous revolutions? They included a technological revolution—the invention of specialized machinery, a demographic revolution—people leaving the farms and moving to cities, an agricultural revolution—an increase in food production, a commercial revolution—an increase in the export and import business (globalization), a transportation revolution—railways and canals, and a financial revolution—the establishment of the Bank of England and other private banks making loans to fund business.

  Consider this last point—the establishment of financial institutions for the purpose of providing venture capital. In Chapter 2, we saw that even in the ancient world there were moneylenders who loaned money to people (at quite high interest rates) for business purposes. So the practice was not new to pre-Industrial Revolution England. However, the practice became more widespread than it had been in the ancient world and became a standard way of doing business in the modern world.

  For many people in England, the Industrial Revolution generated higher wages and made possible a higher standard of living. The Industrial Revolution was in many respects about greater productivity, about finding better ways of doing business—new, bigger, better, faster, more efficiently, more profitably. And it changed the Western world in many ways. One way was to give us a more highly developed or evolved form of capitalism. Capitalism was not born of the Industrial Revolution, but it was certainly modified during tha
t time.

  Was the Evolution of Capitalism a Good Thing

  Without a doubt, good things came of the Industrial Revolution and the evolution of capitalism. But not everything that occurred before, during, and after the revolution was good for everyone. Slavery still existed at that time, and some of the profit made during the years before slavery was abolished came as a result of slave labor. Some have gone so far as to suggest that most of the profit of the Industrial Revolution was generated by slave labor. Allen, however, argues that such a claim is unsubstantiated. There is no evidence that slave labor generated anywhere near enough income to generate the kind of rise in investment that occurred during the Industrial Revolution, (12). Again, slavery is a horrible thing, and that it ever existed is regrettable. But there is no point in making it worse than it was with unsubstantiated claims. Fortunately, a bill was passed in England in 1833 to abolish slavery, and in America a few years later in 1865. Some of the new thinking that led to the Industrial Revolution also led to the abolition of slavery.

  Aside from the challenges associated with slavery during the Industrial Revolution, there were also challenges related to loss of wages, low wages, and poor working conditions. For instance, when machines were invented that could spin cotton into thread faster and more efficiently than people could do it by hand, people who made their living by spinning wool lost their source of income. Anytime there is technological change, people linked to the old technology suffer loss. That is unfortunate, but it is the price of progress. People who lose their jobs due to technological advancements need to re-educated themselves, acquiring new skills that will enable them to earn a living doing a different kind of work. Where would we be without progress? We’d still be living as hunter-gatherers. Life expectancy would still be forty years, and the infant mortality rate might still be over 25%. Progress causes pain for some people. But pain or no pain, progress is necessary and it is a good thing.

  What about the abuses of the Industrial Revolution? While wages in general went up during the Industrial Revolution, working conditions in factories were not good. People (including women and children) worked long hours in poor conditions (no heat in the winter, for instance) for not much money. Marxist economists and sociologists often blame the economic system (capitalism) for the abuses people suffered. However, I find it utterly incredible that an economic system can be responsible for people suffering rather than the people using the system inappropriately. What do I mean? I mean that if business owners were greedy and thoughtless, their bad behavior cannot be credited to the economic system in use when the bad behavior occurred. Their bad behavior was the result of their being greedy or thoughtless (moral deficiencies) rather than the fault of capitalism. There is nothing in capitalism (as it is defined) that would make one greedy or thoughtless or hateful or miserly. To use a literary example, capitalism did not create Ebenezer Scrooge. Ebenezer’s poor reaction to events of his early life made him the way he was, and he then abused the capitalistic system that existed during the age in which he lived.

  The abuses of the Industrial Revolution were not the result of capitalism, but of poor moral training English parents provided their children—they raised children without a proper moral foundation and those children became greedy, thoughtless people with no love for their fellow man. You cannot blame an economic system, which is just a way of doing business, for the poor way people use the system to do business. Capitalism was not the problem; moral degradation was the problem.

  So even though there were unfortunate moral abuses during the Industrial Revolution, good things happened during that time, things that moved Western civilization along, making life better than it had been. One of those good things was that capitalism evolved into something bigger and better than it had been. With the expansion of the financial industry that provided capital for investment, and with the new ways of thinking that lead to new visions of how things could be, capitalism evolved into a much more complex system than it had been in the past. And thank God it did. Look what we have accomplished using it.

