Industrial
Capitalism
 origins of the modern economy

Adam Smith — moral philosopher

Smith observes a pin factory: alone a worker makes perhaps one pin a day; ten workers, each performing one of eighteen distinct operations, produce 48,000 pins.

From this he draws two doctrines that will haunt the next 250 years:

• Division of labour — productivity is a function of specialisation, not effort.
• Invisible hand — self-interested exchange, under competition, can yield public benefit unintended by any party.

From workshop to mill

The artisan owned his loom; the factory operative does not. Steam, then water-frame and power-loom, demand fixed capital beyond what any worker can finance. Ownership of the means of production cleaves from the act of production.

Time itself is reorganised: the bell, the shift, the clock-card. Labour ceases to be a task and becomes an interval — sold by the hour.

• Cromford Mill, Derbyshire, 1771 — Arkwright's prototype
• Manchester cotton spindles, 1830: ~7 million
• British child labour reformed only after the Factory Acts (1833+)

Capital, mobilised

Industry consumes capital faster than retained earnings can supply. The banker becomes the indispensable intermediary, channeling the savings of widows, gentry, and rentiers into furnaces, rails, and ships.

• Bank of England, 1694 — first modern central bank; lender to the Crown.
• Rothschilds, c. 1810s — five sons across Frankfurt, London, Paris, Vienna, Naples; financed Wellington at Waterloo, the British purchase of Suez (1875), and bond issues for half the courts of Europe.
• Federal Reserve, 1913 — after the Panic of 1907, the United States accepts what it had twice rejected.

Three ledgers Marx wished to keep

• Surplus value — labour produces more value than the wage paid for it; the difference, appropriated by the owner, is the source of profit.
• Alienation — separated from the product, the process, fellow workers, and his own species-being, the worker is estranged within his own activity.
• Immiseration thesis — competition compels owners to accumulate, mechanise, and depress wages; crises of overproduction recur with deepening severity.

Whether the empirical predictions held is contested. The conceptual vocabulary did not go away.

Limited Liability

The Limited Liability Act 1855 and the Joint Stock Companies Act 1856 permit any seven persons, by registration alone, to form a company whose shareholders risk only the capital they have subscribed.

The corporation acquires the legal attributes once reserved for natural persons: it can own property, sue and be sued, contract, persist beyond any individual life — yet it cannot be jailed and it has no conscience.

• Risk is socialised, reward is privatised.
• Investment can scale without partners staking their estates.
• The "fictitious person" becomes the dominant actor in the economy.

Sherman Act, 1890

"Every contract, combination… or conspiracy in restraint of trade or commerce among the several States, is hereby declared to be illegal." Sponsored by Senator John Sherman of Ohio.

For nearly twenty years the Act was used more often against unions than against trusts. Then the Justice Department turned it on Standard Oil.

Standard Oil Co. v. United States, 1911

The Supreme Court holds, 8 — 1, that Standard Oil is an illegal monopoly. The trust is dissolved into 34 successor companies — among them the ancestors of Exxon, Mobil, Chevron, and Amoco. The shares Rockefeller receives in the breakup make him the richest man in modern American history.

Bismarck's bargain (1880s)

The Iron Chancellor, alarmed by socialist organising, introduces the world's first state social insurance: health (1883), accident (1884), old-age & invalidity (1889). Conservative in motive; transformative in effect.

The New Deal (1933 — 1939)

Roosevelt's response to the Depression. Banks recapitalised, securities regulated, public works employment, collective bargaining recognised, and — in 1935 — the Social Security Act.

The thirty glorious years

The Western settlement after 1945: Keynesian demand management, Bretton Woods fixed exchange rates, an unprecedented expansion of the middle class, and a tacit truce between organised labour and large capital.

• U.S. real GDP per capita roughly doubles, 1947 — 1973.
• Top marginal U.S. income tax: 91% in 1955.
• Union density peaks: U.S. ~35% (1954); UK ~50% (1979).
• Decolonisation reorders the world map; the Cold War constrains both blocs.

France: les trente glorieuses Germany: Wirtschaftswunder Japan: kōdo seichō

A short bibliography

• Adam Smith — An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
• Karl Marx — Capital, Volume I (1867)
• Karl Polanyi — The Great Transformation (1944)
• E. P. Thompson — The Making of the English Working Class (1963)
• Eric Hobsbawm — The Age of Capital (1975)
• Joel Mokyr — The Enlightened Economy (2009)
• Thomas Piketty — Capital in the Twenty-First Century (2013)
• Robert Skidelsky — Keynes: The Return of the Master (2009)

Further viewing on YouTube

• Industrial capitalism — history (search)
• Rockefeller & Standard Oil (search)