Image by Admit One
Markets have existed for millennia. Capitalism has existed for millennia. The Romans had markets and capitalism; the Greeks did; the Assyrians did, and so on.
(This is Part Two of a series. Read Part One: Will Capitalism and Democracy Survive?)
But none of these societies, despite having capitalism and markets, were capitalist societies.
Capitalist societies use capitalism as their primary method for controlling economic activity.
Weber called this “rational capitalism.” What he meant was that capitalism transformed, according to its reason, other relationships so that they became capitalistic.
A capitalistic relationship is one that is determined by money. It is traditional to say it is controlled by price and the profit motive, but that’s not quite true.
Uber is losing money. A lot of money. It might never be profitable. Elon Musk’s companies do not make money, though they may in the future. The banks and brokerages of the 2000s went bankrupt.
In a capitalist society, people do what gets them the most money.
What is important about this is that in capitalist society, money equals power, much more so than in other societies.
In a capitalist society, money buys people and their time. It buys virtually everyone. It allows you to decide what those people do. (Read: The Tyranny of Money.)
What is important about this is that it means that people who do what the system requires are the people who get power.
If you don’t respond to monetary incentives in a capitalist society, you usually don’t get power. Not only that, you are generally deprived of power.
So a capitalist society ensures its continuation by making sure those with power are those who do what a capitalist society requires: Pursue money.
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It’s hard for us moderns to really grasp this. In the Dark and Middle Ages, most societies were not capitalist societies. Most people were tied to the land. They did not work primarily for money, they worked for their lords for X days a year, or during a call up for war. But the rest of the time, they worked for themselves or their families.
You could buy some people with money, but you couldn’t control most people with money. What mattered was a system of allegiance, and military force.
Power got you money more than money got you power. People who forgot that lost both.
This is generally true in most agricultural societies for most of history, though it’s not an absolute.
In the Roman Republic, most rich men were rich because they were aristocrats with land or because they were successful generals who had looted their wealth. Only one of the great men competing to be Empire and end the Republic, Crassus, had most of his power due to wealth and he did not win.
The extent to which a society is capitalist can be determined by how many people you can buy, and how much of them you can buy. A peasant may do letting out labour in the evenings or odd jobs, but you can’t buy most of his or her labour. A nobleman may do some things for money, but not most, and the official ethos of nobility was that to engage in manual labor or mercantile activity was to de-grade yourself and lose your noble status.
In our society, you can buy virtually everyone, including the most powerful politicians. (For all that people deny it, much of Obama’s policies could be predicted by “wants to be rich after office”–I said that long ago, and its predictive utility was high.)
Your ability to do that to high nobles was often limited: If they got upset enough at their bankers they would just kill them or exile them, and seize their assets. This happened over and over again. At best you rented kings and high nobility: Lending to them was a privilege, you did not own them, and if you thought you did, that worked out badly for you pretty often, though, of course, this was not the case in all places and times.
A social system perpetuates itself when it gives power to people who act as the social system thinks is correct. Capitalism perpetuates itself as long as power goes to those who pursue money first. Feudal societies were about the ability control fealty, especially of militarily capable men. And so on, you can analyze most societies this way.
This breaks down in three circumstances: when the society selects people who don’t respond how they are supposed to (late Communist leaders not believing in Communism); where leaders are incapable of running the society even if in power, or; if the basis of power changes (if military power is no longer based primarily on fealty relationships, for example).
This can, and should, be applied to capitalism.
(Read Part 1: Will Capitalism and Democracy Survive?)
The next part of this essay series will look at the question of system flaws: What systems, in particular capitalism, do badly, and which must be managed lest those flaws bring the system down.
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V. Arnold
Must we…?
bruce wilder
” . . . a capitalist society ensures its continuation by making sure those with power are those who do what a capitalist society requires: pursue money.”
I do not think this thesis is true. I think capitalism self-destructs when it does this exclusively and purely.
Feudalism faced a similar problem: a military caste of rulers pursuing personal power by perpetual pillage, warfare, and treachery was impoverishing itself. The cultures of western Europe threw up a religion of ostensible peace and a religion that included an authoritarian hierarchy, monasticism, etc. Crusades to direct warrior ambition far away, monasteries to carry on high-value manufacturing and conserve literacy, Prince-bishops and corporate cities to defend urban centers of trade, holy days when warfare was prohibited, et cetera.
