The Invention of Capitalism
Above photo: Happy Faces of Productivity.
How A Self-Sufficient Peasantry Was Whipped Into Industrial Wage Slaves.
“…everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious.”
—Arthur Young; 1771
Our popular economic wisdom says that capitalism equals freedom and free societies, right? Well, if you ever suspected that the logic is full of shit, then I’d recommend checking a book called The Invention of Capitalism, written by an economic historian named Michael Perelmen, who’s been exiled to Chico State, a redneck college in rural California, for his lack of freemarket friendliness. And Perelman has been putting his time in exile to damn good use, digging deep into the works and correspondence of Adam Smith and his contemporaries to write a history of the creation of capitalism that goes beyond superficial The Wealth of Nations fairy tale and straight to the source, allowing you to read the early capitalists, economists, philosophers, clergymen and statesmen in their own words. And it ain’t pretty.
One thing that the historical record makes obviously clear is that Adam Smith and his laissez-faire buddies were a bunch of closet-case statists, who needed brutal government policies to whip the English peasantry into a good capitalistic workforce willing to accept wage slavery.
Francis Hutcheson, from whom Adam Smith learned all about the virtue of natural liberty, wrote: ”it is the one great design of civil laws to strengthen by political sanctions the several laws of nature. … The populace needs to be taught, and engaged by laws, into the best methods of managing their own affairs and exercising mechanic art.”
Yep, despite what you might have learned, the transition to a capitalistic society did not happen naturally or smoothly. See, English peasants didn’t want to give up their rural communal lifestyle, leave their land and go work for below-subsistence wages in shitty, dangerous factories being set up by a new, rich class of landowning capitalists. And for good reason, too. Using Adam Smith’s own estimates of factory wages being paid at the time in Scotland, a factory-peasant would have to toil for more than three days to buy a pair of commercially produced shoes. Or they could make their own traditional brogues using their own leather in a matter of hours, and spend the rest of the time getting wasted on ale. It’s really not much of a choice, is it?
But in order for capitalism to work, capitalists needed a pool of cheap, surplus labor. So what to do? Call in the National Guard!
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.
This pamphlet from the time captures the general attitude towards successful, self-sufficient peasant farmers:
The possession of a cow or two, with a hog, and a few geese, naturally exalts the peasant. . . . In sauntering after his cattle, he acquires a habit of indolence. Quarter, half, and occasionally whole days, are imperceptibly lost. Day labour becomes disgusting; the aversion in- creases by indulgence. And at length the sale of a half-fed calf, or hog, furnishes the means of adding intemperance to idleness.
While another pamphleteer wrote:
Nor can I conceive a greater curse upon a body of people, than to be thrown upon a spot of land, where the productions for subsistence and food were, in great measure, spontaneous, and the climate required or admitted little care for raiment or covering.
John Bellers, a Quaker “philanthropist” and economic thinker saw independent peasants as a hindrance to his plan of forcing poor people into prison-factories, where they would live, work and produce a profit of 45% for aristocratic owners:
“Our Forests and great Commons (make the Poor that are upon them too much like the Indians) being a hindrance to Industry, and are Nurseries of Idleness and Insolence.”
Daniel Defoe, the novelist and trader, noted that in the Scottish Highlands “people were extremely well furnished with provisions. … venison exceedingly plentiful, and at all seasons, young or old, which they kill with their guns whenever they find it.’’
To Thomas Pennant, a botanist, this self-sufficiency was ruining a perfectly good peasant population:
“The manners of the native Highlanders may be expressed in these words: indolent to a high degree, unless roused to war, or any animating amusement.”
If having a full belly and productive land was the problem, then the solution to whipping these lazy bums into shape was obvious: kick ‘em off the land and let em starve.
Arthur Young, a popular writer and economic thinker respected by John Stuart Mill, wrote in 1771: “everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious.” Sir William Temple, a politician and Jonathan Swift’s boss, agreed, and suggested that food be taxed as much as possible to prevent the working class from a life of “sloth and debauchery.”
