The Magazine

A Capital Ship

Profits and losses in the history of markets.

Sep 27, 2010, Vol. 16, No. 02 • By ELIZABETH POWERS
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The Relentless
Revolution

A Capital Ship

‘A Goldsmith in His Shop’ by Petrus Christus, ca. 1450

The Metropolitan Museum of Art / Art Resource

A History of Capitalism
by Joyce Appleby
Norton, 494 pp., $29.95

Two hundred years ago, explaining to his contemporaries how capitalism worked, David Ricardo gave an example of the theory of comparative advantage in trade: Portugal and England could both produce wine and cloth, but each would fare better economically by specializing in the one it could bring to the market more efficiently and cheaply. Such specializations continue to fuel the capitalist economic system. The processor of my husband’s iPad, for instance, is designed by Apple in Cupertino, California, and manufactured by South Korea-based Samsung Electronics Co. Another South Korea-based company, LG Display and Japan’s Seiko Epson Corp. make the LCD display while Taiwan-based Wintek Corp. makes the glass overlay necessary to detect touches of users’ fingertips.

The examples of South Korea and Taiwan bring out an aspect that Ricardo, who died in 1823, could hardly have envisioned. The present comparative advantage enjoyed by South Koreans and Taiwanese, unlike that of the Portuguese wine producers, does not depend on a traditional commodity native to their homelands, unless it be small and dexterous hands. For the amazing integration of production and markets to work and bring an iPad to your local retailer, all a country needs are the legal protection of property rights (including intellectual property or shares in a corporation), the outlawing of monopoly protection, a good internal transportation and communication system, secure labor, supplies, and customers. Not to put too fine a point on it, is it any wonder that there is probably not a single component of any high tech product owned by readers of this review that was made in South America or (excluding Israel) the Middle East?

Why that is the case is the real history of capitalism, an economic system that, about 500 years ago, began to upend the traditional foundations of society, predicated for millennia on pervasive scarcity. By introducing innovation, initiative, and risk-taking into human endeavors, capitalism has freed mankind from the priorities of subsistence, security, and status imprisonment and set us on an unpredictable path of wealth-creation, disestablishment of traditional authority, and social mobility. How that happened and why it was the West that initiated the process is Joyce Appleby’s subject.

An established academic historian, Appleby joins the ranks of recent economic popularizers, notably William J. Bernstein and Timothy Brook. Like them, she begins with what is acknowledged to be the point of capitalist takeoff, 1500, when certain circumstances allowed Western Europe to escape the seemingly cyclical historical pattern of feast and famine. Improvements in agriculture reduced the percentage of the population required to feed a country, traditionally between 80 and 90 percent, creating surplus labor (and, eventually, consumers). These improvements occurred at a time when European merchants discovered the trade winds and began to tap the riches of the Indies and the Americas and bring new products to the homes of Dutch burghers. After the laws of the heavens were revealed in the 17th century, inventors were able to “capitalize” on the scientific revolution and unlock the secrets of nature’s workings. The harnessing of steam power in England by the 19th century was a great step forward for mankind, and it’s been nonstop progress ever since.

Appleby is very good on the long view, particularly on the transformation of the traditional social world. Though a self-identified “left-leaning liberal with strong, if sometimes contradictory, libertarian strains,” she is not nostalgic about what has been lost, especially not “the straitjacket of custom.” Her account is refreshingly free of Marx and is appreciative of the gains produced by the freeing-up and application of human enterprise. Appleby’s strength is the quick, concise summary, reflecting capitalism’s “relentless” history. 

The preeminent industrial powers of the nineteenth century—Great Britain and its two rivals, Germany and the United States—transformed the physical world. They laid iron tracks across thousands and thousands of miles. They built enormous factories to which they drew millions of men and women, most of them recently off the farm. They collected capital in banks, consumed coal, finished steel, dug minerals from the earth, leveled hills, diverted the water from rivers into canals, and generally displayed the previously undetected strength and ingenuity of human beings. Despite the impersonality of all these changes, particular people brought them about: swashbuckling heroes of enterprise and the workingmen and women whose lives industrialization had turned upside down. A few men so completely grasped the dynamics of capitalism that they established firms that are still among the world’s largest.

When she gets to the 20th century, however, her account becomes distorted. It mixes social and political history with a history of technology, a parade of wonders, with one marvelous invention succeeding another. Reflecting her view that capitalism is “a cultural system rooted in economic practices,” it also becomes something of a tale of woe (she ends with the financial crisis of 2008), as country after country throughout the world is drawn into the quest for profit (in particular China and India), bringing with it environmental destruction and other human costs. Capitalism is even faulted for the plight of Zimbabwe. Though Appleby concedes that individual ingenuity is an engine of capitalist progress and that capitalism tends to erode social differences, she believes that government must play a larger role in solving the problems now facing us, whether it be global warming or the inability of Africa to climb out of its despond. In other words, instead of continuing to encourage people to do their own thing and thereby come up with solutions to these problems, we should return to the patriarchal world—now to be ruled by far-seeing elites—from whose yoke capitalism freed us.

It is a familiar litany of liberal hysteria, and it points up the divide between liberals and conservatives. The divide concerns the nature of progress. Appleby favors progress, because it destroyed all the ancient patriarchal institutions, reservoirs of evil practices that impeded human progress. Yet it is evident that great numbers of humans, despite material advance, remain greedy, self-serving, and contemptuous of people who aren’t like themselves, not to mention that they make bad decisions. This lack of moral improvement must be the fault of the economic system. Thus, the need for state intervention to make us better people.

Material affluence has, of course, improved our manners, as Scottish economists noted two centuries ago. At base, however, capitalism is morally neutral: There is no Good, only goods. In the market everything is fungible, with the emancipation of slaves and women on par with freeing up the energy in a block of coal. The former simply liberated two groups of humans for productive economic work and turned them into consumers. Likewise, such vaunted liberal values as openness and toleration enable the economic system to expand market shares. Progressives like Appleby confuse the moral and the material. Thus, they can be expected to be in the vanguard, whether it concerns the acquisition of fine material goods or the rejection of yesterday’s mores.

Conservatives favor progress, too, insofar as it unlocks human potential and gives tools to individuals to craft their own destiny. Nothing in the Chinese or Islamic empires at the height of their glory shows a glimmer of interest in either. In the merchant towns of Western Europe, however, long before Columbus sighted Hispaniola or Newton discovered the universal laws of motion, there was continuous agitation against rulers for individual and civil rights. Thus, by the 17th century, property ownership, rights of self-defense and inheritance, contract enforcement, and so on were firmly established in some places in the West, particularly in the places that counted in the emergence of capitalism, Holland and England. And insofar as a country establishes such institutions, the more open it will be to the entrepreneurial spirit: Japan, Taiwan, South Korea. Otherwise, include it among the Have-Nots. Appleby notes, but gives short shrift to, institutions.

There is, of course, a dark side to capitalism, and it is called dissatisfaction. It is the flip side of innovation, which profits from our willingness to abandon what we loved only yesterday for a product that will probably also fail to deserve our love. Liberals have rebranded their own dissatisfactions as “critique,” which constantly demands that the supposed flaws in our institutions be corrected. These institutions, however, are the ones that gave the modern economic system its legs in the first place. It is not capitalism that is relentless but the assaults by liberals on the values that are essential if this system is to continue to thrive and enrich us all: Hard work, individual responsibility, creativity, self-discipline. As my mother used to say, some people have it too good.

Elizabeth Powers is editing a collection of essays on the intellectual origins of freedom of speech in the 18th century.


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