  When the Industrial Revolution came to America, it set in motion a chain of events that allowed us to become the most powerful nation on the planet in the shortest amount of time any nation had ever accomplished that feat. A century later, because of the capitalistic industrial complex that was in place, when America entered World War II, we were able to do what needed to be done to win the war. Even though at the time we entered the conflict we did not have the equipment (planes, ships, tanks, small arms weapons) to face down either the Japanese in the Pacific or the Germans in Europe, the American capitalistic industrial mechanism produced enough of what we needed to win wars on two fronts. Neither enemy had expected us to be able to do what we did. Part of what we did grew out of the spirit of the American worker; part of it grew out of an economic system that allowed for the kind of work that needed to be done. And we did it.

  When President Kennedy issued his famous challenge to put a man on the moon in a decade, we did it. And it was capitalism that was the underpinning of American research and industry that made it possible.

  The same thing happened again during the cold war. America won the cold war economically. We bankrupted the Soviet Union by out producing them. They simply couldn’t keep up with us. And again, capitalism was what made it possible.

  And now, we are on the verge of discovering a cure for cancer. Some would argue that it is inappropriate to credit an economic system for the victories of scientific research. But where does the money for the research come from? From business and individuals utilizing capitalism to make money who then donate generously to scientific research.

  Capitalism has always been a good thing. The capitalism we use today is a more evolved form of the same economic process used by the ancients to feed their families. It is more complex, but it is fundamentally the same system: private ownership of the means of production and distribution, driven by market needs and interests, toward the goal of making a profit. Capitalism is the economic system that built Western civilization. It is not a bad thing; it is a good thing.

  During and after the Industrial Revolution, as wealth was built, the gap between those who had wealth and those who did not widened considerably. Some have considered this a bad thing. Why? What assumptions led them to believe that all people should have approximately the same amount of wealth? Are those assumptions valid or warranted in any way? These are questions that will be addressed in chapters to come—questions that have to do with the meaning and nature of equality and the burden of responsibility one carries as a self-determined person. For the moment, though, let us acknowledge that capitalism, as an economic system is not a conscious entity that makes choices or decisions of any kind. It is simply a concept, an ideology that generates a system that people use to do business. It is rooted in the right to own private property and to do with that property whatever one wishes, including using it, if one can, to make money, to enjoy the profitability of one’s hard (and smart) work.

  But still there is poverty. Does society have a responsibility to those people? That question will be addressed in chapters to come.

  Summary

  The Industrial Revolution represented more than just the development of labor-saving machines and new sources of power. It was both the result and the representation of new ways of thinking and doing. The individual machines or processes that were introduced during the hundred years between the mid 1700s and mid 1800s were important but not as important as the new ways of thinking that made those machines or processes possible.

  Along with the new thinking about business and big business (industry) came new thinking about how to finance and conduct big business. As we have seen, capitalistic free enterprise had been around since the earliest days of human society. But with the fall of feudalism and the reemergence of capitalism, people began to think differently about how to use money to accomplish their business objectives. This led to the evolution of capitalism, and in time it beca
me a complex mechanism of venture capital and finance that allowed for private enterprise on a grand scale—railroads for instance, shipping companies, and more.

  Was this evolution a good thing? Yes. It made it possible for Western civilization to develop into the global industry leader that it is today, allowing us along the way to do some amazing things. Was the capitalism that developed during the Industrial Revolution a new economic system? No. It was still capitalism. It was more complex, but it was still capitalism. The 2018 Ford Taurus is more complex than the 1908 Model T Ford. But the Taurus is still a car, as the Model T was a car. A thing can become more complex and still be fundamentally the same thing.

  The Industrial Revolution brought significant changes and laid the groundwork for even more significant (world changing) developments. Some people were not ready for the changes that came during those one hundred years. They suffered. That is regrettable. But change must come. Growth and development must come. People must learn to be ready for change. One of the things that characterizes our species is our ability to adapt. Some adapt faster and easier than others. Adaptation is one of the challenges of life. Because some do not adapt as needed does not make capitalism a bad thing. What is society’s responsibility to those who are not prepared for or who do not adapt to change? Our responsibility is to offer ongoing education and retraining programs. We need to provide avenues of adult education and training so they can develop a new skill set. Ultimately, however, the responsibility for acquiring new skills belongs to the individual.