The 3 Phases of Capitalism Throughout History
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In order to fully understand the present, you’ll have to be able to connect dots from the past. This chapter will summarize what Capitalism is and how it evolved throughout time.
What is Capitalism?
Capitalism is an economic system where money buys materials and/or technology (means of production) and labor power to produce products and services to sell at a profit.
Here’s an easy to understand formula that demonstrates this process, which is considerably influenced by Brendan Mcooney’s blog, Kapitalism101.
C – (MP + LP) – P – P/S – M1
Capital — buys–> Means of Production & Labor Power — to Produce –> Product/Service — to sell for–>Money+1 (Profit)
Capitalism, hands down, has been the most productive economic system society has ever used thus far. The system that was in place before it, Feudalism, only allowed a tiny minority access to a variety of luxuries and financial prosperity. If you were born poor, you died poor. If you were born rich, you died rich. Our economic status in those times were decided by inheritance. Only the rich had access to exotic and premium goods and/or services.
Capitalism enabled anyone who had capital to organize and create something of value to offer to the public. This empowered people, who were born poor, to create opportunities to surpass their class statuses if there was demand for what they produced. This also led to mass production, where lower class people gained access to a variety of goods and services previously only available to the upper classes.
Therefore, Capitalism created a better standard of living for more people. This was a new and exciting game for people to play! Unfortunately, this game became rigged by corporate interests controlling two things: government and money. This produced (and continues to produce) a variety of negative effects on society and the planet.
But let’s begin to explore the three phases of Capitalism. Something I would like you, the reader, to note is each phase created the conditions to bring about the next phase. However, before we explore Capitalism, I’ll start with the economic systems that were practiced during the Middle Ages, Feudalism and Manorialism.
Feudalism and Manorialism
According Wikipedia, during the Early Middle Ages in Western (and parts of Central) Europe, lords gave land to loyalists in exchange for military protection and taxes (Feudalism), and lords gave peasants small, self-sufficient tracts of lands, or manors, in exchange for food (Manorialism). The villages were organized in a way that the peasants would work the land, give the majority of the harvest to the lords, and keep the remaining amount to live on. The lords would then exchange their excess supply of crops in exchange for luxury items in other distant lands. You can look at Feudalism as the macroeconomic system (similar to Globalism) and Manorialism as the microeconomic system (similar to Localism) during those times.
Innovations in technology, increased travel, and commerce enabled farmer peasants to start trading outside of the manors, which the lords couldn’t tax. This lead to the development of town centers and cities; thus an alternative economy started to emerge. The towns became centers of trade and offered independence to people in the villages.
A typical example would be merchants getting a loan from a banker who would buy goods in one country, transport them in ships to another country where they are scarcer or more valuable, sell them for a profit, and then pay back the banker. However, some wealthy merchants began to remove their focus from selling goods and entered the money lending business. This was the earliest form of Capitalism called Mercantile Capitalism.
During these times, some discovered that the way to gain wealth was to create factories to mass produce goods. This phase of Capitalism is called Industrial Capitalism. Entrepreneurs needed a lot of capital to satisfy the demand for railroads, cars, ships, etc., which they didn’t have; so new types of financing were needed. This led to the emergence of investment banks, who would eventually gain control of the economy because they provided the capital.
Additional highlights of this system were tough working conditions (which gave rise to labor unions), monopolies, and the Prussian design of public schools (which I call assembly line education) to pump out more workers for the factories.
This leads us to the most current form of Capitalism, Finance Capitalism. This type of economic system isn’t based on producing physical goods like Capitalism 2.0, rather it relies on the sale of financial products and services to create profits. High labor costs, in countries like the United States, create strong demand for outsourcing cheap labor, to countries like China, to produce goods for resale.