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12.1 Introduction

12.2 Capital

12.3 Capitalism

12.4 Capitalist Industrialization

12.5 Industrial Revolution

12.6 Theories for the Emergence of Capitalism

12.6.1 Adam Smith
12.6.2 Karl Marx
12.6.3 The Theory of Proto-Industrialization
12.6.4 Immanuel Wallerstein

12.7 Different Paths to Industrialization: Britain, France and Germany

12.8 Agriculture and Industrialization: Britain, France and Germany

12.9 The Capitalist Entrepreneur

12.10 Bourgeois Culture

12.11 Summary

12.12 Exercises


Even as you have read about the advent of capitalism in the form of commercial capitalism in Unit 11, it was in the phase of industrial capitalization that capitalism is said to have achieved its classical form. It is in this context that a brief discussion of the terms like capitalism, capital, capitalist industrialization and industrial revolution has been provided in this Unit. A brief survey of the theories of the emergence of capitalism has been made along with a detailed discussion of capitalist industrialization in different countries of Europe which also took different paths.

Definitions of capitalism are legion, contentious, and give rise to disparate and often incompatible explanations of economic history. This is because capitalism is a historical phenomenon. To say this is more than a truism. It implies that capitalism grew over a long period of time. Consequently, historians differ as to the point in time where the phenomenon may be reasonably said to exist. Some scholars take an expansive view, beginning their story in classical antiquity and encompassing all manifestations of profit-seeking trade, investment, and production. Others focus much more narrowly, whether by equating capitalism with a single quality – such as competition, markets, the predominance of money in exchange – or by identifying this form of economic structure with modern factory industrialization as originally exemplified by England during the Industrial Revolution.

A capitalist system implies, in the first place, that property is predominantly in private hands and the allocation of goods, services, and factors of production (land, labour and capital) is made mainly through market mechanisms, with capitalists responding
22 to profit signals, workers to wage incentives, and consumers to prices. In the second

place, capitalist economies are highly capitalised. Their stocks of physical capital, education and knowledge are large relative to their income flow and huge when compared with pre-capitalist societies. This is because the most striking characteristic of capitalist performance has been a sustained (although not continuous) upward thrust in productivity and real income per head, which was achieved by a combination of innovation and accumulation. In this respect, capitalism is very different from earlier modes of production or social orders whose property and other social institutions were oriented to preserve equilibrium and were less able to afford the risks of change.

Historically, the rise of this new economic system was a complex and pervasive process, eventually involving nearly every facet of economic life throughout Europe. It was also protracted, stretching across the entire early modern period. The development of capitalism entailed a revolution in economic relations, institutions, and attitudes; on occasion it involved violence on the part of proponents and opponents alike; and it gave birth to new social classes. None of this occurred quickly or abruptly, however. The novel form of production grew up within the old, gradually supplanting rather than suddenly and dramatically overthrowing it. Hence its date of birth and critical moments of maturation are difficult to specify. Nor was the advance of capitalism steady or uniform. On the contrary, it was a decidedly uneven procedure, one that suffered disruptions, crises, even reversals. The process unfolded in disparate fashion across nations, regions and sectors of the economy; even within the same industry or farming district capitalist and non-capitalist methods might be found cheek by jowl.

Despite the many difficulties of periodization and causal explanation, there is agreement among historians of capitalism about certain features of this history.Among these agreed-upon features are the following: The expanding market economies of medieval Europe, with various institutional accompaniments (such as the development of cities, merchant houses, and guilds) were the foundation on which later capitalism developed. Somewhere in the late Middle Ages the economic centre of Europe shifted from the Mediterranean littoral to Northern Europe, a shift that became further stabilized in the early modern period, with its first focus in Holland and a second (decisive) focus in England. Modern capitalism first became stabilized between the sixteenth and eighteenth centuries. But a decisive leap forward came in the nineteenth century, first in England, with the merging of a capitalist economy with the immense technological power released by the Industrial Revolution. The modern capitalist world system became established by the end of the nineteenth century and consolidated itself in the twentieth century.


Strictly speaking capitalism is a term denoting a mode of production in which capital in its various forms is the principal means of production. The term ‘capital’ (capitale, from the Latin word caput for ‘head’) first emerged in the twelfth and thirteenth centuries, denoting stocks of merchandise, sums of money, and money carrying interest. Fernand Braudel quotes a sermon of St. Bernardino of Siena (1380-
1444), who refers (in translation from the Latin) to ‘that prolific cause of wealth we commonly call capital’ (capitale). The term came to denote, more narrowly, the money wealth of a firm or a merchant. In the eighteenth century it gained common usage in this narrower sense, especially referring to productive capital. The noun
‘capitalist’ probably dates from the mid-seventeenth century, to refer to owners of


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In everyday speech now, the word ‘capital’ is generally used to describe an asset owned by an individual as wealth. Capital might then denote a sum of money to be invested in order to secure a rate of return, or it might denote the investment itself: a financial instrument, or stocks and shares representing titles to means of production, or the physical means of production themselves. Depending on the nature of the capital, the rate of return to which the owner has a legal right is either an interest payment or a claim on profits. Capital is an asset which can generate an income flow for its owner.

Two corollaries of this understanding are, first, that it applies to every sort of society, in the past, in the present and in the future, and is specific to none; and second, that it posits the possibility that inanimate objects are productive in the sense of generating an income flow. This is the neo-classical conception of capital. It exemplifies what has become known as fetishism, or the process in which men project upon outside or inanimate objects, upon reified abstractions, these powers which are actually their own. As Paul Sweezy, a critic of such economic theories argued, ‘Since profit is calculated as a return on total capital, the idea inevitably arises that capital as such is in some way productive’. So a ‘quantity of capital’ is postulated and this rather than human labour is attributed with the power of producing wealth.

The Marxist concept of capital is based on a denial of these two corollaries. First, capital is something which in its generality is quite specific to capitalism. While capital predates capitalism, in capitalist society the production of capital predominates, and dominates every other sort of production. Capital cannot be understood apart from capitalist relations of production. Indeed, capital is not a thing at all, but a social relation which appears in the form of a thing. Although capital is undoubtedly about making money, the assets which ‘make’money embody a particular relation between those who have money and those who do not, such that not only is money ‘made’, but also the private property relations which engender such a process are themselves continually reproduced.


Capital is accordingly a complex category, not amenable to a simple definition, and the major part of Marx’s writings was devoted to exploring its ramifications. Whatever the asset form of capital itself, however, it is the private ownership of capital in the hands of a class – the class of capitalists to the exclusion of the mass of the population
– which is a central feature of capitalism as a mode of production. Only Marxists have consistently sought to integrate in a single theoretical construction the economic, social, political and cultural dimensions of the capitalist phenomenon. Neither Max Weber nor Joseph Schumpeter, nor Friedrich von Hayek, all of whom attempted to construct non-Marxist frameworks to understand capitalism, succeeded in supplying a satisfactory framework. Weber’s intellectual enterprise was essentially one of comparative history, designed to uncover the roots of the unique Western development of what he called ‘modern rationality’, which was intrinsic to the capitalist system. Schumpeter remained essentially an economist and his most durable contributions have remained in economics, for example, his theory of the economic role of entrepreneurship. Hayek made some highly astute observations about the relation of capitalism to various other phenomena in modern society, such as democracy and the rule of law, but he never set out to construct a comprehensive theory embracing all these relationships.

