Contrary to what some ideologues would like us to believe, the economic arrangements we know as capitalism are not of long standing. Capitalism arose fairly recently in history (in the late mediaeval period), in a particular place (western Europe, mainly in Flanders and England). From there, it spread through most of the rest of the world, by both economic and military-political means, in what is a fairly short time in historical terms.

There are elements of capitalism that existed long before capitalism itself. The most important of these is commodity exchange, in which the makers of two different objects exchange these objects with each other. A limited amount of commodity exchange existed in ancient societies that had a developed division of labour. But exchange was not central to those societies; it normally involved only the surplus of a family’s production, such as the portion of a crop that it did not require for its own food supply, or objects not made locally, obtained by the wealthy through trade.

In capitalism, by contrast, commodity production is generalised. Nearly everything that is produced is produced in order to be sold – not in order to be consumed by the producers, with any leftovers being sold. In developed capitalist countries today, even most farmers do not produce most of their own food. But generalised commodity production by itself does not yet equal capitalism. At least two other things are necessary. One is capitalists. Those who became the early capitalists in western Europe were mainly people who had managed to accumulate some wealth within the decaying feudal system – successful craftsmen, traders and pirates (in international waters, there was often little difference between merchants and pirates), overseers who managed an estate on behalf of the feudal lord.

The final indispensable element of capitalism is workers. By “workers” I mean not merely people who work in some fashion, but people who do so in a particular social relationship. The workers necessary for capitalism are people who are able to work only if they do it for someone else (capitalists) in exchange for a wage. In mediaeval Europe, there were only insignificant numbers of such people around. Most people were poor and had to grow crops to feed themselves, but in the feudal system they generally had the opportunity to do that (as long as they also fed their manor lord). People who were employed in something besides agriculture were generally part of the guild system, which took in very limited numbers of apprentices and strictly controlled the total production in each craft. In this situation, capitalism couldn’t really get going, because there weren’t enough people able and willing to work for would-be capitalists.

Then something changed. In Flanders, merchants who were trading with Palestine and the eastern Mediterranean began bringing under their control formerly independent weavers. The merchants would supply wool and buy the weavers’ cloth. Once the merchants had control of the wool supply, they could get rich by dictating prices to the weavers. As their businesses expanded, they needed greater and greater supplies of wool, and they turned to England to obtain these supplies.

Feudal lords in England soon realised that they could get more money from running sheep than from the crops they appropriated from their peasants. They began what became known as “enclosures” – seizing the common lands on which most of the rural population lived. Whole villages were depopulated and converted into sheep runs. Thousands upon thousands of peasants were suddenly deprived of the means of growing their own food. Some died, some became beggars, some emigrated, but some were hired by aspiring capitalists. The enclosures, which went on over a long period, created what capitalism needed – a working class, a class of people who could survive only by working for wages.

Moreover, once the working class had been created, it was automatically re-created in each generation. There was no chance for children of the working class to return to peasant farming. The competition from cheap capitalist production steadily reduced the already limited possibility of becoming an independent artisan through the guild system. While the occasional individual from a working-class family might, through exceptional talent or luck, scramble into the middle class or even become a small capitalist, the next generation always provided enough people who had no opportunity to make a living except by working for a boss.

(The above is necessarily a very condensed and simplified account. To get a full appreciation of the historical processes that created capitalism, one should read the section on “primitive accumulation” in Volume 1 of Marx’s Capital, which is quite understandable on its own.)