Studies in the Development of Capitalism

1. Capitalism Defined by its Mode of Production and Class Relations

What differentiates the use of this definition from others is that the emphasis is not primarily upon the existence of specialized merchants or financiers, even though they belong to the system; but upon the particular mode of production.

Defining Capitalism. Capitalism, in this analysis, is not merely a system of production for a distant market or the presence of an acquisitive spirit. Instead, it is fundamentally defined by a specific "mode of production" where:

• Labor-power itself becomes a "commodity," bought and sold in the market.
• The means of production are concentrated in the hands of a small class.
• A propertyless class emerges, whose only source of livelihood is selling its labor-power.

Class struggle as a driver. This definition highlights the inherent class differentiation between capitalists and proletarians, where the former own the means of production and the latter sell their labor. This relationship is central to understanding historical development, as each period is molded by the predominant socio-economic relations and the struggle between classes over the appropriation of surplus labor. Social revolutions are seen as critical junctures where the balance of power shifts, leading to abrupt changes in the texture of society.

Beyond superficial definitions. Many traditional economic theories and historical interpretations have failed to grasp this core, often focusing on abstract economic notions or the mere presence of trade and money. However, a true understanding of capitalism's origins and growth requires examining the fundamental relationships within production, rather than just the surface-level phenomena of exchange or individual entrepreneurial spirit.

2. Feudalism's Internal Contradictions Drove its Decline, Not Just External Trade

The "result of this increased pressure was not only to exhaust the goose that laid golden eggs for the castle, but to provoke, from sheer desperation, a movement of illegal emigration from the manors: a desertion en masse on the part of the producers, which was destined to drain the system of its essential life-blood and to provoke the series of crises in which feudal economy was to find itself engulfed in the fourteenth and fifteenth centuries."

Feudalism's core. Feudalism is characterized as a mode of production where direct producers (artisans or peasants) are compelled to fulfill economic demands of a lord, whether through labor services, payments in money or kind, or "gifts." Crucially, the direct producer retains possession of their own means of production, unlike a slave, but is not free from coercive obligations.

Internal decay. While the revival of commerce and money economy had a disruptive effect, it was not the sole or decisive factor in feudalism's decline. Instead, the system's inherent inefficiency and the ruling class's increasing need for revenue led to intensified pressure and exactions on the peasantry. This unsustainable exploitation, coupled with low labor productivity and soil exhaustion, drove peasants to desert the manors.

Labor scarcity and its consequences. The resulting labor scarcity, particularly after events like the Black Death, forced lords into a dilemma: either offer concessions (commutation of services for money payments) to retain labor or intensify coercion. The outcome varied across Europe, with some regions seeing a "feudal reaction" of increased serfdom (e.g., Eastern Europe, 13th-century England) and others moving towards more contractual relations. This dynamic interplay of internal pressures and peasant resistance, rather than just market forces, was key to feudalism's disintegration.

3. Merchant Capital Amassed Wealth Through Monopoly and "Profit Upon Alienation"

"To buy cheap in order to sell dear" is the rule of trade. It is not supposed to be an exchange of equivalents. The quantitative ratio in which products are exchanged is at first quite arbitrary.

Early bourgeois wealth. The wealth of the early bourgeoisie, unlike feudal lords who exploited serf labor or later industrial capitalists who exploited wage labor, primarily stemmed from "profit upon alienation." This meant gaining from price differences between different productive areas or between purchase and sale, rather than from direct production.

Monopoly as a foundation. This profit was largely secured through monopolistic practices. Early urban communities, once they gained autonomy, quickly established market controls and privileges to benefit their burgesses. These included:

• Fixing minimum prices for urban goods and maximum prices for rural produce.
• Restricting outsiders from direct trade with the countryside.
• Limiting competition among urban craftsmen.

"Urban colonialism." This system of market control and urban monopoly, often enforced by a wealthy merchant patriciate who dominated town governments, effectively exploited both rural producers and urban craftsmen. It created a "bottleneck" between markets, allowing merchants to dictate terms of trade. This "urban colonialism" was a crucial mechanism for the accumulation of merchant capital, which, in its early stages, acted as a parasite on the existing mode of production rather than transforming it.

4. Industrial Capital Emerged from Production, Challenging Older Mercantile Monopolies

The subordination of production to capital, and the appearance of this class relationship between capitalist and the producer is, therefore, to be regarded as the crucial watershed between the old mode of production and the new, even if the technical changes that we associate with the industrial revolution were retarded both to complete the manufacturing of capitalist industry and of the productive power of human labour associated with it.

