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.6
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.7
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.”8 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.
Mun’s writings contributed to the popularity of the balance of trade theory, the so-called mercantilist idea that a country’s wealth came from being a better seller than a buyer. Actually Mun was making the more important point that money passively followed the exchange of goods through the circuitous channels laid out by the settling of trade accounts in international commerce. He didn’t aim to explain the benefits of a favorable balance of trade but rather to scotch the paternalistic notion that a depression could be cured by official regulations of exchange rates. The mercantilist goal of achieving a favorable balance of trade, advanced by a variety of commentators, continued to dog economic discussions, even though its basic fallacies were exposed repeatedly. Primarily a political response, the obsession with England’s balancing its trade—i.e., not buying any mo
re than it sold—was cultivated by those who benefited from controlling domestic consumption.
The East India Company throve on spending at home and pushed for higher wages to enhance purchasing power. Manufacturers were concerned with exporting and wanted to keep wages down to keep their prices of goods low and competitive. The central mercantilist assumption was that the wealth of the world was a zero-sum pie. National enrichment came from getting a larger piece of the pie. Mercantilists also continued to give money a privileged place despite the obvious interchangeability of money and goods. Some form of mercantilist thinking always crept back into public discussion in times of national insecurity and economic instability and continues to do so.
Breaching the wall of paternalism in the 1620s with a ramrod of economic realism marked a significant moment in the history of capitalism. It indicated that men of commerce could persuade their social superiors—the aristocrats who sat on the king’s Privy Council—of the wisdom of their recommendations. The advisers and pamphleteers had created a public arena for discussing economic relations. Had we not the examples of Spain and Portugal, we might not stress the significance of this cooperation between entrepreneurs and members of the landed elite. The Spanish king and his noblemen had run roughshod over merchants and artisans whenever they challenged aristocratic privileges. It represents another critical difference between England and continental Europe.
Mun was a contemporary of the famous philosopher Francis Bacon, often credited with moving seventeenth-century English natural philosophy toward the science of observation and analysis. Bacon was a great believer in facts as a master teacher. Study nature, he advised his contemporaries. Test your ideas, and you will learn because nature fights back. Bacon’s bête noire was opinion—what today we might call ideology—because opinion promoted only heated conversations, never truth seeking. Empiricism gained a greater and greater hold on European imaginations, starting with Galileo’s idea about the cosmos on to Robert Boyle’s work on gases and Newton’s on gravity. Speculation about unknowable and imponderable subjects began to wither. These philosophical advances strengthened an interest in developing testable hypotheses about the economy.
Discussions of Usury
On a more practical level, getting capital into the hands of people who knew how to invest it presented a major challenge to the promoters of economic development. Lending money for repayment with interest contravened the biblical injunction against usury. A deeply rooted religious rationale impeded the free use of one’s money. Critics of commercial expansion drew heavily on the social vision embedded in the Old Testament in which money was considered sterile and could not be lent with the view of earning a return. For Jews the laws of the Pentateuch clearly evoked the goal of a Hebrew brotherhood.
The famous verses on usury in Deuteronomy explicitly denied legitimacy to the extension of credit for profit: “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury….” The Deuteronomic injunction against usury was part of a moral code that sharply distinguished between acceptable behavior toward the members of one’s community and toward outsiders. Unable to criticize commercial transactions that were hidden from public scrutiny, opponents clung tenaciously to the tie of charity binding rich to poor. They frequently quoted biblical assertions that men were properly one another’s brothers.
