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By the mid-18th century the operations of commerce, manufacturing, and public finance were linked in one general system; a military defeat or economic setback affecting credit in one area might undermine confidence throughout the entire investing community. History of Europe - Early Capitalism, Industrial Revolution, Enlightenment: Two broad ...
- Overview
- First read: preview and skimming for gist
- Second read: key ideas and understanding content
- Third read: evaluating and corroborating
- Overview of New Economic Systems
- Introduction
- Innovations in finance
- Empire and finance
- From the middle class to the free market
The article below uses “Three Close Reads”. If you want to learn more about this strategy, click here.
Before you read the article, you should skim it first. The skim should be very quick and give you the gist (general idea) of what the article is about. You should be looking at the title, author, headings, pictures, and opening sentences of paragraphs for the gist.
Now that you’ve skimmed the article, you should preview the questions you will be answering. These questions will help you get a better understanding of the concepts and arguments that are presented in the article. Keep in mind that when you read the article, it is a good idea to write down any vocab you see in the article that is unfamiliar to you.
By the end of the second close read, you should be able to answer the following questions:
1.What two elements does the author use to define capitalism at the beginning of this article?
2.What are credit and interest, and why did they become more common in this period?
3.What is a bank, and how did the idea of a bank get to Europe?
4.What are bonds, and how did the English government get involved in issuing bonds?
Finally, here are some questions that will help you focus on why this article matters and how it connects to other content you’ve studied.
At the end of the third read, you should be able to respond to these questions:
1.Throughout this article, the author points out that capitalism was a major innovation, but they also point out that some elements of capitalism had been around for a long time. Viewed through the production and distribution frame, what was new about capitalism around 1750?
2.You heard a lot about industrialization in the last unit, and you’ve encountered some information about reform movements in this unit. How do you think capitalism helped create a need for reform movements in the Long Nineteenth Century?
By Eman M. Elshaikh
We're used to credit cards now, but the very idea of credit, interest, and banking were pretty radical innovations in our economic history—and they led to the emergence of capitalism in Europe.
In case you missed it, the Industrial Revolution was—as nearly everything in this course has suggested—a big deal. Throughout the long nineteenth century, it transformed global trade, production, and changed how people lived and worked. It even changed how individuals thought about the world, and their place in it. One reason industrialization had such a big effect was that it was tied to the economic system known as capitalism. We even call the system that emerged in the long nineteenth century "industrial capitalism".
That's because the two things are as dependently linked to each other as an axle to a wheel. And industrial capitalism is still pretty much the basis of our global economic system today, with some alterations. So where did capitalism come from? How come it was around in 1750, right when industrialization needed it? No spoilers, but the answers are "enlightening"…
Okay that was a spoiler, but it's an important connection to recognize: Both the idea of capitalism and the capitalist system as we know it first emerged during the long nineteenth century, because that's when Enlightenment philosophers were talking about it. They described an economic system with these two main ideas:
•Private individuals or groups of individuals invest their money (“capital”) in assets or in companies, making them owners or part owners
•Labor, raw materials, and finished products are exchanged on a free market where the buyer and seller agree on prices
Capitalism is a tad bit more complicated than that, but it’s a start.
Now, technically, free markets and private investment have both existed for a long, long time, and in many parts of the world. But Enlightenment philosophers were able to put it into a coherent philosophy, and industrialists were now—keyword now—able to use it to great effect… and profit. Why now? Because gradual changes in the two hundred or so years before the long nineteenth century had cleared the path for industrial capitalism to march on in.
Maybe the most important of these changes was the spread of credit. Credit is central to capitalism. It is an agreement between a borrower and a lender that a loan will be repaid later. In many cases, the agreement adds interest. Interest is what the borrower must repay in addition to the value of the initial loan.
These financial technologies revolutionized the way many nations dealt with trade, war, and especially colonial expansion. Still, international trade was risky and costly. To send a fleet of ships across the ocean, and pay and feed a crew, was financial gamble few individuals could take. During the Age of Exploration, a successful voyage promised merchants great profits. But if the ships sank or if nothing useful was found, you lost all your money. If only there were a way to share that risk with others…
Joint-stock companies were the answer. Ownership of a joint-stock company was shared by several investors—they simply split initial costs and shared the profits. High-risk, high-profit business ventures became more common. Yes, they could still fail, but joint-stock companies minimized individual losses. The company basically became a separate thing so that no one person took on a huge burden. Soon, stock markets emerged, making it easy to buy and sell shares in a company. For better or for worse, a much larger segment of the population were now traders.