The term ‘capitalism’ is more recent than ‘capitalist.’ Adam Smith, commonly regarded as the classical theorist of capitalism, did not use the term at all; he described

what he regarded as the natural system of liberty. It became common only after the publication of Werner Sombart’s magnum opus (Der moderne Kapitalismus, Munich, 1928 [1902]) and by then was generally seen as the opposite of socialism.

The word ‘capitalism’ is rarely used by non-Marxist schools of economics. Even in Marxist writings it is a late arrival. Marx, while he uses the adjective ‘capitalistic,’ does not use capitalism as a noun either in The Communist Manifesto or in Capital vol. 1. Only in 1877, in his correspondence with Russian followers, did he use it in a discussion of the problem of Russia’s transition to capitalism. This reluctance to employ the word may have been due to its relative modernity in Marx’s day. The Oxford English Dictionary cites its first use (by William Makepeace Thackeray) as late as 1854.

Controversies concerning the origins and periodization of capitalism arise from the tendency to emphasise one out of many features which can be said to characterize the capitalist mode of production. Capitalism can be said to be characterized by,

1) Production for sale rather than own use by numerous producers. This contrasts with simple commodity production.

2) A market where labour power too is a commodity and is bought and sold, the mode of exchange being money wages for a period of time (time rate) or for a specified task (piece rate). The existence of a market for labour contrasts with its absence in either slavery or serfdom.

3) The predominant if not universal mediation of exchange by the use of money.
This aspect accentuates the importance of banks and other financial intermediary institutions. The actual incidence of barter is limited.

4) The capitalist or his managerial agent controls the production (labour) process.
This implies control not only over hiring and firing workers but also over the choice of techniques, the output mix, the work environment, and the arrangements for selling the output. The contrast here is with the putting-out system or with alternative modern proto-socialist forms such as the co-operative, the worker-managed firm, worker-owned and/or state-owned firms.

5) Control by the capitalist or the manager of financial decisions. The universal use of money and credit facilitates the use of other people’s resources to finance accumulation. Under capitalism, this implies the power of the capitalist entrepreneur to incur debts or float shares or mortgage capital assets to raise finance. The contrast here would be with central financial control by a planning authority.

6) There is competition between capitals. The control of individual capitalists over the labour process and over the financial structure is modified by its constant operation in an environment of competition with other capitals either producing the same commodity or a near-substitute, or just fighting for markets or loans. This increasing competition forces the capitalist to adopt new techniques and practices which will cut costs, and to accumulate to make possible the purchase of improved machinery. This competition strengthens the tendency towards concentration of capital in large firms. It is to neutralize competition that monopolies and cartels emerge.


Capitalism is the first stage in the history of the world to coincide with the phenomenon of industrialization in its full-blown form. Together, the new economic institutions and


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the new technology (in Marxist terms, the relations and the means of production) transformed the world. Technical progress is the most essential characteristic of capitalist advance, but it is also one that is most difficult to quantify or explain. This is because its effects are diffused throughout the growth process in a myriad ways. It augments the quality of natural resources and labour power (human capital) and has an impact on trade. Investment is the major vehicle in which it is embodied, and their respective roles are closely interactive. There is no doubt of its importance in capitalist growth, or the contrast between its role in capitalist and pre-capitalist industry. A major driving force of capitalist industrialization is the strong propensity to risk capital on new techniques that hold promise of improved profits, in strong contrast to the defensive wariness of the pre-capitalist approach to technology.

Some scholars regard the application of science to industry as the distinguishing characteristic of modern industry. Despite its attractiveness, this view has its difficulties. In the eighteenth century dawn of modern industry the body of scientific knowledge was too slender and weak to be applied directly to industrial processes, whatever the intention of its advocates. In fact, it was not until the second half of the nineteenth century, with the flowering of chemical and electrical sciences, that scientific theories provided the foundations for new processes and new industries. It is indisputable, however, that as early as the seventeenth century the methods of science
– in particular, observation and experiment – were being applied (not always successfully) for utilitarian purposes.

Nor were such efforts limited to men of scientific training. Indeed one of the most remarkable features of technical advance in the eighteenth and early nineteenth centuries was the large proportion of major inventions made by ingenious tinkerers, self-taught mechanics and engineers (the word engineer acquired its modern meaning in the eighteenth century) and other autodidacts. In many instances the term experimental method may be too formal and exact to describe the process: trial- and-error may be more apposite. But a willingness to experiment and to innovate penetrated all strata of society, including even the agricultural population, traditionally the most conservative and suspicious of innovation.

The most significant improvements in technology involved the use of machinery and mechanical power to transform tasks that had been done far more slowly and laboriously by human or animal power, or that had not been done at all. To be sure, elementary machines like the wheel, the pulley, and the lever had been used from antiquity, and for centuries humankind had used a fraction of the inanimate powers of nature to propel sailing ships and actuate windmills and waterwheels for rudimentary industrial purposes.

During the eighteenth century, a notable increase in the use of waterpower occurred in industries such as grain milling, textiles, and metallurgy. The most important developments in the application of energy in the early stages of industrialization involved the substitution of coal for wood and charcoal as fuel, and the introduction of the steam engine for use in mining, manufacturing and transportation. Similarly, although metallic ores had been converted into metals for centuries, the use of coal and coke in the smelting process greatly reduced the cost of metals and multiplied their uses, whereas the application of chemical science created a host of new, ‘artificial’ or synthetic materials.

Though the term ‘industrialization’ is absent from the work of Marx and Engels, the concept is clearly present. Marx distinguishes ‘Modern Industry’ or ‘The Factory System’ or ‘The Machinery System’ from earlier forms of capitalist production, co- operation and ‘Manufacture’. Modern industry is distinguished from manufacture

by the central role of machinery: ‘As soon as tools had been converted from being manual implements of man into implements of a mechanical apparatus, of a machine, the motive mechanism also acquired an independent form, entirely emancipated from the restraints of human strength. Thereupon the individual machine sinks into a mere factor in production by machinery’. (Capital, 1, chapter 13, section 1)

In parallel with manufacture, Marx distinguishes two stages in the development of the machinery system. In the first stage, ‘simple co-operation,’ there is only a
‘conglomeration in the factory of similar and simultaneously acting machines’ using a single power source’. In the second stage, a ‘complex system of machinery’, the product goes through a connected series of detailed processes carried out by an interlinked chain of machines. When this complex system is perfected and can carry out the entire process of production with workers only as attendants, it becomes an
‘automatic system of machinery’. (Ibid, chapter 13, Section 1)

The conversion of hand-operated tools into instruments of a machine reduces the worker to a ‘mere’ source of motive power, and as production expands, the limits of human strength necessitate the substitution of a mechanical motive power for human muscles. In the factory system, all the machines are driven by a single ‘motive force’, the steam engine.

