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SOC 202 (400)


Course Code
SOC 202
Louis Pike

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- capitalism is essentially the investment of money in the expectation of
making a profit, and huge profits could be made at some considerable risk by
long-distance trading ventures of this kind
- profit was the result of scarcity and distance
- large amount of capital needed for the trade of spices and other
- ‘East Indianman’ –ships of the East India company were named this;
they were armed with a cannon to ward off the Dutch and Portuguese
- There were at least 280 people on the third expedition; needed enough
sailors to get back after hazards of the expedition had taken their toll
- Most of the capital of East India Company was obtained from rich
London merchants; some came from Aristocrats and some from Dutch
merchants who were not allowed to invest in the Dutch East Indies Company
- Each of the first 12 voyages were financed separately which brought
some risk and uncertainty
- The company sifted to a method of finance that spread risks over a
number of voyages and then became a fully fledged joint-stock company, with,
after 1657, continuous investment unrelated to specific voyages; stocks
started to being traded on London Stock Exchange by 1688
- Had monopolistic practices within England that allowed them to reduce
risk; gov`t gained from duties on imports, etc.
- Markets were manipulated by buying up on all these goods and holding
back sales; Dutch had warehouses
- It was not free market capitalism as the secret of making high profits
was to secure monopolies by one means or another, exclude competitors, and
control markets in every way possible; the impact of merchant capitalism on
society was minimal as gains were made through trading of scarce products
rather than rationalizing production
- 1780s – two Scots: James M`Connel and John Kennedy traveled to the
south and became apprentices in the Lancashire cotton industry; after gaining
exp. They set up their own firm in 1795 with 1770 pounds
- Capital had grown from 20000 pounds in 1800 to 80000 pounds in
1810; established as the lead cotton spinner in Manchester
- However it became a competitive industry as high profits brought in
new entrants and profits could not be sustained

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- The costs of high investment in buildings and machinery as well as
downward pressure of increased productive capacity on yarn prices depressed
the industry’s profitability to low levels in 1830s
- Profit depended on the labour force; for the two Scots` company the
labour force grew by five-fold to 1500 by 1830s; much of these were child
- Wages were main expense for the company
- They were minimized by replacing craft workers with less skilled and
cheaper labour because of automatic machinery
- Inability in the industry led employers to reduce wages and working
- Unions started to be organized because of this and there were strikes in
1810, 1818, 1830. but were defeated by the employers with the help of the
state; company created associations to `black-list` union militants, answer
strikes with lockouts and provide mutual financial support
- Machinery had to be persistently used to reduce costs
- Cotton mills had trouble hiring workers as people did like close
supervision and long shifts
- Used crude and negative sanctions such as fines and threat of
dismissal, but developed more moral ways of punishment
- Curfew that required everyone inside by 10:30pm in the winter
- Time became a battleground as employers put clocks forward in the
morning and back at night
- Industrial capitalism not only created work, it also created `leisure` in
the modern sense of the term
- Separation of work and leisure. There was a development of the
entertainment industry and established holidays
- Nick Leeson hid the losses that had incurred from his bosses. He
continued to invest in futures and derivates (derive their value from something
else such as shares, bonds, currencies, or commodities) – hid these losses in
the special error account, no. 88888; it allowed Leeson to gamble with
Barings’ money’; built his reputation by taking risks and trading aggressively
on the futures markets, since any losses could be hidden ; eventually his
losses accumulated to the point where they could not concealed by switching
money around
- He plunged into selling options, which could raise immediate money to
cover monthly shortfalls in account 88888

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- After all his investment, the losses he accumulated was greater than
the total capital of Barings
- Barings allowed Leeson to be a trader and the manager of the
Singapore ‘back office’ , which checked the trades and balance the books (big
- The main elements of capitalism are merchant capitalism
(accumulation of profits), capitalist production (huge impact on society
changing every aspect of it) and financial capitalism (various vehicles- futures,
options, etc.- that try to reduce the risks
- Main elements of capitalism – investment, wage labour and
dependence on the market
- Capitalist production stimulated more capitalist enterprises like steel
and iron industries. Some elements of capitalism are capital, labour and
markets. Capital and labour become mobile
- Financial capitalism is useful and gives the investor some security.
However, he depicts that there is a lot of risk and insecurity in the financial
market. High risk, the attempt to control and much more economic instability
and a lot more speculation (futures, etc.)
Study Questions for Fulcher’s “What is Capitalism?
1)What is the overall theme of this article and what is the definition
of capitalism?
Risk is an important element that was emphasized in the article about
capitalism. Capitalism is investing to make a profit. The article’s overall theme
is about capitalism and how it developed in history. Capitalism is essentially
the investment of money in the expectation of making a profit, and huge
profits could be made at some considerable risk by long-distance trading
ventures of this kind.
2)What was the East India Company and how did it operate?
The East India Company is a company that is involved in the trade of pepper
and other spices. They got state approval to have a monopoly. They stockpiled
and flooded the market and had huge warehouses.
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