If we look back several centuries, we see a variety of factors that could have provided the conditions under which capitalism could arise. By taking a comparative view of countries in the “long eighteenth century” (roughly 1650–1815), we gain insight into the nature of capitalism and why it first arose in northwestern Europe instead of places such as China, India, or Japan, whose prospects for capitalism in 1700 may have appeared more promising.

There is no single or simple explanation of how capitalism originated. Those who claim to have found one are either ignoring the variety of factors at work or proposing a “cause” that is too general to illuminate the particulars of any specific case. Moreover, an explanation that seems quite useful for understanding the development of capitalism in one country may shed little light on its development in another. In recent years, most analyses have used one or more of the following five very general arguments to explain why capitalism arose in northwestern Europe, rather than other parts of the world:

1. By 1700, the nations in northwestern Europe had a higher level of economic development, a greater stock of physical capital, and a higher level of technology than other countries, so that the transition to the new economic system was easier.

2. By the eighteenth century, northwestern Europe was developing economic institutions that were more conducive to economic development, such as security of property, contract enforcement, education of the citizenry, organizations to promote the spread of new knowledge, efficient arrangements for conducting business, and freer markets for labor and capital.

3. […]