Monday, October 26, 2015

The Rise of States, Inequality, and Economics - part 5

Last time we saw that the idea that money came out of loans extended by the temples of Mesopotamia, and ancient systems of justice. These units of account circulated as money. It was also encouraged by trading regimes. But in most cases,social relationship and local exchange prevailed.

So once you have money, do markets then naturally emerge? You need money for markets to form, but once money is introduced, is it accurate to say that the markets we think of today just naturally" came into being?

As Graeber points out, it is out of the primordial debt to the state that markets emerge. Furthermore, the state uses this power to issue coinage that must be returned to it. These coins are demanded as acceptance of payment. this allows internal markets to form as a way of provisioning soldiers. Only after the state creates money can we have markets. And markets are also creations of the state:
Since the Barter myth didn’t hold up Graeber attends to another foundational myth of economics. Money and markets don’t arise spontaneously out of barter societies as a resolution to the coincidence of double needs. Rather they arise through state intervention. Graeber gives an illuminating hypothetical example: 
  "Say a king wishes to support a standing army of fifty thousand men. Under ancient or medieval conditions, feeding such a force was an enormous problem- unless they were on the march, one would need to employ almost as many men and animals just to locate, acquire, and transport the necessary provisions. On the other hand, if one simply hands out coins to the soldiers and then demands that every family in the kingdom was obliged to pay one of those coins back to you, one would, in one blow, turn one’s entire national economy into a vast machine for the provisioning of soldiers, since now every family, in order to get their hands on the coins, must find some way to contribute to the general effort to provide soldiers with the things they want. Markets are brought into existence as a side effect." 
Boom. Money, taxes, and markets all in one fell swoop. In other words the “economy” arises as a way to meet artificial needs created by the state desiring to have a class of people who aren’t occupied with meeting their own needs: soldiers, aristocrats, priests etc… 
But if this is the way that it develops what could give the state sufficient gravitas, sufficient authority to pull such a maneuver? Setting aside the proposition that states are just glorified thugs (admittedly plausible), what would persuade so many people through history to go along with this arrangement? 
Here is where economists get to work on another myth that Graeber dismantles. Some economists which subscribe to this state/credit theory of the origin of money propose that there is something called “Primordial Debt”. This is the idea that just being alive is a kind of debt. They suggest that early religions held that all of our time on earth is borrowed from death and that sacrifice arose as a way of making a payment in lieu of our lives on this primordial debt. Supposedly, kings and emperors just claimed this religious impulse for themselves, our primordial debt became a debt to the state and there you have it, justification for all sorts of schemes like money and taxes.
Debt: Primordial Debts (Two Friars and a Fool)

Here's Graeber himself:
Taxes are also key to creating the first markets that operate on cash, since coinage seems to be invented or at least widely popularized to pay soldiers – more or less simultaneously in China, India, and the Mediterranean, where governments find the easiest way to provision the troops is to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Thus we find that the language of debt and the language of morality start to merge.
In Sanskrit, Hebrew, Aramaic, ‘debt,’ ‘guilt,’ and ‘sin’ are actually the same word. Much of the language of the great religious movements – reckoning, redemption, karmic accounting and the like – are drawn from the language of ancient finance. ..How did this happen? Well, remember I said that the big question in the origins of money is how a sense of obligation – an ‘I owe you one’ – turns into something that can be precisely quantified? Well, the answer seems to be: when there is a potential for violence. If you give someone a pig and they give you a few chickens back you might think they’re a cheapskate, and mock them, but you’re unlikely to come up with a mathematical formula for exactly how cheap you think they are. If someone pokes out your eye in a fight, or kills your brother, that’s when you start saying, “traditional compensation is exactly twenty-seven heifers of the finest quality and if they’re not of the finest quality, this means war!”

Money, in the sense of exact equivalents, seems to emerge from situations like that, but also, war and plunder, the disposal of loot, slavery. In early Medieval Ireland, for example, slave-girls were the highest denomination of currency. And you could specify the exact value of everything in a typical house even though very few of those items were available for sale anywhere because they were used to pay fines or damages if someone broke them.

But once you understand that taxes and money largely begin with war it becomes easier to see what really happened. After all, every Mafiosi understands this. If you want to take a relation of violent extortion, sheer power, and turn it into something moral, and most of all, make it seem like the victims are to blame, you turn it into a relation of debt. “You owe me, but I’ll cut you a break for now…” Most human beings in history have probably been told this by their debtors...
What is Debt? – An Interview with Economic Anthropologist David Graeber (Naked Capitalism)

