Login *:
Password *:


9-08-2015, 15:40

Capitalism, economic theory, and population growth

Economists and economic theorists began to emphasize the powerful role of capitalism in the eighteenth century. In the same way that Vasari saw Italian artists of his own era as taking art to levels it had never before achieved, the Scottish economist Adam Smith (1723–90), in Inquiry into the Nature and Causes of the Wealth of Nations (1776), saw recent developments as offering great possibilities for economic growth. For Smith, people had a natural tendency to trade with one another. This inclination led to the specialization of labor, as fi rst individuals, then groups, then regions, and ultimately nations, concentrated on products and tasks that they could produce or carry out better than their neighbors. The highest level of development, production, and innovation, the greatest “wealth of nations,” would best be achieved by allowing free trade and open competition in both products and labor, an economic system later called capitalism, though Smith himself did not use this word. Economic theorists since Smith have also seen capitalism as a powerful system that became increasingly dominant in the European economy during the early modern period. The German philosopher Karl Marx (1818–83) agreed with Smith that capitalism promoted economic growth, though he saw the origins of that growth not in free exchange, but in an unequal relationship between workers (the “proletariat”) and the entrepreneurs who employed them and who owned the raw materials and equipment (the “means of production”). In Marx’s view, the wages paid to the workers are always less than the value of the goods they produce, and the difference between the two is the profi t, which fl ows to the entrepreneurs who organize production and handle trade, not to the workers themselves. In an economy dominated by noble landlords, excess profi t went largely into consumption : buying fancy houses, clothing, or other goods; in a capitalist economy, some or most of the profi ts were invested in productive enterprises designed to make still more profi t. The development of capitalism was slow, uneven, and complicated. It involved changes in the organization of production and the handling of money, and also an increase in the amount of goods manufactured, bought, and sold. This expansion of the European economy was driven in part by a growth in population. Population statistics before the advent of regular registrations of births, baptisms, marriages, and deaths are sketchy, but many demographers set the population of Europe at about 80 million in 1300. Famine, plague, and other diseases killed off at least a quarter of the population in the next century, but by about 1500 it had climbed again to pre-plague levels and over the next century it climbed gradually to about 100 million. Rulers and their offi cials regarded the growth in population as a good thing, for more people offered the possibility of greater economic and military power.


