Capitalism in some form has existed since mankind first began to sell goods and engage in trade thousands of years ago. Until the 19th Century it did not become known as a distinct economic system. The word, â€ścapitalismâ€ť did not appear in English until William Makepeace Thackeray used it in his 1854 novel, The Newcomes. Karl Marx, inDas Kapital, and other writings, gave the term greater definition.
The capitalism that emerged in the 19th Century was different from the earlier capitalist-like economic systems that did not feature large industrial enterprises, or the generation of huge revenues and profits. In his Foreword to Max Weber's classic, The Protestant Ethic and the Spirit of Capitalism, the historian R.H. Tawney wrote:
Capitalism, as an economic system, resting on the organisation of legally free wage-earners, for the purpose of pecuniary profit, by the owner of capital or his agents, and setting its stamp on every aspect of society, is a modern phenomenon...
â€¦ for it involved a code of economic conduct and a system of human relations which were sharply at variance with venerable conventions, with the accepted scheme of social ethics, and with the law, both of the church and of most European states.
Weber wrote that the distinguishing characteristic of modern capitalism was that it made the earning and accumulation of money an end in itself, not just as a way of supporting one's life and family. Virtually every one of the creators of the great American fortunes in the 19th Century was obsessed with the making of money, at the expense of everything else in life. Most were miserable misers, the living examples of characters out of Dickens novels.
In his History of the Great American Fortunes, Gustavus Myers relates that when John Jacob Astor, who had built the first great fortune of more than $150 million, was on his death bed in 1848, he still was reading his account books and fretting about an unpaid rent of a few dollars from a poor widow.
Weber described how traditional small factory and handcrafting enterprises that had successfully supported the owners and the workers and their families for generations were turned upside down by the new capitalists of the 19th Century. They brought in automation and sought to make them far more profitable for the owners, but not for the workers. With the development in the second half of the 19th Century of machinery that automated many manufacturing processes, as well as the invention of interchangeable parts, this process accelerated, and changed the nature of work for most people.
William Graham Sumner, a disciple of British Social Darwinist Herbert Spencer (who originated the term â€śsurvival of the fittestâ€ť), immigrated to the U.S. and became a prominent professor at Yale, where he was said to have been the first to teach â€śsociology.â€ť He published his highly influential What the Social Classes Owe to Each Other in 1883. He argued in favor of a completely free market and was critical of efforts by unions and others to even out the effects of the industrial revolution. His concluding paragraph is remarkable for how similar it is contemporary Republican right-wing philosophy:
The yearning after equality is the offspring of envy and covetousness, and there is no possible plan for satisfying that yearning which can do aught else than rob A to give to B; consequently all such plans nourish some of the meanest vices of human nature, waste capital, and overthrow civilization. But if we can expand the chances we can count on a general and steady growth of civilization and advancement of society by and through its best members. In the prosecution of these chances we all owe to each other goodwill, mutual respect, and mutual guarantees of liberty and security. Beyond this nothing can be affirmed as a duty of one group to another in a free state.
The underlying economic theory of the Social Darwinists was that the freedom that laissez-faire gave business and industry enabled it to maximize profits and expand the economy. It was, and still is, believed that the economic expansion would create more jobs, more â€ťchancesâ€ť for others. Whether others succeeded with the chances afforded them was simply a matter of hard work and ability.
The reality was dramatically different from the theory. Industries did grow significantly. Profits soared, creating enormous streams of capital, of which nearly all went to the owners. Workers were paid as little as possible, and in many cases, less than necessary for basic living expenses. Almost exactly what has happened in todayâ€™s service and retail industries.
In summing up and analyzing the issues that dominated the Progressive Era at the beginning of the 20thCentury, historian Page Smith's description of capitalism, in his book, America Enters the World: A People's History of the Progressive Era and World War I, seems to apply equally well to contemporary economic issues:
â€śThe problem with capitalism, I suspect, is that its champions want to claim for it some inherent moral virtue. It is a very rough kind of economic system with many pre-, post-, and noncapitalist elements woven through it. It is clearly not â€śfree enterpriseâ€ť or â€śfree competition.â€ť In its heyday and subsequently, it has done its level best, through trusts and various devices, legal and illegal, to suppress free competition and use the national government to advance it interests at the expense of workers and consumers â€“ that is to say, the general public. The best thing that can be said for it is that it has worked, at least on the material level, to provide more people with more things than any other economic system. It has done this, as its critics constantly remind us, at a considerable human cost....capitalism, far from being the champion of individual liberties and the classic American freedoms â€“ of speech, assembly, etc. - has done its best, whenever it was able, to suppress all criticism of it, and prevent all measures designed to make it more responsible to its workers, and more accountable to the public. It has done this in the name of what it claimed to be a sacred and inalienable right (which it invented) to use its property as it sees fit.â€ť