So markets are consequence of war and conflict, not peaceful trade. Back to Wray:
In summary, money first existed as a unit of account. The development of private, alienable property allowed private loans. As loans came to be written in a standard money of account, the means of payment function of money developed. This gradually permitted production for market to earn the means of settling debts, which generated a medium of exchange function for money. The first standardized money of account was wheat, but it was subsequently replaced by barley. Money, recorded as a debt denominated in a unit of account, would be created as part of a forward debt contract. Money acting as a medium of exchange or means of payment would take a physical form (wheat or barley, and later, clay tablets, wooden tally sticks, metal coins, or paper IOUs), denominated in terms of the idealized money of account. Because production in a market system is always monetary production, its purpose is to realize production in money form. Thus, the purpose of production in a “market” economy is to accumulate money-denominated units of the social measure of wealth. Accumulation of money-denominated assets becomes the universally recognized path to wealth; the money of account becomes the social unit of value.
Under this capitalist market, the settling of credits and debits (or, we might say, the selling of usury) is the primary focus, with actual production being secondary:
The market, then, is not viewed as the place where goods are exchanged, but rather as a clearing house for debts and credits. Indeed, Innes rejected the typical analysis of the medieval village fairs, arguing that these were first developed to settle debts, with retail trade later developing as a sideline to the clearing house trade. On this view, debts and credits and clearing are the general phenomena; trade in goods and services is subsidiary—one of the ways in which one becomes a debtor or creditor (or clears debts). Innes viewed the creditor-debtor relation as the fundamental social relation lying behind money’s veil. There is no “natural” relation-free money that lies behind the credit money.
http://www.epicoalition.org/docs/Credit_and_State_Theories.pdf

So the conventional view is of an expanding web of markets, from town and village, then spreading to the cities, then to the entire country, then between countries, and eventually to the world. But as Karl Polanyi points out, this is exactly backwards. Small-scale economies were self-sufficient and embedded in social relations, households, and local custom. The "market" actually began in towns where extensive trade came together. These markets were extensively regulated. The reason they were in specific towns and trading areas was actually to protect the local economy from the market.

Here's Karl Polanyi:
The logic of the case is, indeed, almost the opposite of that underlying the classical doctrine. The orthodox teaching started from the individual's propensity to barter; deduced from it the necessity of local markets, as well as of division of labor; and inferred, finally, the neces    sity of trade, eventually of foreign trade, including even long-distance trade. In the light of our present knowledge we should almost reverse the sequence of the argument: the true starting point is long-distance trade, a result of the geographical location of goods, and of the "division of labor" given by location. Long-distance tradae often engenders markets, an institution which involves acts of barter, and, if money is used, of buying and selling, thus, eventually, but by no means necessarily, offering to some individuals an occasion to indulge in their alleged propensity for bargaining and haggling. 
Eventually, the market comes to subsume the social relations of Europe. This, however, was not without conflict. Money, prices and markets eventually spead not outward, but inward, from the great trading towns on the rivers to the villages:

At a later stage, as we all know, markets become predominant in the organization of external trade. But from the economic point of view external markets are an entirely different matter from either local markets or internal markets. They differ not only in size; they are institutions of different function and origin. External trade is carrying; the point is the absence of some types of goods in that region; the exchange of English woolens against Portuguese wine was an instance. Local trade is limited to the goods of that region, which do not bear carrying because they are too heavy, bulky, or perishable, plus both external trade and local trade are relative to geographical distance, the one being confined to the goods which cannot overcome it, the other to such only as can. Trade of this type is rightly described as complementary. Local exchange between town and countryside, foreign trade between different climatic zones are based on this principle. Such trade need not imply competition, and if competition would tend to disorganize trade, there is no contradiction in eliminating it. In contrast to both external and local trade, internal trade, on the other hand is essentially competitive; apart from complementary exchanges it includes a very much larger number of exchanges in which similar goods from different sources are offered in competition with one another. Accordingly, only with the emergence of internal or national trade does competition tend to be accepted as a general principle of trading.

These three types of trade which differ sharply in their economic function are also distinct in their origin. We have dealt with the beginnings of external trade. Markets developed naturally out of it where the carriers had to halt as at fords, seaports, riverheads, or where the routes of two land expeditions met. "Ports" developed at the places of transshipment. The short flowering of the famous fairs of Europe was another instance where long-distance trade produced a definite type of market; England's staples were another example. But while fairs and staples disappeared again with an abruptness disconcerting to the dogmatic evolutionist, the part was destined to play an enormous role in the settling of Western Europe with towns. Yet even where the towns were founded on the sites of external markets, the local markets often remained separate in respect not only to function but also to organization. Neither the port, nor the fair, nor the staple was the parent of internal or national markets. Where, then, should we seek for their origin?

It might seem natural to assume that, given individual acts of barter, these would in the course of time lead to the development of local markets, and that such markets, once in existence, would just as naturallv lead to the establishment of internal or national markets. However, neither the one nor the other is the case. Individual acts of barter or exchange—this is the bare fact—do not, as a rule, lead to the establishment of markets in societies where other principles of economic behavior prevail. Such acts are common in almost all types of primitive society, but they are considered incidental since they do not provide for the necessaries of life. In the vast ancient systems of redistribution, acts of barter as well as local markets were a usual, but no more than a subordinate trait. The same is true where reciprocity rules: acts of barter are here usually embedded in long-range relations implying trust and confidence, a situation which tends to obliterate the bilateral character of the transaction...
Indeed, on the evidence available it would be rash to assert that local markets ever developed from individual acts of barter. Obscure as the beginnings of local markets are, this much can be asserted: that from the start this institution was surrounded by a number of safeguards designed to protect the prevailing economic organization of  society from interference on the part of market practices. The peace of the market was secured at the price of rituals and ceremonies which restricted its scope while ensuring its ability to function within the given narrow limits. The most significant result of markets—the birth of towns and urban civilization-was, in effect the outcome of paradoxical development. Because the towns, the offspring of the markets, were not only their protectors, but also the means of preventing them from expanding into the countryside and thus encroaching on the prevailing economic organization of society. The two meanings of the word "contain" express perhaps best this double function of the towns, in respect to the markets which they both enveloped and prevented from developing.

