Free trade and globalization
At the height of the First French Empire, Napoleon sought to introduce a "continental system" that would render Europe economically autonomous, thereby emasculating British trade and commerce. It involved such stratagems as the use of beet sugar in preference to the cane sugar that had to be imported from the tropics. Although this caused businessmen in England to agitate for peace, the government was able to persevere, in part because the United Kingdom was well into the industrial revolution. The war had the opposite effect - it stimulated the growth of certain industries like pig-iron output, which was just 68,000 tons in 1788 and soared to 244,000 tons by 1806.
19th century Great Britain become the first global economic superpower, because of superior manufacturing technology and improved global communications such as steamships and railroads. In 1817, David Ricardo, James Mill and Robert Torrens showed that free trade would benefit the industrially weak as well as the strong, in the famous theory of comparative advantage.
In Principles of Political Economy and Taxation Ricardo advanced the doctrine still considered the most counterintuitive in economics: When an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit.
By the mid 19th century, Britain was firmly wedded to the notion of free trade and the first era of globalization began. In the 1840s, the Corn Laws and the Navigation Acts were repealed, ushering in a new age of free trade. In line with the teachings of the classical political economists, led by Adam Smith and David Ricardo, Britain embraced liberalism, encouraging competition and the development of a market economy.
Industrialization allowed cheap production of household items using economies of scale, while rapid population growth created sustained demand for commodities. Globalization in this period was decisively shaped by nineteenth-century imperialism. After the First and Second Opium Wars and the completion of British conquest of India, vast populations of these regions became ready consumers of European exports. It was in this period that areas of sub-Saharan Africa and the Pacific islands were incorporated into the world system. Meanwhile, the conquest of new parts of the globe, notably sub-Saharan Africa, by Europeans yielded valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment between the European imperial powers, their colonies, and the United States.
The gold standard formed the financial basis of the international economy from 1870-1914. “ The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914. ”
The global financial system was mainly tied to the gold standard in this period. The United Kingdom first formally adopted this standard in 1821. Soon to follow was Canada in 1853, Newfoundland in 1865, and the USA and Germany (de jure) in 1873. New technologies, such as the telegraph, the transatlantic cable, the Radiotelephone, the steamship, and railway allowed goods and information to move around the world at an unprecedented degree.
The eruption of civil war in the United States in 1861 and the blockade of its ports to international commerce meant that the main supply of cotton for the Lancashire looms was cut off. The textile industries shifted to reliance upon cotton from Africa and Asia during the course of the U.S. civil war, and this fact created pressure for an Anglo-French controlled canal through the Suez peninsula. The Suez canal opened in 1869; in the same year the Central Pacific Railroad that spanned the North American continent was completed. Capitalism and the engine of profit was making the globe a smaller place.
History of capitalism
The history of capitalism can be traced back to early forms of merchant capitalism practiced in Western Europe during the Middle Ages. It began to develop into its modern form during the Early Modern period in the Protestant countries of North-Western Europe, especially the Netherlands and England. Traders in Amsterdam and London created the first chartered joint-stock companies driving up commerce and trade, and the first stock exchanges and banking and insurance institutions were established.
Over the course of the past five hundred years, capital has been accumulated by a variety of different methods, in a variety of scales, and associated with a great deal of variation in the concentration of economic power and wealth. Much of the history of the past five hundred years is concerned with the development of capitalism in its various forms.
Since 2000 the new scholarly field of "History of Capitalism" has appeared, with courses in history departments. It includes topics such as insurance, banking and regulation, the political dimension, and the impact on the middle classes, the poor and women and minorities.
Origins of capitalismCrisis of the 14th century
Map of a medieval manor. Notice the large commons area and the division of land into small strips. The mustard-colored areas are part of the demesne, the hatched areas part of the glebe.
William R. Shepherd, Historical Atlas, 01923
According to some[which?] historians, the modern capitalist system has its origin in the "crisis of the fourteenth century", a conflict between the land-owning aristocracy and the agricultural producers, the serfs. Manorial arrangements inhibited the development of capitalism in a number of ways. Because serfs had obligations to produce for lords, they had no interest in technological innovation; because serfs produced to sustain their own families, they had no interest in co-operating with one another. Because lords owned the land, they relied on force to guarantee that they were provided with sufficient food. Because lords were not producing to sell on the market, there was no competitive pressure for them to innovate. Finally, because lords expanded their power and wealth through military means, they spent their wealth on military equipment or on conspicuous consumption that helped foster alliances with other lords; they had no incentive to invest in developing new productive technologies.
The demographic crisis of the 14th century upset this arrangement. This crisis had several causes: agricultural productivity reached its technological limitations and stopped growing; bad weather led to the Great Famine of 1315–1317; the Black Death in 1348–1350 led to a population crash. These factors led to a decline in agricultural production. In response, feudal lords sought to expand agricultural production by expanding their domains through warfare; they therefore demanded more tribute from their serfs to pay for military expenses. In England, many serfs rebelled. Some moved to towns, some purchased land, and some entered into favorable contracts to rent lands from lords who needed to repopulate their estates.
The collapse of the manorial system in England created a class of tenant-farmers with more freedom to market their goods and thus more incentive to invest in new technologies. Lords who did not want to rely on rents could buy out or evict tenant farmers, but then had to hire free-labor to work their estates – giving them an incentive to invest in two very different kinds of commodity owners; on the one hand, the owners of money, means of production, means of subsistence, who are eager to valorize the sum of value they have appropriated by buying the labour power of others; on the other hand, free workers, the sellers of their own labor-power, and, Free workers, in the double sense that they neither form part of the means of production nor do they own the means of production that transformed land and even money into what we now call "capital". Marx labeled this period the "pre-history of capitalism".
In effect, feudalism began to lay some of the foundations necessary for the development of mercantilism, a precursor to capitalism. Feudalism took place mostly in Europe and lasted from the medieval period up through the 16th century. Feudal manors were almost entirely self-sufficient, and therefore limited the role of the market. This stifled any incipient tendency towards capitalism. However, the relatively sudden emergence of new technologies and discoveries, particularly in the industries of agriculture and in exploration, facilitated the growth of capitalism. The most important development at the end of feudalism was the emergence of what Degan calls "the dichotomy between wage earners and capitalist merchants". With mercantilism, the competitive nature means there are always winners and losers, and this is clearly evident as feudalism transitions into mercantilism, an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.