For capitalism, democracy was the counterweight that made the perpetuation of capitalism possible. Too many worthwhile projects do not yield a profit and the temptations of fraud and externalizing costs are too great without restraint. For a modern political economy to work, many people have to able to ignore money incentives and still have venues to pursue ambitions and achievements. For a great business enterprise to, say, pursue pharmaceuticals and do good, there have to public restraints and constraints that prevent them from simply developing and marketing heroin and snake oil and extorting the dying.
bruce wilder
I would argue that neoliberalism, as an ideology, has undermined common understanding of the need for the countervailing power of a democratic state and vesting residual power in such a state. They seek to constrain the state instead.
Ten Bears
That graphic is extraordinarily appropriate to the discussion of the compatability of fascist or feudalist capitalism, and Democracy.
marku52
“I would argue that neoliberalism, as an ideology, has undermined common understanding of the need for the countervailing power of a democratic state and vesting residual power in such a state.”
Yes. But also moral constraints. Capitalism worked OK for many in the US when the behavior of the capitalists was constrained, considerably by moral strictures. If society looked down on a capitalist activity, you didn’t get as much of it. The triumph of neoliberalism was to remove all strictures with a simple rule-“if it makes money, do it”
Hence we get immoral thugs like Shrikelli. Or like Fastow, who was asked “What would you do if you found that a product you made was killing people?”
His answer was “Nothing until the government stops me”. Which does refer to Bruce’s point.
Hugh
An economy is just a tool to supply and sustain certain aspects of your society. In our world, this is reversed. Society serves the needs of the economy, and the economy is controlled by and for a few. It doesn’t have to be this way, but the essence of class war is to make sure it stays that way.
Capitalism is just a word, largely devoid of meaning. Whatever the current system is, as long as it serves the interests of the rich and elites, gets called capitalist. Soci*lism is also a term largely devoid of meaning, except that whatever doesn’t serve the interests of the rich and elites gets called soci*list. A curious instance of this is where I can type the first ism with no problem while if I type out the second with no asterisk the anti-spam program will throw my comment into moderation.
nihil obstet
At the risk of sounding nostalgic for the 60s, I’d say, “Political power grows out of the barrel of a gun”. Power determines money rather than the other way around. As you note, Uber and Elon Musk don’t make money. Bezos didn’t until he had created a near monopoly and then could turn that power into money. The rich move between their businesses and government to maintain the power of their businesses.
Downsizing, offshoring, asset looting, all cost more through inefficiencies than the status quo would have. The early examples may have created the temporary illusion of increased profits but those quickly evaporated. Employees’ long work hours and showing up at the workplace sick are counterproductive. Owners and managers engage in these practices to exert power over their employees and within their societies. Power is the point.
Money is the mask for the rulers. People submit because they believe, “You’re not being ruled by men — you’re freely seeking your own self-interest and/or practicing self reliance!”
The history of capitalist colonization and subsequent globalization exhibits the same relationship between money and power — it’s taken the troops and the coups to control the resources of the weaker countries, just as it took troops to keep the workers in line until the Russian revolution scared the capitalists enough to allow some carefully circumscribed unionization.
Your statement about other economic systems — Power got you money more than money got you power. — is, I think, also true of capitalism (nobody’s paying me $400k a speech), except that capitalists have dropped any other rationale for power, since they pretend it’s not about power.
The elites’ relationship to the people differs in the different systems, but I’m having trouble figuring out how the possession of power differs, and what it all means in terms of how power is used. How power is used is at the heart of the question about capitalism and democracy.
Peter
@BruceW
It’s clear that western capitalists helped the spread of representative democracy around the world for their own benefit and protection. What isn’t so clear is why the Chinese with their authoritarian one party state have done so well by adopting a market economy with deregulation and privatization driving their manufacturing and exports. They have suffered through huge and dangerous corruption scandals but they seem able to prosecute and execute some of their scoundrels.
I think the globalists in the west may be more attracted to the efficient Chinese model for their NWO.
Mel
The useful bit of the modern market decentralizes millions of decisions that have to be made, but are messy to make. How may shoelaces does society need? How many toothpicks with plastic pom-poms for club sandwiches? You’d go mad trying to make all those decisions yourself, but somebody did make them. Even in China.
