The History of Capitalism without an Axe to Grind
Most historians and theorists of capitalism have ideological axes to grind, whether critics like Karl Marx and his various disciples or rabid boosters like Milton Friedman and the sundry advocates of various forms Libertarianism. In contrast, Joyce Appleby has no axes to grind. Although she is clearly dubious about the almost endless virtues ascribed to free market capitalism by its boosters, she also believes that capitalism has more virtues than its many critics deny it. Her attitude towards capitalism may not be too different from Winston Churchill’s famous assessment of democracy: “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”
As a result of her sensitivity to both the vices and virtues of capitalism, The Relentless Revolution: The History of Capitalism is one of the more objective such histories that exists. Instead of parading historical narrative to support her ideological claims, she allows the historical data to emerge in ways either passionate detractors or boosters would ignore or abjure.
Appleby’s main contention is that capitalism was neither an inevitable development in human history nor a natural phenomenon. Instead, the birth of capitalism was a highly contingent event, dependent on both the congruence of many historical factors along with a wide-range of necessary cultural preconditions. There are, she contends, reasons why capitalism emerged in Great Britain in the 18th century instead of Holland in the 17th century in a completely different corner of the globe. Changes in agriculture in the 17th and 18th centuries, which meant that fewer people had to be involved in the production of food for the rest of society, were an absolute precondition to the so-called Industrial Revolution, because without workers it would have been impossible to have working factories. Without the higher wages that factories produced there would have been no widespread market for the many good produced by the burgeoning number of factories in England.
Additionally, many Continental societies were, unlike Great Britain, too resistant to change, and an openness to change is at the heart of capitalism (hence the title of her book). Although many want to see capitalism as arising from laws of nature, the fact is that its development everywhere is dependent upon contingent cultural and societal preconditions, which in large part accounts for why capitalism has failed throughout much of the world.
Joyce Appleby tells a moderately conservative (in method, not in politics) account of the development and birth of capitalism. While some see the many centuries prior to the Industrial Revolution prefiguring and leading to full-blown capitalism, Appleby tells a story of an economic system that is neither inevitable nor existing previously in embryonic form (i.e., the history of human economic activity was not leading inevitably to capitalism).
While many locate the birth of capitalism in Dutch trade in the 17th century, Appleby does not, finding too many key elements missing not only in that century, but not emerging until well after capitalism was underway in Great Britain. Neither does she see the Industrial Revolution as the central event in the history of capitalism that many do, just as she does not see Adam Smith’s The Wealth of Nations as especially crucial in its development. Both Smith’s classic work and the Industrial Revolution, on the other hand, were the result of a host of changes and developments that had already taken place and that were culmination of changes taking place in England during the previous century.
After dealing with the birth of capitalism in Great Britain and its acknowledgment by the rest of the world, Appleby at great length explores the development of the next two capitalist economies to emerge, those of Germany and the United States. She explores both the similarities and differences in capitalism in these two countries and the factors that made it different there than in Great Britain (indeed, one of her contentions is that there is no one capitalism, but many, that capitalism exists in slightly altered and modified forms due to the culture in which it is embedded).
Subsequent chapters explore the development of the great corporations of the 19th century (almost all of which still exist in one form or another), the reactions to capitalism within the leading industrial nations, the growth of state-sponsored capitalism (such as 19th century Belgium and late 19th and 20th century Japan), the impact of the two great 20th century World Wars on economic development, and the impact of the global depression (as well as the recognition of the failure of the United States to assume global leadership after becoming the world’s largest economy).
The final chapters, which are less narratively structured than the earlier parts of the book, deal with the failures of Western-style capitalism in most Third World economies (especially the policies pushed forward by those inspired by Milton Friedman, particularly in the Washington Consensus whose policies have been carried out by the IMF and the World Bank) and the challenges to our understanding of capitalism represented by the Chinese economy and the Asian Tigers.
The notion that capitalism is something best understood through its history is central to the book. Many viewing capitalism merely through theory see it as something historically inevitable because they assume that the economic order naturally veers towards a free market. As Appleby shows, history does not support this. If anything, she understates her case for the contingency of capitalism.
