Capitalism’s Enigma and Its Future

It is impossible to exaggerate the enigma within the term “capitalism.” It is in fact one of those big concepts concocted by its enemies, indeed by its chief antagonist Karl Marx. To this very day its central concepts of market and “trickle down” are questioned from the American president to the pope. Even its supporters cannot agree on what it is or even when it began. Marx targets the 14th Century as the end of feudalism and rise of capitalism. However, many proponents point later, some to the Renaissance (15th-16th Centuries), and others to the Reformation (16th Century), the Enlightenment (17th Century), or even the beginnings of the Industrial Revolution (18th Century).

Marx’s capitalism emerges from a long feudal conflict between lord and serf that ends with owners exploiting workers. Somewhat dismayed at capitalism’s longevity, Marx was certain of its final fall. But capitalism’s rise is expressed in a surprisingly positive way: “serfdom had practically disappeared in the last part of the 14th century. The immense majority of the population consisted then and, to a still larger extent in the fifteenth century, of free peasant proprietors, whatever was the feudal title under which their right of property was hidden” (Capital 1:27). It was the fact that the serfs had wrested more and more freedom over their own labor from the lords that allowed the new capitalists to attract the freed labor to create “more massive and colossal productive forces than have all previous generations together” (Communist Manifesto).

Surprisingly little systematic data has been available to document when capitalism’s productive forces first arose or why. Angus Maddison’s study for the Organization for Economic Cooperation and Development, Historical Statistics for the World Economy, has now collected the best estimates available to evaluate this. Political scientist Tom G. Palmer in his book After the Welfare State uses this to trace “the sudden and sustained increase in income” of Europe’s capitalist take-off from the rest of the world to “around the middle of the eighteenth century,” using the following chart to make his point most dramatically:


The big spike in wealth comes first from Western Europe beginning in the years just before 1800, as Palmer claimed, but even more from the dramatic rise of the upstart United States a few years later, shooting past its mother country and all of its European rivals to new heights of wealth. By World War I, Eastern Europe began its take-off, followed by Japan, although both of these remained well behind the U.S. and Western Europe. India, China and even Africa begin rising in the 1950s but only today to well below the point the U.S. had achieved back in 1900.

Adam SmithSince Palmer finds the mid-18th Century the critical period for the economic takeoff, he ascribes Adam Smith’s The Wealth of Nations in 1776 and his classical liberalism generally as the beginning of capitalism, market freedom, and modern prosperity. Yet, the man who did perhaps the most to revive the glories of capitalism and classical liberalism in modern times, F.A. Hayek, had stated as early as his magisterial Constitution of Liberty that the rise of these institutions and especially the central idea of rule of law were rooted back in the Middle Ages. Even Palmer conceded that it took time to create the necessary “legal orders characterized by well-defined, legally secure, and transferable property rights, with strong limitations on predatory behavior” that undergird capitalism and long preceded the 18th Century.

In How the West Grew Rich, Nathan Rosenberg and L.E. Birdzell traced the beginnings of the legal order underlying capitalism back even further than did Marx, to the 13th Century, or earlier. In his most careful consideration of the records from the period, An Age of Transition: Economy and Society in the Later Middle Ages, University of Leicester’s Christopher Dyer identified the critical period as the 12th Century, although he too points to earlier foundations. Jean Gimpel’s The Medieval Machine: The Industrial Revolution of the Middle Ages among others traces the rise in wealth and population to the invention of scientific agriculture and water power manufacturing at Cistercian monasteries and bourgeois firms whose accomplishments are recorded in the Doomsday record book of 1086 and the rise of banking in Italy during the same period. Harvard Law Professor Harold Berman’s comprehensive Law and Revolution meticulously traced the necessary legal and moral developments to Cluny Abbey and the Hildebrand papal reforms of the 9th Century.

The OECD data can actually help settle the matter. The chart focusing on this period is provided by JP Morgan’s Michael Combalest and The Atlantic’s Derek Thompson and follows below.


These data suggest that the economic take-off for capitalism actually does date as far back as the 9th or 10th Century, relatively early in the Middle Ages. It is apparent in the Palmer chart too but obscured by its larger scale of intervals. This first Western lead was followed by another rise in the 16th Century and then culminated in the dramatic 18th Century increase emphasized by Palmer when the U.S. and the Europe took off again to even higher levels of prosperity.

