Liberal Capitalism and the Industrial Revolutions: A Socioeconomic Analysis
Liberal Capitalism: Theoretical Foundations
Classical School of Thought
Economic liberalism forms the bedrock of liberal capitalism. Its principal theorist, Adam Smith, along with David Ricardo and John Stuart Mill, constituted the core of the classical school. Adam Smith (1732-1790), in his seminal work, The Wealth of Nations, championed individual prosperity as a catalyst for national enrichment, prioritizing private interest. He advocated for minimal state intervention in the economy, believing it should be regulated by the natural forces of supply and demand.
David Ricardo (1772-1823) reinforced the principles of economic liberty and non-intervention. His “Iron Law of Wages” posited that workers’ wages should be kept at subsistence levels. He argued that higher wages would increase demand, leading to price inflation, thereby negating any real increase in the proletariat’s purchasing power.
Key Assumptions of Economic Liberalism
- Freedom: This encompassed free trade (unfettered by customs barriers), free contracts between employers and workers, free enterprise (allowing businesses to determine production levels and pricing), and freedom of association (though worker associations were initially discouraged due to the potential for strikes).
- Supply and Demand: The economy was viewed as self-regulating, governed by the interplay of supply and demand. Excess supply would lower prices, stimulating demand; conversely, high demand would raise prices, eventually curbing demand.
- Capital Accumulation: Entrepreneurs were encouraged to maximize sales and profits while minimizing labor costs. These profits were to be reinvested to expand production, not distributed to improve workers’ living conditions.
Economic liberalism fueled industrialization, the expansion of global markets, and the rise of large corporations. However, it also separated ethics from economics and neglected the social consequences of industrialization.
The First and Second Industrial Revolutions
Chronological and Technological Developments
The First Industrial Revolution (1780-1850) was powered by steam and water, with innovations like Watt’s steam engine. The Second Industrial Revolution (1870-1914) saw the emergence of new propulsion systems, including the internal combustion engine (Daimler, Benz, Diesel) and the electric motor.
Key industries in the first revolution included textiles, iron, and steel. The second revolution witnessed advancements in steel production (Bessemer converter, Thomas process, electric arc furnace), metallurgy (aluminum, zinc, nickel), chemistry (artificial dyes, fertilizers, explosives, plastics), and the rise of the automotive industry (Daimler-Benz, Ford, Citroen, Chrysler).
Markets evolved from national and European in the first revolution to global in the second, driven by large-scale capitalism and colonial expansion.
Financing shifted from small-scale, owner-financed businesses in the first revolution to large industrial concentrations (trusts, cartels, holdings) in the second.
Labor transitioned from unorganized in the first revolution to organized unions, with the rise of socialist and anarchist movements in the second. England led the first revolution, while the U.S. and Germany dominated the second.
The Rise of Big Capital
Commercial capital, fueled by geographical discoveries and new trade routes to America and Asia, evolved into industrial capitalism, based on supply and demand, free labor, and free trade. By the late 19th century, financial capitalism emerged, with banks transforming from deposit institutions to credit providers, financing increasingly complex and expensive machinery and industrial expansion.
Industrial Concentration
- Cartels: Eliminated competition by dividing markets and setting higher prices.
- Trusts: Merged companies within the same sector to eliminate competition and control the market.
- Holdings: Dominated companies across different sectors through majority share ownership.
Economic Crises of the Modern Era
Modern economic crises, characterized by global overproduction and cyclical patterns, contrasted with older crises caused by shortages. Kondratieff cycles (25-50 years) alternated between expansion and depression, while Juglar cycles (8-10 years) followed similar patterns.
Bourgeois and Proletariat Life and Culture
The Bourgeoisie
The bourgeoisie, comprising industrialists, bankers, and entrepreneurs, spearheaded urban transformation and held economic and political power. They frequented new social venues like theaters, casinos, and opera houses, and displayed their wealth through lavish homes and attire. Marriage was often a strategic alliance to enhance property and social standing. Leisure activities included private clubs, beach resorts, spas, and sports like soccer, rugby, tennis, and golf. The revival of the Olympic Games in 1896 and the first Tour de France in 1903 marked this era.
The Proletariat
Industrial capitalism created a new working class reliant on wages. By 1850-1880, workers constituted nearly a quarter of the population in developed European countries. They lived in overcrowded, unsanitary districts near factories. Work hours, initially as high as 15, gradually decreased to 8. Women and children formed a significant part of the workforce, enduring low wages and poor living conditions. Diets were basic, and social problems were rampant.