September 29, 2011

The Evolution of Capitalism

The Accoutrements of Capitalism

Most of the elements of capitalism are invented by all the

great civilizations, and are essentially in place by 1650 C.E.

Checks (bills of exchange) are first used in India,

during the Mauryan Period (320-185 B.C.E.).

Capital stocks are invented around 150 B.C.E., by the Roman Republic (508-44 B.C.E.),

as it contracts out many of its functions to publicani (societies of capitalists).

Annuities are first sold during the Middle Ages (800-1450 C.E.), in German and

Dutch cities. Medieval monasteries raise money through the sale of life annuities.

The brokerage system is initiated around 1050, by the French Government,

when it begins to regulate and trade agricultural debts on behalf of bankers.

Bonds (prestiti, forced loans to the government) are first issued

in 1157, by the Bank of Venice, to fund its war against Constantinople.

Modern banking begins in medieval and early Renaissance Italy (1350-1700),

particularly the rich cities of the north, such as Florence, Venice and Genoa.

An early form of securitization is invented around 1550, in Lombardy, as the

wealthy transform land, an illiquid asset, into cash which can be invested and grow.

Corporations come into being in 1600, in England, when the British

East India Company becomes the first joint-stock corporation.

Central Banks are initiated in 1609, by the City of Amsterdam,

when it establishes the Bank of Amsterdam, the first central bank.

Short-selling (selling borrowed securities and re-buying them later,

at a lower price) is invented in 1609, by a Dutch merchant.

Speculative mania become a regular feature of capitalism after 1637, when

the first “bubble” collapses in the Seventeen Provinces of the Low Countries.

Money in the great Civilizations

Markets, in the sense of the exchange of goods through the medium of money

[(C-M-C’) where C is a commodity, M is money, and C’ is another commodity], have

not presented a problem for civilizations. But capitalism, in the sense of profits

from money [(M-C-M’, or M-M’) where M’ is greater than M], has been a perennial

moral issue faced by all the great traditions. Modern corporations – profit-driven concentrations of wealth, privileged by governments – arise only in the Christian West.

India:

Early Vedic writers (1,500-1,000 B.C.E.) describe how the

violent enforcement of debt payments, turns humans into

commodities, and their relations into a war of one against all.

A millennium later, Kautilya (c.350-283 B.C.E.) eschews

morality and justice, claiming that, whether in peace or in war,

rulers should govern only according to their own profit.

Despite the espousal of Buddhism by Mauryan Emperor Asoka

(rules 273-232 B.C.E.), and the shift toward more gentleness which

it engenders, medieval monasteries become large concentration

of wealth (“Inexhaustible Treasuries”) by lending at high interest.

Like today’s corporations, they are intent on continual growth,

since, according to the Mahayana doctrine, genuine liberation

is not possible until the whole world embraces the Dharma.

Brahmins co-opt the issue. Between 200 B.C.E. and 400 C.E., they

write the Dharmasastra Law Codes establishing the rigid, hierarchical

caste system, in which debt vanishes and inequality is permanent.

China:

During China’s “Warring States Period” (475-221 B.C.E.), the Legalists,

represented most prominently by statesman Shang Yang (390-338 B.C.E.),

insist that, in statecraft, a ruler’s interest should be the only consideration.

After the Han Emperor Wu-Ti (rules 141-87 B.C.E.) adopts

Confucianism, the State encourages markets (C-M-C’), but prevents

the use of money to obtain more money (M-C-M’) or (M-M’).

Chinese rulers consistently refuse to form an alliance

with the would-be capitalists who seek to speculate.

After 500 C.E., Buddhism, earlier introduced from

India, takes root, and while “Inexhaustible Treasuries”

appear, they are kept under control by the Government.

Peasant rebellions, mostly against usury, are a constant

part of the landscape, and bring to power several

dynasties, such as the Han (206 B.C.E.-220 C.E.), the

Tang (618-907 C.E.), and the Sung (960-1279 C.E. ) Dynasties.

During the 15 years, 1629-1644, China has 1.8

insurrections per hour – a total of 234,185 insurrections.

Islamic Societies:

Hebrew Prophet Nehemiah, writing around 425 B.C.E.,

when Judah is a province of the Achaemenid (Persian) Empire

(539-332 B.C.E.), laments the pain inflicted by debt bondage.

Prophet Mohammed (570-632 C.E.) encourages commerce.

In its early years, the Abbasid Caliphate (750-1513 C.E.)

eliminates the ancient scourges of slavery, debt peonage, and

the lending of money or commodities at interest. It is the first

government in history to do so. Local bazaars become centers

of freedom and solidarity, protected from government intrusion.

Contracts are made between individuals, “with a handshake

and a glance at heaven,” and not enforced by the government.

The Islamic world does not develop any credit mechanisms

(such as credit cards) which are not mediated by relations

of trust; nor does it develop the forms of finance and

insurance later invented in Europe. Price-fixing is sacrilegious.

Profits are moral only if they are the reward for risk.

Money is nothing but a unit of measure. It does not grow.

The market is truly “free,” an extension of mutual aid.

The Christian West:

The Fourth Crusade (1202-1204 C.E.) and the conquest of the

“New World,” reveal a duality in the West’s commercial enterprises

(the gambler who gathers the wealth, and the financier who counts

it) which effectively pre-empts morality for the sake of profit.

The alliance between the government and merchants, dating

back from classical times, persists, and is joined by the Church.

In 1250, Pope Innocent IV declares the corporation to be a

persona ficta (fictive person) – a concept unique to the West.

Between 1500 and 1650, the silver flowing in from the New World,

causes massive inflation in Europe. In England, prices rise by 500

percent, while real wages fall by 60 percent. Living standards collapse,

and the rich take the opportunity to consolidate their control. They

crush the “Price Revolution,” destroy local credit systems based on

trust, enclose common lands, and insist that taxes be paid in silver.

Debtors have no choice but to become wage-laborers in factories.

Money is expected to grow. Markets are impersonal and

purely competitive. All contracts are enforced by the

government. “Self-interest” explains all human motivation.

Conclusion

All the great traditions had their would-be capitalists – the wealthy wanting

money to grow. The worst abuses were restrained, however – in India, by codifying

inequality; in China, by governments aligning themselves with the people; in Islamic

societies, by both the government and religion aligning themselves with the people.

In the West, however, restraints were weak originally, and were completely overwhelmed,

as the massive amount of silver from the New World was used by the rich to enrich

themselves. Capitalism thrived on the backs of slaves, debt peons, serfs, coolies –

and today’s sweatshop workers. The growth of money continues to be the priority.

Communists and Islamic “terrorists” – during the past 100 years, the designated

arch-enemies of the West’s corporate world – perhaps not coincidentally,

are the two groups which most threaten the West’s non-free markets.

Reference

Graeber, David. 2011. Debt – the first 5,000 years. New York, N.Y.: Melvillehouse.

Note: The conclusion of the poem reflects my own impression, written after immersing myself in Graeber’s data.

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