That capitalism is not a natural phenomenon was similarly argued by the Marxist critic Karl Polanyi in his 1944 classic The Great Transformation: The Political and Economic Origins of Our Time, whose central points were not undermined by his ideological commitments. If, as libertarians and other ardent free marketers argue, capitalism is the natural order towards which all economic activity tends, then history—both modern and ancient—ought to be replete with examples of the self-regulating free market striving to assert itself. Polanyi went much further back in time than Appleby, even working through a variety of anthropological studies as well as surveying in detail economic activity in ancient, medieval, and early modern history.
Polanyi is not only unable to find any evidence at any point in human history of a self-regulating market prior to the 18th century, he cannot find any such animal even in the 19th and 20th centuries. Instead he discovers only markets in which government has always and inevitably played a major role. He finds only the idea of a self-regulating market, not its existence in reality. Polanyi labels as Utopian the belief that markets can be self-regulating. As utopian it therefore is a theory that is not descriptive of the real world and hence incapable of refutation; unable to point to any real world instances where markets have been successfully self-regulating, libertarians inevitably insist that every failure of the market to self-regulate is due to government interference.
With each failure of free market ideas, its boosters insist that the problem is not that there could be anything wrong with their theory, but that the market is insufficiently pure, that if the government would just leave the market alone everyone would find economic nirvana. One wonders what it means when an economic theory is so hard to ground in real world events. Although Appleby does not engage in ancient and anthropological research to support her contention that capitalism is a product of historical development rather than part of the inevitable elements of society, she does provide considerable historical evidence of the contingent nature of capitalism.
As noted above, a major contention of the most avid celebrants of capitalism is that the market works best when government plays little or no role in the economy. The status of this kind of claim has always been an odd one. There are no historical examples of any economy in which government has not played a massive—even a decisive—role, as both Appleby and Polanyi show. Given the complete absence of such self-regulating and self-sustaining markets, with no government interference, how are we supposed to take such beliefs? That they are ahistorical ought to go without debate. As noted, Polanyi characterizes them as utopian. Appleby seems to take them as oddities, given the overwhelming historical evidence that governments have always been intimately involved in capitalist economies, whether providing direct planning or by assisting the growth of economies either by keeping in place protective tariffs or by negotiating trade treaties.
The United States became the industrial power it became largely through powerful protective tariffs in the 19th century that allowed American factories eventually to become competitive with those in Great Britain and Germany. Histories of capitalism such as Appleby’s (because they are rooted in history and not theory) suggest that extensive government involvement in capitalism is not only not undesirable but also inevitable. Appleby’s closing chapters chronicle several instances where capitalism has developed strong economies despite the lack of laissez-faire policies that many theorists see as the core of capitalism.
Appleby is hardly opposed to capitalism. Although this is not a theoretical work, the understanding of the economy that undergirds her book is that while capitalism is an extraordinary economic system for producing vast amounts of wealth it has not done a very good job of distributing the economic gains equitably. She understands that capitalism has been responsible for creating a higher quality of life for hundreds of millions of individuals—both in the sense of meeting basic human needs and in the sense of enriching human existence by increasing leisure time. While there have been far more winners under capitalism than under less developed economic systems, enough basic goods—food, housing, medicine—have been produced so that there should be no real losers anywhere in the world.
Yet, as she shows at several points, despite growing enough food to feed everyone on the planet, there have been ongoing problems with famines. There were record harvests in India in 1943 during one of the nation’s greatest famines, the cause of the millions of deaths an inability or unwillingness to transport food to those who needed it. Appleby is aware of the problems inherent in capitalism but remains hopeful that the various nations of the world will show concern not merely for producing very wealthy segments of the population but for helping those at the bottom of the economic pyramid as well. Her hopes echo the words of FDR, who famously declared that America was not well off unless all Americans were well off.
She also acknowledges that capitalism has made the world a more interesting place. She cites as the two enduring strengths of capitalism as “encouragement of innovation and a capacity to create new wealth along with the real satisfactions that wealth brings to a growing population of recipients”. Some Luddites will insist that the joy that iPods, personal computers, DVDs, cheap and inexpensive books, and high-def TVs are artificial and overrated, and in fact counter to genuine living, but it certainly doesn’t feel that way to me.
