Nos. 44-46, April 2008

Nos. 44 - 46
(April 2008):


India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
II. How Capitalism Emerged in Europe

What capitalism is, and how it emerged in Europe over the course of several centuries, is a vast and complex subject. But in order to contrast that process with what occurred in India, it is useful to mention a few aspects. (A warning: we have not presented developments in chronological order, since the aim is to describe processes.) Some readers might find this a tedious digression, and others might find it over-simplified. Nevertheless, our reason for mentioning these aspects will become clear later, as we describe the pattern of development in India.

Class struggle within feudal society propelled social development
Capitalism in Europe was preceded by feudalism. Under feudalism, land was overwhelmingly the main means of production. Land was owned by feudal lords, and a large number of peasants bound to the land worked it in small farms. There was also a smaller number of artisans, who owned their meagre means of production. The surplus product of these peasants and artisans, the direct producers, was extracted by law, custom and force by feudal lords. The form in which the surplus was extracted ranged, depending on place and time, from serfdom with forced labour to the point of mere payment of tribute (in kind or cash). Secure in a stagnant society, these lords had little interest in improving technique and expanding output, which grew, at best, very slowly.

The basic conflict in feudal society, the conflict that propelled society forward, was between these direct producers and the landowning lords. In order to maintain their class power, the feudal lords tried to maximise the rent they extracted from the peasants.1 The peasants struggled in various ways to end, or at least curtail, this extraction of the surplus, sometimes by open revolt, sometimes by fleeing the land.

In the course of these struggles many peasants were able to relax the stranglehold of the lords, to keep some surplus for themselves, and to improve and extend their cultivation. Additionally some artisans and merchants became wealthy enough to buy land in their own right, breaking the lords’ monopoly on land ownership. And so another process began: some producers improved their production faster than others, and were able to accumulate some capital within the petty mode of production itself; and over time there developed a class of relatively prosperous farmers alongside impoverished peasants. This polarisation helped lay the basis for the wage labour that would be needed under capitalism.

Growth of merchant capital; decline of the old order
Over the centuries of feudal society, as the surplus grew to some extent, trade also grew. Around that trade grew towns where merchants enjoyed some political power. These merchants chafed under certain feudal restrictions and irrationalities. Since trade suffered under the multiple authorities and taxes of various feudal lords, it was in the interest of the merchants to promote a strong central nation-state, as developed from the 15th century.2 Yet the merchants were hardly an anti-feudal force: they fed off the declining feudal order and prospered under it, enjoying official monopolies and high margins. Merchant capital did not lead to industrial capital through its own development.

Nevertheless, the money power of the towns’ well-to-do, the relative political freedom of the towns, and the contact with ideas from distant lands (such as the vibrant Arab civilizations), helped germinate far-reaching changes in religious doctrines and philosophy, mathematics and science. On the one hand religious movements, known as the Protestant Reformation, arose against the authority of the Catholic Church (which, located in Rome, was itself a great feudal landlord throughout Europe, irksome to rising nation-states like England). Even more radical was the revolution in mathematics, science and philosophy brought about by Francis Bacon, Copernicus, Galileo, Descartes, Leibniz and Newton: now men learnt that the universe did not revolve around the earth, rather the earth revolved around the sun, and the laws governing its motion were discovered and propagated.

The associated change in the world-view of the intelligentsia has been termed the Enlightenment: in the new ideology, the force of human Reason now unseated established authority, such as the Church and the King. The State itself was now no longer seen as God-given, but the product of Man, a ‘social contract’ among men for their benefit. That implied that if the State were not functioning for their benefit, it was justified to overthrow it and replace it with a new one.

While the broad masses of people, who bore the burden of the feudal order on their backs, had neither the education nor the opportunity to study all these theories, elements of such thought filtered down to them. When the bourgeoisie seized power from the feudal class, it was generally a violent affair in which the bourgeoisie needed the help of the masses, and so the masses were stirred up with slogans of liberation. Thus it was that the British waged a civil war and eventually chopped off the head of their King in 1649; and the French in 1789 began a far more profound revolution, not only decapitating their royalty but sweeping away feudalism much more comprehensively. The French revolution declared “liberty, equality, fraternity” as its motto.