In The Unbound Prometheus, David Landes placed technology at the centre of the Industrial Revolution. He introduces this book by listing three areas of material advance that comprised ‘the heart of the Industrial Revolution’. They are

1) The substitution of mechanical devices for human skills;

2) Inanimate power – in particular steam – took the place of human and animal strength;

3) There was a marked improvement in the getting and working of raw materials, especially in what are now known as the metallurgical and chemical industries.

Theodore Hamerow has measured the course of this technological modernization in different European countries by citing the rising number of patents, the capacity of steam engines and their diffusion in production, the concentration of labour in factories and the increase in the efficiency of manufacture by way of rises in output per man- hour.

Maxine Berg has questioned some of the assumptions of these perspectives by pointing out that they reinforce the old ‘technological determinism’ of most accounts of the Industrial Revolution. Landes’ approach, she argued, traced the history of the most ‘progressive’ industries without enquiring into the patterns by which they were adapted within different regions in Europe; Landes did not explore why mechanization occurred faster (and earlier in her industrial history) in the USA than in England; and he had no answer to the question of why French industry found it difficult to adapt to British power and coal-using techniques.

Industrialization has come to be used as a synonym for sustained economic growth. It is said to occur in a given country when output and real incomes per head begin to rise steadily and without apparent limit. Expansion of total output alone, however, is not a sufficient criterion of industrialization since, if population is rising more rapidly than output, it is compatible with declining real incomes per head. Nor can mere abundance of capital and land (which might give rise for a time to growing real incomes per head) produce a growth in the economy which can be described as industrialization if material technology remains unchanged. A country which retains a large, even predominant, agricultural sector may be described as industrialised if real incomes rise and technology changes.


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Associated with industrialization are a number of economic and social changes which follow directly from its defining characteristics. For example, as real incomes rise, the structure of aggregate demand will change, since the income elasticities of demand for the various goods available differ considerably. Again, and partly for the same reason there will be a major, sustained shift of population from the countryside into the city. Whereas there is room for argument about the length and makeup of any list of the concomitants of industrialization, there is near unanimity upon the central identifying characteristic: the rise in real income per head.


Probably no term from the economic historian’s lexicon has been more widely accepted than ‘industrial revolution.’ This is unfortunate because the term itself has no scientific standing and conveys a grossly misleading impression of the nature of economic change. Nevertheless, for more than a century it has been used to denote that period in British history that witnessed the application of mechanically powered machinery in the textile industries, the introduction of James Watt’s steam engine, and the ‘triumph’ of the factory system of production. By analogy, the term has also been applied to the onset of industrialization in other countries, although without general agreement on dates.

The expression revolution industrielle was first used in the 1820s by French writers who, wishing to emphasize the importance of the mechanization of the French cotton industry then taking place in Normandy and the Nord, compared it with the great political revolution of 1789. In 1837, Jerome-Adolphe Blanqui referred to ‘la revolution industrielle’ in England. Contrary to widespread belief, Karl Marx did not use the term in its conventional sense. It acquired general currency only after the publication in 1884 of Arnold Toynbee’s Lectures on the Industrial Revolution in England: Popular Addresses, Notes and Other Fragments. Toynbee dated the British Industrial Revolution from 1760. The dates implicit in Toynbee’s Lectures,
1760-1820, were arbitrarily determined by the reign of George III, on which Toynbee had been invited to lecture. This view went unchallenged for about 50 years, until Professor J.U. Nef stressed the essential continuity of history and traced its beginnings to 1540-1660, with the new capitalistic industries of Elizabethan England.

Early descriptions of the phenomenon emphasized the ‘great inventions’ and the dramatic nature of the changes. As an 1896 textbook put it, ‘The change...was sudden and violent. The great inventions were all made in a comparatively short space of time...’ a description that A.P. Usher dryly characterized as exhibiting ‘all the higher forms of historical inaccuracy.’

Early interpretations also emphasized what were assumed to be the deleterious consequences of the new mode of production. Although increases in productivity as a result of the use of mechanical power and machinery were acknowledged, most accounts stressed the use of child labour, the displacement of traditional skills by machinery, and the unwholesome conditions of the new factory towns. For most of its history, for most people, the term ‘industrial revolution’ has had a pejorative connotation.


The origins of capitalism are traced variously to the growth of merchant capital and
28 external trade or to the spread of monetary transactions within feudalism by the

commuting of feudal rent and services into money. This debate concerns the transition from Feudalism to Capitalism and pertains mainly to Western European experience where capitalism first emerged. Whatever the reasons for its origins, the period from about the fifteenth century to the eighteenth century is generally accepted as the merchant capital phase of capitalism. Overseas trade and colonization carried out by the state-chartered monopolies played a pivotal role in this phase of capitalism in Holland, Spain, Portugal, England and France. The industrial phase of capitalism opened with the upsurge in power-using machinery in the Industrial Revolution in England.

This section will briefly examine theories for the emergence of capitalism advanced by four major thinkers, namely Adam Smith, Karl Marx, Franklin Mendels and the theory of Proto-Industrialization and Immanuel Wallerstein.

12.6.1 Adam Smith

In the model put forward by Adam Smith (1723-90) in An Enquiry into the Nature and Causes of the Wealth of Nations, Book 1, the development of a society’s wealth –equated with the development of the productivity of labour – is a function of the degree of the division of labour. By this Smith simply means the specialization of productive tasks – classically achieved through the separation of agriculture and manufacturing, and their assignment to country and town respectively. The division of labour in industrial production made possible an unprecedented growth in output and productivity. If it was possible to sell this enhanced output over a wide market, then such division would prove profitable, and the profits could be ploughed back into further profitable activity.

For Smith, the degree of specialization is bound up with the degree of development of trade: the degree to which a potentially interdependent, specialized labour force can be – and is – linked up via commercial nexuses. Thus we get Smith’s famous principle that the division of labour is limited by the extent of the market – literally, the size of the area and population linked up via trade relations. For Adam Smith the development of trade and the division of labor unfailingly brought about economic development.

Smith’s argument that the separation of manufacture and agriculture and their allocation to town and country, consequently upon the development of trading connections, will lead to a process of economic growth, as a result of the increased productivity which ‘naturally’ follows from the producers’ concentration on a single line of production rather than a multiplicity of different ones, has a certain plausibility. In locating the growth of wealth in the interaction between division of labour and growth of markets, Smith liberated economics from an agrarian bias such as the Physiocrats had imparted to it, or the narrow commercial bias that the Mercantilists had given it. Surplus did not originate in land alone, nor was the acquisition of treasure (precious metals) any longer the sole or desirable measure of economic prosperity. Thus wealth could take the form of (reproducible) vendible commodities. If the wealth holders then spent it productively in further investment wealth would grow.

The growth of commerce and the growth of liberty mutually determine each other for Smith. Smith and his fellow ‘political economists’ traced the advance of capitalism to the onset of conditions that liberated purportedly inherent human qualities and to the beneficent operation, in market transactions, of an ‘invisible hand’ that brought the common good out of the conflicting self-interest of all individuals. Commerce could be seen as a key to prosperity, but only its unhindered pursuit would secure the maximum prosperity. Commerce, by spreading world-wide and making the


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accumulation of wealth possible in liquid (that is, transportable) form, renders merchants independent of political tyranny and hence increases the chances of the growth of liberty.

