Emergence of a free labour market

Though free labour market is observed today, it has not always been so. For most of mans history, work has been organized in different ways.


The oldest way in which one man performed labour for another was “slavery”, ie, “A system where people are treated as property to be bought and sold, and are forced to work without any compensation.” ‘Indeed slavery is as ancient human institution that has persisted into modern times.

Slavery was an important feature of the Greek and Roman civilization and had persisted in Europe into the middle ages. Its importance declined in the western world and disappeared in England by the 13th century and from the other countries within the next few centuries. In its stead did not come freedom but came “feudalism”.


Slavery was replaced by “feudalism”, a new form of economic organization that depended upon a different form of servitude – “serfdom.” The commoners or serfs were bound to the feudal lord. Feudalism is, “the dominant economic, social and political system in medieval Europe in which the nobility held land from the crown in exchange for military services; and the vassels were the tenants of the nobles, while the peasants [villeins or serfs] were obliged to live on their lords land and give him homage, labour and a share of produce, notionally in exchange for physical, economic and military protection”.

There were free men who they were more like tenant farmers. They too had to work on land and share a part of land produce with the lord, in exchange for physical, economic and military protection.


Besides agriculture the feudal lords had auxiliary workshops which produced tools and weapons.


Guilds flourished in Europe between the 11th and 16th centuries [medieval Europe] and formed an important part of the economic and social fabric in that era.

The guilds appeared with the growth of towns and played a major role in the development of municipal government. The craft guilds are sometimes regarded as forerunners of modern labour unions, but there is no direct relationship.

A guild is an economic and social association of craftsmen or merchants – in the same business -formed for mutual aid and protection and for furtherance of their professional interests.

Merchant Guilds

During the 11th century, merchant guilds were formed in many towns. out of the need to protect commerce and industry in towns, which were outside the scope of the feudal system and thus had no laws or customs governing economic affairs.

In many places, town charters specifically stated that the inhabitants of a town could form a guild. Often, the leaders of these guilds also became the leaders of municipal governments.

Originally, each town had only one guild, which included both merchants and craftsmen. Members of the guild had a monopoly on trade in that town.

The guild regulated economic life, fixing prices and wages and seeing that goods were manufactured by reliable and well-trained persons.

Guilds also established schools, promoted the interests of the Catholic church, and served as social clubs.

Craft Guilds

As industry developed in the 12th and 13th centuries, members of each occupation or trade began to organize their own specialized guilds.

These guilds, called craft guilds, supervised the quality of goods produced, regulated working hours, and approved the admission of new guild members.

They usually were not involved in town government. A successful craft guild eventually would achieve a monopoly on the trade of the type of goods its members produced.

The craft guild included three classes. At the top were the masters, skilled craftsmen who owned and operated the shops. Next were the journeymen, who had learned the craft and were paid employees of the masters. The lowest class consisted of the apprentices, who worked for board and room while learning the trade.

Decline of Guilds

The rise of craft guilds weakened the merchant guilds, and there was a long period of conflict between the two.

In addition, during the 15th century, trouble developed within the craft guilds themselves, as masters attempted to preserve their monopoly in towns by allowing fewer journeymen to become masters. Journeymen eventually formed their own associations to improve working conditions and to secure better wages and shorter hours.

Guilds further declined as trade between towns and between countries increased in the latter part of the Middle Ages.

With an expanded trading area, a new type of merchant emerged, one who engaged in large-scale trade. Large business enterprises were formed, and guilds, which were designed to operate only in single towns, gradually became obsolete.

Domestic system

The crafts guilds were dominant through the 16th century, but after that as the pace of industrial act quickened, they disappeared.

This was partly due to internal dissension, but mainly due to extension of market and the rise of the nation state, which permitted the growth of industries in the country side, outside their sphere of control.


Industry, instead of being conducted in the master’s workshop, was now conducted in the artisans home, a system of production that came to be known as the “domestic system” eg weavers who owned looms to weave cloth kept them in their own houses.


The domestic system therefore was a name given to the production system prior to the industrial revolution. Before machinery was invented to do work, people worked at home. There was no such thing as going to work. All industry was originally “cottage industry”.


Industry was organised by merchants employers, who “put out” materials to rural home workers, who then returned the finished products to the employers for payment. The merchant employers then marketed the products. Therefore the system was known as the ‘putting out system’.

The domestic system thus was, “a system of manufacture based upon work done at home on materials supplied by the merchant employers”.


The domestic system differed from the handicraft system of home production in that the workers neither bought materials nor sold the product produced.

This system undermined the urban guilds and brought the first widespread industrial employment of women and children.

The system was generally superseded by employment in factories but was retained in the 20th century in some industries, notably watch making in Switzerland, toy making in Germany and many industries in India and China

Under this system the functions of the employer and employee were separated, for the person who actually produced the goods did not own it and did not sell it.


The domestic or putting-out system had many advantages for the master or capitalist manufacturer.

1] In the domestic system workers did not have to travel to work

2] The work often required little training.

3] Under the domestic system the employer often owned the cottage where the worker lived and worked

4] Workers were paid only for their output, and employers did not have to bear the cost of lighting and heating.

5] The masters employed ‘bagmen’ to distribute raw materials and to collect finished items.

6] The payments for work done depended on the quality of the product and disputes often arose between agents and workers.

7] With the domestic system children learned the necessary skills from their parents, and if they learned well, they became a valuable worker to their employee.

The factory system

With further extension of the, the domestic system gave way to the factory system. Factory system is the system of manufacturing that began in the 18th century in England as a part of the industrial revolution.

It emerged with the development of the power loom and the steam engine for a standardized product or products produced on a mass scale, in which fixed capital, raw material, and labor operations are centralized and sophisticated machinery is often used.

It is based on concentration of industry into large establishments in the factory system a large number of workers were concentrated under one roof, cooperating under centralised control in the manufacture of products.

The factory system permitted savings in transportation of raw materials and finished products. It helped to maintain discipline of workers and quality of products. As it was considerably easier for the factory owner to supervise and closely regulate their workers.


With the advent of the Industrial revolution the factory system became indispensible, as the power driven machinery was too big for home and too expensive for the individual worker to buy. Furthermore, the efficient use of the new machines required that many of them be installed together where they could all be driven by the same power source.


Industry however continued to be conducted in the country side as long as the main source of power was water. When water power was replaced by steam power, factories were set up in cities, where a large number of people were employed.


The factory system brought about a revolution in terms of man and his work.

It separated home from the work shop and now people had to go to work.

The relation between the employer and employee became impersonal as there were a large number of workers employed.

There was a separation of the functions of the employer and employee. The merchant employer now became a capitalist captain of the industry, as he now owned the tools and the artist now became the employee.

Ruthless competition between owners [capitalist] motivated them to reduce costs and maximize productivity in every way. That ment imposing long hours of work, low wages and unsatisfactory even dangerous working conditions for the workers.

It also ment employing child labour and women labour. at lower wages

While capitalists gained increased political power the workers had no political influence. When workers first tried to organise into the first labour unions they were outlawed by the government which was controlled by the capitalists.

This encouraged the development of socialist ideology and also led to the English reform movement.

According to Karl Marx, under capitalist industrialism the worker had only his labour power to sell. To Karl Marx, this was a great tragedy that demanded the overthrow of capitalism and to defenders of the new economic order it spelt a degree of freedom for the worker that he had not previously enjoyed.

Posted in General Economics