Perhaps I am self-deluded, but being able on my rather modest salary to afford an excellent personal library (my collection of books would rival virtually any personal collection in the 15th century, when even the most bookish of individuals owned only a few hundred books) and many of my favorite movies and TV series on DVD feels like a significant enhancement to my quality of life. The freedom in my leisure time to read these books and watch these DVDs is, in my eyes, a thoroughly good thing.
In fact, one of the great results of capitalism has been the recognition that “freedom” embraces more than merely the narrow understanding of freedom as freedom to own property (18th century political theorists narrowed conceived freedom in terms of ownership of land; indeed, only those who owned land could be free, and this is why the great innovation of American democracy was to detach the right to engage in the political process—i.e., the right to vote—from owning land). “Making private property the premium social good, [factory owners] rejected the idea that freedom is just as precious to workers as to themselves”. The good life consists not merely in owning things (whether land or an iPod), but in having the time in which to live as we wish; freedom consists not only in the right to own land, but the freedom to enjoy our lives.
But the failure of capitalist economies to involve everyone within those economies in their overall success and their complaisance when they do not—even when doing so would be possible—doesn’t keep Appleby from underrating the tremendous virtues of capitalism. Not only for centuries but for millennia prior to the emergence of capitalism economic growth was stagnant and flat. People remained stuck in the station of life into which they were born, with no possibility of change. Capitalism changed this irrevocably. Although the rigid class structure of European societies impeded capitalist development at first, the capacity to accumulate capital allowed people to move out of the class into which they were born.
As historian Gordon S. Wood pointed out in The Radicalism of the American Revolution, the late 18th century underwent a huge change in the way people thought about themselves in society. Prior to that century, people defined themselves vertically, by the individuals who were stationed immediately above them in society, as well as those who were just below them. But during the economic and political changes of the late 1700s a staggering change occurred, as people came more and more to think of themselves and their world in horizontal terms, looking not above at their superiors and below at their inferiors, but horizontally to their equals.
Indeed, it is not an accident that many historians often link the republican and democratic ideology of the American Revolution with the economic ideas espoused by Adam Smith and others (The Wealth of Nations was published in 1776). Appleby excels at showing the precise ways that capitalism both changed and drew upon the changes of the way that people conceived of themselves in society and the world.
Appleby also expresses concern in the book’s final chapters about the problems that emerge when government does not sufficiently protect its citizens from the excesses of capitalism. We have certainly seen in recent decades in the United States—when beginning with Jimmy Carter and then dramatically accelerating under Reagan—a passion for deregulation that has created a string of economic catastrophes, which might have been prevented with stronger regulation and more stringent protective legislation. We have witnessed not merely the recent subprime crisis, but also before that the dotcom crash at the turn of the millennium and the stock market collapse of the late’-80s and the S&L scandal of the ‘80s.
There are countless factors at work here (and a plethora of new books that analyze the causes that went into the making of the disaster—let me here especially recommend the new book by Larry M. Bartels, Unequal Democracy: The Political Economy of the New Gilded Age, published this past month on Princeton University Press, a book that goes beyond the immediate causes of our economic catastrophe to the changes in the political process that made it possible), but one of the greatest problems is in large part that there is no distance between the government and the economic sector.
Adam Smith worried about this in The Wealth of Nations. In fact, Smith believed that those engaged in the market should not be allowed to serve in government. Why? Because lawmakers who were involved in the market would be insufficiently disinterested to govern wisely. They would, he argued, govern with regard to their own selfish interests. Smith’s alternative is not adaptable to our contemporary situation (he felt only landed aristocrats, whom he bizarrely imagined were “disinterested”, should serve in government), but the point is that he was aware of the danger to the commonwealth generated by having people whose first concern was the success of the free market gaining the reins of government.
One of the great virtues of Appleby’s book is that it shows how intimately economic issues have been at the center of almost all of the key political and cultural issues of the past 250 years. The book almost doubles as a history of the modern world, touching upon the most important political and cultural developments of each century; indeed, economic issues often drive the political and cultural events. Thus, the book is an important key to understanding both the world that we live in as well as a helpful corrective to those who want to mystify capitalism and make it more than what it is: a historically contingent, often effective, and frustratingly fallible way of organizing our economic life.