The creation of the working class, the rise of capitalism
However, the bourgeoisie used the struggle of the masses against the feudal order not to put the masses in power, but in order to seize power for themselves. With the rise of capitalism the fate of the labouring poor was to be dispossessed, and have nothing to live by but by selling their power to labour. In England, as forward-looking landlords saw money to be made in farming in the new commercial way, they got around the feudal restrictions which prevented land changing hands, and ousted their numerous tenants, hiring a much smaller number of landless labourers as wage labour. Moreover, small holders in economic distress could be got to sell their land cheap. And, eager to supply the growing market for wool, budding agricultural capitalists seized and enclosed the once-common lands of the village as their private pasture for their sheep, impoverishing and uprooting local peasants.

These terrible upheavals were essential to the growth of industrial capitalism: First, the improved methods of agriculture introduced on consolidated, larger farms by the profit-oriented landowners multiplied output and made it possible to feed a much larger workforce outside agriculture; secondly, the huge numbers of peasants thus ousted from agriculture added greatly to the workforce available for manufacturing goods.

Under feudalism, most household requirements – shoes, clothes, tools, furniture – were made at home. A limited number of goods were produced for the market by artisans/craftsmen employing, say, two or three men, working with their own tools and raw materials. But as trade grew, merchants, seeking to increase production, began supplying materials and purchasing the finished goods from the craftsmen; the latter still owned their own tools, but they largely lost their independence and were now working for the merchant.

However, what definitively marked the emergence of capitalism was not simply production for the market, but the system in which all the means of production – the tools/machines, the raw materials, and the location – belonged to the capitalist,3 and the labourer had nothing to sell but his/her own labour power; labour power had itself become a commodity bought and sold on the market. Feudalism had needed the use of custom, law and force to extract the surplus from the producers, who possessed plots of land, or artisans’ tools/equipment, but under capitalism it was no longer necessary to rely on such non-economic methods. The worker had the choice of working for the capitalist or starving. Surplus extraction now was carried out by the impersonal laws of the market.

The new capitalists demanded, and got, the abolition of monopolies and privileges in trade and industry on which merchant capital had fattened under feudalism, and thus established free competition at home.

Primitive accumulation; the protection and acquiring of markets
Setting up capitalist enterprises would require considerable investments; where did the initial sums come from? The religious sects promoted by the capitalists, such as Puritanism, preached that capital was accumulated by virtuous thrift (and some latter-day neoclassical economists preach much the same; they call the return on capital, for example, the “reward for waiting”). But in fact the initial capital was got largely by various types of plunder and forced labour. We have already mentioned the measures which ousted and destituted the peasants. Add to this the plunder of the territories overseas, the slave trade, and the use of slave labour in the colonies – all justified by the development of a racist ideology and backed by the European state powers. Marx described one aspect of what he called the “primitive (or primary) accumulation of capital” in a famous passage:

The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of blackskins, signalise the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief moments of primitive accumulation.4

England, for example, generated huge trade deficits with its colonies (that is, it imported more than it exported to them), and in effect gave nothing to the colonies in exchange; it could do this only because it exercised military and extra-economic power over them. These amounted to giant, unrequited transfers. Even taking only England’s unrequited trade deficits with the West Indies and India, total investment in England was raised by between two-thirds to over four-fifths by these transfers during 1770-1820 – the very period of the ‘Industrial Revolution’ in England.5

Apart from the initial capital, capitalists also needed to be assured of a market. While the new capitalists established free competition at home, they were happy to use State intervention against external competition. Once again the nation-state came in handy to capitalism. Large imports of cotton textiles from India not only threatened the market of English woollens manufacturers, but showed how profitable manufacture of cotton textiles in England could be – if only it could protect itself against imports of superior Indian cloth. And so, at the start of the 18th century, England passed laws banning imports of cotton goods, and even the wearing of such imported goods. Meanwhile, with the help of its military might, it opened up foreign markets. Not until the mid-19th century, when Britain was overwhelmingly the leading industrial power worldwide, did it dismantle protection and begin to champion ‘free trade’ – till it faced new challengers by the end of the century, whereupon it returned to protectionism.

Industrial Revolution
While productive forces developed to some extent before the bourgeois seizure of power (with the 17th century Civil War in England, or the French Revolution beginning in 1789), that seizure of power preceded the really dramatic development of productive forces.

