Capitalism summary

In September 1149, a Jewish merchant named Madmun ben Hasan sent a letter from Aden, Yemen, to his business partner thousands of miles away on India's Malabar Coast. He confirmed he'd received the shipment of pepper and ginger and added a business tip: iron had been selling well lately, and since the city's stock was completely depleted, next year looked promising too. 

This everyday note, written nearly nine centuries ago, sounds remarkably modern. Like any good businessman today, Madmun was concerned about inventory levels and market conditions. As early as the 12th century, merchants in port cities from Aden to Guangzhou, from Cairo to Florence were using money to generate more money through trade. Unlike nobles who commanded land and armies or peasants who farmed to feed themselves, they made their living by deploying capital: using money to generate more money through exchange. 

Between 1450 and 1650, something remarkable happened. Merchants didn't just trade more—they wove the world's scattered trading posts into a single, interconnected web. This "great connecting" transformed isolated pockets of commerce into the first true world economy, and with it, modern capitalism was born.

Picture the Indian port city of Surat in the 1600s. Its streets bustled with traders: Gujarati, Persian, Ottoman, Portuguese, and English. Ships carried textiles to East Africa, spices from the Moluccas, and pilgrims' silver from Mecca. One merchant, Virji Vora, accumulated a fortune worth eight million rupees. Surat wasn't unique—similar scenes played out in Amsterdam, Cairo, and Guangzhou. But here's what changed: these distant trading hubs were no longer separate islands. They were becoming nodes in an integrated global network.

Every morning in 18th-century Silesia, peasant families walked from mountain villages to regional trading centers carrying the linen they'd woven at home. Merchants purchased their cloth and exported it across the Atlantic—where it became clothing for enslaved people working Caribbean sugar plantations. This connection between European manufacturing and plantation slavery reveals something crucial about capitalism's development.

For centuries, merchants had traded goods over long distances. But starting around 1600, wealthy urban traders began investing their commercial profits directly into both agricultural and manufacturing production. They provided credit to rural workers, supplied raw materials, and controlled output. In regions like Silesia, businessmen such as Christian Mentzel came to own entire villages where thousands labored under feudal obligations, producing textiles for markets an ocean away.

Capitalism’s transformation from scattered islands of commercial activity into a true global civilization wasn't a smooth evolution—it was a violent, revolutionary upheaval that reshaped how humans worked, lived, and organized their societies.

Let’s travel back to 1780. In the dales and valleys of Scotland, Glasgow merchants, enriched by Caribbean sugar and American tobacco trades, began to reinvest their profits into modern cotton mills. These early factories achieved extraordinary returns—New Lanark Mill earned up to 46 percent annually in boom years. But the real revolution wasn't just new machinery. It was four interconnected innovations. First, concentrating workers in factories under direct supervision. Second, mobilizing millions through wage labor. Third, harnessing fossil fuels like coal. And fourth, generating sustained economic growth for the first time in human history.

By the 1860s, capitalism faced an existential crisis. Workers were smashing machines in Silesian factories and enslaved people were burning plantations across Cuba and the American South. Even wealthy industrialists were manning barricades in European cities, demanding political power to match their economic might. 

The old system—built on slavery, aristocratic privilege, and brutal factory conditions—was collapsing under the weight of its own contradictions. These rebellions forced a complete reconstruction of how capital, labor, and states operated, creating the system we recognize today.

The period between 1918 and 1975 saw capitalism face its worst crises, then reinvent itself in ways that would reshape the entire world. This transformation involved both horrifying violence and unprecedented liberation, often at the same time.

After World War I, capitalism seemed on the verge of collapse once more. Workers everywhere were rebelling. In 1919, Senegalese railway workers went on strike. When French authorities tried to crush them by placing the railway under military command, they discovered something crucial: French employees could assemble trains, but only African engineers could actually operate them. The strike succeeded and wages tripled. Industrial capitalism had created masses of workers who understood their own power.

After World War II, capitalism seemed to have found its sweet spot. Workers in places like Sweden enjoyed rising wages, generous vacations, and comprehensive welfare states. The "golden years" after the war delivered unprecedented prosperity—but they rested on a fragile foundation. When oil prices quadrupled in 1973, the entire system began to crack, revealing how reliant it was on inexpensive energy.

What came next was another reinvention. Chile became the laboratory for this transformation. After the 1973 coup, the military junta partnered with economists trained at the University of Chicago to implement a radical experiment: privatize state companies, slash welfare spending, crush unions, and unleash market forces. The results were brutal: real wages halved within a year, and unemployment hit 20 percent. Even US diplomats privately acknowledged that these policies required authoritarian rule—a “trade-off” they were readily willing to make.