The Triumph of Capitalism

Robert Degen

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351298469
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Today there is widespread recognition that capitalism is the socioeconomic system of choice. This volume, perhaps the best single-volume assessment of this economic model and how it emerged, contributes to the understanding of the historic role of capitalism. After reviewing the gestation of the system, it explains the emergence of full-blown capitalism in the eighteenth century, taking it into the nineteenth and its link to the industrial revolution. The primary focus, however, is on the twentieth century, in which capitalism faced and met challenges due to world wars and depression with the aid of interventionist policies, notably Keynesian economics and the welfare state. But the failure of the postwar policy consensus to cope with the twin problems of inflation and slow economic growth led to a resurgence of greater reliance on unalloyed capitalism.

Capitalist values so permeate modern culture in America that to question them seems like heresy. In 1989, the economist Robert L. Heilbroner, who had been a perceptive student of capitalism and socialism for decades, proclaimed "The Triumph of Capitalism, " arguing that the contest of economic systems was over and the victory of capitalism was unambiguous. Fifteen years later, C. Fred Bergsten, Director of the Institute for International Economics, reinforced this view: "The U.S. model of capitalism and globalization dominates thinking around the world." Writer Russell Baker, dismayed by perceived degrading effects of market-obsessed management on journalism, observed that "belief in the virtue of maximized profits has acquired something like sanctity in American life."

An appreciation of economic and social history, and the accompanying clash of ideas, is helpful in providing a context in which ongoing challenges may be evaluated. It is important to know that what is understood to be capitalism has changed significantly over time. The purpose of this book is to provide such context. Written by an economist, but accessible to a general public, this book is a wide-ranging assessment of today's dominant economic system and its historical development.

1

The Gestation and Birth of the Capitalist System

Capitalism is a natural form of social behavior. It developed spontaneously and gradually over the long course of history until it reached a climax in the nineteenth century. It was not conceptualized in advance. There is no Archimedes, Galileo, or Edison to honor as the inventor of capitalism; it came to be appreciated only after it had evolved into a working institution. No council of savants, no royal society or academy of science, and no commission of religious or lay leaders proclaimed to some clutch of ancient and honorable guild of reporters that a private enterprise market system was the wave of the future and should be embraced by right-thinking people. Instead, the market system had a long struggle to gain acceptance, for it constituted a challenge to tradition and to generally accepted ideas of morality and even of common sense.

A Glimmer of Capitalism in Primitive and Ancient Societies

Peoples in primitive societies of the northwest coasts of Canada and Alaska, of Polynesia and Melanesia, as well as the Andaman Islanders and the Maori of New Zealand, exchanged gifts as a form of trade. Such exchanges were not primarily economic, but had significance of a social, religious, moral, magic, or other character. The French social anthropologist Claude Levi-Strauss long ago pointed out that such exchanges are different from commercial transactions in a modern society, for profit in the modern market sense is absent. They involve power, status, and influence achieved through a set of maneuvers calculated to enhance the security and place in society of the participants. Yet some embryonic market behavior lurks within the web of custom and tradition, for each party must consider the tastes and expectations of the other for the gifts to be deemed worthy and acceptable.¹

For four millennia preceding the Christian Era, highly structured empires controlled the great river valleys of Mesopotamia, Egypt, India, and China. Anthropologist Marvin Harris described all of these ancient dynasties as having similar economic systems based on complex and extensive networks of dams, canals, ditches, sluice gates, and levees to control river water. Agro-managerial bureaucracies concentrated power in a supreme ruler; every village was answerable to provincial and national centers; bureaucrats high and low exploited the peasant populations. Labor was conscripted to serve in “antlike armies” to build the huge hydraulic networks as well as pyramids, palaces, tombs, the Great Wall, and the Grand Canal. Although these “hydraulic societies” had archetypically command economies, they contained some private enterprises. China permitted private ownership of land, markets existed for agricultural and manufactured goods, and there were banks and wealthy merchants. But private entities were subservient; licenses to trade were subject to arbitrary suspension, government might take over the more remunerative businesses, and corrupt officials could readily siphon off profits. Rulers viewed capitalist enterprise as a useful garden.²

The invention of money in the form of ingots of silver or gold has been traced to Mesopotamia before 2000 B.C.E.; the first coins date from the seventh century B.C.E. when the discovery of the touchstone enabled the rulers of Lydia to assay the quality of gold by the streak left on the black stone when metal was rubbed against it. Money stimulated wealth accumulation via the financing of larger trading and construction projects through lending and charging interest, and by fostering banking and the bill of exchange. Businessmen emerged to provide the services of storing money savings and lending to profit-making enterprises. Capitalism was present although greatly confined.³

Babylonia, in the southern part of Mesopotamia, where industry and commerce were well developed, maintained extensive trade with many of the areas of the Middle East. The prosperous class in Babylon enjoyed a very comfortable and refined lifestyle with beautifully furnished houses, fine clothes and jewelry, entertainments, and the services of physicians and dentists. The Bible condemns Babylon and announces its fall, but in doing so calls attention graphically to the success of its economy.