In England, (i) the creation of a large uprooted labour force (assuring capitalists a steady supply of workers at low wages even as production grew); (ii) the pillage from the colonies and the grabbing of the commons; and (iii) the protection of the domestic market and the forcible prising open of foreign markets, combined to create conditions for new technology. It was in the 18th century, and particularly after 1760, that the famous series of innovations began that are now termed the Industrial Revolution: the flying shuttle that increased the speed of weaving and the widths of cloths, and the powerloom that increased that speed further; the spinning jenny, water frame and mule that successively increased the speed and quality of spinning; and the steam engine, that was first applied in a cotton mill in 1785 and to a railroad in 1804. The factory system reorganized work, with much greater division of labour, supervision of work and specialization of function. Where land was overwhelmingly the main means of production under feudalism, under capitalism, the main means of production became industry.

Massive expansions followed in the coal, iron and railroad industries, and thereafter in every sphere: “for the first time in human history, the shackles were taken off the productive power of human societies, which henceforth became capable of the constant, rapid and up to the present limitless multiplication of men, goods, and services.”6 So abnormal was the rate of change “as radically to transform men’s ideas about society from a more or less static conception of a world where from generation to generation men were destined to remain in the station in life to which they had been appointed at birth, and where departure from tradition was contrary to nature, into a conception of progress as a way of life and of continual improvement as the normal state of any healthy society.”7

However, it is mistaken to credit this transformation merely to new technology: “industrial inventions are social products in the sense that... the questions that are posed to the inventor’s mind as well as the materials for his projects are shaped by the social and economic circumstances and needs of the time.” Some innovations had to wait to be implemented till economic and social circumstances were favourable: for example, the smelting of iron with coal was probably discovered in 1620, but it was only a century later that it was put to successful use.8 Nor was innovation mainly a matter of scientific genius: “the practical problem of smelting with coal... was solved before the chemistry of metallic compounds was properly understood. The problems these men of industry and invention put to themselves were formulated, not a priori, but out of the fullness of their own experience.... [T]he qualities and experience needed for successful synthesis and application are often those of an industrial organizer rather than of a laboratory worker.”9

Innovation now became a compulsion: Each capitalist was driven to keep increasing the productivity of labour, failing which he would be swallowed by his competitors. Capital not merely reproduces itself, but it must do so on an expanded scale. The purpose of production under capitalism is to accumulate more capital. (Marx further foresaw that in this process the large number of small firms would be reduced to a handful by the action of the inherent laws of capitalistic production itself, by the centralisation of capital. “One capitalist always kills many.”10 But monopoly capital only emerged after an extended period of unfettered competition.)

Capitalists of humble origin; competitive markets; technology easy to diffuse
While the wealthy merchants financed these new enterprises, they were not the main agents of this change: “the personnel which captained the new factory industry and took the initiative in its expansion was largely of humble origin, coming from the ranks of former master craftsmen or yeomen farmers with a small capital which they increased by going into partnership with more substantial merchants. They brought with them the rough vigour and the boundless ambition of the small rural bourgeoisie; and they were more inclined than those who had spent their time in the counting-house or the market to be aware of the detail of the production process, and so to be alive to the possibilities of the new technique and the successful handling of it. Among the new men were master clock-makers, hatters, shoemakers and weavers, as well as farmers and tradesmen.”11

At this stage of capitalism’s growth, the number of capitalist enterprises was large, and each firm was relatively small, so markets were competitive. The technological advances were still at a level where they could be easily diffused, and could not be monopolized by a few firms; these advances were soon spread to the Continent – despite attempts by Britain to the contrary – by export of British machinery and British skilled workers. Belgium, France, Germany and the U.S. all developed with the help of British know-how.12

Massive shift of workforce to industry
One might imagine that, since innovations like the spinning-jenny and the powerloom meant that the same amount of production could be carried out with far fewer workers, they would reduce the size of the working class. No doubt, such innovations ensured the existence of an army of unemployed workers, so that wages did not rise to the point where they hurt profits. But they gave so great a boost to investment in a whole range of industries (machinery, coal, iron) within Britain that they resulted in a net increase in the demand for labour. Further, the development of railroads attracted enormous investment. Thus, in countries which underwent capitalist transformation, not only did industrial output soon dwarf agricultural output in national income, but the industrial workforce soon overtook the agricultural workforce. This shift took place first in England, where the share of the workforce in agriculture sank to 14 per cent by 1871, compared to 55 per cent employed in ‘industry and trade’.13 Although the pace of the shift was slower in other countries, a similar process was a necessary part of capitalist development in all such countries.

