CAPITALISM AND THE DISTRIBUTION OF INCOME AND WEALTH
In the beginning, capitalism came into a world of traditional societies based on small-scale peasant and artisan production. Trading relations between regions and, locally, between town and country, together with their associated monetary and credit arrangements, were already well-developed. Surplus product, over and above what was necessary for society's reproduction, accrued mostly to landlords and merchants who lived on a scale far above that of the great mass of the people. Nobles and kings, with their retainers and armies, took their share, lavishing much of the social surplus on costly displays and military adventures. These societies, though generally not stagnant, tended to expand slowly in step with population growth, and experienced ups and downs in response to the rhythms and vagaries of the natural environment.
In this setting, enterprising small traders and producers discovered that it would be possible to increase productivity and hence their own incomes by bringing groups of workers together under unified managements. In the initial stages, these new workshops utilized existing technologies, with the increases in productivity coming from the kinds of simple division of labor so lovingly described by Adam Smith in his celebrated example of an eighteenth-century pin manufactory. But soon a basic change occurred. These budding entrepreneurs, aided and abetted by their ablest workers, moved from refining existing technologies to introducing new ones, with emphasis rapidly shifting from mechanical improvements to the invention and installation of machinery. This process began in textiles, sweeping through the various branches of the industry (spinning, weaving, fulling, dyeing, etc.) in a sort of chain reaction. From there it spread to other industries, producing the great variety of goods required for social reproduction and for the satisfaction of the needs of an increasingly differentiated population. The last stage in the development of full-fledged capitalism came with the takeover by the new form of capitalist enterprise of the production of machinery (and other kinds of means of production) which had remained the domain of highly skilled workmen right up to the middle of the nineteenth century. With this, the circle was closed, and capitalism became a self-contained system with its own internal logic and its unprecedentedly powerful dynamic.
But if capitalism as a mode of production was fully formed by the mid-nineteenth century, this in no way implies that it was the quantitatively dominant mode of production. Even in its British heartland, capitalism was still very much a minority affair, and this was much more so in the less-developed capitalisms of the European and North American continents. This is an enormously important fact of economic history, almost always underemphasized and often completely overlooked. The overlooking typically takes the form of treating the countries in which capitalism had gained a foothold as though they were already fully capitalist in their economic and social structures. Following this procedure unfortunately results in obscuring the ways in which capitalism interacted with its precapitalist environment in the course of developing from its minority status in the nineteenth century to its overwhelmingly majority status in the second half of the twentieth century.
The problem that concerns us in the present context can be formulated as follows: what is the modus operandi of a "small' capitalism surrounded by a "large' noncapitalist environment? Here there are two conceptually distinguishable processes at work which in practice merge into one. On the one hand, the capitalist system has a strong tendency to expand internally as the individual capitals compete with each other to lower costs and take over larger shares of markets already incorporated into the circuits of capital. …