Temple also advocated putting four-year-old kids to work in the factories, writing ‘‘for by these means, we hope that the rising generation will be so habituated to constant employment that it would at length prove agreeable and entertaining to them.’’ Some thought that four was already too old. According to Perelmen, “John Locke, often seen as a philosopher of liberty, called for the commencement of work at the ripe age of three.” Child labor also excited Defoe, who was joyed at the prospect that “children after four or five years of age…could every one earn their own bread.’’ But that’s getting off topic…
Even David Hume, that great humanist, hailed poverty and hunger as positive experiences for the lower classes, and even blamed the “poverty” of France on its good weather and fertile soil:
“‘Tis always observed, in years of scarcity, if it be not extreme, that the poor labour more, and really live better.”
Reverend Joseph Townsend believed that restricting food was the way to go:
“[Direct] legal constraint [to labor] . . . is attended with too much trouble, violence, and noise, . . . whereas hunger is not only a peaceable, silent, unremitted pressure, but as the most natural motive to industry, it calls forth the most powerful exertions. . . . Hunger will tame the fiercest animals, it will teach decency and civility, obedience and subjugation to the most brutish, the most obstinate, and the most perverse.”
Patrick Colquhoun, a merchant who set up England’s first private “preventative police“ force to prevent dock workers from supplementing their meager wages with stolen goods, provided what may be the most lucid explanation of how hunger and poverty correlate to productivity and wealth creation:
Poverty is that state and condition in society where the individual has no surplus labour in store, or, in other words, no property or means of subsistence but what is derived from the constant exercise of industry in the various occupations of life. Poverty is therefore a most necessary and indispensable ingredient in society, without which nations and communities could not exist in a state of civilization. It is the lot of man. It is the source of wealth, since without poverty, there could be no labour; there could be no riches, no refinement, no comfort, and no benefit to those who may be possessed of wealth.
Colquhoun’s summary is so on the money, it has to be repeated. Because what was true for English peasants is still just as true for us:
“Poverty is therefore a most necessary and indispensable ingredient in society…It is the source of wealth, since without poverty, there could be no labour; there could be no riches, no refinement, no comfort, and no benefit to those who may be possessed of wealth.”
Economic Power Has To Be Universally Distributed
While in the beginning of the Industrial Revolution, capital owners needed massive manpower to build a growth economy, poverty a not a necessary and indispensable ingredient in society as we can structure our institutions to empower EVERY child, woman, and man to become productive and financially self-reliant without “slave labor.”
Binary economics and democratic capitalism, or what could be termed economic personalism, is founded on the principal that economic power has to be universally distributed amongst individual citizens and never allowed to concentrate. It is a value system based on the importance and dignity of every human person. The “pursuit of happiness” phrase in the Declaration of Independence was interchangeable in those times with the word “property.” The original phrasing was “the right to life, liberty and property.” “The pursuit of happiness” phrase was a substitute for the “property” phrase. In the forerunner of the Declaration of Independence and Bill of Rights, the 1776 Virginia Declaration of Rights declared that securing “Life, Liberty, with the means of acquiring and possessing Property” is the highest purpose for which any just government is formed. Democratizing economic power will return us to the innocence and economic power diffusion we had in a pre-industrial society where labor was the principal factor in the creation of wealth.
In simple terms, binary economics recognizes that there are two independent factors of production: humans (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and non-human capital (land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like which are owned by people individually or in association with others). Fundamentally, economic value is created through human and non-human contributions. NOTE, real physical productive capital isn’t money; it is measured in money (financial capital), but it is really producing power and earning power through ownership of the non-human factor of production. Financial capital, such as stocks and bonds, is just an ownership claim on the productive power of real capital. In the law, property is the bundle of rights that determines one’s relationship to things. As Kelso and binary economist Patricia Hetter put it, “Money is not a part of the visible sector of the economy; people do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector.”
The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services in order to generate profits and thus return on investment (ROI).
Over the past century there has been an ever-accelerating shift to productive capital — which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 239 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advances amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.
People invented “tools” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive — the core function of technological invention and innovation. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”
Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Kelso postulated that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the economy.