With urbanization, various items of mass consumption such as clothing and footwear were now no longer made at home, but had to be bought by workers. The sheer increase in the industrial workforce meant that the purchasing power of the masses multiplied. Thus industry gained a growing internal market for such goods, limited though it was by the fact that the workers were paid such low wages. The growth of capitalist agriculture too was sustained by demand from the growing number of workers absorbed in industry.

In order to compete with one another, capitalists required the constant cheapening of production, one element of which was the cheapening of raw materials. Capitalism brought this about by industrialising agriculture. The differences between the productivity of workers in the two major sectors of the economy, industry and agriculture, tended to narrow in this process.

Establishment of capitalist social values

The change in the class structure naturally resulted in a change in the dominant social values – which are always the values of the ruling class. “The hand-mill gives you society with the feudal lord; the steam-mill society with the industrial capitalist.”14 As we mentioned, the social background of many first-generation men of capital was humble, and, while they bought up titles and ranks with their new money, they advertised the fact that they were ‘self-made men’. The bureaucracy now was thrown open to a wider social section: the French Revolution instituted this by a system of national examinations. In Japan, where till 1868 only the samurai (military nobility) could bear arms or hold public office, all such privileges were abolished, all classes could be conscripted into the army, universal public education was instituted, and education and ‘ability’ were made the basis for recruitment to public office. Hobsbawm indeed claims that “The crucial achievement of the two revolutions (the Industrial Revolution and the French Revolution) was thus that they opened careers to talent, or at any rate to energy, shrewdness, hard work, and greed. Not all careers, and not to the top rungs of the ladder, except perhaps in the USA. And yet, how extraordinary were the opportunities, how remote from the nineteenth century the static hierarchical ideal of the past!”15

The new ideology of course helped justify the miserable condition of the labouring masses, for evidently in such an open system poverty could only be the result of laziness or stupidity.

However, while the capitalist class had defeated the old classes and established its supremacy in the economic, political and ideological spheres, it had created a new class, vast and growing – the proletariat. At the time of the Revolution of 1649 or the Revolution of 1789 the proletariat in England and in France was not yet formed as a class, and was not conscious of its existence as a class; workers followed the lead of the bourgeoisie without advancing independent demands. Yet within a short time after the French Revolution, workers began organising on class demands, both economic and political. The Chartist movement of 1838-48 in Britain was the first political organisation of the working class; in 1864 the first International Working Men’s Association was born; and 1871 witnessed the first, albeit short-lived, state power of the working class, the Paris Commune. The publication of Marx and Engels’ Communist Manifesto in 1848, followed by Marx’s Capital in 1867, provided what eventually became the dominant ideological basis for working class organisation. Thus capitalist society was marked by the sharp contention between two great classes, the capitalists and the working class.  

The above description is intended only to highlight a few aspects of the development of capitalism in order to bring out certain crucial linkages within it (they are not listed in chronological order; indeed they overlap):

(i) Class struggle, accumulation and class polarisation: The class struggle of peasants helped restrict feudal extractions; this helped the accumulation of some capital within the petty mode of production, and this accumulation helped the development of productive forces; this development increased the polarisation of the peasantry into different classes.

(ii) Ousting of peasantry, creation of working class and a mass market: A large labour force was ousted from agriculture by agricultural capitalists; the new methods then adopted in agriculture led to an increase in agricultural productivity, generating a surplus to feed the growing industrial workforce, and cheapening the raw materials needed by industry. Meanwhile the labour ousted from agriculture was substantially absorbed in capitalist industry; this increased the purchasing power of the masses and created a domestic market for mass consumption goods.

(iii) Creation of a machine-building industry, increased productivity displacing workers, yet growing working class: The Industrial Revolution and the development of factory production led to the development of an industry producing machinery, coal, iron, and railroads. Since these heavy industries, particularly the machine-building industries, developed within the same country as the light industries, the size of the working class as a whole continued to grow despite labour productivity increases in the light industries – i.e., workers displaced by productivity increases in light industry got absorbed in the heavy industries. Industry emerged as the main means of production in the economy. It had the dominant share not only of the national income but also, crucially, of the workforce.

(iv) Development of the nation-state as protector and capturer of markets: The development of the nation-state was spurred by the growing internal integration of the economy of a region. In turn, it promoted that integration. Both rise of the nation-state and the integration of its economy fueled the rise of national allegiance and national sentiment. Commercial interests stood to benefit, as the new State power worked actively to protect the domestic market and seize foreign markets.

