DYNAMICS OF CAPITALISM

Can understanding abstract dynamics of capitalism help to explain our everyday lived experiences of business and society?

Can understanding abstract dynamics of capitalism help to explain our everyday lived experiences of business and society?

Capitalism and Technological Progress

The most striking feature of industrial capitalism, seen either in its early periods or in historical hindsight, is its enormous success in implementing technological changes that expanded the supply of goods and services available for consumption. No one said it better than Karl Marx and Friedrich Engels in their Communist Manifesto of 1848.

New ideas are the driving force of human experience original ideas about how things work, about other ways of doing things and new things to build and try out. Consequential ideas began arriving relatively frequently with the civilizations of the ancient Babylonians, Indians, Mediterraneans and Chinese. The Aristotelian ethic, which viewed pursuit of knowledge as central to the good life, encouraged careers of investigation and exploration. Notably in the Renaissance and Baroque eras, new ideas of scientists and navigators led to discoveries which in turn created commercial opportunities for entrepreneurs. The new goods or methods in use products, as we say today came to be called innovations. Yet the economies in those two eras were themselves not appreciably creative. Interestingly, these storied discoveries did little to raise productivity, which by 1800 hardly exceeded the levels in the 1100s (Hall 2011, 24-29).

With the advent in the early 1800s of modern times, new ideas have come more and more from within the economy. By now, the discoveries resulting from new conceptions and intuitions originating in the business sector are a major source of the world's commercial innovation. Thus, a modern economy has its own creative powers its own inspiration, exploration and experimentation. Some economists believe that that the myriad advances achieved by practitioners in the business sector push out the economic frontier far more than do advances in basic science.

What enabled and encouraged economies to become creative is a question on which historians made little progress for more than a century. And it is still a hotly debated question why some of today's modern economies are more innovative than others at least when operating under comparable conditions in short, why they are higher in dynamism. It is a plausible hypothesis that the answers to both questions are to be found in a country's economic culture and its economic institutions. However, economic research on these and related questions goes back only to the early 1920s and has seldom involved more than a dozen investigators (Habakkuk 2010, 52-55) (Gordon 2008, 23-28).

Economists Puzzle on How It Happened

Contemporary economists were not unaware that something miraculous was happening in the leading capitalistic economies. We have seen already that, writing a century after what arguably dates the onset of the Industrial Revolution, Marx and Engels observed that the capitalist system has created more massive and more colossal productive forces than have all preceding generations together. Details of the Marxist explanation follow in a ...