The typical local market at which housewives procure some of their daily needs, and growers of grain or vegetables as well as local craftsmen offer their wares for sale, shows an amazing indifference to time and place. Gatherings of this kind are not only fairly general in primitive societies, but remain almost unchanged right up to the middle of the eighteenth century in the most advanced countries of Western Europe. They are an adjunct of local existence and differ but little whether they form part of Central African tribal life, or a cite of Merovingian France, or a Scottish village of Adam Smith's time. But what is true of the village is also true of the town. Local markets are, essentially, neighborhood markets, and, though important to the life of the community, they nowhere showed any sign of reducing the prevailing economic system to their pattern. They were not starting points of internal or national trade.

Internal trade in Western Europe was actually created by the intervention of the state. Right up to the time of the Commercial Revolution what may appear to us as national trade was not national, but municipal. The Hanse were not German merchants; they were a corporation of trading oligarchs, hailing from a number of North Sea and Baltic towns. Far from "nationalizing" German economic life, the Hanse deliberately cut off the hinterland from trade...The trade map of Europe in this period should rightly show only towns, and leave blank the countryside—it might as well have not existed as far as organized trade was concerned. So-called nations were merely political units, and very loose ones at that, consisting economically of  innumerable smaller and bigger self-sufficing households and insignificant local markets in the villages. Trade was limited to organized townships which carried it on either locally as neighborhood trade or as long-distance trade—the two were strictly separated, and neither was allowed to infiltrate the countryside indiscriminately.

Such a permanent severance of local trade and long-distance trade within the organization of the town must come as another shock to the evolutionist, with whom things always seem so easily to grow into one another. And yet this peculiar fact forms the key to the social history of urban life in Western Europe. It strongly tends to support our assertion in respect to the origin of markets which we inferred from conditions in primitive economies.
The Great Transformation, pp. 60-63

Randall Wray:
...all pre-capitalist societies are much more similar to one another than any is to capitalism. The origins of markets based on use of money lie in the early development of private property; however, money and monetary production remained “embedded” in noneconomic social relations until the emergence of a “monetary economy” relatively recently...
According to Polanyi, the attempt at creating a self-regulating market economy failed,thus engendering a protective response to limit the functioning of markets precisely because they could not accomplish desired social provisioning. Finally, Heilbroner argues that the creation of capitalist society represented a revolutionary movement in which an economic system is created whose overriding function is to accumulate “capital,” rather than to ensure social provisioning. This continual “expansive metamorphosis of capital” is the essential logic of capitalism. Furthermore, this logic of accumulation takes the form of accumulation of greater nominal values. Clearly, capitalism—a system based on nominal accumulation—is a system very different from previous institutionalized interactions among humans and between humans and nature.
Richard Heinberg writes:
Here is all of economic history compressed into one sentence: As societies have grown more complex, larger, more far-flung and diverse, the tribe-based gift economy has shrunk in importance, while the trade economy has grown to dominate nearly every aspect of people’s lives, and has expanded in scope to encompass the entire planet...
Today we take money for granted. But until fairly recent times it was an oddity, something only merchants used on a daily basis. Some complex societies, including ancient Egypt, managed to do almost completely without it; even in the U.S., until the mid-20th century, many rural families used money only for occasional trips into town to buy nails, boots, glass, or other items they couldn’t grow or make for themselves on the farm. In his marvelous book The Structures of Everyday Life: Civilization & Capitalism 15th-18th Century, historian Fernand Braudel wrote of the gradual insinuation of the money economy into the lives of medieval peasants: “What did it actually bring? Sharp variations in prices of essential foodstuffs; incomprehensible relationships in which man no longer recognized either himself, his customs or his ancient values. His work became a commodity, himself a ‘thing.'”
Economic History in 10 Minutes (Richard Heinberg)