Why would investors and entrepreneurs want to make more money than they needed to live well? Luther and other clerical commentators attributed this to greed, one of the seven deadly sins and thus part of basic human nature. The German sociologist Max Weber (1864–1920), noting that capitalist forms of production developed more quickly and vigorously in Protestant, especially Calvinist, areas, saw a causal link between the two. In The Protestant Ethic and the Spirit of Capitalism, fi rst published in 1904–5, Weber argued that anxiety about predestination led Calvinists to search for signs that they were among the “elect” chosen for salvation; they came to believe that hard work in one’s chosen vocation (a word that comes from the Latin word for “calling,” and implies that God or nature has called one to this particular line of work), proper moral conduct, and a disciplined, ascetic lifestyle could serve as such signs. This “Protestant ethic” made business activities and the maximization of profi t morally legitimate, and a way to honor God, particularly if they were accompanied by restricting one’s consumption. The “Weber thesis,” as this line of argument has come to be called, has provoked a century of debate among historians, who point to fi fteenth-century Italian Catholic merchants who began every ledger “in the name of God and of profi t,” and seventeenth-century Dutch Calvinists who spent money lavishly on paintings, books, and tulips. They note that if there is a correlation between Calvinism and business success, it might better be explained by greater opportunities for schooling often available in Protestant areas, or the fact that some Calvinists were refugees or religious minorities enmeshed in close networks that could serve as business connections. Some contemporary economists have pointed to the importance of what they term “cultural factors” in explaining economic growth, however. These include “the desire to achieve,” respect for property rights, and effective law enforcement, all values that Calvinists, and their English and American successors, the Puritans, fi rmly supported. The rising population brought problems as well as opportunities, however. The demand for food increased, leading to a sharp rise in food prices, especially the price of grain, which increased between four- and sevenfold across Europe during the period from 1450 to 1620. Prices of fi rewood and charcoal also rose, as people chopped down trees for fuel or to increase the amount of land under the plow. Forests contracted sharply in size, and new land was created as coastal areas and marshes were diked and drained. The hardest hit by rising prices were those who had to buy all or most of their food, especially the urban and rural poor; this led to bread riots and other types of violence. In 1497, a crowd of poor people in Florence attacked the city’s public granary, provoking a riot in which some of them were trampled or crushed to death. In 1585, the city council in Naples ordered that the standard loaf of bread would be smaller but cost the same, a common practice in cities during times of shortage. A mob seized one of the council members – who was also suspected of speculating on grain prices – killed him, mutilated his corpse, and sacked his house. Crowds did not regularly kill offi cials, but they often rioted, seizing grain, fl our, or bread and then selling it at what they regarded as a “just” – that is, lower – price. Governments, private groups such as guilds and trading companies, and even the church often attempted to shape economic growth by imposing tariffs and taxes, setting wage rates, establishing monopolies, and passing other sorts of regulations. National governments attempted to build up their own industries by setting high tariffs on imported manufactured goods and promoting exports. Government actions to ensure a positive balance of trade were part of an economic doctrine later called “ mercantilism,” which was predominant in Europe from the sixteenth through the eighteenth century. Mercantalists saw the amount of trade and production as fi xed, so their policies were directed at grabbing a bigger piece of the pie, and then taxing it and defending it, by force if necessary. Government and personal responses to rising prices generally made things worse. Governments devalued coins, which meant they minted coins with less precious metal content – either by making smaller coins or by mixing precious metals with other metal such as lead – but this only drove prices up faster as people demanded more of the devalued coins for any purchase. Merchants and millers hoarded grain and fl our in hopes of greater profi ts to come, which drove prices up further, and cities and nations prohibited the export of food, which often kept food from where it was especially needed. Most famines in Europe were quite localized: one valley might have too little rain, while the next one was fi ne, or one village might experience especially devastating hailstorms right at harvest-time, which missed neighboring villages. The increasing population meant there was no shortage of tenants, and landowners raised fees, fi nes, and rents; rents on land in England may have increased as much as ninefold between 1510 and 1640, while grain prices went up fourfold. Rural rebellions such as the German Peasants’ War (1524–5) or Kett’s Rebellion in England (1549) combined religious demands with those for a rollback to earlier levels of rent or fees, and iconoclastic riots in the cities of the Netherlands often occurred in years of sharp upturns in the price of grain. There was also no shortage of workers, especially those who had little specialized training, so that wages increased much more slowly than food prices or rent, and real wages declined. In eastern Europe, as we will see in more detail below, landlords increased rents and labor services, and eventually reintroduced serfdom, as they sought ways to take advantage of rising grain prices. Wages increased more slowly than prices for manufactured goods, and enterprising investors saw the opportunity for enhanced profi ts in manufacturing. They developed new forms of capitalist organization for the production of goods, hiring families of workers while retaining ownership of the raw materials, tools, and fi nished products. The fulling mill that so threatened Don Quixote was one example of this. Some of these merchant-entrepreneurs were able to profi t from the enormous amounts of gold and silver coming into Europe from the Americas. This infl ux of precious metals drove down the value of coinage, which was made from gold and silver, the same way that an increase in the supply of any commodity reduces its price. The long period of prices increases, which economic historians label the “price revolution,” enhanced the wealth and power of long-standing elites, such as eastern European noble landholders, and of relative newcomers, such as western European merchant- entrepreneurs. Trade, production, and population growth are all important factors in explaining Europe’s economic expansion. In the early modern period, however, that expansion did not change the fact that the vast majority of Europeans lived in rural villages, growing crops and raising animals for their own use, for the use of their landlords, and for sale. In 1450, about one out of every twenty Europeans lived in a town or city with more than 10,000 inhabitants; by 1800, that proportion had only climbed to about one out of every ten. There were places, such as the Netherlands, where by 1800 three out of every ten people lived in cities, but these were offset by Scandinavia, northern Spain, and eastern Europe, where there were almost no cities at all. Thus any discussion of the European economy must begin in the countryside.