And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more:

The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble,

And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves and souls of men.

And the fruits that thy soul lusted after are departed from thee, and all things which were dainty and goodly are departed from thee, and thou shalt find them no more at all.⁴

The Bible views the destruction of the great but sinful city by an avenging God as inevitable. It is interesting to note, en passant, the parallel between the biblical view of Babylon’s fall and Marx’s view of the future of capitalism. Marx asserts that capitalism must inevitably collapse and, as the Bible does for Babylon, calls attention to the wealth it has created. Of course, Marx attributes capitalism’s future doom to the system’s inner contradictions, rather than to immorality.

Hammurabi, the greatest king of the First Dynasty of the Babylonian empire, promulgated the celebrated legal code bearing his name around 1700 B.C.E. Among its numerous topics were business affairs: employee rights and duties as well as business/customer relations were covered; limitations were placed on interest charges for various types of loans; maximum prices and minimum wages were set. Although important, the economy was not considered a sphere of activity distinct from political, social, and ethical norms: economic life was incorporated along with other socioreligious concerns into a unified whole. An autonomous market system may have been germinating, but it would require a different world far in the future for the nascent plant to emerge generally free of inhibiting institutions.

In considering the influence of ancient Greece on economic thought, the writings of Plato (427-347 B.C.E.) and Aristotle (384-322 B.C.E.) are relevant for what they considered to be the proper role and status in society of those who provided the material conditions of life. The framework of Greek thought was human life and problems within the city-state, and political philosophy was the medium of interpretation. As in earlier centuries, economic activity was not viewed separately, but was part of society seen as a unified whole; the state was the institution that gave direction to society. In The Republic, economics is part of Plato’s vision of what the ideal city-state should be, what would later be called a Utopia. This approach centered on how to arrange for the good and just life that would provide wisdom and satisfaction for humankind. An upper caste of rulers (guardians) to whom government would be entrusted, would not own property individually or be concerned with pecuniary gain. Instead, there would be communism for the elite, a notion far from the Marxian concept. Joseph A. Schumpeter, one of the twentieth century’s greatest (although pessimistic) scholarly champions of capitalism, saw little point in pinning a modern ideological label on Plato, but if forced to do so preferred fascist to communist because private property was permitted except to the crème de la crème, life including speech was strictly regulated, and the society was essentially corporative.⁵ Unlike the guardians, the numerous farmers, artisans, and other producers would be free to pursue monetary rewards and to accumulate property, presumably without exciting the envy of their supposedly wise aristocratic masters.

Aristotle’s Politics also divides society into two distinct groups. The “officer class” or citizens would serve in turn as warriors, priests, and rulers as they progressed through life. They would be expected to use their freedom from the mundane work of producing goods and services to expand their knowledge and refine their political skills. The subordinate class, who would not qualify for citizenship, would consist of merchants, artisans, husbandmen, and so forth. Their lives were considered to be ignoble, did not allow for the development of “virtue,” and did not qualify them for the performance of political duties. Furthermore, Aristotle distinguished between production to satisfy needs, which he considered natural and therefore legitimate, and production to gratify desires, seen as unnatural. Market activity was approved only when needs were being satisfied; the pursuit of monetary gain was not sanctioned. In his version of the ideal republic, Aristotle rejected Plato’s communism. Communal property lacked the incentive to care for it; in addition, it was necessary for differences in individual ability and effort to be appropriately rewarded to avoid quarrels. Yet, like the philosophers before him, Aristotle was not an individualist in the modern sense but viewed men as elements of a collective community.

Clearly Plato and Aristotle discouraged the development of the capitalistic spirit and took a very condescending attitude toward economic activity. Such activity was recognized as necessary, but of low status and in need of supervision and control by the higher orders of society. However, not all Greek philosophers placed so low a value on the contributions of businessmen.