Where did this idea of trade come from? the first global economy was developed by the Arabs around the Indian Ocean in the tenth through twelfth centuries. These great Muslin trading regimes eventually came into contact with Europe whose royalty desired the goodds of the Far East. The goods avaiable in the fairs, from silks to linens to perfues to pearls to spices to sugar predomnatly came from Muslim lands. The crusades brought much of this into Europe via plunder. It was actually these Arabic trading regimes which first developed the ideas of "free markets"
Imagine a society with a deep distrust of government. In this society the government is basically restricted to matters of defense. The job of the government is to guard the borders and defend against invaders in order to maintain a safe area for its citizens to prosper. Meanwhile, in this society the most highly valued activity is commerce. Merchants are seen as heroes who take heroic risks to reap huge rewards and retire, ideally in lavish comfort. The government is strictly prohibited from involving itself in commerce, and most everyone agrees that wealth and poverty are down to the work of the individual in the unregulated market. Does this society sound like Ayn Rand’s paradise? It is actually a fairly accurate description of Muslim Caliphates in the Middle Ages.
This is no coincidence. Adam Smith appears to have borrowed some of his ideas, particularly the concept of “the invisible hand of the market”, from medieval Persian writers. Even more directly the roots of Western Capitalism are found in the interactions with Muslims during the crusades. The famous “invention of banking” by the Knights Templar most textbooks talk about wasn’t so much an invention as it was straight up imitation of their Muslim enemies for the purposes of war. Usury was such a reviled practice that it was only deemed acceptable in the context of Holy War against infidels. Christians thought it fitting to destroy the Muslims with their own evil tools.

This marriage of war and trade in the west is foundational. At the heart of capitalism is the notion that trade is really just a less-violent type of warfare. I can beat you in business, and if that fails, then I’ll beat you with mercenaries. The merchants of Venice and Florence kept their own mercenary armies, and as the tools of trade grew in popularity profit-making endeavors were increasingly backed by the power of the state. Columbus was back by the Queen of Spain and it is no surprise that his trade expedition, when it failed to find the wealthy civilizations of the far east to profit from, turned to conquest as an alternative way to profit. Trade and war were much the same thing to him.

The violence of trade in western societies is a stark contrast with the Muslim Caliphates of the Middle Ages which, because of their strict separation between government and commerce never thought of sending in the soldiers if a trade fell through. If contemporary Libertarians were consistent in their convictions they too would advocate a reduced military for pure defense and a non-interventionist foreign policy. The combination of a laissez-faire deregulated economy and a neo-conservative imperialist foreign policy is especially toxic. Manipulating oil prices with drone warfare is the sort of thing the monster behind the 4th Crusade, Pope Innocent III, would have approved of, especially since the victims are those infidel Muslims.
What Muslim Caliphates and Libertarians Have in Common (Two Friars and a Fool)

As Constantinople fell, Europeans looked for alternative means to access Asian markets, and began the voyages of discovery, which culminated in the landing of Christopher Columbus in Hispaniola. This opened up the plunder of the New World by Western Europe. As wealth flowed in, markets became ever more prominent. Arabic ideas of "impersonal markets" were pressed into service.
Once money and markets became to dominant economic force, the expansion of money became the overriding goal. This was the birth of capitalism. As social relations disintegrated, people needed to meet their needs by earning money in the market. And it was governments who forced the market on the wider society.
It was obvious to the classical political economists that, if left to itself, the free market would require centuries to produce the conditions necessary for the invention of capitalism. A great many things stood in the way of a quick and "orderly" transition from feudalism to capitalism, but especially the remarkable tenacity with which the rural peasants adhered to traditional agricultural practices and subsistence farming. Even when wages in the city were high, the peasants refused to accept factory jobs and stayed on their farms. They preferred a life full of holidays, not manufactured goods. And, when times got rough, the peasants would agree to make salable commodities, but only if they could make the commodities in their homes, out of which they could not be enticed, even when the wages for the exact same work was twice as high in the factories! To the political economists and "moral philosophers" of the 18th century, the peasants weren't within their rights; they revolted because they were rude and uncivilized, morally defective or psychologically impaired. In any case, the peasants were standing in the way of "progress" and "civilization." What capitalist had time to wait around until the peasants evolved on their own? None. Only the state -- that is, only the state's monopoly on and ability to use legalized violence -- could force these people to do what the "economic rationality" of others dictated that they do. And what if the peasants resisted, which they did in fact do? "Send troops into the blazing districts," screamed Edward Gibbon Wakefield in 1831; "proclaim martial law; shoot, cut down, and hang the peasants wholesale, and without discrimination" (emphasis in original). 
Following Marx, who originally found a variation of the term in The Wealth of Nations, Perelman calls these concerted interventions by the state instances of "primitive accumulation..." 
Drawing upon personal diaries, letters written to colleagues and newspapers, and lectures delivered to college classes, i.e., texts that are usually ignored by contemporary political economists, Perelman shows that all of the classical political economists -- yes, even Adam Smith -- believed in, lobbied for and directly benefited from English or French primitive accumulation. Drawing upon these same texts, Perelman is also able to suggest why Adam Smith worked so hard to avoid the subject in The Wealth of Nations. The history of primitive accumulation, especially in Ireland and Scotland in the 17th and 18th centuries, proved that Smith was right when he told his students: "Laws and government may be considered in every case as a combination of the rich to oppress the poor, and preserve to themselves the inequality of the goods which would otherwise be soon destroyed by the attacks of the poor, who if not hindered by the government would soon reduce the others to an equality with themselves by open violence" (emphasis added). It just wouldn't do to discuss or even openly acknowledge the reality of primitive accumulation and the oppression of the poor by the rich, especially in a book such as The Wealth of Nations, which was written as much to curry favor amongst politicians, potential benefactors and Smith's peers, as it was to set forth a theory or methodology of modern economics. And so, Smith carefully followed the advice he himself had given his students ten years before The Wealth of Nations was published: if we desire to sway the opinion of sensitive or unsympathetic readers, "we are not to shock them by affirming what we are satisfied is [in fact] disagreeable, but are to conceal our design and beginning at a distance, bring them on to the main point and having gained the more remote ones we get the nearer ones of consequence." 
Smith thus managed to avoid the fate of his fellow Scot, Sir James Steuart, who was imprudent enough to be completely honest. Ten years before Smith's book came out, Steuart published An Inquiry into the Principles of Political Economy, which was not, as Perelman says, based "on the airy fiction of a [voluntary] social contract." It was instead based upon the frank recognition that ancient slave societies such as Sparta offered, in Steuart's own words, "the perfect plan of [modern] political economy." Because they forced people (the poor and the conquered) to produce for others as well as for themselves, slave societies suppressed what Steuart called "idleness" and "the laziness of the people," and thereby allowed the masters and rulers to eat and live luxuriously without doing any work of their own. Thus, Steuart argued, slave societies were able to become much wealthier, stronger and longer-lasting than free societies, in which the poor and the conquered are allowed to produce only as much food as they themselves need. But Steuart thought Sparta to be a "violent" and barbaric republic because it wasn't Christian: e.g., it allowed people to enslave other people. And so Steuart championed capitalism, a putatively enlightened form of slavery in which "men are [instead] forced to labor because they are slaves to their own wants," in particular, to their need for food. But Steuart wasn't willing to wait for plagues, famines or wars to make the British masses hungry enough to submit to capitalist slavery. It was in fact possible that these catastrophes wouldn't come or wouldn't be severe enough to do the job and in precisely the way desired. And so Sir James advocated that the state should forcibly evict the masses of rural peasants from the land, turn their farms into pastures, and thereby create the hunger, poverty and misery necessary to provide capitalism with sufficient numbers of people willing to submit themselves to wage labor. Though he wasn't the only writer of the time to be completely honest about the brutality of the invention of capitalism, Steuart's book was objected to, taken to task and then completely forgotten about. It struck a nerve, the very one Adam Smith tried to soothe.
Mass Murder and Slavery: The Invention of Capitalism (Not Bored)

