Economists and economic theorists began to emphasize the powerful role of capitalism
in the eighteenth century. In the same way that Vasari saw Italian artists of his
own era as taking art to levels it had never before achieved, the Scottish economist
Adam Smith (1723–90), in Inquiry into the Nature and Causes of the Wealth of Nations
(1776), saw recent developments as offering great possibilities for economic growth.
For Smith, people had a natural tendency to trade with one another. This inclination
led to the specialization of labor, as fi rst individuals, then groups, then regions, and
ultimately nations, concentrated on products and tasks that they could produce or
carry out better than their neighbors. The highest level of development, production,
and innovation, the greatest “wealth of nations,” would best be achieved by allowing
free trade and open competition in both products and labor, an economic system later
called capitalism, though Smith himself did not use this word.
Economic theorists since Smith have also seen capitalism as a powerful system that
became increasingly dominant in the European economy during the early modern
period. The German philosopher Karl Marx (1818–83) agreed with Smith that capitalism
promoted economic growth, though he saw the origins of that growth not in free
exchange, but in an unequal relationship between workers (the “proletariat”) and the
entrepreneurs who employed them and who owned the raw materials and equipment
(the “means of production”). In Marx’s view, the wages paid to the workers are always
less than the value of the goods they produce, and the difference between the two is the
profi t, which fl ows to the entrepreneurs who organize production and handle trade,
not to the workers themselves. In an economy dominated by noble landlords, excess
profi t went largely into consumption : buying fancy houses, clothing, or other goods;
in a capitalist economy, some or most of the profi ts were invested in productive enterprises
designed to make still more profi t.
The development of capitalism was slow, uneven, and complicated. It involved
changes in the organization of production and the handling of money, and also an increase
in the amount of goods manufactured, bought, and sold. This expansion of the
European economy was driven in part by a growth in population. Population statistics
before the advent of regular registrations of births, baptisms, marriages, and deaths are
sketchy, but many demographers set the population of Europe at about 80 million in
1300. Famine, plague, and other diseases killed off at least a quarter of the population in
the next century, but by about 1500 it had climbed again to pre-plague levels and over
the next century it climbed gradually to about 100 million. Rulers and their offi cials
regarded the growth in population as a good thing, for more people offered the possibility
of greater economic and military power.
METHODS AND ANALYSIS 5 TheWeber thesis
Why would investors and entrepreneurs want
to make more money than they needed to
live well? Luther and other clerical commentators
attributed this to greed, one of the seven
deadly sins and thus part of basic human
nature. The German sociologist Max Weber
(1864–1920), noting that capitalist forms
of production developed more quickly and
vigorously in Protestant, especially Calvinist,
areas, saw a causal link between the two. In
The Protestant Ethic and the Spirit of Capitalism,
fi rst published in 1904–5, Weber argued
that anxiety about predestination led Calvinists
to search for signs that they were among
the “elect” chosen for salvation; they came to
believe that hard work in one’s chosen vocation
(a word that comes from the Latin word
for “calling,” and implies that God or nature
has called one to this particular line of work),
proper moral conduct, and a disciplined, ascetic
lifestyle could serve as such signs. This “Protestant
ethic” made business activities and the
maximization of profi t morally legitimate, and
a way to honor God, particularly if they were
accompanied by restricting one’s consumption.
The “Weber thesis,” as this line of argument
has come to be called, has provoked a century
of debate among historians, who point to
fi fteenth-century Italian Catholic merchants
who began every ledger “in the name of
God and of profi t,” and seventeenth-century
Dutch Calvinists who spent money lavishly on
paintings, books, and tulips. They note that if
there is a correlation between Calvinism and
business success, it might better be explained
by greater opportunities for schooling often
available in Protestant areas, or the fact that
some Calvinists were refugees or religious
minorities enmeshed in close networks that
could serve as business connections. Some
contemporary economists have pointed to
the importance of what they term “cultural
factors” in explaining economic growth, however.
These include “the desire to achieve,”
respect for property rights, and effective law
enforcement, all values that Calvinists, and
their English and American successors, the
Puritans, fi rmly supported.
