Introduction to economic history (Unit 5)


History of Capitalism

Capitalism is a socio-economic system based on private property rights, including the private ownership of resources or capital, with economic decisions made largely through the operation of a market unregulated by the state. This unit traces the origin of capitalism and the elements of capitalism.

The history of capitalism is not limited to the nineteenth and twentieth centuries. To better understand the subject matter, one has to be prepared to explore the history of political life and thought, visual arts, literary self-expression, scientific discovery, religious intuition, and philosophical insight as well as those features of material existence that are investigated by the historian of economic advance.

Available evidence shows that capitalism is not limited to industrial societies. The term perhaps eludes a universal or essentialist definition, but it is invariably associated with ownership of private property, capital accumulation, wage labor, competitive markets, legally binding contracts in relation to services, and agreements concerning prices. Many of these attributes can be seen at work in the economic history of the central Middle Ages in Europe.

The Latin word “capitale”, gained recognition as far back as the centuries that followed the late fifth century collapse of the Western Roman Empire. As early as the mid-thirteenth century “capitale” was being used to describe a merchant’s stock of goods and by the 1280s its meaning had extended to include the entire assets of a firm or business engaged in trade. When used to refer to an individual who owns capital, the word ‘capitalist’ had established itself in English usage by the mid-seventeenth century. A history of the word alone explains why a narrative account of capitalism needs to extend over a millennium and a half of recorded human history. Research conducted by the Legatum institute suggests that some features of capitalist endeavor e.g., globalization, may be witnessed in societies that are more ancient even than those of Greece and Rome.

Evidence shows that Islam, which started in Medina, marked the advent of capitalism, first in Medina, then in Arabia and in the realm of Islam, and going beyond Islam’s borders, in Europe.

Although, Islam is a religion and as such cannot be reduced merely to an economic system, Muhammad had a significant impact on changing economic systems in the Middle East, which transferred to economies in Europe. Muhammad gave advice on property investment, which promoted pro‐market policies and framed institutions that supported entrepreneurs. There were advances in law and economics, and the creation of a gold currency.

Muhammad’s position that, “Prices are in the hand of God,” corresponds with Adam Smith’s concept of the “invisible hand” that guides markets, this rescinded conventional wisdom on how to regulate markets. What this proves is that, to be fair if Adam Smith can be considered as father of market economies, recognition should also be given to Muhammad.

An assessment of the history of capitalism reveals that the concept dates as far back as the creation of religion and states.


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