The coercive power of the elites was replaced by the coercive power of the market. Power was now based on the ownership of money. Here's Chris Dillow:
You might find it odd that state intervention is necessary for the development of free, well-functioning markets. You shouldn't. As Karl Polanyi pointed out, it was state intervention which drove the development of markets in the 15th and 16th centuries. 
David Graeber writes:
    "Despite the dogged liberal assumption...that the existence of states and markets are somehow opposed, the historical record implies that the exact opposite is the case. Stateless societies tend also to be without markets" (Debt: the first 5000 years, p50)

All this poses the question. Why, then, haven't we seen state help to create what Robert Shiller has called financial democracy?

It's certainly not because of a commitment to laissez-faire: the massive implicit subsidy to banks tells us that the state is very happy to intervene in the financial system.

Instead, the answer was pointed out by Marx: the state serves the interests of capitalists, not the people. And financial capital would rather financial markets consisted of rent-seeking than of enhancing aggregate welfare. Crony capitalism has encouraged  financialization, not financial democracy.
In this sense, a well-functioning market economy requires that the state be freed from the grip of capitalists. In some respects it is capitalism that is the enemy of a market economy, and Marxism that is its friend.
Markets need Marxism (Stumbling and Mumbling)

Or to put it another way, all markets require socialism. Otherwise all you have is feudalism, or perhaps "oriental despotism,"not liberal market economies at all.  It was state intervention, not the absesnce of state intervention, that allowed the Industrial Revolution to flourish. The reason the Industrial Revolution took off in England is commonly attributed to "private enterprise" and a lack of government relative to strong, centralized states" like China, which is portaryed as Oriental Despotism constantly stealing everything it can from productive classes and merchants. As Gregory Clark writes:
The popular misconception of the preindustrial world is of a cowering mass of peasants ruled by a small, violent, and stupid upper class that extracted from them all surplus beyond what was needed for subsistence and so gave no incentives for trade, investment, or improvement in technology. These exclusive and moronic ruling classes were aided in their suppression of all enterprise and innovation by organized religions of stultifying orthodoxy, which punished all deviation from established practices as heretical. The trial and condemnation of Galileo Galilei by the Holy Inquisition in 1633, for defending the Copernican view that the earth revolved around the sun (figure 8.1), seems an exemplar of the reign of superstition and prejudice that was responsible for the long Malthusian night.