Penetration of production. In the 16th century, merchant capital began to move beyond mere trade and exert control over production. This occurred in two main ways:

• Putting-out system: Merchants supplied raw materials and advanced credit to craftsmen, who worked in their homes but lost economic independence.
• Capitalist workshops/factories: In new industries (mining, paper, alum) requiring larger capital, entrepreneurs directly employed wage laborers.

Rise of the "new men." This period saw the emergence of a new class of capitalist employers, often from the ranks of prosperous craftsmen or yeoman farmers, who invested in industry. These "new men" challenged the restrictive monopolies of older merchant oligarchies and craft gilds, seeking to expand production and evade traditional regulations.

The English Civil War. The 17th-century English Civil War is interpreted as a "bourgeois revolution" where the interests of rising industrial capital and provincial manufacturers clashed with the Crown's support for older mercantile monopolies and feudal remnants. The Commonwealth period, despite its eventual compromises, significantly accelerated the growth of industrial capital by reducing monopolies and fostering trade.

5. Primitive Accumulation: The Dispossession of Producers to Create a Proletariat

The so-called primitive accumulation, therefore, is nothing else but the historical process of divorcing the producer from his means of production. The expropriation of the agricultural producer, of the peasant, from the soil is the basis of the whole process.

Beyond mere enrichment. Capital accumulation, in its "primitive" phase, was not simply about the bourgeoisie getting rich. It was a process of concentrating existing property and, crucially, dispossessing small producers from their means of livelihood. This created a propertyless class – the proletariat – compelled to sell its labor-power.

Mechanisms of dispossession. Key mechanisms included:

• Enclosures: The conversion of common lands and small holdings into larger, consolidated farms, often for sheep grazing, displacing peasants.
• Debt and usury: Economic distress, wars, and price inflation forced landowners and small producers to mortgage or sell their property cheaply to the rising bourgeoisie.
• State action: Dissolution of monasteries, sequestration of royalist lands, and legislation that restricted peasant rights and mobility.

The "reserve army of labor." This process was essential for creating a plentiful and cheap labor supply for nascent industries. The "price revolution" of the 16th century, by lowering real wages, further enriched capitalists at the expense of labor, generating "profit inflation." Without this dispossession, industrial capitalism could not have matured, as it lacked a sufficient pool of "free laborers" to exploit.

6. Mercantilism: State-Regulated Exploitation for Industrial Capital's Adolescence

The Mercantile System was a system of State-regulated exploitation through trade which played a highly important role in the adolescence of capitalist industry: it was essentially the economic policy of an age of primitive accumulation.

Profit through regulation. Mercantilism, the dominant economic policy from the 16th to 18th centuries, was rooted in the belief that profit from trade required state regulation. It aimed to create a "favorable balance of trade" (export surplus) to attract bullion, but its deeper purpose was to:

• Expand markets for domestic manufactures.
• Depress the costs of raw materials and labor.
• Ensure profitable terms of trade for merchants.

Colonial exploitation. A key instrument of Mercantilist policy was the colonial system. Colonies were seen as sources of cheap raw materials and protected markets for the metropolis. This involved:

• Forced trading: Coercing colonies to trade exclusively with the parent country.
• Production control: Prohibiting colonial manufacturing that competed with home industries.
• Plunder: Direct seizure of resources and exploitation of native populations, often through slavery.

A necessary stage. This system, characterized by "urban colonialism" writ large, provided enhanced profit opportunities for industrial capital by manipulating price levels (raising industrial prices, depressing agricultural prices) within a controlled economic sphere. While later economists criticized its bullionist and protectionist tenets, Mercantilism played a crucial role in nurturing nascent industrial capitalism and accumulating wealth for its expansion.

7. The Industrial Revolution: A Qualitative Shift to Machine-Driven, Collective Production

The crucial change was in fact the turning of a tool, formerly wielded by a human hand, into a mechanism; from that moment "the machine takes the place of the workman," irrespective of "whether the motive power is derived from man or from some other machine."

Transformative technical change. The Industrial Revolution, beginning in the late 18th century, marked a profound qualitative shift in the mode of production. It was characterized by the widespread adoption of power-driven machinery, which:

• Mechanized tools: Transformed hand tools into mechanisms, subordinating human labor to the machine.
• Collective production: Imposed a collective, team-based character on the production process, replacing atomized individual craftwork.
• Increased capital outlay: Required massive capital investment in complex machinery and factory buildings, creating a new type of industrial capitalist.

Interlocked innovations. Key inventions like the spinning jenny, water frame, power loom, and steam engine were not isolated events but an interconnected series, often driven by practical industrial needs (e.g., scarcity of spinners). These innovations dramatically increased labor productivity and widened the economic gulf between owners and ownerless.