The rising population brought problems as well as opportunities, however. The demand
for food increased, leading to a sharp rise in food prices, especially the price of
grain, which increased between four- and sevenfold across Europe during the period
from 1450 to 1620. Prices of fi rewood and charcoal also rose, as people chopped down
trees for fuel or to increase the amount of land under the plow. Forests contracted
sharply in size, and new land was created as coastal areas and marshes were diked
and drained. The hardest hit by rising prices were those who had to buy all or most
of their food, especially the urban and rural poor; this led to bread riots and other
types of violence. In 1497, a crowd of poor people in Florence attacked the city’s public
granary, provoking a riot in which some of them were trampled or crushed to death.
In 1585, the city council in Naples ordered that the standard loaf of bread would be
smaller but cost the same, a common practice in cities during times of shortage. A mob
seized one of the council members – who was also suspected of speculating on grain
prices – killed him, mutilated his corpse, and sacked his house. Crowds did not regularly
kill offi cials, but they often rioted, seizing grain, fl our, or bread and then selling it
at what they regarded as a “just” – that is, lower – price.
Governments, private groups such as guilds and trading companies, and even the
church often attempted to shape economic growth by imposing tariffs and taxes, setting
wage rates, establishing monopolies, and passing other sorts of regulations. National governments
attempted to build up their own industries by setting high tariffs on imported
manufactured goods and promoting exports. Government actions to ensure a positive
balance of trade were part of an economic doctrine later called “ mercantilism,” which was
predominant in Europe from the sixteenth through the eighteenth century. Mercantalists
saw the amount of trade and production as fi xed, so their policies were directed at grabbing
a bigger piece of the pie, and then taxing it and defending it, by force if necessary.
Government and personal responses to rising prices generally made things worse.
Governments devalued coins, which meant they minted coins with less precious metal
content – either by making smaller coins or by mixing precious metals with other
metal such as lead – but this only drove prices up faster as people demanded more of
the devalued coins for any purchase. Merchants and millers hoarded grain and fl our
in hopes of greater profi ts to come, which drove prices up further, and cities and nations
prohibited the export of food, which often kept food from where it was especially
needed. Most famines in Europe were quite localized: one valley might have too little
rain, while the next one was fi ne, or one village might experience especially devastating
hailstorms right at harvest-time, which missed neighboring villages.
The increasing population meant there was no shortage of tenants, and landowners
raised fees, fi nes, and rents; rents on land in England may have increased as much
as ninefold between 1510 and 1640, while grain prices went up fourfold. Rural rebellions
such as the German Peasants’ War (1524–5) or Kett’s Rebellion in England (1549)
combined religious demands with those for a rollback to earlier levels of rent or fees,
and iconoclastic riots in the cities of the Netherlands often occurred in years of sharp
upturns in the price of grain. There was also no shortage of workers, especially those
who had little specialized training, so that wages increased much more slowly than
food prices or rent, and real wages declined. In eastern Europe, as we will see in more
detail below, landlords increased rents and labor services, and eventually reintroduced
serfdom, as they sought ways to take advantage of rising grain prices.
Wages increased more slowly than prices for manufactured goods, and enterprising
investors saw the opportunity for enhanced profi ts in manufacturing. They developed
new forms of capitalist organization for the production of goods, hiring families of
workers while retaining ownership of the raw materials, tools, and fi nished products.
The fulling mill that so threatened Don Quixote was one example of this. Some of
these merchant-entrepreneurs were able to profi t from the enormous amounts of gold
and silver coming into Europe from the Americas. This infl ux of precious metals drove
down the value of coinage, which was made from gold and silver, the same way that an
increase in the supply of any commodity reduces its price. The long period of prices
increases, which economic historians label the “price revolution,” enhanced the wealth
and power of long-standing elites, such as eastern European noble landholders, and of
relative newcomers, such as western European merchant- entrepreneurs.
Trade, production, and population growth are all important factors in explaining
Europe’s economic expansion. In the early modern period, however, that expansion
did not change the fact that the vast majority of Europeans lived in rural villages, growing
crops and raising animals for their own use, for the use of their landlords, and for
sale. In 1450, about one out of every twenty Europeans lived in a town or city with more
than 10,000 inhabitants; by 1800, that proportion had only climbed to about one out
of every ten. There were places, such as the Netherlands, where by 1800 three out of
every ten people lived in cities, but these were offset by Scandinavia, northern Spain,
and eastern Europe, where there were almost no cities at all. Thus any discussion of the
European economy must begin in the countryside.
World History
