History of capitalism

 BEGINNING OF CAPITALISM

Capitalism was in reality an outgrowth of the commercial revolution. Capitalism in a way implies a large scale business organisation conducted by an individual or a group of persons having sufficient resources to purchase raw materials and tools and engage labour in order to produce more items for profit. Capitalism has the inherent tendency to lead to concentration of wealth in the hands of the the few and to promote big industrial ventures. Necessary corollary is the establishment of a banking system which ensure credit and the flow of capital.

Many important changes followed in the wake of the commercial revolution. Business was no longer a personal affair. The existing practice of not loaning money for interest was removed.

The possession of wealth was not any longer regarded as unreligious and immoral. Profits were regarded honourable. Competition and bargaining as essential attributes of business enterprise were recognised.

Banking

Essential to the growth of trade and commercial enterprise was banking and it soon developed on a large scale. It was certainly not an innovation. For it had been used, though in a limited way by the Jewish and Syrian money changers long before the 16th century. Banking was also prevalent though on a limited scale in Western Europe during the Middle Ages. The Medici family of Florence established the first great banking system in the 16th century. Money was looked upon and treated as a commodity and the result was huge profit. Banking institutions soon came into existence in Holland, Sweden, Spain, England, Australia. The capitalistic system is dependent largely on the successful operation of a banking system.

The success of commercial and financial capitalism during the 16th and 18th centuries was due to the extensive opportunities for making profits from foreign trade and finance and the expansion of personal movable wealth and the mobility of capital. Much of the traders profits were put back into the firm in the from of greater liquidity, bigger stocks, advance to local producers and participation in international exchange transactions. Not only this improved commercial and financial techniques opened new vistas for the merchants invest profits outside their own firms.

Innovations in public finance exercised a very significant influence on the development of European economy. These innovations of the sixteenth century inspired the rulers of Europe to undertake grandiose world policies, but proved inadequate to satisfy the tremendous requirements of money and credit that resulted from it. The gap between need and opportunities to exercise irresponsible pressure on the commercial money markets, resulting in the dislocation of economic expansion and to tremendous state bankruptcies. No matter how disruptive the bankruptcies of the state may have been, yet in the long run these formed the first important step in the systematic development of a consolidated, national debt. In France where mercantilism had resulted in the grand schemes of military expansion during the reign of Louis XIV, the improvements in the technique of public finance led to wasteful state expenditure, which in turn did nothing in the field of economic development of the country and only succeeded in initiating serious financial crisis. In England on the other hand, mercantilism was utilized to promote economic expansion and the reinforcement of financial techniques led to the creation of a modern economy.

Significance of the Introduction of Capitalism

The introduction of capitalism was responsible for eventually bringing to an end the economic system of the Middle Ages. The old manorial system collapsed. The nobles shifted to towns and engaged themselves in commercial enterprise and obtained rents from the peasants when occupied their estates. Capitalism destroyed the prestige, power and importance of guilds and revolutionised industry. The capitalists were favourably placed and could collect large stocks and thus had better capacity to buy and sell as compared to the guilds. The initial steps in the direction of an industrial and agricultural revolution had been taken and a new economic and social order was emerging. Before we read more about the development of capitalism and its spread, we now turn our attention to another important and significant revolution - the Agricultural revolution in Western-Europe.