Where did capitalism come from?

“This institutional gadget, which became the dominant force in the economy—now justly described as a market economy—then gave rise to yet another, even more extreme development, namely as a whole society embedded in the mechanism of its own economy—a market society.” – Karl Polanyi

Just as the “discovery of the New World” is a historical turning point loaded with suspect categories and concepts, so, too, the question of how capitalism arose in the West has been, among historians, a  semantic and conceptual mudwrestling match. There’s Marx, there’s Douglass North, there’s Karl Polanyi. I think Polanyi is fundamentally right about a few total social facts, one of which is that the question of how capitalism began is necessarily wrapped up with the formation of the capitalist character. It seems, in a sense, that capitalism, with its double aspect – of a certain form of production and a certain form of circulation – is boobytrapped. One must understand the mentality of the agents of circulation in order to understand the condition of the agents of production, and one must understand the limits imposed on the agents of production in order to understand the possibility of circulation. One must, then, understand not only technology, but ideology.

This is one of the reasons that Karl Polanyi’s The Great Transformation still survives, still suggests. Polanyi – like his fellow émigré from the Austrian-Hungarian empire, Wittgenstein – was interested in forms of life. Wittgenstein objected to the logician’s disembedding of language from language games, and Polanyi objected to the disembedding of economics from forms of life – from what he called the social. So he was in a position to recognize the effect of this disembedding as it was adopted as a policy practice by all the wealthy states in the nineteenth and twentieth centuries.

One of the key early chapters of Polanyi’s book is entitled “Habitation and Improvement”. The chapter title is taken from a letter about the enclosures of common land in England. Polanyi takes this as an archetype of economic transformation: the enclosing of the commons by the Lords and, later, by the bourgeoisie in the Tudor period meant destroying old forms and destroying, literally, old houses, the huts of the tenantry. Polanyi grants that, in the end, the wool industry did develop England. Looked at purely in terms of economic growth, this was a triumph. But, as Polanyi points out, looked at from the viewpoint of the uprooted peasants, it was a disaster. However, the state, or the Crown, mitigated that disaster by slowing the process. 

Polanyi’s interpretation of the great uprooting on the British island was disputed in the 1970s by a neo-classical historian named Alan Macfarlane, who claimed that Polanyi misread the data. Macfarlane was in turn criticized by another economic historian, Govind Sreenivasan, who disputed Macfarlane’s inferences from his data set, and their completeness.

Myself, I cannot see how we can look at the immigration flows and land possession in England and Scotland and come up with a non-Polanyi interpretation of these events. Which brings us back to the question of capitalism and the roles played in it by the general population and by the state.

If Polanyi is right that the state somehow curbed the excesses of the uprooting in the 17th century, he concedes that the state did not play a similar role in the Industrial revolution. It could only play an opposite role, tearing down old laws to allow laissez faire free reign – it could only do this because the state is, almost always, a coalition between powerful forces. Economic power doesn’t automatically translate into political power, but economic weakness does translate into political weakness.  Marx, of course, spotted the same thing happening in Koeln in 1843, as the forestry laws were changed and, magically, property was created out of the commons – a significant social fact, as German prisons in the 19th century, up through the 1880s, were filled with offenders against the forest laws: the gleaners, the poachers, the rebels against posted property signs.

Marx, as is well known, underconceptualizes politics. So does Polanyi, in as much as he often views the state in capitalized terms, as a Hegelian entity rather than a material institution. However, what the state governed was changing, as the machinery needed to produce commodities in the Industrial Revolution brought with it necessities that were socially transforming:

“But how shall this Revolution itself be defined? What was its basic characteristic? Was it the rise of the factory towns, the emergence of slums, the long working hours of children, the low wages of certain categories of workers, the rise in the rate of population increase, or the concentration of industries? We submit that all these were merely incidental to one basic change, the establishment of market economy, and that the nature of this institution cannot be fully grasped unless the impact of the machine on a commercial society is realized.”

