On the one hand, commercial capital is drawn towards the markets of towns, and on the other hand, the development of merchant capital encourages the development of towns themselves as centres of commercial activity. The towns themselves became increasingly separated from the countryside, and the artisans who establish their businesses in the towns do so no longer as simply a side line to their own direct production. Their output is from the start a production of commodities not products, and as such they are increasingly dependent on merchant capital for the sale of those commodities.
“However, it depends on altogether different circumstances to what measure industrial development will go hand in hand with this development. Ancient Rome, in its later republican days, developed merchant's capital to a higher degree than ever before in the ancient world, without showing any progress in the development of crafts, while in Corinth and other Grecian towns in Europe and Asia Minor the development of commerce was accompanied by highly developed crafts. On the other hand, quite contrary to the growth of towns and attendant conditions, the trading spirit and the development of merchant's capital occur frequently among unsettled nomadic peoples.” (p 332)
The dialectical nature of the historical process is again illustrated by the role of merchant capital. In the 16th and 17th centuries, the great voyages of discovery took place, which opened up the trade routes for this merchant capital, into Asia, Africa and America. It opened up these areas to the establishment of the colonial empires, which extended the remit of the great European feudal dynasties.
During that period, feudalism reaches its highest levels of achievement and wealth. Its lust for the wealth and all of the exotic variety of products, not to mention gold that these new territories offered stimulated the feudal aristocracy to send out the merchants as its agents. Companies like the Dutch and British East India Companies or the Hudson Bay Company, followed in a long line of merchants operating under royal and aristocratic patronage, going back to Columbus and beyond. These merchant companies with their own private armies, created their own colonial state apparatus, as a foreign facsimile of the feudal state, whose main purpose was to exercise dominance and to extract surplus product in the form of rent, interest, commercial profit and taxes.
And yet, in doing so, and pushing feudal production at home to its highest levels, it consequently created the conditions for capitalist production in Europe to expand, bursting beyond the limitations of feudal industry. A requirement of that was already existing capitalist production, which had arisen in the Middle Ages.
Capitalism does not become dominant because feudalism collapses, but because the expansion that occurs under feudalism, spurred on by trade, creates the conditions for capitalist production to demonstrate its superiority. It simply grows out of and beyond feudalism.
And, as the opening up of these new territories provides the basis for the expansion of this capitalist production, so in turn the latter, whose large scale production requires expanding markets, leads to an expansion of commerce. Where previously it was the large trading nation like Holland that predominated, now it was Britain, the producing nation, the industrial nation that achieves supremacy.
“The history of the decline of Holland as the ruling trading nation is the history of the subordination of merchant's capital to industrial capital.” (p 333)
In the colonies too, although this merchant capital, backed by its own military might, and that of the colonial state, destroys the basis of the existing modes of production, as it did in India, often with catastrophic consequences in causing famines and other disasters, it simultaneously and unconsciously creates the conditions for capitalist development in the colonies as well.
By destroying the existing basis of production and turning millions of Indians into wage workers, it simultaneously establishes the role of the market; a process which had taken centuries in Britain. It thereby opens the door for the development of commodity production in those economies, and thereby the development of a domestic bourgeoisie and proletariat.
Merchant capital, and the colonial state did not establish railways in order to facilitate colonial development, but to facilitate the more rapid, more efficient transport of materials from the colonies and of manufactured commodities to their markets. Yet, that very development did also require the training of Indian workers, did also unify India, for the first time, and opened up its markets also to Indian producers.
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