12.6.2 Karl Marx

The transition from Feudalism to Capitalism was never a major preoccupation for Marx (1818-83) and Engels. It was nonetheless a problem addressed periodically in discussion of more central themes such as the historical materialist method, the capitalistic mode of production, or class conflict in history.

To Marx, capitalism was powerful and dynamic, a superior form of production that promoted economic growth far above anything possible in feudalism. He attributed its appearance not to the release of natural, unchanging human predispositions but to specific economic, political, and legal measures.

In Marx’s interpretation of the emergence of capitalism two broad perspectives are offered. He first emphasises the corrosive effect upon the feudal system of mercantile activity, the growth of a world market and new expanding cities. Mercantile capitalism, within an autonomous urban sphere, provides the initial dynamic towards capitalism: merchants entered production and employed wage labourers. The second variant, evident especially in Capital, centres on the ‘producer’ and the process whereby the producer (agricultural or in the crafts sector) becomes merchant and capitalist. Marx regards the latter as ‘the really revolutionary path’ to capitalism since this transforms the organisation and techniques of production. This is because mercantile activity (the first variant) may well turn products for use into commodities for exchange, but it does not explain how and why labour power should itself become a commodity. Also, although the merchant path separates the worker from ownership of the product, it retains inherited techniques and social organization of production. It is therefore ultimately conservative. Hence it cannot explain the transition to capitalism.

The primitive (or original) accumulation of capital is a concept developed in Marx’s Capital and Grundrisse to designate that process which generates the preconditions of the ongoing accumulation of capital. In Marx’s words, ‘primitive accumulation is nothing else than the historical process of divorcing the producer from the means of production’. (Capital, 1: 873-5). Marx’s focus is upon how one set of class relations becomes transformed into another. In particular, how it is that a property-less class of wage-labourers, the proletariat, becomes confronted by a class of capitalists who monopolize the means of production.

Many of Marx’s contemporaries saw capital as the result of abstinence and saving, as the original source for accumulation. Marx’s point is that primitive accumulation is not an accumulation in this sense at all. Abstinence can only lead to accumulation if capitalist relations of production, or the polarisation between a class of capitalists and a class of wage-labourers, are already in existence.

Marx argued that since pre-capitalist relations of production are predominantly agricultural, the peasantry having possession of the principal means of production, land, capitalism can only be created by dispossessing the peasantry of the land. Accordingly, the origins of capitalism are to be found in the transformation of relations of production on the land. The freeing of the peasantry from land is the source of wage labourers both for agricultural and industrial capitalism. For Marx the first and foremost effect of the ‘agricultural revolution’ in England was to expropriate the peasant from the soil and establish capitalist agriculture. A new money-oriented nobility and gentry forcibly enclosed demesne, common and waste land, consolidated

small farms into larger ones and at times converted to pasturage. Capitalist farmers grew from a differentiation of the peasantry. Enclosures converted property characterized by shared rights into private property.

The genesis of capitalist agriculture contrasts sharply with the birth of capitalist industry. While agriculture generated both its own capitalists and workers, the urban crafts played a distinctly secondary role in forming either pole of industry. Rather, the agricultural revolution supplied the labourers and merchants advanced much of the money to employ them and shaped markets in which their products were sold.

For Marx, merchants could foster primitive accumulation by usury, crushing artisanal guilds, expanding markets, providing employment or by investing profits. While Marx emphasizes domestic causes of proletarianization, he focuses primarily on international commerce in accounting for the genesis of the industrial capitalist. (Capital, 1, ch. 31) This interpretation stresses the forcefulness, often genocidal, and the unevenness of primitive accumulation. It was through servile labour in the colonies, the slave trade, and commercial wars that the English prospered and replaced the Dutch as the dominant mercantile power by 1700. Government laws, monopolies, taxes and debt assisted the process. Far from the state being a brake on or an enemy of capitalism, Marx held, it was one of its principal progenitors and servants.

12.6.3 The Theory of Proto-Industrialization

The theory of ‘proto-industrialization’ (henceforth PI) actually started with Franklin Mendels’ 1969 dissertation at the University of Wisconsin, ‘Industrialization and Population Pressure in Eighteenth-Century Flanders.’ This was a study of the relatively rapid population growth experienced in an internal region of Flanders, where a peasant population combined agriculture with part-time linen manufacture. Much of the output was sold on overseas markets by entrepreneurs in Ghent and other market towns to distant markets, especially those of the Spanish Empire. The workers, family units of husband, wife and children, usually cultivated small plots of ground as well, although they also bought additional supplies in markets. The term has subsequently been refined and extended in both space and time to other, similar industries. In some instances – for example, the Lancashire cotton industry – it has been seen as the prelude to a fully developed factory system. In others, however, such as the Irish and even the Flemish linen industries, no such transition occurred.

PI had distinctive patterns of development. It generally originated in pastoral regions and declining or large-scale agricultural areas. Scholarship on PI emphasizes interconnections among widening markets, rising populations (especially rural) seeking wage-earning employment, and the search for cheap labour by entrepreneurs. Highlighting rural, household and regional changes, studies of Industrialization before industrialization by Peter Kriedte, Hans Medick and Jurgen Schlumbohm of the Max Planck Institut fur Geschichte in Gottingen in 1981 (but first published in German in 1977) attempted to situate PI within the ‘transition from feudalism to capitalism.’

PI is credited with creating the key changes in the uses of land, labour, capital and entrepreneurship which made the Industrial Revolution possible in the following ways:

1) The generation of supplementary handicraft incomes will lead to an expansion of population, breaking up the self-regulating or homeostatic equilibrium of pre-industrial populations – by this process, the natural rate of growth of population increases but also becomes adjusted to the augmented means of subsistence that are locally available. Accordingly, handicrafts generated the labour supply of the Industrial Revolution.


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2) A region thus experiencing growing population and growing PI will soon begin to encounter diminishing returns as dispersed industry creates difficulties in the collection of output and the control of quality. This will conduce to the concentration of manpower in workshops and then to the use of labour-saving mechanical inventions. In this manner, PI created pressures leading to the factory system and to new technology.

3) As a result of PI development, capital for these workshops or the introduction of machines will accumulate locally in the hands of merchants, commercial farmers or landowners. In this manner, PI is supposed to have led to the accumulation of capital.

4) PI will lead to the accumulation of technical knowledge by merchants as a result of their experience with inter-regional and international trade. In this way it provides ‘a training ground in which the early industrialists were recruited’, and a new supply of entrepreneurs.

5) The simultaneous development of PI and a regional commercial agriculture will prepare the agricultural sector for the task of supplying food during the urbanization which accompanies the subsequent phase of industrialization, that is, PI leads to agricultural surpluses and reduces the price of food.

