Poor capitalism! It is blamed for every ill and injustice in the world, and the leading capitalist nation, the United States of America, is hated by nations and reviled by individuals (many of whom should know better), throughout the world.
But let us stand back a little and look at the history of this economic system. Where did it start? Why is it so successful? Why did it make the Anglo-Saxons so rich and powerful ? Is it going to die anytime soon? Indeed, is it already in its last death throes, or just suffering from an excess of flatulence?
The Birth of Modern Capitalism
Although the English like to take credit for the invention of modern capitalism, it first blossomed in Holland in the seventeenth century. Its growth there can be attributed to the change of mind-set created by the Protestant reformation, particularly that of the Calvinist Church. Firstly, Protestantism removed the stigma which the Catholic Church had traditionally attached to money- lending. Secondly, the Calvinist doctrine taught that self-indulgence was a vice and thrift was a virtue (which seems somewhat surreal when we look at today's consumer society.) It also managed to suggest that being wealthy was a sign of virtue. So, what were you supposed to do with your pile of money? Answer: Put it to good use, of course. Invest it to make more!
This, then, is the basis of capitalism. It is a system whereby people with money can pool their capital with that of others to help fund a business or enterprise. That is, investors buy stocks or shares in a company with the expectation of receiving a portion of the profits should that enterprise be a success. (Investors always prefer to ignore what will happen if the enterprise is a failure). These stocks can themselves be bought and sold, and with a bit of luck, more money can be made in the transactions.
Thus seventeenth century Holland saw the first modern joint stock companies. Holland also saw the first stock market madness and crash. Rare tulip bulbs had become the fashion. Their prices shot up. People mortgaged their houses to buy and trade tulips. Then in 1637 the price of tulips crashed and fortunes were lost. (Does this sound familiar? Do you remember the "Dot Com" bubble?). In spite of such setbacks, Holland became a rich trading nation, with 10,000 ships, an upwardly mobile and liberal society, a large immigrant population, and universities which were the envy of the world.
Goldilocks Country
Unfortunately for Holland, being part of mainland Europe, it was constantly threatened by France and Spain. Gradually, economic power shifted to Britain, which has the advantage of being an island, and therefore more difficult to invade. Walter Mead, in his book "God and Gold - Britain, America and the Making of the Modern World," describes Britain as a "Goldilocks Country". It was not too big (so it would not split into regional factions); not too small (so it could support the new industries of the industrial revolution); not too close to Europe; not too far away. It had open shipping lanes to the world, in contrast to Venice which was trapped in the Mediterranean. It was a fertile, stable country in which capitalism and innovation could steadily amass productive and financial resources. In 1688 a fifty year power struggle between the monarchy and parliament ended with the king stripped of absolute power and the national coffers under the control of Parliament.
How to win wars when you are small and weak
Although protected from invasion by the English Channel, 18th Century England was not immune to the wars of Europe. Yet despite being small with few natural resources, England was able to defeat the great powers of France and Spain. The secret weapon was the Bank of England which was set up in 1694 to finance wars against France's Louis XIV. Over the following years and wars the debt grew and grew. Britons were also very heavily taxed. Observers were convinced that the country would become bankrupt. But, perversely, the opposite occurred. The country actually became richer. Why? Because the people had confidence in the legitimacy of their government and in their bank. The debts of the government became the assets of the bank. The system worked because everyone trusted that it would. Rich merchants lent money to the bank with the knowledge that they would receive interest and that their capital would be safe.
While Napoleon sought, and ultimately failed, to build an empire by invading neighbouring countries with huge armies, Britain succeeded in making an empire by controlling more abstract, but very important things: trade routes, market share, the financial markets and the strategic relationships between nations. The British Empire, which at its peak covered more than a quarter of the world's land area and population, was acquired mainly through trade (with occasional help provided by the power of the gun). Trade was in such commodities as cotton, tea..... slaves, and opium.
World Vision
Scholars have focused on two Anglo-Saxon cultural influences on the shaping of modern capitalism. The first is Individualism. In essence this is the belief that the rights of individuals are ultimately more important than the rights of any larger social or political group. At its best, individualism has given us the Universal Declaration of Human Rights. At its worst, it has fostered selfish, "me first and the Devil take the hindmost!" attitudes.
The second influence shaping capitalism is the optimistic idea that the world is built in such a way that order and progress emerge naturally through a process of continuing change. Natural forces are at work: competition, market forces, natural selection, freedom of choice, the "invisible hand of God," even democracy, somehow guide us in the right direction.
The 20th century's great capitalist power, the US, continues to promote this optimistic vision of a changing world heading towards a better future. What does the 21st century have in store?
Is Capitalism dying?
Human beings are greedy speculators and terrible statisticians. We will happily spend two Euros on a Euromillion lottery ticket, where the chance of winning is one in 76 million, yet we find it difficult to bet two Euros to win fifty cents having a 50% chance. We're not likely to change in this respect. We will continue to make our wild bets and speculative investments.
The present world-wide banking crisis is born of distrust. Innovation created new, badly regulated ways of trading debt. The regulations will be fixed, but trust and confidence have been lost. Let us hope that confidence can be restored. Whatever our political leanings, the alternative is unthinkable.
So I am not going to think about the alternative. Let us dream an optimistic capitalist's dream. Every day people think up crazy ideas to end our reliance on fossil fuel energy. One day someone will think of an idea which works. On that day someone else with capital will invest in that idea. Others will follow and the world will change (just a little bit) for the better, through the process of capitalism.
Chris Betterton-Jones
