Introduction - The Early History of Capitalism in England

Since the reign of Elizabeth and the discovery of gold and silver in South America, the material means necessary for the accumulation of capital had become almost universally accessible. Payment in kind had been replaced by money payments, and with money payments came the possibility of saving.

This alone, however, would not have been so important had not another and more far-reaching change taken place in the economic organization of the country. The restrictions upon usury imposed by the Church, and supported by patriotic and anti-Semitic opinion in the Middle Ages, had been broken down, and greater facilities were offered for the transference of accumulated wealth to the men who would use it productively. Moreover, the discoveries of the sixteenth and seventeenth centuries had opened new trade routes all over the world, and the consequent extension of markets offered many profitable openings for capital to be invested in commercial enterprises. In every direction the bonds that had hampered the accumulation of capital were being broken, and the way opened for the rapid development of capitalist organization which took place in the seventeenth and eighteenth centuries.

The early history of the accumulation of capital in England is very obscure, especially as most enterprises were either one-man businesses or simple partnerships, where all decisions were informal and hardly ever recorded. This was the state of affairs under the gild system, and the lack of evidence from this quarter increases the importance of the history of the joint-stock companies, which kept records and played a large part in the accumulation of capital even before 1720.1

Their story begins in the period of reconstruction following that of economic loss due to the redistribution of wealth which accompanied the Reformation, when the capital of the country was being depleted to pay the interest on foreign debts, and when the consequent necessity for higher returns to the remaining capital forced investors to pay greater attention to foreign trade, with the result that the great foreign trading companies were founded.2

These foreign trading companies, like the East India Company, the Russia Company, and the Hudson's Bay Company, were all floated with what seems to be a very small amount of capital, and made tremendous profits.3 Sixty per cent was counted poor,4 while from one of the buccaneering voyages in Elizabeth's reign the adventurers made a profit of 4,700 per cent.5 So popular and so successful were these companies that the jointstock system was imitated for the development of the internal resources of the kingdom, and before the end of the sixteenth century, various industrial enterprises had been founded on these lines.

These industrial enterprises were mainly, though not wholly, confined to mining, water supply, and drainage. Some few there were, mainly in the seventeenth century, which were founded to produce some new invention, and a rather larger number which were founded to finance monopolies. Later still, banking became a legitimate and successful opening for joint-stock capital. All these companies were probably quite efficient and undeserving of the criticisms levied against them by Adam Smith.6 However, at the end of the seventeenth century, the capital of these joint-stock companies was increasing rapidly. In 1695 the approximate total invested on the joint stock principle was £4,250,083, while in 1703 the total is estimated at £8,447,401. 7 At this time (1695) it is estimated that the industrial wealth of England, without agriculture, was 33 millions, thus the joint-stock capital formed about 12 per cent of the total.8

It is again worth emphasizing that the accumulation of capital has two stories: one, the evolution of economic classes depending for their status on the amount of capital they held, and, second, the actual development of the resources of the country and the increase in the stock or capital of the community as a whole. With this in mind it is important to realize that besides the capitalists normally evolving from the gild system and retaining their position at its head,9 there were other capitalists whose capital was not necessarily drawn from industry or commerce and who had little or no connexion with the business in which their capital was invested. This was obviously true of the adventurers who invested their money in buccaneering enterprises under Elizabeth, and it now appears that even in the definitely trading companies a large non-mercantile element invested their money from the beginning; while at a very early date shares were bought and sold with a considerable degree of freedom.10

Thus there was growing up a volume of industrial and commercial stock which was held by people who were out of touch with industry and commerce. Probably these people obtained much of their surplus from land; though by 1700, commerce and inheritance were contributing their shares to the initial capital of new enterprises. In fact, it was these sources which provided the capital necessary to develop the mineral resources of the country, and, with the help of the steam-engine, to add so greatly to England's material capital in the eighteenth century.

1 Scott has written an exhaustive account of joint-stock enterprise in the British Isles to 1720. Scott, The Early History of Joint-Stock Companies of 1720.

2 Scott, op. cit., Vol. 1. p. 17.

3 Russia Company was floated with £6,000 capital. Ib., p. 22.

4 Ib., p. 43 5 Ib., p. 81. 6 Ib., Vol. 1, passim.

7 Thorold Rogers' Industrial and Commercial History of England, p. 125. The value of the stock rose rapidly and the increase in material stock was probably much less than it would appear. Scott, op. cit., pp. 335-6, 371.

8 Ib.. p 337

9 Vide supra, pp. 4-7

10 Scott has definitely proved that free sales of shares took place in the sixteenth century, and disproved the theory which said that the first free sale of stock took place in the eighteenth century, Ib., pp. 492-3.

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