PI and the related terms refer primarily to consumer goods industries, especially textiles. Well before the advent of the factory system in the cotton industry, however, other large-scale, highly capitalized industries existed, producing capital or intermediate goods, and sometimes even consumer goods. The French manufactures royales were usually located in large factory-like structures where skilled artisans worked under the supervision of a foreman or entrepreneur, but without mechanical power. Similar ‘proto-factories’ were built by noble landowner-entrepreneurs in the Austrian Empire (Bohemia and Moravia) and elsewhere. Large landowners also acted as entrepreneurs in the coal industry, mining the deposits located on their estates. Iron-works, usually located in rural areas near timber (for charcoal) and iron ore, sometimes employed hundreds, even thousands of workers. Lead, copper, and glass-works also frequently had large-scale organizations, as did shipyards. The state-owned Arsenal of Venice, dating from the Middle Ages, was one of the earliest large-scale enterprises in history.

12.6.4 Immanuel Wallerstein

Capitalism was from the beginning, Wallerstein argues, a matter of the world-economy and not of nation states. Capitalism has never allowed its aspirations to be determined by national boundaries. For him, ‘the only kind of social system is a world system, which we define quite simply as a unit with a single division of labour and multiple cultural systems.’ There could be two varieties of such world systems, one with a common political system and one without. These he called, respectively, world- empires and world-economies.

The modern world system, which created a European world economy with an unprecedented structure originated in sixteenth century Europe, during what Braudel called the ‘long sixteenth century’ (1450-1660). The geographical limits of this world- economy, determined largely by the state of technology at the time, included North- West Europe, which became the ‘core’ of the system. Dividing the world into two more elements, Wallerstein placed Eastern Europe (but not Russia) and Spanish America at the ‘periphery’, while the Mediterranean littoral (Spain and the Northern Italian city-states) became a ‘semi-periphery’.

How did the European world-economy operate? The core areas had mass market industries, international and local commerce in the hands of an indigenous bourgeoisie, and, relatively advanced and complex forms of agriculture. The peripheral areas were mono-cultural, with the cash crops produced on large estates by coerced labour. The semi-peripheral areas were in the process of de-industrializing, although they still retained some share in international banking and high-cost, quality industrial production. The form of agricultural labour control used there was mostly share- cropping, a form that was intermediate between the freedom of the lease system and the coercion of slavery and serfdom.

This world was comprised of a multitude of political entities. In the core states relatively strong state systems emerged with an absolute monarch and a patrimonial state bureaucracy. By contrast, the critical feature of the periphery was the absence of a strong state. The semi-periphery was, once again, in between in its polity. By the end of the sixteenth century the decline of state authority was clear in Spain and in the large city-states of north Italy.

The essential feature of a capitalist world economy is production for sale in a market in which the object is to realise the maximum profit. In such a system production is constantly expanded as long as further production is profitable, and men constantly innovate new ways of producing things that will expand the profit margin.

Wallerstein identified three stages in the development of the world-economy. The first was one of agricultural capitalism, from the sixteenth to the eighteenth century. In this stage wage labour is only one of the modes in which labour is recruited and paid; slavery, ‘coerced cash-crop production’ (his term for the so-called ‘second feudalism’), share cropping and tenancy are all alternative modes. The second stage commenced with the world-wide recession of 1650-1730. In this stage England first ousted the Netherlands from her commercial primacy and then successfully resisted France’s attempt to catch up. It was only in the third stage from the mid- eighteenth century, that capitalism became primarily industrial (rather than agricultural or mercantile). In this stage industrial production represents a constantly growing share of the world’s total production. As importantly too, there is the geographical expansion of the European world-economy to include the entire globe.

Some of the other important theorists in this respect have been Robert Brenner, M.M. Postan and Emmanuel Le Roy Ladourie about whom you have already read in Unit 11.


There have been and are many paths to industrialization between countries. One would expect this from their historical and geographical diversity, with associated differences in the gestation period involved. It is these variations that militate against a non-country specific theory of capitalist industrialization.

Britain’s transition to capitalist industrialization was not at all typical of the European experience. Thus Patrick O’Brien and Caglar Keyder, suggest that the British experience is ‘initial’ rather than ‘normal practice’, especially with regard to the relative size and productivity of agriculture, They state that ‘Economic theory lends no support to assumptions….that there is one definable and optimal path to higher per capita incomes and still less to the implicit notion that this path can be identified with British industrialization as it proceeded from 1780 to 1914’.


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Instead of being presented as the paradigmatic case, the first and most famous instance of economic growth, the British Industrial Revolution is now depicted in a more negative light, as a limited, restricted, piecemeal phenomenon, in which various things did not happen or where, if they did, they had far less effect than as previously supposed. Instead of stressing how much had happened by 1851 (whatever the qualifications), it is now commonplace to note how little had actually altered (whatever the qualifications). Recent research has stressed the gradualness of change when seen from a macroeconomic standpoint and has also been tending to argue that the ‘industrial revolution’ was not merely economic, but social, intellectual and political too. The change in emphasis in historiography has been from national aggregates and sectoral analysis to regional variations and uneven development, from the few large and successful businessmen to the many small and inept entrepreneurs.

Social history has shifted away from analyses of new class formations and consciousness, as characterized by E. P. Thompson and emphasized by J. Foster to identifying continuity between social protest and radicalism between the eighteenth and nineteenth centuries. Then, an influential tendency in the socio-cultural historiography of the 1980s has argued that the British Industrial Revolution was very incomplete (if it existed at all) because the industrial bourgeoisie failed to gain political and economic ascendancy. Economic and political power remained in the hands of the landed aristocracy: ‘Gentlemanly capitalism’ prevailed. The major division in the social and political life of nineteenth century Britain is argued to have been that between the dominant gentlemanly capitalism of the aristocratic and rentier classes, and a subordinate industrial capitalism.

The historiography of the British Industrial Revolution has moved away from viewing the late eighteenth and early nineteenth centuries (particularly 1780-1815) as a unique turning point in economic and social development. For example, A.E. Musson’s survey, The Growth of British Industry criticizes what he regards as ‘the general interpretation presented in most textbooks’, namely that ‘the industrial revolution had taken place by 1850, that the factory system had triumphed.’ He stresses the extent to which consumer goods industries remained handicraft industries, located in small workshops; the degree to which, as shown in the 1851 Census, patterns of employment and occupational structure remained dominated by traditional craftsmen, labourers and domestic servants; and the very slow rate at which factories spread and steam power was diffused. He argues that ‘There are good grounds for regarding the period 1850-1914 as that in which the Industrial Revolution really occurred, on a massive scale, transforming the whole economy and society much more deeply than the earlier changes had done.’

Some historians challenge the broad view of the Industrial Revolution expressed in T.S. Ashton’s memorable phrase, ‘A wave of gadgets swept over England.’Ashton’s view was widespread during the 1950s and 1960s. His critics see the Industrial Revolution as a much narrower phenomenon, as the result of technical change in a few industries, most notably cotton and iron. Crafts wondered whether it was possible that there was virtually no industrial advance during 1760-1850.

Since the 1980s, studies of the Industrial Revolution have borne out its gradual pace of change. New statistics have been produced which illustrate the slow growth of industrial output and gross domestic product. Productivity grew slowly; fixed capital proportions, savings and investment patterns altered only gradually; workers’ living standards and their personal consumption remained largely unaffected before 1830 and were certainly not squeezed.