Many moderns reject so early an initial take-off as a myth. Palmer attributes it to a “common yearning for a past ‘golden age,’ a yearning that is still with us.” He takes credit that his “classical liberals have persistently worked to debunk the false image of the past—common to socialists and conservatives alike, in which happy peasants gamboled on the village green, life was tranquil and unstressed, and each peasant family enjoyed a snug little cottage.” Yet, intellectuals generally have labeled this period as “dark” rather than golden. Voltaire could only proclaim his a new era of “enlightenment” if all before it had not been dark (conveniently ignoring that such as Newton and Galileo built upon 14th Century innovators such as Bradwardine and Oresme). Similarly, Reformation intellectuals could not have “reformed” if what went before had not been decadent. Even post-Trent Catholic intellectuals wished to forget the period once embarked on in their Counter-Reformation. No one had an interest in an inventive and prosperous medievalism.

The Wall Street Journal/Heritage Foundation empirical Index of Economic Freedom show these early roots still run deep. Of the 35 nations rated in the top two “free nation” or capitalist categories, 57 percent are European or, like the U.S., are former colonies with predominant European culture and populations. Even among the 15 non-European nations most were European colonies or protectorates for substantial periods of time, Hong Kong for a century. Mauritius was unpopulated until occupied by the Portuguese and Dutch. Japan did not achieve widespread prosperity or freedom until after U.S. occupation. Taiwan had no direct European control before achieving economic freedom and prosperity but its free market reformers were Western influenced. The others are all very recent additions.

In a column, Fareed Zakaria contended that “historically the key driver for economic growth has been the adoption of capitalism and its related institutions and policies across diverse cultures,” citing India and China as diverse (non-Western) nations that have made the transition. Yet, India is 119th on the worldwide economic freedom list, considered “mostly unfree,” and China is in the same category listed at number 136. And, as the charts demonstrate, they lag economically. Yes, these have seen major growth as they have adopted some market reforms but they are still mainly poor and not very free. The twelfth highest rated economically free nation is Bahrain. Its economy has many free market elements that allow it to prosper. But it is a centralized Sunni monarchy that was forced to call in Saudi troops in 2011 to quell a restive Shia majority popular uprising. Even Hong Kong is straining under increasing mainland Chinese control, including dictating textbook content. Singapore has only a quasi-free political system, threatened by Chinese, Malay and Muslim conflict.

How comfortable can one be that nations that have not cultivated the related cultural institutions can remain economically free and capitalist? After all, Mali was once rated rather free but is now in chaos. Mr. Zakaria’s quote has a major qualification – it was not only accepting capitalism that was essential but also adopting the West’s “related institutions” – the ones Hayek and the others found took hundreds of years to develop before capitalism could take root.

If today’s prosperity can be traced merely to the rise of rational enlightenment, scientific materialism, skeptical rationalism, idealist romanticism or even classical liberalism alone, some technical solution is possible to create and sustain capitalist systems. If earlier customs, beliefs and institutions are essential, capitalism is extremely problematic. New capitalisms will be extraordinarily difficult to form and maintain. Existing ones may not be able to survive the loss of the traditions. The first European state to rise economically, Italy, has fallen to 92nd on the freedom Index ranking with a mere 0.4 percent economic growth. The Index has removed the U.S. from its highest free category for the past three years as a result of restricting contract rights in the Chrysler, GM and finance nationalizations and its growth has fallen to below two percent.

Marx identified the roots of the capitalist order more accurately than many of those who have defended it. Might he likewise be a better prophet to its end? While his economic predictions seem far off, his cultural ones hit home: capitalism “has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his natural superiors and he has left remaining no other nexus between man and man than naked self interest, than callus ‘cash payment.’ It has drowned the most heavenly ecstasies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism in the icy water of egotistical calculation…It has stripped of its halo every occupation…torn away from the family its sentimental veil…All that is solid melts into air, all that is holy is profaned” (Communist Manifesto).

In his magisterial Capitalism, Socialism and Democracy, the great economic historian Joseph Schumpeter in fact suggested capitalism may merely be the final stage of feudalism and that even with all of the market’s efficient calculation it cannot long survive without its supporting cultural institutions.

Donald Devine

Donald Devine, senior scholar at the Fund for American Studies, and the author of America’s Way Back: Reconciling Freedom, Tradition and Constitution, was director of the U.S. Office of Personnel Management during Ronald Reagan's first term.