New industrial leadership. The pioneers of factory industry were often "new men" from humble origins (yeoman farmers, master-craftsmen) who, with modest capital and practical acumen, launched large-scale enterprises. This democratic strain initially challenged older mercantile monopolies, but the sheer scale of capital required for the new technique ultimately solidified the dominance of large industrial capitalists.

8. The Great Depression (1873-1890s): A Watershed of Market Saturation and Monopoly

"We think that... over-production has been one of the most prominent features of the course of trade during recent years: a with which the depression under which we are now suffering may be partially explained by this fact... The remarkable feature of the present situation, and that which in our opinion distinguishes it from all previous periods of depression, is the length of time during which this over-production has continued."

End of an era. The Great Depression of 1873-1890s marked a significant turning point for British capitalism, signaling the end of its "golden age" of vigorous expansion. It was characterized by a sharpening conflict between the growth of productive power and the profitability of business.

Symptoms of crisis. Key features included:

• Rising real wages: Due to growing labor organization and cheaper food imports, labor costs did not fall proportionally with prices.
• Rapid capital accumulation: An abnormally high rate of investment in productive equipment led to increased capacity.
• Falling profit margins: Despite technical improvements and cost reductions, profits declined due to intense competition and rising "organic composition of capital."
• Market contraction: A sharp decline in foreign investment and export demand, particularly for capital goods, exacerbated the crisis.

Shift to neo-Mercantilism. This period saw a growing "fear of goods" and productive capacity, leading to a renewed interest in monopolistic practices and state protection. Businessmen sought to restrict competition through cartels, tariffs, and the partitioning of global markets, laying the groundwork for a new era of "neo-Mercantilism" and economic imperialism.

9. Monopoly Capitalism: Chronic Excess Capacity and Restricted Investment

In such an epoch the "fear of productive capacity" will result in a portion of the existing productive power being kept out of action or under-utilized, while the industrial reserve army will be recruited by deliberate restriction of production.

Defining features. The period between the two World Wars saw the full emergence of "Monopoly Capitalism," characterized by:

• Price rigidities: Major industries maintained profit margins by restricting output rather than lowering prices in response to falling demand.
• Chronic excess capacity: Widespread under-utilization of plant and equipment became a permanent feature, often due to large, indivisible production units.
• Persistent unemployment: A large reserve army of labor was maintained, partly through deliberate production restrictions.
• Declining domestic investment: Entrenched monopolies were reluctant to expand capacity, and new firms faced significant barriers to entry.

The "price scissors." The crisis of 1929-33 highlighted these features, with a dramatic collapse in production (especially heavy industry) but relatively stable prices in cartelized sectors. This created a "price scissors" effect, where agricultural prices fell much more sharply than industrial prices, disrupting trade and income distribution.

Ossification of industry. This era fostered an "ossification of industrial structure," where existing patterns were frozen by output quotas and reduced competition. While some technical advances occurred, the focus shifted from productive efficiency to financial and commercial supremacy, leading to an increasing burden of unproductive costs and a preference for maintaining strategic positions over genuine innovation.

10. State Intervention and Imperialism as Solutions to Market Stagnation

In view of the leading importance of these two expedients it is not surprising that business strategy should have come so largely to assume a political character, to an extent which probably only finds a parallel in the very early history of the bourgeoisie.

New strategies for demand. Faced with chronic market stagnation and excess capacity, monopoly capitalism increasingly relied on external stimuli to sustain demand. Business strategy became inherently political, seeking state intervention to:

• Expand markets: Through political control of foreign territories, creating protected and preferential markets (neo-Imperialism).
• Stimulate investment: Primarily through massive armament expenditure, which absorbed capital and industrial output without creating new productive capacity.

Fascist imperialism as a model. Fascist economies, particularly Nazi Germany, combined these policies with systematic territorial expansion into already industrialized European countries. This involved:

• Economic regimentation: Subordinating satellite economies to serve German industrial needs, often through de-industrialization.
• State control: Extensive state control over investment, prices, and labor (e.g., wage stops, liquidation of unions).
• Predatory accumulation: Acquiring industrial assets in conquered territories through financial manipulation and forced integration.

A shift in global dynamics. This new form of imperialism, more ruthless and systematically planned than its predecessors, reflected a fundamental shift in global capitalism. It sought to overcome the limitations of traditional colonial exploitation and the rising tide of colonial nationalism by creating a continent-wide economic empire, where the fruits of exploitation were enjoyed by the imperial capitalist class and even by the broader population of the dominant nation.

Last updated: November 28, 2025