The theory of capitalism from different angles

After the cold war was over, the west seemed to have won politically and economically. As a consequence there was an expansion of western values to the rest of the world which lead to the globalization of our economies. However, the economic shock of the 2008 eclipsed the euphoric days of western capitalism and soon enthusiasm was replaced with gloom and anxiety. This crisis had deep effects in the “developed world”: the political paralysis in the US, the financial quagmires in Europe, the dashed dreams of the the Arab spring and the specter of competition from China doused the enthusiasm about west’s destiny. When I think about this I ask myself a question (for which I still don’t have a precise answer) that is why the west differs so much from the “rest” in the first place? And how did capitalism start?


There are many theories that we can mainly divide in “internalist” and “externalist”. In the internalistic view capitalism started somewhere in late-medieval Europe that almost by accident found the right formula for success. Specifically, the Italian city-states, although small and vulnerable, were the first to lay the groundwork for capitalism. Nevertheless, the right mix of ingredients was not there yet. The Mediterranean sea was crowded ottoman fleets and north African corsairs making it unsafe and expensive to do business in the Mediterranean. In the Atlantic, on the other hand, the mercantile states were free to unleash the first capitalistic wave. This, was helped by internal reforms such as the creations of institutions and legal defense of private property. Overall, entrepreneurial behavior was starting to be rewarded and soon a virtuous cycle was started. Capitalists were incentivized to switch from “trading with one another” to “coordinating with one another” thus creating a system of rules and norms with a profit-seeking perspective. As a consequence, the European trade routes were soon filled with all kind of stuff, from coal to timber and flatware. Such a rapid expansion however, had weak roots and as a result the capitalistic evolution of Europe was uneven and with time there was a deepening in differences between the periphery and the heartland. The rise of capitalism can also be attributed to the alliance between engineers and investors. The emergence of useful knowledge that translated science into production. Here the key is “interaction”, a link between curiosity and greed, ambition and altruism. Intellectual innovators were allowed to continue their studies thanks to emerging investors willing to take the risk and bet on them. However, the internalist theory, does not cover all aspects of capitalism and leaves a question unanswered: why the “rest” did not catch up with the west? We just talked about links, and on another link lays the focus of the “externalist” view of capitalism. This link does not involve interaction between science and capital but rather exploitation and submission. The industrial revolution would never have happened without external trade and without the slave labor. Capitalism was born global because it required an empire to buoy it. An example is the empire of cotton. Originally, cotton was king especially in India. Cheap indian peasants would grow cotton along with food crops. Enough supply was generated to provide European markets with coveted muslins and calicoes from cheap India. This lasted until native americans were dispossessed of their land and 12 milions Africans were shipped from the other side of the Atlantic. European capital bound together American land and African slave labor in the form of cotton plantations. A new empire of cotton was born and had devastating effects on the old cotton trade. The situation was worsened further by the protectionism in Europe and Britain where cotton cloth for sale at home could come only from cloth made in the United kingdom. Yet, even with these protectionist measures the cotton trade was not enough to sustain expanding factories. An export boom had to be manufactured. For this reason, Europeans started giving clothes to African traders in exchange for captives. The “rest” (especially India) now only produced raw cotton destined for the British mills. That’s how the “rest” became a source of raw materials to be exported and processed in the industries of the west. That is plain evidence that capitalism, in order to expand, needed the “rest”. As you can imagine this process rarely occurred spontaneously and often had to be achieved with coercion, violence and instruments of imperialism. The empire of cotton was a perfect example of capitalism. It depended on the subjugation of some for the benefit of others.

Capitalism has many sides and cannot be described with only externalist or internalist theories. Indeed, it’s hard to explain why some parts of the world struggled while others thrived. It’s not just question of having the right ingredients. For example in 1521, the Spanish defeated the Aztech empire inheriting an extraordinary amount of wealth. Who would have bet that 2 centuries later would be England and not Spain, the engine of progress. The same could be said about the raise of Germany after the fall of the Berlin wall or China after it moved tanks through Tiananmen square. The payoff from global history comes from thinking about capitalism in multiple ways and on multiple scales.

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