The relentless revolution: a history of capitalism (15 page)

Slowly receding was the world of scarcity, where the country’s labor and resources were committed to replacing one year’s consumption with another year’s production. There was still widespread suffering from wants of many kinds. One respected expert, writing at the end of the seventeenth century, conjectured that half the English population required assistance to get through each year, having to rely on the countrywide tax-supported system of relief.
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In no way generous, outdoor relief did make it easier for innovating employers to fire or displace workers since local governments had in place ways to provide for those in want.

Soon those watching the novel phenomenon of economic development put into circulation descriptions of how people behaved in their market transactions. They started to depict men and women as having an inherent disposition toward the producing, selling, and buying that drove the market’s expansion. These observations, scattered in pamphlets, how-to books, broadsides, and learned tomes, many of them written by such luminaries as John Locke, Isaac Newton, and Daniel Defoe, converged on the universal appeal of making money. The initiatives of ordinary people, such as floating a meadow to gain a head start on spring planting or carrying locally made cheese to a distant market, mattered most. This no longer appeared as peculiar conduct; being responsive in their commercial dealings was treated as a newly discovered human capacity. Even as sober a witness of the human scene as Locke indulged in a futuristic fantasy when he wrote that if everyone worked, the world’s work could be done routinely in half a day.
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Every piece of advice about exchange rates, wages, rents, and account balances called on new notions about how men and women reacted to choice. Instead of human impulsiveness, these observers of England’s pulsating economic rhythms began to describe participants as calculating costs and weighing benefits. After several decades of such observations, a preponderance of commentators came to believe that there was a uniform response from market bargainers. People could be counted on because they counted their interests. By the mid-eighteenth century Samuel Johnson could casually comment that “there are few ways in which a man can be more innocently employed than in getting money.”
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A decisive cultural shift had clicked into place.

At the end of the eighteenth century, the intellectual effort to understand the phenomenon of capitalism found its Aristotle in Adam Smith, whose
An Inquiry into the Nature and Causes of the Wealth of Nations
appeared in 1776. Smith presented a brilliantly detailed explanation of the causes of the unparalleled wealth in Great Britain. (After the Scottish and English crowns were joined in 1706, England was called Great Britain or the United Kingdom.) Building on the new conception of human beings as responsibly pursuing their own interest, he advocated a system of “natural liberty” because he thought that the “invisible hand” of the market would function better if left free of most regulation.

With few opportunities to choose among options, men and women had appeared as fickle, impulsive, and given over to their passions. From the Christian point of view, they were also bathed in sin. With such a picture of human nature, it would have been a form of madness to leave them free to do as they wished with their resources. The new truths about how people behaved in their market transactions underpinned Smith’s recommendations. Smith himself seemed unaware that his immediate predecessors had dramatically upgraded human nature while observing the new market economy. The ideas had been around long enough for him to take them for granted. More significantly, these new assertions had acquired the status of universal truths, something Edmund Burke affirmed when he wrote Smith that “a theory like yours founded on the nature of man, which is always the same will last, when those that are founded on his opinions, which are always changing, will and must be forgotten.”
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What a seductive idea: an invariant human nature.

In England all this was played out in the public arena, where pamphlets were written, speeches reported, and disputes advertised with a significant proportion of the population attentive. The country had become highly homogenous during the course of the seventeenth century. It had one monarch, one language, one established church, a single legal system, and a vigorous press. As local farmers and artisans had moved in ever-wider circles, a national market emerged. London itself best expressed England’s unity. With more than half a million inhabitants in 1690, it was Europe’s largest city and still growing rapidly. Some 10 percent of the five million English people lived in London.