Research by Williamson, Knick Harley and Feinstein has revealed the fact that Britain passed through a turning point around the 1820s. Growth in National Income was much lower before than after that date. There was a doubling in the growth rate of industrial production too. Feinstein’s estimates of the rate of capital formation shows that it drifts upwards from then, as does the rate of capital accumulation and the growth rate of capital invested per worker employed in industry. The turning point was dramatic in the standard of living. The adult, male, working class real wage failed to increase between 1755 and 1819, but from 1819 to 1851, it rose at an annual rate of 1.85%, according to estimates in 1983 by Lindert and Williamson.

Among the early industrializers, France remains the most aberrant case. That fact gave rise to a large literature devoted to explanations of the supposed ‘backwardness’ or ‘retardation’ of the French economy. The dominant tendency in the Anglo- American literature on modern French economic growth was to treat it in this context. Indeed, in what might be regarded as the founding account of that development, Sir John Clapham went so far as to muse that ‘it might be said that France never went through an industrial revolution.’ What has impressed economic historians as they have looked at nineteenth century France is the failure of some dramatic breakthrough to appear, the absence of a marked acceleration in growth.

Recent new empirical research and theoretical insights have shown that the earlier debates were based on a false premise. In fact, although the pattern of industrialization differed from that of Britain and the early industrializers, the outcome was not less efficient and, in terms of social welfare, may have been more humane. Moreover, when one looks at the patterns of growth of successful late industrializers, it appears that the French pattern may have been more ‘typical’ than the British.

Two factors in the French situation account in large measure for its unjustified reputation for ‘retardation’, namely, the dramatic fall in marital fertility, which reduced the growth rate of the population to less than half that of other major nations; and, the scarcity and high cost of coal, which resulted in a lower output of the heavy industries (iron and steel, in particular) than in other large nations, such as Britain and Germany. Moreover, these two factors in combination help to account for several other features of the French pattern of industrialization, such as the low rate of urbanization, the scale and structure of enterprise, and the sources of industrial energy.

The well-known characteristic of French industrialization was a relatively slow expansion of large-scale capital-intensive forms of production. Investment in the advanced sector proceeded at a leisurely pace, there being no clear acceleration until the 1850s or 1860s and there was a correspondingly limited increase in new employment outlets. In 1851, at the first industrial census, what the French call la grande industrie occupied 1.3 million workers, or less than 25% of the industrial labour force. More in evidence were the ‘proto-industrial’ forms. The persistence of domestic workshops and hand tool methods until at least mid-century, if not beyond, was common to a whole variety of industries, with urban artisans tending to work full-time on the higher quality goods, leaving the less skilled tasks to the peasant- worker. Even in the more mechanized industries, large numbers of mines, iron works, spinning mills and weaving sheds were small by British or German standards, located in isolated rural areas and dependent on labour which continued to work part-time in agriculture.

Unlike Britain or France, capitalist industrialization in Germany had to wait the formation of a well-defined area, a unified Germany, before it could commence. Before the mid-nineteenth century political fragmentation, whether within the Holy Roman Empire or the German Federation, was reinforced by the economic conditions


Capitalism and

of numerous customs barriers, poor communications network, primitive roads and the reduction of economic activity to isolated islands that were separately linked to regional markets. As Sheehan has pointed out, there was nothing particularly German about these economies.

R.C. Trebilcock has argued that the German pattern of development was very different from that of the British ‘prototype’. Britain had faced an industrialization of low cost, a technology of low capital intensity, and had acquired both by recourse mainly to the savings – personal, familial, or local – amassed by entrepreneurs and their thrifty reinvestment of profits. Bank participation was usually employed, at most, in the provision of short-term working capital and rarely in connection with long-term capital formation or share ownership. Banks were, in contrast, more important for German industrialization. Indeed Germany was the principal case of ‘moderate backwardness’ for some scholars, that case in which banks supply crucial financial and entrepreneurial inputs. Unlike Trebilcock, others have found close affinities in the British and German paths of industrialization. Both were concentrated within a relatively brief and clearly marked period of years. Both were based on the classical sectors of coal, iron, engineering, and, to a lesser extent in the German case, textiles. The development of the railways triggered a greater range of ‘backward’ and
‘forward’ linkages in Germany (on the metallurgical and mining industries, the employment structures and the rate of capital formation) than the industry had done in England, at about the same periods of the nineteenth century.

German industrialization was also distinctive on account of the role performed by cartels. Cartels were groups of firm that combined to control prices and markets. They either lined firms making the same range of products or those that engaged in different stages of the production of the same products. They began to emerge from the late 1870s, and in close collaboration with the biggest banks, gave German industry a degree of concentration in the spheres of capital and labour that was unmatched anywhere else except in Imperial Russia. They promoted rapid technical progress, a high rate of capital formation and an unrivalled supremacy in the export of manufactured products.


The contribution of the agricultural sector to British, French and German industrialization has varied in its chronology and content. Agriculture’s contribution in this respect has been broadly assessed on four counts, namely whether it created a food surplus for the non-rural population; whether it helped to widen home and foreign markets; whether it generated capital for industrial investment; and, whether it supplied a labour force for industrial employment.

The features of the so-called ‘agricultural revolution’ in northern Europe tended to be similar: they included the introduction of new crops like artificial grasses or roots, which preserved the soil’s fertility and so abolished the earlier necessity for fallow periods. The earlier three-field system, where each field followed a cycle of wheat or rye, barley or oats, was replaced by a cycle which both eliminated leaving some area fallow and included the cultivation of forage crops. More forage meant that a larger number of livestock could be maintained, which, in turn, produced more organic manure and ensured a higher yield for the crops.

English agriculture became the most productive in Europe during the seventeenth and eighteenth centuries, well before the advent of industrialization. Landlords, who

already by 1700 controlled three-quarters of England’s farm land, contributed to rising output and yields by enclosing land and providing capital. But it is now increasingly recognized that it was not them but tenants and owner-occupiers who were in the forefront of the new land use patterns and technologies. Before about
1960, the standard view on British agricultural change assigned it to the late eighteenth and early nineteenth centuries, during the period of parliamentary enclosures, which were seen as its cause. A few works suggest that that the fastest growth in agricultural output occurred before 1760 and this growth was surpassed (or probably doubled) in 1800-30, as agriculture became more capital-intensive.

The ability of British agriculture to sustain industrialization on an expanded food basis has, however, been questioned. Addressing the phenomenon of ‘A British food puzzle’ in 1995, Huberman and Lindert pointed out that even as per capita income was growing from 1770 to 1850, food supplies per capita stagnated or even declined. This is the food puzzle. To match the demand from rising real incomes, domestic agriculture should have grown, they suggest, by 172%-228% in 1770-
1850. But there was actually little gain in productivity in this period. This implies a decline in living standards since food consumption fell during the period of the British Industrial revolution despite apparently rising real incomes.

French agriculture increased markedly from 1815 to the early 1870s, the period during which rapid, sustained growth was seen to have occurred in both total and per capita agricultural production in all regions of France. It grew steadily and rapidly enough to feed a growing population, a decreasing proportion of which was engaged in agriculture, and to meet the demand for industrial raw materials (barring raw cotton, which was hardly surprising or unique to the case of France). Productivity per unit of capital employed in agriculture increased steadily throughout the nineteenth century.

