The relentless revolution: a history of capitalism (17 page)

Demystifying money had been one of the intellectual goals of Thomas Mun’s pamphlets, but it wasn’t an easy job, for it went against a powerful hoarding instinct. It flouted the widely held belief that the whole point of foreign trade was to amass bullion. How could England benefit from reducing its stock of gold and silver? Since domestic consumption took from the store of English capital, how could it be healthy for the kingdom? Better to sell English goods to foreigners and take in their gold. In the regime of scarcity that had long prevailed, this made sense. Given traditional consumption patterns, it probably was better to hoard than to spend. The nobility and gentry were extravagant, and the poor spent just to keep body and soul together. Neither contributed to the kingdom’s wealth. But with new consumers buying new goods, wealth could be created at home. Money and goods were fungible. Sometimes people wanted money, and sometimes products. Societies were no different.

The balance of trade explanation of how nations grow wealthy had highlighted production and left in the shadows the role of consumption. Its verities were challenged when the maverick spirit of fashion revealed its power to change behavior. The English East India Company set off a nationwide craze for printed calicoes when it began bringing in cheap Indian cottons. By 1690 the taste for chintz, calico, and muslin had reached epidemic proportions. What began as an inconspicuous use of cotton for suit linings gave way to a craze for printed draperies, bedspreads, tapestries, shirts, and dresses.
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The names of the new fabrics betray their origins: “Calico” is a city in India; “chintz” is Hindu for “variegated” “seersucker” comes from the Persian word for “striped” and “gingham” is Malayan for “striped.” After generations of confinement in wool and linen clothing, the English public went wild for the new colors, designs, and textures. Even more important, delight in the new fabrics slid quickly down the social ladder, placing workingmen and women in a new light as consumers. But therein lay the rub. If people bought cottons, they would scale back on their purchases of wool and linen, the mainstays of the English cloth industry. The East India Company dispatched English artisans to show Indian textile makers how to design patterns to English tastes, while the clothiers worked at home with some success to get the government to ban the import of most Indian fabrics.

It was evident to all eyes that the colorful Indian fabrics adorned the bodies of servant girls as well as their mistresses. Under the sway of new consuming tastes, people spent more and somehow found the means to do so. Suddenly the commercial importance of the domestic market hove into sight. The elasticity of demand, as the economists would say, became apparent. Emulation, love of luxury, vanity, or just a taste for beautiful things began to look like positive human drives—at least for the economy—because they got people to work more so that they could spend more. Considering the susceptibility of young people to trends and their bulging numbers in London, their consumption pushed in new directions that would fully flower with industrialization.
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It was exactly this spectacular display of new consuming tastes that had triggered a positive discussion of the role of consumption in economic development. In retaliation, the clothiers did not hesitate to evoke the old balance of trade theory with its zero-sum pie assumption about world wealth and its “beggar thy neighbor” policy prescriptions. They stressed the difference between individual consumers’ preferences and the good of the whole economy.

One effusive observer of the new taste in Indian cottons dwelt on the fact that man’s “wants increase with his wishes, which is for everything that is rare, can gratify his senses, adorn his body, and promise the ease, pleasure, and pomp of life.” Another pamphleteer, taking issue with those who lamented the popularity of imported luxuries like East Indian calicoes maintained that they were not the source of sin but rather “true Spurs to Virtue, Valour and the Elevation of the mind, as well as the just rewards of Industry.”
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Biblical injunctions against the love of luxury were being overlaid with a secular enthusiasm for economic development.

Defenders of the East India Company came to the fore with explanations of why domestic consumption benefited the nation in contradiction to mercantilist ideas about saving at home and selling abroad. “The main spur to trade [English writers like metaphors about horseback riding], or rather to Industry and ingenuity, is the exorbitant appetite of men, which they will take pain to gratify, and so be disposed to work, when nothing else will incline them to it, for did men content themselves with bare necessaries, we should have a poor world.”
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The advocates of free enterprise were in the vanguard when they circulated these opinions. Undergirding them was the dawning realization that entrepreneurs could make money from laborers if they could change their habits and get them to earn more by working more regularly. This kind of optimism went against the grain of conventional upper-class ideas about ordinary people and their bad habits. Countering these assumptions was very much in the interest of the East India Company, which exported bullion and imported goods for domestic consumption.

Enthusiasm for spending may sound like an anticipation of Madison Avenue rhetoric, but it was a message carrying a potent association of desire and discipline. When men and women wanted something enough, they would work harder to get it. This notion led some writers to the conclusion that if wages were higher, then the poor could spend more on clothes and furnishings and thereby increase the consumption of the very goods that they manufactured. These observations suggested that consumption might actually fuel economic development, a truly radical idea for the time. Members of the elite had looked down on the poor for too long not to resist these assertions about their newly discovered capacity to stimulate the economy. After all, thinking that ordinary men and women were wayward, idle, and crude had long justified the social control of the lower classes by their social superiors.

In fact Englishmen and women earned much higher wages in 1700 than laborers in the rest of Europe and around the world. They also ate better. A study of the average caloric intake of eighteenth century Europeans showed that England alone was able to feed 80 percent of its people enough food so that they could put in a full working day.
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Contemporaries were not inaccurate when they described an urban scene of well-fed people, bulging shopwindows, and bustling workaday comings and goings. England had a large and growing working class capable of buying the new crockery, calicoes, cutlery, and cheap printed pictures now available to them. This large body of domestic consumers fueled England’s commercial expansion and a richly elaborated material culture dependent upon the market.