Strictly speaking, joint-stock companies were not new, since we know they were used in the Song Dynasty in China around 1000 CE. They were also around in a different form in the Muslim World. But in the sixteenth and seventeenth centuries, the joint-stock model really took off on a more international scale, starting in Europe.
Imperialism as a private business may sound strange, but joint-stock companies were often able to fund colonizing projects better than governments. Running an empire was not cheap, since travel and administration costs really added up. So when it came to building overseas empires, joint-stock companies were the way to go. Among the wealthiest were the British East India Company and the Dutch East India Company. These were companies, not governments, yet they performed colonial administration in India on behalf of the British and the Dutch. Many joint-stock companies also invested in the risky, but very profitable, trade in human beings. By the eighteenth century, the Atlantic slave trade was a business supported by investors, banks, and insurance—all the components of capitalism.
Business was booming, at least for Europeans. In a world that used to be just a few rich people and a whole lot of poor people, middle classes began to emerge, particularly in Europe. This had a lot to do with the rise of the merchant class, who were able to generate wealth through trade.
As the middle classes gained power, they also started talking to each other and trying to gain more political power. Enlightenment ideas were swirling around, and more people felt a sense of national belonging, which only grew as national wealth grew. All this led to a new social and political environment during the seventeenth and early eighteenth centuries.
It was in this context that capitalism really began to dominate the economies of European countries, their overseas empires, and their trading networks. That's why Enlightenment philosophers were able to describe that system comprehensively—because it was thriving even before the Industrial Revolution. But what did this shift look like on the ground by 1750? As trade expanded, some joint-stock companies and individuals acted as capitalists. They hired people who had been peasants, but who now became wage laborers, meaning they had to sell their labor to survive. Capitalists also bought their tools, farms, mines, and buildings. By putting those things together with labor, they could produce things on a large scale, and then sell them for a profit. A profit they didn't have to share with their workers.
All of that money could then be re-invested in the business, including sponsoring innovations like new machines and technologies that could make stuff even faster. Which brings us—and capitalism—to the Industrial Revolution.
Author bio
The author of this article is Eman M. Elshaikh. She is a writer, researcher, and teacher who has taught K-12 and undergraduates in the United States and in the Middle East. She teaches writing at the University of Chicago, where she also completed her master’s in social sciences and is currently pursuing her PhD. She was previously a World History Fellow at Khan Academy, where she worked closely with the College Board to develop curriculum for AP World History.
Transitions To Capitalism In Early Modern Europe: Economies In The Era Of Early Globalization, c. 1450 – c. 1820. Robert S. DuPlessis. Swarthmore College, rduples1@swarthmore.edu. Follow this and additional works at: https://works.swarthmore.edu/fac-history. Part of the History Commons. Let us know how access to these works benefits you.
- Robert S. DuPlessis
- 2019
People also ask
How did capitalism change Europe in the 17th and 18th centuries?
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Why did Western Europe grow so much during the 16th and 17th centuries?
The major fact we document is that the differential growth of Western Europe dur-ing the 16th, 17th, 18th and early 19th centuries is almost entirely accounted for by the differential growth of nations with access to the Atlantic and of Atlantic traders.
Sep 19, 2019 · The Cambridge History of Capitalism, vol. I, reveals the wide variety of definitions of capitalism and approaches to its history, though it is disappointingly incomplete on medieval and early modern Europe.
Cite. Type. Chapter. Information. Transitions to Capitalism in Early Modern Europe. Economies in the Era of Early Globalization, c. 1450 – c. 1820. , pp. 179 - 348. DOI: https://doi.org/10.1017/9781108278072.019. Publisher: Cambridge University Press. Print publication year: 2019. Access options.
What conditions are necessary for the prosperity of capitalism? What was it about Britain, and Europe as a whole, that provided fertile ground for its growth? ‘Where did capitalism come from?’ argues that capitalism is a European phenomenon. It was the breakthrough of capitalism in the 18th century that made 19th-century industrialism possible.