(v) Competitive capitalism, diffusion of technology, and the rise of monopoly: When competitive capitalism developed in Britain, technological innovation progressed at relatively elementary level (without a specialized research and development division). Thus in this phase it was relatively easy to diffuse technology to other firms and other countries. Monopoly capital emerged only after and through an extended phase of competitive capitalism.

(vi) Ascendancy of different classes and their world-views: As the feudal order declined and new ideas germinated challenging established authority, the ground was prepared, at the ideological level, for the sharpening contradiction between the bourgeoisie and the feudal order. Society passed generally through violent mass upheavals before bourgeois hegemony could be securely established. It is through these upheavals that feudal consciousness and feudal allegiances declined and a bourgeois democratic consciousness was given birth. Triumphant, the capitalist class stamped society with its new social values. However, the same social developments also led to the formation and rise of the industrial proletariat. This class had the potential for conscious contention with the capitalist class and the capacity to advance its own world-view.

The above are not separate strings. They are intertwined, interacting with one another. They do not represent simple chains of causation, but rather the links between the various developments.

This was the classical pattern established in Britain; the course was not identical in any of the countries that industrialised thereafter. Upto the late 19th century, the later the entrant, the greater the advantage it had of being able to import the technology and to complete the process of industrialisation relatively fast; but, generally, the more it had to rely more on State intervention and subsidies to do so. The forced pace created certain strains and weakness of bourgeois democratic consciousness in countries such as West Germany and Japan. As the phase of competitive capitalism receded and was transformed into monopoly capitalism, this path of diffusion of capitalism was more or less closed to new entrants.

India, under colonial rule, did not merely traverse a different specific path to capitalist development: rather, while individual elements of development here resembled the development of capitalism in the capitalist countries, crucial linkages were damaged or broken in a way that Indian society and its economy were stunted and deformed. We need to keep in mind the linkages mentioned above as we look at the processes imposed by colonial rule in India.



1. This characterisation of feudalism is based on articles by Maurice Dobb and Rodney Hilton in The Transition from Feudalism to Capitalism, ed. Rodney Hilton, 1976. (back)

2. The rise of the nation-state, and the development of popular allegiance not to a feudal lord, but to ‘the nation’, over the long term helped to undermine feudalism and to establish bourgeois hegemony over society. (back)

3. Such establishments first came up on the basis of manual labour, improving handicraft technology with the division of labour (the ‘manufactory’); this paved the way for the emergence of the factory, which replaced the artisan’s tools with the machine. (back)

4. Capital, vol. I, p. 751. (back)

5. Utsa Patnaik, “The free lunch: transfers from the tropical colonies and their role in capital formation in Britain during the industrial revolution”, in Jomo K.S., ed. Globalization under Hegemony: The Changing World Economy,2006. (back)

6. E.J. Hobsbawm, The Age of Revolution, 1789-1848, p. 45. (back)

7. Maurice Dobb, Studies in the Development of Capitalism, p. 256. (back)

8. Dobb, pp. 268, 270. (back)

9. Dobb, p. 269. (back)

10. Capital, vol. I, p. 788. (back)

11. Dobb, p. 278. (back)

12. A section of the ruling class of Japan had witnessed the subjugation of China by western imperialism and apprehended a similar fate for their own country. Violating feudal restrictions, they organized a non-samurai army (including peasants and outcastes) to overthrow the existing rulers in 1868 and bring about Japan’s social and economic modernization. The new regime – the ‘restoration’ of the Meiji Emperor – promptly imported equipment and skilled workers from the Netherlands, England, France, Italy and other European countries, and set about systematically absorbing the imported know-how. Contrary to the pattern in Europe, it gave first priority to the heavy industries, particularly for military reasons, and only once it was firmly established in these did it move on to develop the light industries such as textiles; this was possible only because the State itself built the core industries with its own revenues. Japan was the last country that was able to perform this transformation before the rise of monopoly capital by the end of the 19th century. (back)

13. Michel Beaud, A History of Capitalism, 1500-2000, p. 97. (back)

14. Marx, Poverty of Philosophy, ch. 2. (back)

15. Hobsbawm, op. cit., p. 226. (back)



NEXT: III. Colonial Rule: Setting the Pattern


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