Annie Moulin has elaborately argued a case for the consequences of the French Revolution having lain not in the creation of a capitalist economy but rather in the consolidation for a century and a half (up to about 1950) of a system of small-scale peasant agriculture based on subsistence and the intensive use of family labour. Over the nineteenth century (1815/24 to 1905/13), productivity per worker employed in French agriculture grew by 0.25% annually, against 1% in Britain. The main reason was apparently that the French economy retained a far higher share of its labour supply in the countryside rather than relocating it to industry. There was a pressure of population on the land and the cultivation of soils of declining fertility. Yields per hectare cultivated in France were around 75% of the British level for most of the nineteenth century.

It has been argued that rural France provided little impetus as a market for industrial goods. Overall, French cultivators saved to buy land rather than manufactured goods. There was, indeed, an enduring autarky in rural France. Until about 1870, notes Eugene Weber, ‘many peasants bought only iron and salt, paid for all else in kind and were paid the same way, husbanded their money for taxes or hoarded it to acquire more land.’ Through most of the nineteenth century, the internal terms of trade moved in favour of agriculture. The French countryside provided relatively few workers for industry; this reflects the fact that a majority of Frenchmen preferred to remain on farms. David Landes cites an estimate that as much as 55% of the labour force was in agriculture in 1789 and this was still true in 1886; by 1950, the proportion had fallen to one-third. Historians like Dunham and Kindleberger have, however, come to the conclusion that French industry had an adequate supply of labour in the nineteenth century.


Capitalism and

The transformation of German agriculture had to await the emancipation of the peasantry. This process started with the legal reforms of 1807-21 and was largely accomplished by 1830 in the western provinces and by 1840 in the eastern provinces. The legislation effected the abolition of seigneurial duties concerning the legal protection of peasants, the removal of burdensome feudal obligations and improved efficiency of production by the use of wage labour. Agricultural production increased more than three-fold during the nineteenth century, while population increased by a factor of 2.3. The share of agricultural employment fell with industrialization. Germany was almost completely self-sufficient in foodstuffs till about 1850 and German farmers produced a surplus of grain, wool and timber for export. After that, Germany was increasingly unable to feed herself: Germany became a net importer of wheat, oats and barley. But agricultural productivity went on rising, although not as rapidly as in industry and the craft trades.


The pre-capitalist social system, that of the ancien regime, was one of ‘estates.’An estate was a stratum in which all the three major benefits—privilege, power, and prestige—were largely determined at birth and, also, were fixed as legal inequalities. The aristocracy constituted the dominant estate, stratified within itself. The Church constituted a separate stratum, but not determined by birth. But even in the ‘Third Estate’, the stratum of urban tradesmen and artisans, the guild system carefully regulated the distribution of benefits. The modern bourgeoisie grew out of the Third Estate, as, for instance, the developments preceding the French Revolution make very clear. It is very significant that one of the first demands of this new class was legal equality of all – or at least of those above a certain minimal level of wealth. In other words, the relation of an individual to the order of privilege should no longer be determined by birth or by royal favour but rather by his role and success in the production process. Max Weber placed the contrast between estates and classes at the core of his theory of social stratification and Marx made this a key criterion in his analysis of what constituted a class. When Marx used the concept of class in political analysis, he held that a class must have a certain degree of cohesion and sense of common purpose, as well as a common relationship to the means of production. Feudal estates were too internally stratified to possess this attribute.

One very significant change with capitalist industrialization has been the enormous expansion of the middle strata. Capitalist accountancy called for a secular bureaucracy, an army of agents and clerks to keep accounts, to attend to correspondence, to furnish the news necessary in order to take advantage, if possible before anyone else, of changed market conditions. So perhaps the first visible entry of capitalism into the medieval town was made by the grammar school, where the elements of reading, writing, and arithmetic were the main objects of study. The control of paper became the mark of the new commercial bureaucracy. The institution that marked the turning point in the development of the commercial town was the Bourse, or exchange, which began to serve as a centre for large-scale, impersonal commercial transactions in the thirteenth century.

The basic cause of this development was undoubtedly technological. An ever-smaller portion of the labour force was required for the actual tasks of material production, allowing the diversion of ever larger numbers of workers into administrative activities. There was also a vast expansion of the state bureaucracies. The rise of the capitalist firm as a new and immensely important form of economic organization has also encouraged the growth of a bureaucracy. It has meant a separation between the legal ownership of property and the function of economic control of the assets it

entails. It has been suggested that effective control over economic resources rather than legal ownership of them is the defining criterion for the top capitalist class. Thus Nicos Poulantzas, in Classes in Contemporary Capitalism begins by defining the bourgeoisie not in terms of a legal category of property ownership but in terms of
‘economic ownership’ (that is, real economic control of the means of production and of the products) and ‘possession’ (that is, the capacity to put the means of production into operation). By this criterion, the managers belong to the capitalist bourgeoisie proper.

In The Protestant Ethic and the Spirit of Capitalism, Max Weber makes it clear that a capitalist enterprise and the pursuit of gain are not at all the same thing. People have always wanted to be rich, but that has little to do with capitalism, which he identifies as ‘a regular orientation to the achievement of profit through (nominally peaceful) economic exchange’. Pointing out that there were mercantile operations – very successful and of considerable size – in Babylon, Egypt, India, China, and medieval Europe, he says that it is only in Europe, since the Reformation, that capitalist activity has become associated with the rational organisation of formally free labour.

It called for a new type of economic agent, the capitalist entrepreneur. One of Weber’s insights that has remained widely accepted is that the capitalist entrepreneur is a very distinctive type of human being. Weber was fascinated by what he thought to begin with was a puzzling paradox. In many cases, men—and a few women—evinced a drive toward the accumulation of wealth but at the same time showed a ‘ferocious asceticism,’ a singular absence of interest in the worldly pleasures that such wealth could buy. Many entrepreneurs actually pursued a lifestyle that was ‘decidedly frugal’. Was this not odd? Weber thought he had found an answer in what he called the
‘this-worldly asceticism’ of Puritanism, a notion that he expanded by reference to the concept of ‘the calling’. This idea dates from the Reformation, and behind it lies the idea that the highest form of moral obligation of the individual, the best way to fulfil his duty to God, is to help his fellow men, now, in this world. Weber backed these assertions by pointing out that the accumulation of wealth, in the early stages of Capitalism, and in Calvinist countries in particular, was morally sanctioned only if it was combined with ‘a sober, industrious career’. For Weber, capitalism was originally sparked by religious fervour. Without that fervour the organization of labour that made capitalism so different from what had gone before would not have been possible.

Weber was familiar with the religions and economic practices of non-European areas of the world, such as India, China or the Middle East, and this imbued The Protestant Ethic with an authority it might otherwise not have had. He argued that in China, for example, widespread kinship units provided the predominant forms of economic co-operation, naturally limiting the influence both of the guilds and of individual entrepreneurs. In India, Hinduism was associated with great wealth in history, but its tenets about the afterlife prevented the same sort of energy that built up under Protestantism, and capitalism proper never developed. Europe also had the advantage of inheriting the tradition of Roman Law, which provided a more integrated juridical practice than elsewhere, easing the transfer of ideas and facilitating the understanding of contracts.

