what do you mean by capitalism?

A fellow grad student sent me an email after reading my most recent post, asking me a question about what I mean by tracing the evolution of capitalism.

For better or worse (honestly I can't decide which), there have been many debates over the necessary and sufficient conditions for capitalism. One of these debates occurred in the context of the moral economy debates in U.S. history, something I teach in an upper level course on American Economic History (Econ 362 at UMass). The central question of those debates is, when do we see the widespread growth of capitalist institutions in U.S. history?

One of the most compelling and interesting studies in the moral economy debate is Winifred Rothenberg's From Market-Places to a Market Economy which, as the title suggests, is an analysis of markets and market behavior. Prior to 1750, markets certainly existed, but they were generally confined to the local town and the prices and wages were set by local institutions. But as consumer mobility (as well as a host of other factors) increased after 1750, barriers between the local towns began to break down, leading market prices in each town to converge to one another -- leading eventually to an approximately equal price across all markets and towns. Thus Rothenberg argues convincingly that what we see in the century between 1750 and 1850 is the gradual breakdown of traditional institutions which hindered market integration. This is strong evidence for market integration and, Rothenberg argues, an empirical sign for the rise of a market society (signaled here by price convergence -- a hypothesis originally put forward by nineteenth century British economist Alfred Marshall).

We can extend this thought a bit further. The convergence of market prices is a strong sign that what we have between 1750-1850 is the rise of the liberal-minded citizen fully engaged in economic relations and quick to cast off his or her mercantile roots. It is a sign that government began to play less and less a role in the economy. The true radicalism of the Revolution, as famed historian of the period Gordon Wood has argued, was precisely this explosion of laissez-faire capitalist society and democratic institutions, such as markets, the press, and religion.

Sounds pretty convincing, right? In this model capitalism is shown to be an outgrowth of a liberal democratic population. But not so fast. As Wood himself has noted, capitalism does not necessarily equate with a market society. But whatever capitalism might mean, Wood points out, it's evident from studies such as Rothenberg's that it was a democratic process. Hm. An alternative view is argued by Marx, who stresses the social relations that change in capitalism. That is, it's not so much about market integration as about people's roles in the economy which change due to that market integration.

This was the approach more or less taken by Michael Merrill in the late 70s, and others in the 80s, who sought to show the importance of social relations in the story of the rise of capitalism. By searching deeply in the historical records for qualitative evidence (instead of simply focusing on quantitative data, as Rothenberg did), these historians partly argued that not only were social relations much slower to change (and even the change itself was quite uneven), but the process was not a natural "smoothing out" of the relevant market rigidities.

This latter observation is particularly important and, I would say, the main contribution of the leftists to this debate. (Even if the debate itself is debatably misdirected and unsubstantial, which I tend to believe.) The integration of market society is pretty well-documented in Rothenberg's amazing analysis of the data. But the leftists win in the end for showing that the process is not ahistorical.

And here, in short, we arrive at my approach. I am interested in the rise of the factory as a new system of production. That, for me, is what capitalism is all about. I want to know how contracts changed (or stayed the same) as a result of the breakdown of the traditional master-apprentice relationship, or even the small-manufacturer relationships more characteristic of some industries such as textiles. I am interested in the legal aspects of the evolution of private ownership of the means of production, and their economic implications.

And I can tell you one thing: it was not natural!