About the Author

Recent Popular Posts

Related Posts


  1. R Richard Schweitzer says

    That was a very interesting tour. It does give examples of the misconceptions of what has come to be designated as “Capitalism.”

    Capitalism is *not*an “ism” in the same sense as Political Positivism, Socialism, Historicism (and its excrescences of “Marxisms”), Communism, Fascism, Totalitarianism, and various Collectivisms.

    All of those other isms can be defined in their concepts or systems, all having specific objectives. Capitalism can be described, but not defined because it has no objectives, it is not a system. In its various forms it is a resulting condition; feudal capitalism, mercantile capitalism, industrial capitalism, financial capitalism, and today’s managerial capitalism.

    Capitalism is a condition resulting from the emergence, exercise and interactions of individuality. That was the actual perception of Adam Smith as he inquired into his previous observations in “A Theory of Moral Sentiments” (dealing with individuality and the regard of individuals for one another and for themselves) as probable **causes** of the Wealth of Nations.

    Historians and scholars have conjectured from their research that individuality has had periods of the emergence and recession, recorded as far back as the 12th century in northern Italy, and similarly reflected (particularly as shown by land transactions) in English records of the approximate era.

    In social conversations, one may hear it said that capitalism has the objective of “profits” or “greed.” But those of course are the objectives of individuals; and individual objectives are moderated by the interactions with the objectives of other individuals – which produces the resultant condition designated as capitalism.

    Capitalism has taken on its varieties and cultural differences in various societies in accordance with the degrees of freedom of interactions of individuality and open access to the formation of facilities for cooperation or for mitigation of conflicts.

    Capitalism is not a system; it is a resultant condition.

    • gabe says


      Truly excellent exposition! You are quite right that capitalism is the “result” of individual objective seeking which is ultimately buttressed by both legal pre- and proscriptions intended to support those free actions of individuals.
      Again, my compliments for a great commentary.

      take care

    • Park MacDougald says

      What is individuality supposed to mean here? Individual legal and property rights? A social and cultural emphasis on the individual? The individual’s capacity to be left alone and exist in a sort of negative freedom anarcho-libertarian utopia? That explanation seems a little “just so” to have any convincing argumentative weight. Yes, a cultural emphasis on the rational individual pursuing his self interest did rise alongside industrial capitalism, especially in the 19th century, but there are no shortage of cultural contexts or periods in history in which would would find an emphasis on individuality as opposed to the collective. Look for example, at the relatively “free-market” economy of Song Dynasty China (complete with joint-stock companies), which, nevertheless, failed blossomed into a fully-developed capitalism. Roman law was not exactly collectivist either — much of Renaissance legal theory adopted Roman property law wholesale.

      Closeted Marxist alert, but I don’t think any idealist explanations here are convincing (i.e., people did [x] because they thought [y]). You have to look at thinks like how the peculiar synthesis that emerged from the collapse of the Western Roman Empire and its supersession by the tribal Germanic societies, how their combined modes of production/societal organization (plus the exogenous threats of Muslim, Turkish, and Mongol invasions) produced the unique politico-legal structure of feudal sovereignty that allowed independent towns to emerge in the interstices of competing feudal claims, giving independent havens for the development of urban mercantile capital. I just think “emphasis or individuality” has a bit of a ring of the idealistic to it.

      • R Richard Schweitzer says

        The comment was concerned with misconceptions of the condition designated as “Capitalism,” not as a disquisition on individuality, other than to note the role and contribution of individuality to that condition.

        For some understanding of the particulars of individuality, there is Alan MacFarlane’s “The Origins of English Individualism” (Blackwell 1978).

        “Individuality” is a perception formed from observations of the relationships of the separate individual persons in a social order, with their family, clan, tribe, village and other forms of social aggregations. Those observations include the relationships of those individual persons with uses of and possessions of land and other material objects (tools, fixtures, furniture, etc.). The observations include recognition of the customs supporting “private” property, which is distinct from the communal arrangements of peasant societies.

        A plausible argument can be made that the reason the “Industrial Revolution” had its origins in England, was due to the emergence, rise and proliferation of individuality, both in degree and extent, in England (and parts of the Netherlands), while the changes in social organization on the continent, in Eastern Europe and in Asia and the Orient were retarded or completely stagnated.
        You ask:
        “What is individuality supposed to mean here? Individual legal and property rights? A social and cultural emphasis on the individual? The individual’s capacity to be left alone and exist in a sort of negative freedom anarcho-libertarian utopia?”