For Max Weber, ‘rational restlessness’ was the psychological make-up of Europe, the opposite of what he found in the main religions of Asia: rational acceptance of social order by Confucianism and its irrational antithesis in Taoism; mystical acceptance of social order by Hinduism; the worldly retreat in Buddhism. Weber located rational restlessness especially in Puritanism.


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Such persons are ‘enterprising’ because they are liberated from strong communal ties, which enable them to seek new opportunities without the constraints of collective traditions, customs and taboos. This clearly involves a certain ‘ego ideal’, a strong discipline, traits that Weber called ‘inner-worldly asceticism.’This type of individual is concerned with the affairs of this world, is pragmatic and geared to action, as against the more contemplative or sensitive values. He is also self-denying, prepared for ‘delayed gratification’, as against someone who immediately spends all he makes. Weber pointed out that it is this ‘asceticism’, rather than acquisitiveness, that distinguishes the capitalist entrepreneur.

Joseph Schumpeter stressed the central role of the capitalist entrepreneur, rather than the stock of capital, as the incarnation of technical progress. In Capitalism, Socialism and Democracy (1943), he sought to change thinking about economics no less than John Maynard Keynes had done. Schumpeter was firmly opposed to both Marx and Keynes. His main thesis was that the capitalist system is essentially static: for employers and employees as well as for customers, the system settles down with no profit in it, and there is no wealth for investment. Workers receive just enough for their labour, based on the cost of producing and selling goods. Profit, by implication, can only come from innovation, which for a limited time cuts the cost of production (until competitors catch up) and allows a surplus to be used for further investment.

Two things followed from this. First, capitalists themselves are not the motivating force of capitalism, but instead entrepreneurs who invent new techniques or machinery by means of which goods are produced more cheaply. Schumpeter did not think that entrepreneurship could be taught, or inherited. It was, he believed, an essentially
‘bourgeois’ activity. What he meant by this was that, in any urban environment, people would have ideas for innovation, but who had those ideas, when and where they had them, and what they did with them was unpredictable. Bourgeois people acted not out of any theory or philosophy but for pragmatic self-interest. This flatly contradicted Marx’s analysis.

The second element of Schumpeter’s outlook was that profit, as generated by entrepreneurs, was temporary. Whatever innovation was introduced would be followed up by others in that sector of industry or commerce, and a new stability would eventually be achieved. This meant that for Schumpeter capitalism was inevitably characterized by cycles of boom and stagnation.


From the viewpoint of the aristocracy, the bourgeoisie appeared above all as ‘vulgar.’ What did this mean? It meant, essentially, that these people insisted that economic success should count as much as noble birth, family virtue, personal honour, and proximity to the throne. The word ‘vulgar’ derives from the Latin vulgus, denoting common, ordinary people, as against the patricians. This ‘vulgarity’ was morally shocking as much as it was politically threatening.

Bourgeois culture, at least from the seventeenth century and into its triumphal nineteenth century, developed in sharp and conscious distinction from the culture of the aristocracy, the earlier ruling class against which the bourgeoisie had to establish its ascendancy. The ideal of the bourgeois gentleman was deliberately counterposed to the older, aristocratic, ideal of the gentleman. The bourgeois extolled ‘rationality’ against the aristocrat’s reliance on ‘healthy instinct’and spontaneity. The bourgeois knew that his life-style was a matter of self-cultivation; the aristocrat always believed

(falsely) that his was the result of genetic inheritance or, as he would say, of ‘breeding.’ The bourgeoisie was, virtually from the beginning, a literate class; the aristocracy contained many individuals who were proudly illiterate. The bourgeoisie believed in the virtue of work, as against the aristocratic idealisation of genteel leisure. The deliberate display of wealth was an aristocratic rather than a bourgeois trait. Bourgeois culture, most importantly for industrialization, was individuating at the core of its world-view.

This prompted R.H. Tawney in 1921 to argue that capitalism had created The Acquisitive Society. He thought that capitalism misjudged human nature, elevating production and the making of profit, which ought to be a means to certain ends, into ends in themselves. This had the effect, he argued, of encouraging the wrong instincts in people, by which he meant acquisitiveness. A very religious man (and a socialist intellectual), Tawney felt that acquisitiveness went against the grain – in particular, it sabotaged ‘the instinct for service and solidarity’ that is the basis for traditional civil society. He thought that in the long run capitalism was incompatible with culture. Under capitalism, he wrote, culture became more private, less was shared, and this trend went against the common life of men – individuality inevitably promoted inequality. The very concept of culture therefore changed, becoming less and less an inner state of mind and more a function of one’s possessions. He also contended that capitalism was incompatible with democracy because the inequalities endemic in capitalism, made more visible than ever by the acquisitive accumulation of consumer goods, would ultimately threaten social cohesion.


In this Unit you have seen the myriad ways in which capitalist industrialization took place in Europe. You have also seen the ways in which scholars have tried to understand this phenomenon which even today remains central to our lives. Terms like bourgeoisie, capitalist entrepreneur, bourgeois culture have become parts of our everyday vocabulary and despite a comprehensive criticism of this phenomenon which presumably led to large-scale underdevelopment in large parts of the globe (see Unit 14), especially by Marxist thinkers, it retains its hold over our existence. There have been attempts to provide alternative frameworks of shaping human lives, economic structures etc, one of them being the socialist industrialization (about which you would read in the next Unit), and yet it still is very much present before us, albeit in more complex forms.


1) Define Capital and Capitalism.

2) Discuss the role of technology in the process of capitalist industrialization.

3) Who is a capitalist entrepreneur? Discuss in the light of the debates around the term.

4) How different was bourgeois culture from the aristocratic culture?



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13.0 Learning Outcome

13.1 Introduction

13.2 Initiatives towards Constitutional Status to Local Governance

13.2.1 Features of 73rd Constitutional Amendment

13.2.2 Features of 74th Constitutional Amendment

13.2.3 Decentralised Planning in Context of 73rd and 74th Constitutional Amendment Act

13.3 Initiatives after Economic Reforms

13.4 Functioning of PRIs in Various States after 73rd Amendment

13.5 Functioning of Local Governance after 73rd and 74th Constitutional Amendment: Observations

13.6 Conclusion

13.7 Key Concepts

13.8 References and Further Reading

13.9 Activities


After studying this Unit you should be able to:

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• Understand the features of 73rd and 74th constitutional amendment;

• Discuss the initiatives after economic reforms; and

• Outlines the functioning of local governance in various states after the amendment.


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1.0 Learning outcome

1.1 Introduction

1.2 Concept of Democratic Decentralisation

1.3 Evolution of Democratic Decentralisation

1.4 Significance of Democratic Decentralisation

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1.6 Conclusion

1.7 Key concepts

1.8 References and Further Reading

1.9 Activities


After studying this unit, you should be able to:

• Understand the concept of Democratic Decentralization;

• Know the evolution and significance of Democratic Decentralization; and

• Describe the Democratic Decentralization pattern in India.


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