There may have been societies before 1800 that fit this popular stereotype. There were frequent attempts by religious authorities to impose fallacious dogmas about the natural world. But we shall see that, as an explanation of the slow technological advance of the world as a whole before 1800, the prevailing view makes no sense. It is maintained only by a contemporary variety of dogmatism—that of modern economics and its priestly cast (sic).
Gregory Clark, A Farewell to Alms, p. 145

But the reality is totally wrong. It was China that was much more like Adam Smith's liberal paradise than was England:
Mercantilism, as practiced throughout this period in Great Britain, was not simply a fascination with collecting gold. The British government actively looked to strengthen manufacturing (of imported raw materials) and used military and naval power to open markets with that purpose in mind. To do this it taxed heavily, borrowed heavily, and spent heavily. 
What to make of this? There is no necessary link between strict laissez-faire policies and growth. The first industrial nation in the world was anything but laissez-faire, and it intervened far more deeply into its economy than China, which functioned in some sense as the idealized “night watchman” state of Adam Smith. There is little to no evidence that government “just getting out of the way” leads to development. The interventions Great Britain did make certainly resulted in massive monopoly rents to small groups of people at times. So let’s not go overboard in the other direction and conclude that massive state interventions are necessary or optimal. But it is valuable knowing just how un-laissez-faire Britain was during this period.
Great Britain and Laissez Not-so-Faire Economics (The Growth Economics Blog)

The reason that it's so difficult to get to the markets free from all government interference that libertarians so desire is that it has never existed!

Now the coercive power of elites was replaced by the coercive power of markets. And the coercive power of markets has but one goal - to expand the supply of money forever by turning the earth's raw materials into waste as fast as possible.
What is remarkable is how we’ve blinded ourselves to the coercive element of our own system. From Robert Heilbroner in Behind the Veil of Economics:
    "This negative form of power contrasts sharply with with that of the privileged elites in precapitalist social formations. In these imperial kingdoms or feudal holdings, disciplinary power is exercised by the direct use or display of coercive power. The social power of capital is of a different kind….The capitalist may deny others access to his resources, but he may not force them to work with him. Clearly, such power requires circumstances that make the withholding of access of critical consequence. These circumstances can only arise if the general populace is unable to secure a living unless it can gain access to privately owned resources or wealth…"

    "The organization of production is generally regarded as a wholly “economic” activity, ignoring the political function served by the wage-labor relationships in lieu of baliffs and senechals. In a like fashion, the discharge of political authority is regarded as essentially separable from the operation of the economic realm, ignoring the provision of the legal, military, and material contributions without which the private sphere could not function properly or even exist. In this way, the presence of the two realms, each responsible for part of the activities necessary for the maintenance of the social formation, not only gives capitalism a structure entirely different from that of any precapitalist society, but also establishes the basis for a problem that uniquely preoccupies capitalism, namely, the appropriate role of the state vis-a-vis the sphere of production and distribution."

What struck me about Heilbroner’s discussion, as if he was tip-toeing around the issue, and it was not clear whether because he could not formulate a crisp description of the power relationships, or that it was clear to him but he really didn’t want to come out and say what he saw.

Ian Welsh ventures where Heilbroner hesitated to go:

    "The fundamental idea of our current regime is one that most people have forgotten, because it is associated with Marx, and one must not talk about even the things Marx got right, because the USSR went bad. It is that we are wage laborers. We work for other people, we don’t control the means of production. Absent a job, we live in poverty. Sure, there are some exceptions, but they are exceptions. We are impelled, as it were, by Marx’s whip of hunger. It took a lot of work to set up this system, as Polyani notes in his book “the Great Transformation”, but now that it has happened, it is invisible to us."

We have to sell our labor (or be supported by someone who does that) as a condition of survival. Now that may not seem peculiar since that has been the state of affairs in most advanced economies for generations. The seeming exceptions, like farmers and even fishermen, are now little capitalists; they own equipment and sell their goods to wholesalers of various sorts. This order was imposed after the feudal era. As Yasha Levine explained, citing Michael Perelmen’s The Invention of Capitalism:

    Faced with a peasantry that didn’t feel like playing the role of slave, philosophers, economists, politicians, moralists and leading business figures began advocating for government action. Over time, they enacted a series of laws and measures designed to push peasants out of the old and into the new by destroying their traditional means of self-support.

    “The brutal acts associated with the process of stripping the majority of the people of the means of producing for themselves might seem far removed from the laissez-faire reputation of classical political economy,” writes Perelman. “In reality, the dispossession of the majority of small-scale producers and the construction of laissez-faire are closely connected, so much so that Marx, or at least his translators, labeled this expropriation of the masses as ‘‘primitive accumulation.’’

    Perelman outlines the many different policies through which peasants were forced off the land—from the enactment of so-called Game Laws that prohibited peasants from hunting, to the destruction of the peasant productivity by fencing the commons into smaller lots—but by far the most interesting parts of the book are where you get to read Adam Smith’s proto-capitalist colleagues complaining and whining about how peasants are too independent and comfortable to be properly exploited, and trying to figure out how to force them to accept a life of wage slavery.