Capitalism and industrialization are conjoined processes, historically – so much so that we think of them as necessary conditions, one for the other. And yet, they must be conceptually separated in order to understand what they meant for the populations in which they emerged, how they changed habits, styles of thought, routines. In turn, the latter was crucial to the success of capitalism. If, for instance, the worker’s rhythm of saint’s days had not yielded to capital’s version of the working week, the history of capitalism would look much different. Capital’s rule is the whole condition for the Great Transformation:

““But the most startling peculiarity of the system lies in the fact that, once it is established, it must be allowed to function without outside interference. Profits are not any more guaranteed, and the merchant must make his profits on the market. Prices must be allowed to regulate themselves. Such a self-regulating system of markets is what we mean by a market economy. The transformation to this system from the earlier economy is so complete that it resembles more the metamorphosis of the caterpillar than any alteration that can be expressed in terms of continuous growth and development. Contrast, for example, the merchant-producer’s selling activities with his buying activities; his sales concern only artifacts; whether he succeeds or not in finding purchasers, the fabric of society need not be affected. But what he buys is raw materials and labor – nature and man. Machine production in a commercial society involves, in effect, no less a transformation than that of the natural and human substance of society into commodities. The conclusion, though weird, is inevitable; nothing less will serve the purpose: obviously, the dislocation caused by such devices must disjoint man’s relationships and threaten his natural habitat with annihilation.”

Only industrialization really allowed capitalism to start the process of embedding all social relations in the economy, for only industrialization was able to produce commodities on such a mass and invasive scale that the human environment, down to the merest peasant’s hut, was transformed. Agriculture was, of course, still the central economic factor in all the nations of Europe in the nineteenth century (except for England, the Netherlands, and a few other regions); but industry created a competition in terms of culture and influence that agriculture had never faced since agricultural societies emerged from the hunting and gathering period of pre-history. A competition, that is, for a total overarching scheme defining human life, from myth to everyday routine. Cities, in the pre-industrial era, were not defined as normal by either their inhabitants or those, the vast mass, who did not live in them. They were exceptions, novelties, the kind of places that so dazzled the nineteenth century writers that the entrance to the city – Wordsworth entering London, as well as that entrance enshrined in Dicken’s Bleak House, Balzac’s Man from the Provinces, and even before this, the whole burden of Rousseau’s writing – became a topos. The capitalist order, and industry, extended habits that had been cultivated in cities, along with new habits that had never been seen there. These rapidly became the dominant forces in society without any tyrant or invader “forcing them” on the people. There was nothing like the Christian missionaries of the 15th century mass baptizing Indians, or the mass conversions produced under Christian kings in the Dark Ages. Rather, capitalism was like some epidemic that could not be stopped, even if the communities subject to it did not fully see it coming, or understand what was happening when it came. This was what was new, exciting and frightening, this was what defined the “modern”. And all of these things – which in their details are defined by the economists as the results of consumer “choice” – were not chosen. Nobody voted on the industrial revolution. Nobody voted on the market economy. It is one of the failures of political theory that we never match what we assume governance, whether democratic or not, does, and the total social facts of modernization. The notion that the individual will somehow matches up with the collective will breaks down. The collective will, it turns out, is a sideshow, a circus act.

Polanyi, as much as Marx, is the target of much hostility on the part of the neoliberal set for seeing this. That is because he doesn’t accept either the analytic tools of neo-classical economics or the Whiggish assumptions of the comfortable upper class historians and propagandists. The latter have responded to the Great Transformation, Polanyi’s term for the coming of a ‘market-dominant” social economy, by denying it happened. Or, often, by celebrating it as a good thing. What is weird is that the two positions often combine.


Mainstream economics is proud of its methodological individualism, but it doesn’t believe it. The individual, as the economists understand, does not spontaneously produce his acts. The man in an office, or behind a plow, or behind a gun, did not find his places by inventing his scene. The idea that the individual invents society is, evidently, an act that has never attributed to any individual. So the mainstream economist has come up with a wonderful concept saver: the individual, in their terms, is essentially a chooser. Goethe’s Faust cried out that in the beginning was the act – but the economist’s homo economicus counters that in the beginning was the choice. The cosmology of the preference wraps the societal world in a mystery – for one never seems to come to acts, only to choices. Every blade of wheat, every board of wood, every drop of ink, is not what it seems to be, but is instead an agglomeration of atomic choices. By some inexplicable accident, these choices also seem to be matter, and have weight and chemistry. The only thing that isn’t chosen is choice itself.

This is a rich cosmology, but not necessarily a believable one. So it is reinforced by the time honored method of scolding. If we don’t hold to individualism, all responsibility is lost, and anarchy and concentration camps are loosed upon the world. 

The origin of this cosmology is surely to be found in the period between around 1650 and 1789. And it did not arise among the peasant masses, yearning to profit maximize, but among a varied assortment of clerks and policymakers. Intellectuals in Edinburgh universities and ministers at Louis XVI’s court, as well as slave traders and sugar merchants were all starting to put it together. 