Ordinary men had created the infrastructure for a national market. Overseas trade linked this internal commerce to an expanding world trade. New attachments to objects, a raging delight in novelties, and the pleasures of urban sociability bespoke a deep engagement with the material world that made spending seem more beneficial to the economy than did parsimony. Average wages had gone up because men and women were moving out of low-paid farm work. They were also working more hours a week, evidence of demand for their labor. The number of feast days celebrated as holidays dropped considerably, while the old favorite of workingmen, the irreverently named St. Monday devoted to sobering up from weekend drinking, yielded to the desire for higher wages.
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During the eighteenth century the average number of workdays moved from 250 to 300.

The popularity of cheap-priced cottons alarmed woolen manufacturers, who used the balance of trade theory to explain what was wrong with spending good English coin on fancy Indian chintzes. They had long banked on the depiction of the economy as a kind of giant joint-stock trading company that worked cooperatively to lay up a hoard of bullion. When the conflict of interests between manufacturers and merchants came out in the open, the quality of analysis improved. A slew of pamphleteers mocked the stupidity of mercantilist notions. Defenders of the East India Company pointed out that any law that restricted the English to purchasing domestic goods would force them to pay more than necessary for their needs. Consumers’ having rights was a totally novel idea, at odds with conventional wisdom. Soon some reconceived the economy as an aggregation of self-interested men and women who were both producers and consumers. Commonplace to us, these comments were extremely radical because they undermined the aristocratic conviction that there was an enormous, unbridgeable chasm between ordinary people and themselves.

The idea of men and women as consuming animals with boundless appetites capable of driving the economy to new levels of prosperity excited the imagination of dozens of writers, but they were entrepreneurs, not moralists. The proposition that the wealth of nations began with stimulating wants rather than with organizing production robbed intrusive social legislation of a supporting rationale. Once advocacy of freeing trade became attached to a new explanation of economic growth, the earlier commercial wisdom of carefully managing trade to ensure high prices came under challenge, a century before Adam Smith’s explanation of why freedom was better than control in matters economic.

Popular responses to fashion revealed that some demand was elastic. If demand was elastic, then growth and prosperity required attention to people’s tastes and desires. Even the wastrel was saluted as a benefactor to society, for if he personally went bankrupt, his spending helped others, as could not be said about the miser. Going behind the new tastes, writers began to explore the human motives regulating personal spending and discovered a human dynamic and a market mechanism that undermined the static, bullion-oriented mercantilist view. The promoters of free trade wrote rhapsodically about the pleasures of shopping with a “the more the merrier” inclusiveness. But it must be noted that unlike the impulsive creatures who peopled Shakespeare’s plays, the new English consumers had to discipline themselves to hard work before they could enjoy their fancies. Then appeals to desire would replace the need for restraint and vigilance. In just these many ways did capitalism bore away at an age-old social ethic.

In the eighteenth century writers began talking about human nature, a term that had recently been coined. “Everyone from the peasant to king is a merchant,” said one commentator. This was social promotion rather than social leveling, for evidence of new spending habits gave the laboring class a boost toward importance, long denied them. Society was used to rewarding people according to merit and inherited status. Accepting, even admiring the market’s rewards meant going along with an impersonal system that operated through the collective actions of egocentric participants. It would take a long time before the old belief in natural inequality yielded to a commitment to equality, but the first steps were being taken at the end of the seventeenth century.

A Crisis in English Currency

Another breakthrough in English thinking about economics came in a crisis over money. Of all the novel elements in the new world of enterprise and exchange, none caused more headaches than money. A lot of diverse meanings crowd into that word. Money had always been a store of wealth, but now it had become the lubricator of distant market exchanges. Money was also cash, the means of instant gratification. And money was—well—money—that is, gold and silver minted into legal tender with the imprimatur of a monarch’s guarantee of amount and purity.

Thinking about money can cause vertigo. For instance, it’s confusing to keep in mind that gold and silver had a value that differed from the value of gold and silver after it had been turned into coin. In England the mint ratio—that is, the face value or denomination of a certain quantity of silver—was too low. Silver in coins was undervalued. This created an incentive to melt them down and export the silver to Europe to receive a higher price as bullion. Exporting English coin was illegal, but it was widely recognized as a common, if felonious, practice. This created a shortage of coin. It came at a bad time, for the government was at war with France and needed to send regular shipments of money to the Continent to pay soldiers’ wages and buy supplies for England’s allies.

The enhanced value of silver abroad promoted a further fraud. Some scofflaws discovered that they could clip off the edges of their hammered silver shillings, melt down the clippings, and send the silver abroad to sell while passing off the shillings to others. Strangely, clipped coins circulated as easily as shillings as unclipped ones, which made little sense. As the gravity of the shortage became more severe, attention focused upon the money mechanism itself. How was this slippery medium of exchange to be corralled if it wasn’t understood in the first place?

In 1695 the king’s ministers addressed the twin problems of the shortage of coin and the battered condition of the remaining silver shillings. They sought the advice of the treasury secretary, who composed a report that was a model of monetary analysis. As long as bullion was worth more by weight than coin, silver in bulk would never be brought to the mint for coining, he told them. It would be like bringing a one-pound chicken to a store to be turned into a halfpound package of chicken parts. Rather the opposite would take place: Coin would be melted down and shipped out as bullion, illegalities notwithstanding. The problem of the clipped coins presented a different problem. After decades of clipping, the coins themselves contained a lot less silver than they were supposed to have. A new milling process could give the coins fluted, unclippable edges, so the treasury secretary recommended reminting all the silver coinage circulating in England with 25 percent less silver, which would mirror the actual value of most shillings in circulation at the time.