A brief history of capitalism (& socialism & communism)
All in one essay. And explained using musical theater references for some reason.
In the late 19th century, capitalism wasn’t really working. It had started out ok, small companies were able to make a small amount of money and entrepreneurship was available to almost anyone with a small amount of capital. But then industrialization set in and a few of those small companies became larger ones—much larger ones.
As Edward Bellamy put it in his 1888 utopian novel Looking Backward, “The individual laborer, who had been relatively important to the small employer, was reduced to insignificance and powerlessness against the great corporation, while at the same time the way upward to the grade of employer was closed to them. Self-defense drove him to union with his fellows.”
The choices available weren’t good ones. You could either work for the big company in town and make a tiny bit of money or you could not work at all. Even the children were working. Everywhere was like Oliver Twist, or that scene from Les Miserables where Fantine, who is already paid so little she can hardly support her daughter, gets fired from her factory job and instantly has to resort to prostitution. Charles Dickens published the former in 1837, Victor Hugo published the latter in 1862. (And both are incredible Broadway musicals, as it happens.)
Whole cities became downtrodden. In 1890, William Morris called London “‘slums;’ that is to say, places of torture for innocent men and women; or worse, stews for rearing and breeding men and women in such degradation that that torture should seem to them mere ordinary and natural life." Around the same time, Bellamy described Boston as “a crowd of people in the rain, each one holding his umbrella over himself and his wife, and giving his neighbors the drippings.”
It was against this backdrop that workers began to rise up against their employers. Strikes were rampant, and really the only tool in the worker’s arsenal against low wages and high hours. They began developing labor organizations to protect themselves. (If we’re going to keep comparing things to Broadway musicals, this period was like Newsies, which was about the newsboy strike of 1899) And here is where we start to see talk of socialism and communism enter the lexicon in earnest.
Not that it wasn’t there before, of course. We can see a foreshadowing of it in Plato’s The Republic and Thomas More’s Utopia, but after the American and French Revolutions, there was this explosion of anti-capitalist thought. Everyone was like, “well now that we don’t have the monarchy what should we have instead?” and almost nobody was like “big companies that make us work long hours and pay us very little so we can barely survive while the owner of the company gets really rich.”
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Ideas about how to solve the problem of capitalism began to coalesce. Particularly the idea that it shouldn’t be a rich capitalist making all that money at the expense of the workers who labored for it. Instead, some proposed we make the state the owner of business so it could distribute the money more equitably (the socialists Bellamy, Morris, etc.), others thought there shouldn’t be a state at all (the communists and anarchists Karl Marx, Friedrich Engels, etc.).
In a socialist society, the state would become as Bellamy said, “the one capitalist in the place of all other capitalists, the sole employer, the final monopoly.” The idea was that we would join the workforce the way one might join the military today. That is, we would be placed in a job by the government according to our interests and abilities, where we would serve the terms of careers while the government equitably distributed the earnings among the people.
Marx thought that wasn’t enough. It wasn’t just about achieving equal earnings, in his mind, it was about achieving equal social status. Whether the state was controlled by the rich capitalists (who he called the bourgeois), or the workers (who he called the proletariat), there was still someone in charge, and this is why his particular brand of socialism sought to ultimately get rid of them too. His was a three-phase plan that went capitalism → socialism → communism.
Because it would eradicate the government altogether, Marxism really had more in common with anarchism than socialism, and many were confused as to how exactly that would look. Marx never explained it—he said we can’t fully know how it would look until we got there. The closest he gets is when the Russian anarchist Mikhail Bakunin asks him: “The Germans number about 40 million. Will all 40 million, for example, be members of the government?” To which Marx replied, “Certainly! Since the thing begins with the self-government of the Commune.”
Our best guess is it looks like Star Trek.
Unsurprisingly, all these ideas become very popular among the working class, which was everyone. And when Russia went through its own revolution in 1917 (like the Broadway musical Anastasia—I don’t know why I’m like this), the tsar was overthrown and the country found themselves looking for a shiny new economic model that might work for their shiny new Soviet Union. Enter Vladimir Lenin. He was a Marxist, but he was also like, “here’s my own spin on it it’s called Leninism.” (His spin was just socialism—there had to be someone in charge, he reasoned, and it may as well be him!). Over in China, Mao Zedong was like “I’m going to do the same thing, only here’s my own spin on it it’s called Maoism!” (Which was also socialism, but in China.)
By the 1940s, most of the countries in Asia were some form of socialist, some with the goal to eventually become communist—they never did, but we called them communist even though what we meant was socialist (at least, in the Marxian sense). It’s complicated.
