What is capitalism? According to our modern understanding, capitalism is a relatively new idea, and the intellectual foundations for a free market model can be traced to the 18th century philosopher Adam Smith. However, this narrative about the development of free markets is fundamentally flawed.
Far from being a recent innovation, enterprises, banks, advanced commercial practices and free markets evolved some 4,000 years ago in the countries we today know as Iraq and Syria. A better understanding of the story of capitalism is needed; since it shows us how important markets have been for human progress as well as how universal the link between development and market policy is across different societies.
Over time, archaeologists have uncovered and translated a great deal of tablets left from ancient civilisations. Many of the tablets from Babylonia and Assyria, in contemporary Iraq and Syria, are receipts of economic ventures. They show that private profit-seeking merchants, rather sophisticated investment ventures and market price setting were common in these civilisations. Astronomical diaries written some 2,500 years ago show how market prices changed on a monthly, or even weekly, basis in Babylonia.
Historians have found considerable evidence for market economy being an ancient Middle Eastern innovation. Dutch historians Robartus Johannes van der Spek and Kees Mandamakers wrote already in 2002: “That market mechanisms played their part in the Babylonian economy seems now to be unquestionable.”
This shouldn’t come as a surprise. Given how prosperous the ancient Middle Eastern civilisations were and how important they were for human progress, it should come as no surprise that they were the birthplace of enterprise and market economy. Egypt on the other hand relied more on central planning, and predictably stagnated.
Free markets, in different forms, also seem to have formed in the three other cradles of human civilisation – India, China and Mesoamerica. Since ancient times China has fluctuated between free market policies and statist control. The periods of free markets are those in which China has prospered.
Again, this shouldn’t be a surprise since many of our most important inventions have originated in China. Only during recent centuries, when Europe has developed and embraced modern capitalism, have European civilisations become the dominant force for growth and technology in the world. Before then this role fell to the Middle East, China and India – the market economies of the world. Around a thousand years ago the concept of Sreni, the first known proto-corporation, evolved in India.
It seems that the cradles of human civilisation all developed a market economy, in more or less evolved form. This even goes for Mesoamerica, where the Aztecs and Mayan economies had aspects of the free market. This is worth keeping in mind. If one believes the modern narrative that capitalism is a fairly new European invention, then other models have existed in human history that gave rise to the spectacular development seen in ancient Eastern civilisations such as Babylonia, Persia, China, Phoenicia and Asia minor (modern day Turkey). Yet, in truth, the periods of prosperity in these regions were the same in which market economy was adopted. So it turns out, the link between markets and prosperity is quite universal.