What Caused Capitalism?

Once upon a time, smart people thought the world was flat. As globalization took off, economists pointed to spreading market forces that allowed consumers to buy similar things for the same prices around the world. Others invoked the expansion of liberalism and democracy after the Cold War. For a while, it seemed as if the West’s political and economic ways really had won out.

But the euphoric days of flat talk now seem like a bygone era, replaced by gloom and anxiety. The economic shock of 2008, the United States’ political paralysis, Europe’s financial quagmires, the dashed dreams of the Arab Spring, and the specter of competition from illiberal capitalist countries such as China have doused enthusiasm about the West’s destiny. Once seen as a model for “the rest,” the West is now in question. Even the erstwhile booster Francis Fukuyama has seen the dark, warning in his recent two-volume history of political order that the future may not lie with the places that brought the world liberalism and democracy in the past. Recent bestsellers, such as Daron Acemoglu and James Robinson’s Why Nations Failand Thomas Piketty’s Capital in the Twenty-first Century, capture the pessimistic Zeitgeist. So does a map produced in 2012 by the McKinsey Global Institute, which plots the movement of the world’s economic center of gravity out of China in the year 1, barely reaching Greenland by 1950 (the closest it ever got to New York), and now veering back to where it began.

It was only a matter of time before this Sturm und Drang affected the genteel world of historians. Since the future seems up for grabs, so is the past. Chances are, if a historian’s narrative of the European miracle and the rise of capitalism is upbeat, the prognosis for the West will be good, whereas if the tale is not so triumphal, the forecast will be more ominous. A recent spate of books about the history of global capitalism gives readers the spectrum. The Cambridge History of Capitalism, a two-volume anthology edited by two distinguished economic historians, Larry Neal and Jeffrey Williamson, presents readers with a window into the deep origins of capitalism. Joel Mokyr’s The Enlightened Economy explains how capitalism broke free in a remote corner of western Europe. And in Empire of Cotton, Sven Beckert, a leading global historian, offers a darker story of capitalism, born of worldwide empire and violence.

WESTWARD HO!

The conventional narrative of the making of the world economy is internalist—that is, that it sprang up organically from within the West. The story goes like this: after the Neolithic Revolution, the global shift from hunting and gathering to agriculture that occurred around 10,000 BC, the various corners of the globe settled into roughly similar standards of living. From China to Mexico, the average person was more or less equal in height (five feet to five feet six inches) and life expectancy (30 to 35 years). Societies differed in their engineering feats, forms of rule, and belief systems. But on the economic front, they boasted common achievements: advanced metallurgy, big walls, and huge pyramids.

If there were tragedies, they entailed plagues and blights more than man-made catastrophes. This is not to say that the Mongol conquest of Baghdad in 1258 was polite; of the city’s one million people, more than 200,000 were killed, and the Tigris is said to have run red with blood. But horrific episodes such as this did not determine social well-being, measured as income per person over the long run. That figure remained remarkably constant until about 1500. In this sense, the world was flat. About this portrait, there is consensus.Some say that groups of Europeans began to be rewarded for the improved productivity that stemmed from their individualistic habits. Others argue that Europeans stumbled on the right balance of good governance and benevolent self-interest.

Where there is debate is over what came next. Some say that groups of Europeans, especially northern Protestants, began to be rewarded for the improved productivity that stemmed from their individualistic habits. Others argue that Europeans stumbled on the right balance of good governance and benevolent self-interest. Either way, late-medieval Europeans found the formula for success, banked on it, and turned it into what, by the nineteenth century, would be known as capitalism.

Internalists argue that capitalism was born European, or more specifically British, and then became global. A system of interconnected parts and peoples, it radiated out from a few original hot spots and over time replaced the “isms” it encountered elsewhere. “Replace” is actually a bland way of putting it. Champions of capitalism would say “liberate.” Marxists would call it a “conquest.” But the story line is the same: Europe exported its invention to the rest of the world and in so doing created globalization.

CAPITALISM RISING

The internalist story remains the most familiar way of explaining the breakout from the long post-Neolithic durée. The Cambridge History of Capitalism goes so far as to argue that elements of capitalism have existed since prehistoric times and were scattered all over the planet; the traits of the individual optimizer were sown into our DNA. Clay tablets recording legal transactions with numbers offer proof of some Mesopotamian capitalist plying his wares. Relics of trading centers in Central Asia trace the primitive optimizer to the steppes. True, for millennia, capitalists were uncoordinated, fragile, and vulnerable. But the origins of capitalism go as far back as archeologists have found remnants of organized market activity. As Neal explains in his introduction, “The current world economy has been a long time in the making.”

In this rendering, the survival of capitalists is a bit like that of early Christians: often in doubt. Just as Christians had to make Christendom, imperiled and scattered capitalists had to defeat predatory rulers and rent-seeking institutions in order to make capitalism. In The Cambridge History of Capitalism, it was the Italian city-states that first departed from the old order. Although they were vulnerable to rivals and tended to favor oligopolies, these polities laid the groundwork of institutions and norms that in the fifteenth century would pass to mercantile states of the Atlantic—Spain and Portugal—and then the Netherlands, France, and England. Freed from a Mediterranean Sea crowded with Ottoman fleets and North African corsairs, the Atlantic