The Catholic Church maintained that Christ’s coming had erased the distinction between brother and other, going, as one author has described it, “from tribal brotherhood to universal otherhood.”9 Still, the laws of the Hebrew brotherhood became a part of canonical law, representing the church’s stand against an unrestricted commercial economy. As in any simple prohibition, enforcement depended upon the unambiguous nature of the crime; commercial developments in the heart of Catholic Europe in the fourteenth and fifteenth centuries had eroded many of the distinctions that separated usurious from nonusurious practices. The imaginative evasions of merchants and the casuistry employed by clerical apologists had made a simple ban against charging interest difficult to enforce.10
Protestant theologians, from Luther to Calvin, moved away from a policy of enforcing Hebrew law as positive civil laws, preferring to rely on the promptings of Christian consciences. Usury was not to be condemned in all cases. Rather charity and the Golden Rule were to guide Christians. English lawmakers vacillated. In 1488 an antiusury statute proclaimed that all usury was to be extirpated and that anyone lending money at interest should forfeit one-half of the principal sum involved. Statutes during the subsequent reigns of Henry VIII and Elizabeth established a 10 percent ceiling, which was dropped to 8 percent in James’s reign. In 1652 the maximum allowable rate was reduced to 6 percent, where it stayed for the rest of the century. By contrast, in the Muslim world, all forms of taking interest remained sinful, leading to numerous evasions. An unintended consequence of accepting usury was the transparency introduced into bookkeeping, once there was less to hide.11
Moralists made usury a symbol of all that was distasteful in the commercial world, where private gain was sought, treasure tolled, hard bargains were struck, and unlucky competitors ill used. Social and religious conservatives found in the usury issue the means to expose the dangers of a market economy. Not only was the rational pursuit of profit thus against the law of charity, but it flouted Providentialism by its implicit reliance upon self. There was a fundamental incompatibility of religion and the profit-oriented commercial activities, they asserted. In the seventeenth century, when the influence of the market became more pervasive, the issue of usury continued to draw fire from those totally antagonistic to the self-centered, calculating spirit of the entrepreneur, be he merchant, landlord, farmer, or manufacturer. Where much of the fifteenth-and sixteenth-century literature on usury had centered on the fact that money could not earn more money, economic changes weakened that line of attack. Money, as capital, had proved to be very fruitful. The enhanced productivity that followed investments in agriculture and industry justified the taking of interest to many, but this required a new line of argument.
In all this public discussion, a model of the market system, for which the Dutch provided a stimulus, was taking shape. Envy and wonder stimulated English observers to try to figure out how they might imitate the phenomenal success of the Netherlands. During the seventeenth century the Dutch extracted tons of herring from waters that washed on English shores, had the largest merchant fleet in Europe, drew into their banks Spanish gold, borrowed at the lowest interest rate, and bested all comers in the commerce of the Baltic, the Mediterranean, and the West Indies. Dutch prosperity, like Dutch land, seemed to have been created out of nothing. The inevitable contrast with Spain, the possessor of gold and silver mines now teetering on the verge of bankruptcy, only underscored the conundrum of Dutch success.
The Netherlands represented a kind of anti–fairy tale. The rags-to-riches heroes of medieval folklore invariably found pots of gold or earned fortunes through acts of valor. Elfin magicians, fairy godmothers, and subdued giants were the bestowers of great wealth. Spanish exploits in the New World had been entirely in keeping with this legendary tradition. The conquistadors had won the fabled mines of the Incas and Aztecs with their military prowess. Even the less glamorous triumphs of the Portuguese conformed to the “treasure” image of getting wealthy. Venturing into uncharted oceans, they had bravely blazed a water trail to the riches of the Orient.
The Dutch, on the other hand, had made their money in a most mundane fashion. No aura of gold and silver, perfumed woods, rare stones, aromatic spices, or luxurious fabrics attended their initial successes. Instead their broad-bottomed flyboats plied the waters of the North Sea in an endless circulation of European staples. From this inglorious foundation the industrious people of the Low Countries had turned their cities into the emporiums of the world. The Dutch were the ones to emulat
e, but to emulate was not easy, for the market economy was not a single thing but a complicated mix of human activities that seemed to sustain itself.
The first step in economic reasoning was the isolation of key variables like value, profit, and various rates from the social activities in which they were enmeshed. This step in analysis is the most difficult because it requires that we not be distracted by the lively details of the actual. In addition, seventeenth-century men and women were used to thinking of a social whole like the king and his kingdom, not of the parts that interacted within it. The Dutch can be credited with pushing English thinkers toward analysis.
Goaded by a curious mixture of jealousy and admiration, English commentators from the first to the last decade of the seventeenth century took their questions about the market to the Dutch example. It provided a means of observing the buying, selling, producing, lending, and exchanging of goods, independent of personal and political considerations that had often veiled the purely economic aspect of these acts. Sometimes just pointing to the Dutch could overturn a policy. When Parliament revoked penalties for the export of foreign coin in 1663—a restriction that had reflected the mercantilist goal of increasing the country’s bullion—the fact that the Dutch allowed specie to move freely in and out of the country without harm alone convinced the members of Parliament.
Dutch accomplishments inspired some Englishmen with a zeal for the right ordering of trade, while they prompted those with a more speculative bent to search for the secret spring of the new market economy. Analyzing the Dutch economy encouraged the creation of an abstract model of the market and hastened an appreciation of the unseen forces at work in it. With the widening of the market, uniform and known prices replaced the face-to-face bargaining of the local market. Like gravity (which Newton was to explain in 1687), aggregate demand represented power exercised from a distance, motion through a void. As the ultimate consumers moved farther and farther away from the producer, the steps linking production and consumption became more obscure and more in need of clarification. The predominance of foreign trade in the Dutch economy made these links accessible for investigation.
The relentless revolution: a history of capitalism Page 12