A study of the evolution of business standards among the ancient Greeks found that traditionally agriculture alone was a suitable occupation for citizens of Athens. At the same time, trade and a variety of industries provided wealth necessary for the good life. Following the Peloponnesian War (431-404 B.C.E.), “the capitalist, the merchant, and the manufacturer came to be thought of as really respectable members of society,” for they were needed to recover from the loss of wealth over many years of warfare. Fourth-century Athenians continued to view small-scale trade with contempt, but those who commanded substantial capital became influential, and business success led to social and political success. It was found that whereas the contributions of ancient Greece to government are well known, “they also developed and applied, for the first time in history, the principles of economic freedom . . . what is probably the most important single step in the whole course of economic evolution . . .” This emphatic claim is modified by the observation that wealth was not something its possessor might use without respect for its social consequences. The possession of wealth carried responsibilities; the idea that there was something sacred about private property was unacceptable. What was taking place was the development of practices tending toward the formation of a capitalist market economy within strong cultural and institutional constraints. This elevated status for the business community was exceptional, for democratic Athens was not typical of the ancient world.⁶

In Rome, commercial enterprises were not a matter of much interest to citizens, for foreigners generally controlled commerce, and the workers in shops and factories were usually slaves or ex-slaves. During the early empire the state did not control or participate significantly in trade; merchants could import freely. However, the government did intervene to secure ample food by granting citizenship rights and legal privileges to traders to induce them to enter contracts for transporting grain purchased by the state. Subsidies were given ship owners during periods of scarcity to keep wheat prices low. While state policy allowed and even encouraged the retail grain dealers, it consistently watched prices; Augustus and Tiberius sought to control prices in the interests of farmers and merchants as well as the consuming public. Indeed, “it is not unlikely that the state always regulated prices.” In explaining why manufacturing on a large scale did not develop in the city of Rome, Helen Jefferson Loane cites a lack of local sources of metals and fuel, the absence of patent rights, partnership law discouraging to the concentration of capital, “and especially the lack of respect that prevailed in ancient society for the success won from commerce and trade.”⁷

Some major features of economic life in the Greco-Roman world as a whole provide a general view of the nature of that major segment of antiquity. Private ownership of land was widespread, ranging from a few acres to huge estates of the ruling classes; trade and the production of manufactured goods was primarily in private hands. Corporations were absent as were long-term partnerships. The acquisition of wealth was a strong motive, but it failed to result in systemic capital creation, for the mental set focused on acquisition itself rather than on production. Strong social and political attitudes constrained economic behavior. Entrepreneurs, in particular the large maritime traders and moneylenders to the rich, failed to seize the opportunities open to them to be innovative. Large landholders had even greater potential due to their accumulation, but they lacked the incentive to develop as capitalists.

The authority of the state was ubiquitous in the ancient world. There was considerable freedom of speech, of business, and of religion, but the principle of inalienable rights was inconceivable. Nor, in the words of the Cambridge historian M. I. Finley, could “any specific instance of noninterference in the economy be explained by a theory of laissez faire,” a doctrine that could not come into existence in the absence of “the prior concept of ‘the economy,’” defined as “an enormous conglomeration of interdependent markets.”⁸

Some summary remarks will complete our consideration of antiquity. To explain any economy, it is necessary to understand how the system resolves three fundamental questions: (1) What different kinds and amounts of commodities and services are produced?; (2) How is production carried on in terms of the personnel, resources, and technology employed?; (3) For whom does production take place, or how is the productive pie shared or distributed among the varied members of society?

In antiquity, these questions were decided basically by tradition and command rather than by markets, which had only a limited role. Primarily rural, the mass of producers in these economies had little contact with markets. At the same time, the commerce of the larger urban centers of Egypt, Greece, and Rome bore some resemblance to the modern capitalist world. What differentiates them from the present is the limited role of the ancient city markets. Trading mainly involved basic provisions for urban consumption and luxuries for the wealthy. The cities were, in Robert Heilbroner’s description, “enclosures of economic life rather than nourishing components of integrated rural-urban economies.” Furthermore, while the cities bustled with commercial activity, slavery provided a major share of the economy’s labor power. So while there was unquestionably a capitalist component, “Nothing like the free exercise and interplay of self-interest guided the basic economic effort of antiquity.” As for the distribution of wealth, those who controlled society—the military, religious, and political elites—were the chief beneficiaries. Some merchants and bankers became wealthy, but, in general, economic activity, lacking in prestige, was not well rewarded.⁹

Thousand-Year Bridge: Antiquity to Early Modern Times

The Roman Empire in the West collapsed at the beginning of the fifth century at the hands of invading Germanic tribes, setting off a political implosion or fragmentation of governm...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Abbreviations
• Foreword: A Summary of The Triumph of Capitalism
• Preface
• 1. The Gestation and Birth of the Capitalist System
• 2. Capitalism Becomes an Endangered Species
• 3. Economic Cohabitation—A Thirty-Year Paradigm
• 4. A New Wave of Capitalism—And Undertow of Socialism
• 5. Recapitulation and Inferences
• Author Bibliography
• Index