The Capital Order

World War I upended established notions of capitalism.

In the 18th century, capitalism emerged as the dominant economic structure in nations like Great Britain. The economy was seen as self-regulating – the laws of supply and demand dictated the prices of labor and goods. In capitalist systems, the state had a limited role: Government ensured property rights and wage relations; otherwise, it stayed out of the economy. But the adoption of the gold standard in the mid-19th century changed everything. National treasuries needed to maintain a minimum supply of gold. Reaching that objective required imposing tight fiscal and monetary policies, and ideally achieving a trade surplus. Britain and Italy were among the most advanced economies in this sphere.

When World War I erupted at the start of the 20th century, nations had to reverse the strategies that had separated the public and private sectors. The sheer size of the war effort meant that countries couldn’t meet their military needs through the established economic structure. They needed arms, and states suddenly had little choice but to intervene in the manufacturing...