The pattern of London’s growth contains some fascinating features. With a high mortality rate, it required at least eight thousand outsiders moving in annually to sustain its growth. Since mobility was highest among the unmarried, we can presume that most of the men and women who came from other towns, villages, and hamlets were young. This churning through England’s metropolitan center had a countrywide effect. One scholar has calculated that more than one-sixth of the English had lived in London sometime in their lives. Coming into contact with London—the seat of government, matrix of enterprise, and center of public sociability—spread ideas, cultivated tastes, and stimulated wants.
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The debate over economic change might have remained an elite affair had not the Civil War with its ferocious battles over religion widened the catch basin of readers and discussants. The religious dissensions of the sixteenth and seventeenth centuries had spawned a large and diverse group of writers. The English were getting used to public discord. Like other European societies, a censorship system was in place, but unlike them, it was rarely enforced. Economic tracts were not particularly censorable anyway. What was important was the existence of many writers and even more readers accustomed to getting involved in public discussions. The settlement of the seventeenth-century political discord gave England a constitutional monarchy. All English persons received important guarantees for their person and property in the pathbreaking Bill of Rights of 1689. The licensing law through which publications could be censored was allowed to lapse, and the Bank of England was founded. The first promoted the circulation of ideas, and the second the circulation of money, both lubricants of innovation. Equally important, a new upper class with a mainly progressive attitude toward economic development solidified its power.

England came out of its “century of revolution” with significant economic and political gains. The century began with a king who believed he had a “divine right” to rule and ended with a constitutional arrangement that placed sovereignty in the balanced power of king and Parliament. Although the upper class longed for stability, it could not suppress the strong antiauthoritarian strand that now entered popular culture. Awe of authority had greatly diminished during the past three generations. Just think of this remarkable set of novelties: a king who got his crown only by giving his subjects a bill of rights, an aristocracy whose members showed a decided interest in commerce, entrepreneurs who expanded the realm of enterprise, young people who moved about the country with ease, and a capital that vibrated with contentious conviviality. Reviewing this is not to praise the English, but to point out the social environment necessary to enable capitalists to push aside a venerable social order.

The novelty of all these novelties tested people’s capacity to understand the invisible force in their lives. References to the spirited debates about commerce and money in England appear only obliquely in most studies of capitalism. For instance, in comparisons of China and England, scholars rarely give any attention to the public discussions that economic change provoked in seventeenth-century England. The Netherlands fostered freedom of expression and actually printed more books than the English, but Dutch publications on economic topics were rare and usually issued by the government. Elsewhere in Europe vigorous censorship stifled the emergence of a reading and talking public. Everywhere there was fear of disorder.

The hustle and bustle of profit-directed enterprise were not congruent with the aristocratic emphasis on taste and leisure, what Edmund Burke called “the unbought grace of life.” The aristocratic ethic that dominated European societies—indeed societies all over the globe—looked unkindly on unmannerly striving. Napoleon Bonaparte was not complimenting England in the early nineteenth century when he called it “a nation of shopkeepers.” It took persuasive advocates to make capitalism acceptable, even tolerable. Only in England did entrepreneurial advocates make their case persistently and publicly. The intensification of trade triggered a public discussion that led to fresh ways to imagine the economy. The effects of these English debates about the economy were intellectual and moral. They had to do with comprehension and analysis, critiques, and arguments, but they forced the disputants and their audience to rethink fundamental values.

Self-interest drove most authors to take up their pens. Changes in economic life had unsettled lots of people. Those who lost out were quick to complain about the innovations while the successful innovators wrote to point out why the novelties were good for the country. Tracts written by manufacturers coalesced around prescriptions for disciplining employees. Trading companies—particularly the English East India Company—hired writers to defend practices that went against conventional wisdom, like exporting bullion. Agricultural reformers published advice books. Interlopers in established trades urged the liberation of economic endeavor in their pamphlets. A few statesmen entered the fray to provide a bigger picture of what was going on. This serious and sustained examination of private enterprise led to a reconceptualization of economic matters. Such factors are too elusive to be quantified, but they were absolutely crucial to whether or not English institutions adjusted peacefully to the dynamics of capitalism. In pitting the private against the public and the personal against the moral, economic writers had to create a new ethic.