Anyway. The problem all those socialist movements failed to consider was what would happen when it was not capitalists making money, but government officials. Suddenly it was not rich guys with too much control, it was the government with too much control. And what if they’re not as good at making money as capitalists? Or aren’t as motivated to do so because there is no competition? As it turns out, they weren’t. The economy wasn’t good, there wasn’t enough money to go around, and even if you had money you couldn’t buy anything because the economy wasn’t producing anything. The result was that people were poor. But like equally poor.
As all of this socialist experimentation was playing out in Asia, Europe and North America decided to try something different. Instead of being like “let’s get rid of capitalists all together” the West was like, “let’s regulate the capitalists instead.” In 1935, Franklin Roosevelt legalized unions and installed a 77% tax on income in excess of $1 million per year. Then in 1938, he passed the Fair Labor Standards Act which prohibited child labor, established a minimum wage, defined a 40-hour work week, and forced time and a half pay for anyone who worked more than 40 hours in a week. Europe did something very similar. All of this was a huge triumph for workers, and nothing bad happened to companies because they paid their workers more and had them work less.
After WWII, the capitalist countries really took off. When people started making more money, they started spending more money, which meant companies needed to make more things, so that created more jobs where people could make more money. Overall, people in these countries became very prosperous. Meanwhile, the socialist countries didn’t do as well. People were not making enough money, so they didn’t have enough money to spend, so the economy couldn’t afford to make new things, so there weren’t enough jobs—or there were but the money was just spread out somewhat equally among all of them. Overall, people in these countries were very poor.
We can see this effect reflected in the GDP per capita. We all start out around the same place in 1850, followed by a rapid departure between capitalist and socialist countries. The capitalist countries become incredibly prosperous, the socialist countries not so much.
Now we have a brief interlude called the cold war which was essentially a face-off between these competing ideologies. The Soviet Union was like, “You think you’re better than us just because you make more money, but look at all the things we can do with our socialist government—like build this great big military and have all our citizens work for it!” And the United States was like “Yeah, but look what we can do with all this money from our capitalist society—like build a way bigger military, way faster, and even have a middle class and put a man on the moon while we’re at it!” (Spoken in Reagan voice.)
By 1991, the West kind of had a point and the Soviet Union collapsed. Their last leader Mikhail Gorbachev was like, “maybe socialism isn’t working—maybe we need a market economy.” And actually, China had come to similar conclusions a little bit earlier. So everything that used to be sociaist essentially became capitalist, even though they kept their authoritarian governments and continued to call their governments communist (again, it’s complicated). And that has definitely worked way better for the people living in those countries—in the last 40 years more than 800 million people in China alone were lifted out of poverty.
And this is about the point where socialism, in its 19th-century variety, dies. The entire world (apart from Cuba, Laos, Vietnam, and North Korea) now works on a capitalist system, with various forms of government regulation. And by and large, the entire world is much better off as a result of this system. Capitalism is, thus far, the best and only working economic model we’ve found. But that doesn’t mean capitalism is perfect, or that there aren’t things it could learn from modern socialist and communist movements.
Wealth inequality has become a huge issue (In 1981, Reagan cut all those taxes on the wealthy from 73% down to 28%), and we should probably fix that. And there are huge parts of the world that have no economy at all and thus have not been able to enjoy the prosperity that comes from living in a capitalist state, and we should probably fix that too. Sometimes the government isn’t very good at regulating capitalism, which can be a problem. And capitalism is actively harming the world we live in, which is also bad because we live here. Not to mention, the benefits of capitalism for the typical worker kind of peaked around 1980 and then really took a turn for the worse, at least in the United States. Asrecently put it: “This is the harshest form of capitalism in the world.”
And this is where we must ask: where do we go from here? But that’s where I’ll start my next essay, and before we get there I wanted to start with how we got here. But I’d love to know your thoughts:
Thank you for reading, I’ll see you in the discourse!
Note: This is the first essay of my regulating capitalism series. I intentionally (over)simplified this one and avoided using opaque terminology in an attempt to make these concepts understandable. This has meant the sacrificing of complexity and nuance. But I did that for one reason: I want us all to understand what we’ve done so far as we try to understand what we should do now, which is the subject of my essays to come. And I also wanted to set the stage so we can see why we started regulating capitalism as we examine what has happened since.
(What I’m saying is, don’t come to the comments and say “you really oversimplified the difference between socialism and communism and Marxism and Leninism and Maoism and anarchism.” I know, I know. Even if I were to attempt to explain each one in greater detail, there would be so much disagreement about the finer points of each even among adherents. And the whole thing would take several essays. My point here is to look at the forest for a minute, we can come back to the trees later.)
Here are a few of the texts that helped me to understand this better (especially when paired with Wikipedia-ing every single thing that can be found in them). Shout out to my parents who were stationed on the Berlin Wall during the cold war (where I was born right in the middle of it all), and who gave me a lot of information about that that I condensed into one paragraph 🤣