We tend to notice these decisions only when they turn evil, and people take nasty actions behind the market’s hiding of responsibility.
bruce wilder
@ Peter re: China
China’s rapid development has been driven by “adopting a market economy with deregulation and privatization driving their manufacturing and exports.” ??!?
I do not think that is a particularly accurate or incisive short description. As Ian says, it would not be easy to establish and maintain an aggressively socialist deviant political economy in our neoliberal world system, and just so, China elected not to try to resist so much as to make the capitalists an offer on its own terms that would nevertheless be hard to resist. What Ricardo did not tell you about international trade is how hard it is to beat the advanced incumbent economies. The naive idea is that the advantage in international trade is driven by wage rates: low-wage countries attract greedy capitalist manufacturers with their factories full of machinery, which can be operated cheaply by low-wage workers. Ditto for environmental protection. But, the efficiencies of an advanced economy are in its infrastructure and social system and educational level and general level of ethics. A long assembly line is a fragile and delicate system — it does not tolerate errors. In the early days, China was a very expensive place to manufacture to modern standards by high tech means. Nothing worked reliably. Electricity would go out. Water would not be clean or soft. Imported parts would not arrive on time. Repairs and routine services were hard to solicit locally. Transport was chancy . The quality of locally sourced services, parts and materials was unreliable because vendors either did not understand or did not respect the specifications.
The market economy, as I keep saying, consists not of markets, but hierarchy. Its efficiency lies in being able to control and limit variation and therefore error and waste, by telling people what to do and having them do it accurately and in intricately coordinated fashion. The fuel and lubricants for getting the social machinery of hierarchy up and running is money and finance. It has to be predictably profitable to make the capital investment to overcome the problems and train the system.
China made a financial deal with the capitalist devil. It was not the deal the neoliberals typically want, in which by means of bad loans and direct foreign investment with legal immunities, the foreign capitalists own everything worth owning in a country impoverished by its “development”. But, it was a deal in which investment in manufacturing in China was predictably profitable, despite the problems to be overcome by that investment. Mostly, Chinese policy does not permit foreign ownership inside China and the Chinese have been deliberately building multinationals of their own, capable of capturing, eventually, the large economic rents multinationals typically command. But, China made it very profitable to include China in Western supply chains.
And, in the meantime, the authoritarian Chinese state marshalled resources to build the social and physical infrastructure of a modern economy, overcoming many of the obstacles to efficiency and productivity. The bureaucracy of China is on a mission. That sense of mission is a critical element in overcoming the tendencies to corruption and arbitrary rule that typically undermine bureaucratic efforts.
Low-wages play their part, in that the price level inside China is a strategic lever of the global financial strategy, as has been encouraging a fantastic level of household savings. That savings glut played an important role in driving the U.S. housing bubble and the GFC of 2008. Disinvestment from U.S. manufacturing, out-sourcing, the rusting of the Rust Belt that defeated Hillary Clinton — these are mirrors of China’s strategy.
The globalists can not be attracted to China’s model, at least not in the sense of imitating it, because they are already an integral part of it.
Sid Finster
AFAIK, in medieval times, wars were large fought using mercenaries.
That is why relatively small mercantile Italian city-states were so powerful, relative to their populations. For that matter, the Medicis get their start as pawnbrokers; their coat of arms even included the pawnbroker’s three balls.
So yes, money could buy you military power back then.
Peter
@BruceW
The globalists may share their economic model with China but it’s the authoritarian political/technocrat model they may desire for the NWO. They are experiencing strong push-back from representative national governments in Europe and the US. Their attempts to supersede national governments with the TPP and the Paris Accords have failed just when their power seemed unstoppable.
The Trump administration seems to be moving to address the China problem along with encouragement from his populist/nationalist base. Bannon now has Kissinger involved with this critical agenda. China has strip-mined the US, with US help, first removing much of our manufacturing base, then the scrap metal mined from the rust belt and now they are stripping away at our technology with mandated transfers for US business in China.
The globalists see this trend as positive weakening the US to make it easier to subdue for their agendas. I think they believe they can also subdue the Chinese under their technocratic rule but the Chinese are no more likely to submit than are many western nationalists capitalists who support the idea of freedom.
Stirling Newberry
“Money is just the way of keeping score.”
Ten Bears
True Free Market Capitalism, like true one voice one vote Democracy, is Anarchy.