        The answer to those questions is – no; particularly as to the last one. However, as noted above, observation of the legal systems of England (see, Maitland) and the records of land transactions revealed the recognition of “rights” and “powers” exercise by an vested in persons in their individual and separate capacities and not by reason of connection with any aggregate grouping. Marriage and burial records may be the evidence you would regard as “emphasis” on individuality, but the records of mobility (removal of individuals, women in particular, and others from original family and village locations, and other disbursements of individual persons, rather than group movements are part of the observations.

        For some reference to the historical observations on the rise and occurrence of individuality in northern Italy, there is William Hazlitt’s translation of François Guizot’s “The History of Civilization in Europe” (Liberty Fund Books).

        As to the rise in recessions of individuality the observations of Michael Oakeshott in his essay “The Masses in Representative Democracy” which can be found in “Rationalism in Politics” (Liberty Press).

        “I just think ’emphasis o[n] individuality’ has a bit of a ring of the idealistic to it.”

        In this context, as the role of individuality was cited, that is a bit like saying that the emphasis on heat causing water to boil has a bit of a ring of the idealistic to it.

      • gabe says


        An interesting commentary to be sure.
        I am not certain though that there is less of a distinction between your position and richards.
        You are of course correct that one must look to the antecedent and contemporaneous conditions on the ground when trying to determine causal links; however, that does not in and of itself deny the actions or motivations of individual human actors.
        As an example, if there is some validity (and i believe there is) to your statement that “the peculiar synthesis that emerged from the collapse of the Western Roman Empire and its supersession by the tribal Germanic societies, how their combined modes of production/societal organization (plus the exogenous threats of Muslim, Turkish, and Mongol invasions) produced the unique politico-legal structure of feudal sovereignty that allowed independent towns to emerge in the interstices of competing feudal claims, giving independent havens for the development of urban mercantile capital” this does not mean that individual objective seeking as a response to changed conditions is not a valid consideration.
        Feudal peasants “wrested” greater freedom from their overlords as a response to changed conditions.
        Europeans moved away from tidal flats and river deltas in response to marauding Muslim hordes. They moved to remoter areas, often hilltops (in italy, etc) and walled themselves in. This had an effect on economy as well as human sphere of action.
        yes, but once these new conditions obtained, then men, individual and collective sought and / or created new responses to them with a view toward enhancing thier lot in life. Perhaps, towns were then formed in the “interstices” and this also changed the sphere of action and some men saw opportunity within this new sphere.
        Consider the formation of a proto-modern banking system that developed during the period of the Crusades. This was a response to the rapacious Muslim bands that would waylay religious / military assemblages. In response the Templars (yes, those nasty Discovery Channel Templars) created a system of banking notes and guarantees. Out of this developed a far greater range of commercial action – both for the individual and collective enterprises of that and following times. It too was an element that lead to the rise of capitalism.
        Again, at all points you will find individual action as a response to changed conditions.
        Richard is not asserting that some individual “dreamed up” capitalism but rather that the enhanced freedonm of individual action available as the result of changed conditions (both economic and legal) is what eventually brought us to a capitalistic mode of economy.
        I do not see this as being incompatible with your own position.

        take care

  2. R Richard Schweitzer says

    As to the Schumpeter thesis:

    There are notable scholars (e.g., Schumpeter, “Capitalism, Socialism and Democracy” 1941) who premise that the “processes of the Capitalist System” have specific effects upon the societies organized as democracies which can or will result in a decline, demise and replacement of that economic system, similar to the conclusion reached by Marx, but differing in rationale. This commentary does not attempt to refute the potential results inferred by that scholarship. It does question the validity of the assumptions of specific causative effects. The proffer of this commentary is that changes in the social organization (caused by the human interactions within it) are the sources of the changes in conditions of the*form* of economic system at any given point in any society.

    This proffer does * not * infer that a resultant condition (or set of conditions), once coming into being within a society, has no operative effects upon the interactions in, and further developments within, the social organization and its components.

  3. says

    This was an stimulating commentary and offers useful historical information. However, I am not keen on the term capitalism. For one thing it calls up images of capitalists, bloated individuals smoking black cigars while they fire or exploit hapless workers. Second it gets away from the idea of market systems, that simply involve the free exchange of goods and services. It often sets in motion turgid theses on ideological side or the other (not this paper).

    I’m also a little puzzled about the tiny figure showing the rise of gdp/capita. I am going to have to check on Maddison’s article because

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>