Capitalism, as we conceive of it now, didn’t emerge until the late eighteenth century with the introduction of steam power. The earliest manufacturers headed small, family-owned enterprises that generally employed relatives, augmented by a few itinerant laborers. These entrepreneurs operated in markets but capitalism was not yet a part of the equation. The changeover to capitalism first began in the textile trade.
Merchants, anxious to bypass the trade guilds, began putting-out work (an early form of subcontracting) to cheaper labor in the countryside. While guild craftsmen in urban centers were sufficiently well-off to afford their own looms, rural labor was destitute and unable to purchase looms of their own. Merchants supplied the looms— usually leasing them out in return for a fee. The fees were often so high that the rural workforce was barely able to earn enough to pay for their leases, leaving them little for their own survival.
By transferring ownership of the workers’ tools to the merchants, a pattern was set that would change the course of economic history. In the late sixteenth century, a new generation of small manufacturers began to bring together workers under one roof to take advantage of the economies of scale in harnessing water mills and windmills to the production process. These small manufacturers also owned the machinery used by the workers. The result is that craftsmen, who had previously owned their own equipment, were stripped of the tools of their trade and turned into wage laborers working for a new type of master— the capitalist. The textile trade fell into the hands of the capitalists and soon other trades followed.