Assessing Employers’ Responsibility to Their Workers

In 1994 the World Bank held its annual meeting in Madrid. Spain’s most popular radio personality, Iñaki Gabilondo, in a rather perverse gesture, sent a reporter out to find out what the men and women waiting outside a church for a free Christmas dinner thought of the gathering of financiers in their city. They greeted the interviewer’s introductory question with derisive laughter. When he convinced them of the seriousness of his interest in their views, these recipients of free food eagerly ventured their opinions about the country’s economic needs. Not surprisingly, the consensus was that companies should spend some of their profits to provide jobs for those, like them, who were down on their luck. And if they didn’t do so voluntarily, the government should step in to give a hand to those who relied upon the business plans of the wealthy for their daily bread.
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Without realizing it, these Spanish mendicants put their finger on one of the oldest controversies in the history of capitalism: whether employers bore any responsibility toward their employees when they could no longer profit from their labor. Should they be able to dismiss them, like “fair-weather friends,” when demand for the things that they produced had collapsed. In one form or another—think outsourcing today—this question has continued to pop up as economic initiatives first challenged, then rendered obsolete laws designed to make employers the protectors of their workers. For monarchs, the problem was particularly acute, for kings looked upon all their subjects as arrayed in a hierarchy of dependency in a commonwealth entrusted to them.

The issue got sustained attention in the 1620s, when English clothiers suffered from the effects of a glut of cloth in Europe. The expansion of English woolen exports in the previous decades had created employment for an increasing number of families. They represented a new category of workers whose jobs arose from international trade. The impulse of the clothiers was to stop making cloth until the market turned up again. This appalled contemporaries. People were used to dire consequences from bad weather, but the distress caused by market downturns seemed different, even if the suffering was the same. What could be tolerated from nature appeared intolerable as an employer’s choice. From the standpoint of those officials charged with keeping order, the employers’ antisocial response undermined the well-off’s moral obligation to care for the sick, the weak, and the poor. The clothiers, wishing to conserve their capital, argued that retrenching for the present was the wisest course of action. If they spent it charitably now, there would be no stock to invest when the market turned up. At first the royal government responded positively to the poor’s demand for protection, committed as it was to the subordination of private concerns to the well-being of the whole.

The issue didn’t go away. A downturn in trade in the early seventeenth century stirred debate anew and led to a different outcome. This time the trade glut coincided with coin shortages and erratic exchange rates that plunged the country into a depression. Things got so bad that the king appointed a committee of merchants to study the situation. Its reports were subsequently published. The extent of the decay of trade discouraged the normal search for local bogeys or simple causes. Quite unexpectedly, the English government declined to restrain the clothiers. This was the most enduring consequence of this debate; henceforth the king and his advisers ceased thinking of turning back to a more contained economy in order to prevent the social disruptions that the ups and downs of international commerce caused.
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Out of the debate came a brilliant piece of economic reasoning from Thomas Mun, a major figure in the English East India Company. Mun broke free from thinking about the economy as a system directed by political rulers for social purposes. He argued persuasively that nothing the English authorities could do would bring back prosperity because buying and selling or sending coin abroad followed the transactions of private traders, not government fiat. Mun produced a model of trade as a coherent system of impersonal and largely autonomous interactions. England would get more specie solely if it sold more than it bought, he said. With a lovely flourish, he drove home his point: “Let the mere exchanger do his worst; let princes oppress, lawyers extort, usurers bite, prodigals waste…so much treasure only will be brought in or carried out of a commonwealth, as the foreign trade does over or under balance in value.” And then he picked up his pen to add a bold assertion: “And this must come to pass by a necessity beyond all resistance.”
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We’re used to believing in inexorable economic laws, but in 1621, when Mun wrote this, he was proclaiming that the economy was not under the control of the sovereign and hence not amenable to social demands.