By the late twentieth century, the capitalist operation had become so dominant – at least among intellectuals – that historians could not believe the cosmos had ever been different. Thus, in the spirit of conquest, the historians went back to pre-capitalist societies and attempted to rescue them for capitalism. Thus, theorems of market equilibrium, or of public choice, are imposed as the real language of rationality that the peasants were, as it were, articulating in mime. 

My own sense is that the peasant economies were not irrational, nor are the rational capitalist economies non-peasant – the rational economic institutions are colonized by non-equilibrium, non-growth, non-maximizing kinds of behavior – or perhaps one should say that the latter kinds of behavior are colonized and exploited by extractive capitalism, suitably institutionalized –  and peasant economies surely involved calculations to some end, profit maximization and other capitalist traits. The question isn’t whether these traits existed, but how they became distributed and then became norms. When thinking through these grand categorical changes in the social economy, it is important to turn to contemporaries of the character shift and the vocabulary that it discovered and see how they interpreted what was going on.


My plaidoyer for Polanyi is not that he got every title and jot of this grand thesis right. Surely his idea of the market, and of those societies that do not have “markets”, would have been served by a more critical view of what markets are, and whether, under capitalism, they do not name mythical entities, idols of the tribe, rather than real things. Even if we go the full nominalist route, however, that doesn’t mean that the belief in markets does not have a very real social effect. However, if we are trying to understand how capitalism became dominant, we have to understand the opponent(s) it faced – opponents that may have had no self-consciousness whatsoever in themselves that they were part of anything but the natural order.

I think, for instance, of Blaise Pascal, who not only formulated an early modern probability theory, the kind of thing that could easily be seized on by merchants and their insurers, but also formulated a way of thinking of the thought styles of his time, the seventeenth century, when a mercantile mentality and a largely peasant culture were often subconsciously at odds.  Pascal’s three forms of the spirit – l’esprit geometrique, l’esprit de finesse, and l’esprit juste – give us a much deeper sense of what was in question, in the maintenance of the household, the community, and the person in peasant economies, than we are going to get from a rational choice grid. Although I don’t believe James Scott was thinking of Pascal, in particular, when he wrote about the hidden transcripts of the “little tradition” – the tradition outside of the modernizing, urban sphere – there’s a close fit between these various modes of motive and the resistance enacted by the serf, the slave, and the laborer, all of whom recognize that the power on the other side of cash nexus is not a power they will ever share, in as much as it is inimical to their very existence.

It is here that the heterodox economics historian wants to start off – in a space without the ideal fictions that economists draw for themselves in order to make that space accessible to “science”. For this reason,  economic historians in the 21st century, who don’t yet face a powerful alternative to capitalism, are unlikely to give up the project of conquering the past with the models of the present, even if the rules they are using predict a much different past than the one that we have. In fact, of course, even the present is not a rational choice, profit maximizing present. They have to adjust that present to fit their schemas, they have to nudge it, they have to recommend incentive sets that then get imposed on populations which continue to work using the blueprints of the moral economy they think they inhabit. That part of exploitation that has to do with emotional labor floats, in fact, the whole structure. The paradox, for mainstream economists, is that they cannot, as much as they would like to, counsel the past. The present is malleable, while the past, ah, the past – the problem is that the past can’t be fired.

More’s the pity, but there you have the concrete fact, the enormous tail that wags our current circs. Circs in which, in spite of the “domination” of market mentality, all society still rides upon a non-industrial, non rational choice ethos. An ethos of free lunches, of raising children, of favors, friendships, loves, passions, without which there would be nothing. Perhaps we need to inverse perspectives and look at our economy through this vantage point: finding the need for a choice-cosmos to be anthropologically interesting not as the discovery of a human universal, but as something more like magic, an ideological construct that preserves a certain social order.

I am a translator, author and editor living in Paris. I finished a novel in March, and am busy trying to find an agent. In the meantime, I thought I'd like to start a magazine. Willett's is meant to be a venue for the review of books, personal reflections, and political bitching - and everything else.
About Roger 78 Articles
I am a translator, author and editor living in Paris. I finished a novel in March, and am busy trying to find an agent. In the meantime, I thought I'd like to start a magazine. Willett's is meant to be a venue for the review of books, personal reflections, and political bitching - and everything else.

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