And this might put the “failure of capitalism” theme in context. If you have a system that requires that people sell their labor as a condition of survival, yet fails to provide enough opportunities to sell labor to go around, you have conditions for revolt. Hungry, desperate people having nothing to lose. That, and not charity, is the root of the welfare state, to provide a buffer for when the capitalist system chokes up and presumably on a short-term basis, fails to provide enough jobs (that and to provide for people who are infirm, handicapped, or otherwise cannot work, which communities in England did in the early modern era).

So you can see the obvious tension: the capitalist classes in America, to increase their riches further, have been squeezing workers harder by not hiring as they did in the past. We’ve never had a “recovery” in the post-WWII era with so little of GDP growth going to labor (meaning both hiring and wage increases). In the past, the average was over 60% and the lowest was 55%. I haven’t seen a recent update, but the last figures I saw was that the level for this “recovery” was under 30%. Yet simultaneously, theres’s a full-bore effort on to gut the remaining safety nets. If this isn’t a prescription for social and political instability, I don’t know what is.

And Welsh gives some clues in a must-read new post as to why we are in a mess:

    "Basically, being a hunter-gatherer is about as good as it gets for most of human existence. There are some better agricultural societies to live in for brief periods (certain periods of Roman history, say) but they are rare. Industrial society produces better medicine and goods, but we work harder and have vastly more chronic disease even at the same age, and industrial society includes as its concommitent things like the widespread rape in the Congo and African poverty: that’s a requirement of our society, is not incidental."

   " But hunter-gatherers lose confrontations with pastoralists and agricultural societies. It’s a great way to live, but more dense societies were better at violence, so hunter-gatherers were forced to the margins…."

    "If you want a society, then, which is prosperous and egalitarian, with the proceeds of increased production going to everyone and not just a few, you must have an internal structure of power which gives ordinary people quite a bit, makes concentration of power in private hands difficult, makes the government unable to use too much power against its own citizenry while (and this is the important bit) still being able to defend itself externally, and able to resist internal putsches. Egalitarian societies which cannot defend themselves get overwhelmed by hierarchical societies which are better at violence."

    "This extends to monetary matters. If outsiders with money can buy up your society and upset your internal political and productive relationships because they are more efficient, or just bigger, or have their capital more concentrated: if you will let them buy you up because some part of your society wants to cash out, then whatever internal relationships you have are vulnerable. This has happened to vast swathes of the third world, where Westerners come in and buy out traditional relationships. NAFTA pushed millions of Mexicans off their farms, made Mexico weaker because those people now needed to pay for food (often foreign, and also less nutritious) and made Mexico, objectively, worse off than before NAFTA. But some Mexicans got very rich by selling out…"

    "We think of irrationality as bad, but rational decision making leads to be betrayal. If someone’s going to offer me more than I can otherwise earn to betray the rest of my people, a lot of folks are going to take that deal unless they have the irrational belief that it’s wrong, and a rational belief that if they do it, those who have an irrational belief in the system will hurt them, or even kill them."

    "This is ideology. Any ideological system that doesn’t produce people willing to die and kill for it, will lose to an ideology that does. The question is not whether violence is permitted, the question is when it is permitted. Most of us want to live in a peaceful society, I certainly do. But that peace is always and everywhere undergirded by rules about when to commit violence, a willingness to do so and an ability do it well. Societies and ideologies that do not do violence well exist at the sufferance of those who do, and live under the conditions and in the places that those good at violence permit. Generally very bad conditions."
This is a very nasty conundrum at the root of power that few like to discuss so directly. It should not be surprising that there are no easy answers, and even enlightened compromises are difficult to keep in balance over time.
The Coercive Power of Capitalism (Naked Capitalism)

The nineteenth century was a time of great upheaval and a seeking out of alternatives to the capitalist monster that was eating the planet. Despite the material improvements, social unrest was rampant. The reason there was so much questioning of the economic system, and so much unrest, in the nineteenth and early twentieth centuries is that, unlike today, people actually remembered a time before markets and capitalism:
In “Age of Acquiescence,” [Steve] Fraser pursues a comparison often noted between our time and what Mark Twain called “The Gilded Age,” those decades of the last turn of the century when wealth and power were gathered at the top and powerlessness and poverty collected at the bottom. Why, Fraser asks, do workers and citizens today accede to the inequalities and injustices of capitalism that they refused to accept 100 to 150 years ago? After the Civil War, farmers and workers responded to the explosion of corporate power and financial wealth with desperate acts of violence and audacious feats of political creativity. The reason they could see a utopia beyond industrial capitalism, says Fraser, is that they remembered a reality before industrial capitalism. Their vision of the future was fueled by a memory of the past.
In 1820, 80% of Americans were self-employed; by 1940, 80% worked for someone—or something—else. “The individual has gone,” declared John D. Rockefeller, “never to return.” Driven into the mills and the mines or onto the rails, these refugees from the shop and the farm were injured, maimed, or killed (35,000 per year) by industrial capitalism. They were the lucky ones. Many Americans couldn’t get work at all. In the 1870s, unemployment became a census category for the first time. So desperate were jobless New Yorkers that they got themselves arrested just to enjoy a night off the streets, in jail. They also struck, marched, organized, bombed and killed, launching decades of class warfare, literal and metaphoric, that would haunt the country’s elites for years to come.

