Capitalism and Class Society: Origins and Evolution of the Industrial Economy

Capitalism and the Liberal Economy

Economic liberalism and capitalism: The first step toward a liberal economy was the free market, based on private property, the freedom to hire labor and enterprise without the restrictions of state regulation or interference. A free but regulated market, in which the pursuit of profit and the interplay of supply and demand, guided by the "invisible hand," was the basis of the classical theory of free trade (librecambismo). The main economic theorists of this tradition were Adam Smith, whose work An Inquiry into the Nature and Causes of the Wealth of Nations laid the foundations of modern economics, and the thinkers who followed him, who argued that individuals acting in their own interest would advance the general good. Liberal economic thought incited individual initiative and opposed state intervention, although it accepted that the State should maintain order, enforce justice and defend the territory.

The private initiative of the entrepreneur did not produce wealth through the accumulation of metals or precious stones, as the mercantilists had held, but through human labor. Adam Smith introduced the value of labor, distinguishing between value in use and value in exchange, and explained how the natural price and the market price of goods were determined. David Ricardo defended the advantages of free trade and the international division of labor.

Early liberal economists were optimistic about the capitalist system, which they saw as capable of producing growth that benefited all people. Thomas Robert Malthus, however, offered a more pessimistic view in his essay on the principle of population, arguing that population tended to grow faster than food supplies, which would lead to crises and poverty unless checked by preventive measures such as voluntary restraint on births.

The final synthesis of these principles was liberalism in politics and economics: it defended individual initiative, capital accumulation and a competitive market, while holding that the State should intervene only in certain areas such as education and taxation. The capitalist economic system was built on these rules, and its triumph was closely tied to the Industrial Revolution.

The Industrial Revolution transformed the artisanal production of the rural society into manufacturing and factory-based industry. The new industrial society replaced the old estate-based society, in which social position was determined by birth, with a class society in which wealth became the main criterion of social standing. This brought long-term economic growth and a general increase in well-being.

The Class Society

Class society: The Industrial Revolution and the political changes it brought produced a new social structure based on the division of wealth rather than birth. Social classes were open, allowing constant mobility: people could rise through enrichment or fall into poverty. The lower classes included day laborers, peasants without land, the urban poor and marginal social sectors, which together formed the emerging industrial proletariat, made up of workers in the new factories and mines.

Population growth in the nineteenth century, with its high birth rate, produced an excess of people without jobs or land. Rural workers migrated to the cities seeking work, and the number of workers in factories and mines tripled. Men, women and children worked long hours for low wages in low-skilled, unhealthy and dangerous conditions. The disciplinary system imposed on workers was harsh and often inhumane, and workers had few contractual rights.

The situation began to change in the late nineteenth century, when workers organized to claim their rights. The middle classes also grew considerably. The traditional middle classes included small landowners and artisans, while the nineteenth-century middle class included merchants, professionals such as lawyers, doctors and engineers, and skilled workers, as well as technicians, accountants and designers. Industry needed these specialized workers, and their training was carried out in specialized schools. The Industrial Revolution was accompanied by a second revolution in the service sector, with the growth of occupations in trade, banking and the liberal professions, and a considerable increase in public administration and government employees.

The traditional upper class, the nobility, gradually lost its dominant position, although it retained influence and prestige. The bourgeoisie became the predominant social group, holding economic and political power. It included the great merchants and industrialists, as well as landowners who applied modern techniques, and its influence grew continuously throughout the nineteenth century. Many former landowners and nobles saw an opportunity to enter business, and the industrial entrepreneur became a key figure: a merchant who needed to sell products, and an entrepreneur with organizational skills and discipline, who did not hesitate to acquire raw materials at the best price and to know the market, and who was always alert to technological innovation. Business that did not adapt to these changes fell into decline.