The fact of unemployment, Fraser writes, struck these men and women “as shocking, unnatural, and traumatic,” as did the astronomic new wealth of the nation’s plutocrats. That’s because they remembered a life before wage labor and their pervasive dependence on—and the compulsion of—the market. So powerful was this memory of a pre-capitalist past that it framed the way they understood their enemies: well into the twentieth century, Fraser reminds us, FDR was railing against “economic royalists” and “Tories of industry.” Not merely as propaganda but as a residue of the world not long ago left behind.

But it was precisely that memory, Fraser argues, that shock of the new, that made these rebels so ready to demand something even newer: a cooperative commonwealth, in which production would be collectively managed and profit democratically shared. Scandalized by the novelty of capital, they did not opt for an escapist nostalgia. They instead turned to the state, traditionally an object of opprobrium, and demanded that it assume new responsibilities: take over industry, tax wealth, supply credit, store surpluses—all for the sake of a vision drawn from a pre-capitalist past:

It is undeniable that the movement owed its fervor and sense of political and moral peril to the republican, smallholder mentality of the Revolution. Passionate attachments to immemorial traditions and ancient creeds—one might say to a useable or empowering past—were conjoined to creative methods of reconfiguring the future, all as a way of escaping the torments of an intolerable or even fatal present.

What Fraser shows, with vivid set pieces drawn from the nation’s most violent battlefields, is that far from presenting itself as the enemy, the past was viewed by workers and farmers as a resource and an ally. In part because the capitalist right so heartily embraced the rhetoric of progress and the future (no one, it seems, was content with the present). But more than that, historical memory enabled workers and farmers to see beyond the horizon of the capitalist present, to know, in their bones, what Marx was constantly struggling to imprint upon the mind of the left: that capitalism was but one mode of economic life, that its existence was contingent and historical rather than natural and eternal, and that because there was a past in which it did not exist there might be a future when it would cease to exist. Like the nation, capitalism rests upon repeated acts of forgetting; a robust anti-capitalism asks us to remember.
We have the left and right all wrong: The real story of the politics of nostalgia and tradition (Salon)

The reason economists try and persuade us that markets are the source of our prosperity and not, say, the compounding results of scientific discovery, the exploitation of certain key fundamental technology suites (electricity, chemistry, biology), or the exploitation of trillions of barrels of stored sunlight in the form of fossil fuels, is to keep the power in the hands of those who control the money - the big banks and the owners of land and capital.  Around this time, economists began to describe such a thing as an "economy" being distinct from the wider society, and "economic" behavior as distinct from any former restrictions on morality. "economic" behavior was to always seek to maximize self interest, and this was considered "rational" and thereby, "moral."

To accomplish this, economists constructed a model of human nature where rational utility maximizing atomized individuals constantly seek maximum benefit at minimal cost; where buyers and sellers meet in impersonal open markets which cannot be gamed and prices are "discovered;" and where all social provisioning is determined solely by self-interest. The basic unit of society was now the atomized individual, "a lightning calculator of pleasures and pains, who oscillates like a homogenous globule of desire of happiness under the impulse of stimuli," with no obligations to his fellow man. Collective ownership, such as of a commons, was depicted as inefficient because it was not subject to the "discipline" of the market.

Economists then chart the behavior of markets with mathematical precision, even while neglecting to study the real world of goods which underlie the markets, and then claim that they are only "real"  social science because they use complex equations and quantification.

We seem to have succeeded despite markets, not because of them. Markets rely on state subsidies and intervention. They are dependent upon negative externalities, but do everything they can to limit positive externalities, since an individual firm cannot profit from them (i.e. privatize profits and socialize losses). They encourage planned obsolescence - things are made with the minimum care and effort. The drive to efficiency eliminates all quality and workmanship - goods are shoddy and designed to break to increase turnover. Technological innovations is often suppressed due to competition, such as FM radio, or alternating current. Multiple firms produce identical products and then spend millions to differentiate themselves with no real benefit. Firms naturally do have no desire to compete, and so depress profits, and so sectors of the economy naturally head toward monopolies unless broken up by the state. Today we are in a situation where corporations need to spend billions of dollars to convince us buy in sufficient amounts to keep the market functioning and the money growing, to pay back previous loans. It is a runaway train.

What I find ironic about the whole thing is that rituals to bring together the community in public feasting rituals and collective communal bonding ten thousand years ago ended up in a system where individuals are almost perfectly alienated from each other.

And that brings us to today.

5 comments:

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  2. This is an absolutely amazing series. I've read some of your references before, including years of Ian Welsh. But this brings things together and makes so much sense. Thank you for this brilliant work.

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    1. Yeah, Ian's a big inspiration, and his October 29th post fits with this perfectly.

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    2. http://www.ianwelsh.net/when-does-technological-advancement-actually-lead-to-prosperity/

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